Annual Report 2013

The Pillars of Success

Contents (Click text below to open page link)

Financial Highlights . ................................................... . . . . . . 2
Unified Corporate Identity............................................. . . . . . . 4
Board of Directors and Shari’a Supervisory Board................. . . . . . . 6
Executive Management................................................ . . . . 16
Directors’ Report....... ................................................. . . . . 20
President & Chief Executive’s Report.. ............................... . . . . 24
Corporate Governance................................................. . . . . 57
Corporate Social Responsibility....................................... . . . . 72
Unified Shari’a Supervisory Board Report........................... . . . . 76
Independent Auditors’ Report ........................................ . . . . 78
Consolidated Financial Statements.. ................................. . . . . 79
Additional Public Disclosures.......................................... . . 136
ABG Head Office Management.. ..................................... . . 162
Al Baraka Global Network . ........................................... . . 163

Your Partner Bank

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Meaning of Al Baraka
Baraka (blessing) represents
fertility, growth and affluence.
Baraka is the unseen growth
of things; it comes from Allah
as a gift or bestowment. If Allah
has blessed the wealth, it will
grow, prosper and flourish. The
owner of that wealth will be
blessed to use it for the good
of himself, his family, and
the wider society.

Al Baraka Annual Report 2013

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Financial Highlights

2013 2012 2011 2010 2009

Earnings (US$ Millions)

Total Operating Income 909 880 730 659 634
Net Operating Income 420 422 344 316 325
Net Income 258 235 212 193 167
Net Income Attributable to Equity Holders of the Parent 145 133 118 106 92
Basic and Diluted Earnings per Share - US Cents* 13.90 12.79 11.39 10.16 8.75

Financial Position (US$ Millions)

Total Assets 20,968 19,055 17,154 15,878 13,166
Total Financing and Investments 15,355 14,319 11,818 11,391 9,431
Total Customer Accounts 17,744 16,398 14,680 13,571 10,999
Total Owners’ Equity 1,983 1,968 1,799 1,817 1,737
Equity attributable to Parent’s Shareholders 1,299 1,294 1,203 1,224 1,214

Capital (US$ Millions)

Authorised 1,500 1,500 1,500 1,500 1,500
Subscribed and Fully Paid-up 1,048.3 1,014.5 869.6 790.5 744

Profitability Ratios
Return on Average Owners’ Equity 13% 13% 12% 11% 10%
Return on Average Parent’s Shareholders’ Equity 11% 11% 10% 9% 8%
Return on Average Assets 1.3% 1.3% 1.3% 1.3% 1.4%
Operating Expenses to Operating Income 54% 52% 53% 52% 49%

Financial Position Ratios

Owners’ Equity to Total Assets 10% 10% 11% 11% 13%
Total Financing and Investments as a Multiple of Equity (times) 7.7 7.3 6.6 6.3 5.4
Liquid Assets to Total Assets 27% 25% 33% 33% 34%
Net Book Value per Share (US$)* 1.25 1.24 1.16 1.18 1.16

Other Information
Total Number of Employees 9,891 9,398 9,021 8,503 7,250
Total Number of Branches 479 425 399 370 289

* Adjusted for treasury and bonus shares.

Pages 2 & 3
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Total Assets Total Owners’ Equity Total Customer Total Financing

US$ - Millions US$ - Millions Accounts & Investment
US$ - Millions US$ - Millions

20,968

17,744

15,355
1,983
1,968

14,319
16,398
19,055

1,817

1,799

14,680
1,737
17,154

11,818
13,571

11,391
15,878

9,431
10,999
13,166

09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13

Total Operating Net Income Total Number Total Number

Income US$ - Millions of Branches of Employees
US$ - Millions
479

9,891
909

258
880

9,398
235

9,021
425
730

8,503
212

399
193

370
659
634

7,250
167

289

09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13

Al Baraka Annual Report 2013

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Unified Corporate Identity

One Vision - One Identity - One Group

Our Vision Our Mission

“We believe society needs a fair “To meet the financial needs of
and equitable financial system: communities across the world
one which rewards effort and by conducting business ethically
contributes to the development of in accordance with our beliefs,
the community” practicing the highest professional
standards and sharing the mutual
benefits with the customers, staff
and shareholders who participate in
our business success”
Early in 2009, Al Baraka Banking Group commenced the of corporate size or product range and delivery. Instead, we
methodical rollout of its new Unified Corporate Identity believe that as we build our customer relationship based
to all parts of the Group, the launch of which was well on the spirit of true partnership, our growth will be both
received by the markets. While propelling the Al Baraka inevitable and natural.
brand to the forefront of Islamic banking, and emphasising
the Group’s commitment to becoming the natural global We at Al Baraka believe that banking has, or ought to have,
leader in Islamic banking, the new corporate identity is a crucial role to play in society, one in which as bankers
also a strong symbol of the uniting of all subsidiaries we have an incredible responsibility of stewardship for the
under a single banner. Today the Al Baraka Group stands resources placed in our hands. To meet this responsibility
apart as an institution, with its own unique and unified and use these resources wisely, we rely on Shari’a principles
philosophy, regulations, procedures and corporate culture to guide us as we participate in our customers’ successes,
in place. The Unified Corporate Identity is not merely sharing in the social development of families, businesses
a cosmetic change to the logo, its aesthetics or consistency and society at large.
of colour, but goes far beyond that. It is nothing less than
an attempt to link the philosophical dimension upon which By ‘partnership’, therefore, we mean that our success
Islamic banking is based - participation and partnership and that of each of our customers are as intertwined
and the equitable sharing of risk and reward through the as our jointly held beliefs. Taking part in the joint effort
projection of a unified and modern identity. We see this is therefore our reward. We view money as a means to
re-launch of our brand as the first step on a journey, as capitalise on opportunities and create a better society for
we work towards the creation of a unified banking group all. Money becomes the conduit by which we enter into
whose many subsidiaries are focused jointly on a single new opportunities together and take part in common effort
unifying vision. for mutual reward; as steward of the resources entrusted
to us, our efforts contribute to building the community,
The unified identity has helped the Group to prioritise its both at home and in the wider world. We call this concept:
values and ambitions, raising them above the mere attainment “Beyond Banking.”

Pages 4 & 5
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Our Values
Partnership The future of our brand
Our shared beliefs create strong bonds that form the basis Al Baraka with its presence in 15 countries, can claim to
of long-term relationships with customers and staff. have a wide geographical spread extending from Indonesia
to Algeria, servicing its customers through a network of
479 branches. Our greatest strength is the enviable bond
Driven
we have with our customers. Today we have a Unified
We have the energy and perseverance it will take to make Corporate Identity that reflects the core values and the
an impact in our customers’ lives and for the greater good intrinsic strengths of the organisation. We are continuously
of society. building our capacities and strengthening our resources to
provide a fair and equitable financial system, not only in the
Neighbourly countries we operate in, but also as we reach out to other
We value and respect the communities we serve. Our doors parts of the world. Our promise “Your Partner Bank” is aimed
are always open; our customers always experience a warm- at rewarding efforts and contributing to the development
hearted, hospitable welcome and accommodating service. of society, thus making Al Baraka the brand of choice for
financial services, internationally.

Peace of mind
Our customers can rest assured that their financial interests
are being managed by us to the highest ethical standards.

Social contribution
By banking with us our customers make a positive contribution
to a better society; their growth and our growth will benefit
the world around us.

Our basic strengths, which go back to the earliest days of

our foundation over 30 years ago, and on which we have
depended for moral sustenance throughout that time, may
be summarised as:

• Adherence to Shari’a principles

• Close customer relationships - a partnership of equals
• Financial probity
• A local bank first and foremost - but with international reach

Your Partner Bank

Al Baraka Annual Report 2013

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Board of Directors & Shari’a Supervisory Board

BOARD OF DIRECTORS SHARI’A SUPERVISORY BOARD

Shaikh Saleh Abdullah Kamel

Shaikh Dr. Abdul Sattar Abu Ghudah
Chairman
Chairman
 r. Abdulla A. Saudi
M
Shaikh Abdulla Bin Sulieman Al Mannea
Vice Chairman
Member
Mr. Abdullah Saleh Kamel
Shaikh Dr. Abdullatif Al Mahmood
Vice Chairman
Member
Mr. Saleh Al Yousef
Shaikh Dr. Abdulaziz Bin Fowzan Al Fowzan
Board Member
Member
Mr. Adnan Ahmed Yousif
Dr. Ahmed Mohiyeldin Ahmed
Board Member and President & Chief Executive
Member
Mr. Abdul Elah Sabbahi
Board Member Dr. Eltigani El Tayeb Mohammed
Mr. Ebrahim Fayez Al Shamsi Secretary to the Shari’a Supervisory Board
Board Member
Mr. Jamal Bin Ghalaita INDEPENDENT DIRECTORS
Board Member
Mr. Yousef Ali Fadil Bin Fadil Mr. Abdulla A. Saudi
Board Member Vice Chairman
Dr. Bassem Awadallah Mr. Saleh Al Yousef
Board Member Board Member
Mr. Mohyedin Saleh Kamel Mr. Ebrahim Fayez Al Shamsi
Board Member Board Member
Mr. Fahad Abdullah A. Al-Rajhi Mr. Jamal Bin Ghalaita
Board Member Board Member
Dr. Bassem Awadallah
Mr. Salah Othman Abuzaid Board Member
Secretary to the Board

Pages 6 & 7
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Board Committees

BOARD EXECUTIVE COMMITTEE BOARD AFFAIRS AND REMUNERATION COMMITTEE

Mr. Abdullah Saleh Kamel Mr. Ebrahim Fayez Al Shamsi *

Chairman Chairman
Mr. Adnan Ahmed Yousif Mr. Jamal Bin Ghalaita *
Member Member
Mr. Abdul Elah Sabbahi Mr. Yousef Ali Fadil Bin Fadil
Member Member
Mr. Yousef Ali Fadil Bin Fadil
Member

BOARD AUDIT AND GOVERNANCE COMMITTEE BOARD RISK COMMITTEE

Mr. Saleh Al Yousef * Mr. Abdul Elah Sabbahi

Chairman Chairman
Mr. Ebrahim Fayez Al Shamsi * Mr. Jamal Bin Ghalaita *
Member Member
Dr. Bassem Awadallah * Mr. Mohyedin Saleh Kamel
Member Member
Mr. Fahad Abdullah A. Al-Rajhi
Member

BOARD SOCIAL RESPONSIBILITY COMMITTEE

Dr. Bassem Awadallah *

Chairman
Mr. Adnan Ahmed Yousif
Member
Mr. Yousif Ali Fadil Bin Fadil
Member
Mr. Fahad Abdullah A. Al-Rajhi
Member

* Independent Director

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Al Baraka Annual Report 2013

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Board of Directors

Shaikh Saleh Abdullah Kamel

Chairman

Shaikh Saleh Abdullah Kamel, a Saudi Arabian national, is a well-known and highly
respected international businessman and a pioneer of Islamic banking, with a lifetime of
experience spanning more than 50 years. Shaikh Saleh holds a Bachelor of Commerce
degree. He is the founder of Dallah Al Baraka Group and the founder of the Al Baraka
Banking Group. He serves as a Director on the boards of a number of organisations and
associations across the world. Currently he is Chairman of the following organisations:
General Council for Islamic Banks and Financial Institutions; Jeddah Chamber of
Commerce & Industry, the Islamic Chamber of Commerce and Industry and Dallah
Al Baraka Holding Company E.C. As a renowned pioneer of Islamic banking and in
recognition of his achievements and his role in promulgating Islamic economic principles
– encapsulated in the message of his group: “Reconstruction of the Earth” - Shaikh
Saleh Kamel has been awarded the highest of certificates, trophies, and accolades by
many countries and organisations over his lifetime.

Mr. Abdulla A. Saudi

Vice Chairman

Mr. Saudi, a Libyan national, is a world-renowned and respected international banker

with over 50 years’ experience. He holds a Certificate in Management and Accounting.
He worked at the Central Bank of Libya for 14 years, holding various positions including
that of Manager of the Banking Department and Head of the Foreign Investment
Department. He was the founder of Libyan Arab Foreign Bank, where he served as
Executive Chairman between 1972 and 1980, establishing branches of the Bank
worldwide. He was the founder of Arab Banking Corporation (B.S.C.), Bahrain and
served as its President & Chief Executive from 1980 to 1994. He also founded Arab
Financial Services (E.C.), Bahrain in 1982 and ABC Islamic Bank (E.C.) in the early
1980s. Mr. Saudi received an award from Georgetown University in Washington D.C. as
a result of being voted one of the “Most Innovative Bankers” by the representatives of
governments and international commercial bankers attending the International Monetary
Fund and World Bank meetings in 1980. In 1991 he was awarded the accolade “Best
Banker” by the Association of Arab American Banks in New York. He was the first to
receive the “Arab Banker of the Year” award in 1993 from the Union of Arab Banks.
In recognition of his role in the development of banking relationships between Arab
and European states, Mr. Saudi has been honoured, over his career, with several gold
medals and awards, notable amongst which are those bestowed in 1977 by the King of
Spain and the President of Italy and the Grand Medal of the Republic of Tunisia in 1993.
Also in 2012 he was awarded the Integrity Award by the Arab Union for Combating
Forgery – Subordinate of the Arab League. He is currently the Executive Chairman
of ASA Consultants W.L.L., Bahrain and Chairman of United Bank for Commerce and
Investments, Tripoli, Libya.

Pages 8 & 9
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‘As bankers, it is
our duty to invest
the resources
bestowed to us in
the most ethical
and moral ways.’

Total Dividends Paid

Al Baraka has distributed

USD 36 million in dividends to
its shareholders during 2013.

USD 30 million
USD 36 million

2013
2012

Al Baraka Annual Report 2013

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Board of Directors (continued)

Mr. Abdulla Saleh Kamel

Vice Chairman

Mr. Abdulla Kamel, a Saudi Arabian national, studied Economics at the University of
California at Los Angeles, USA. Mr. Abdulla Kamel has held a number of executive
positions at Dallah Group over the years and has acquired over 25 years’ experience
in various fields. He headed the real estate and property management and central
logistics division during the period 1988-1989, was President’s Assistant for Trade Affairs
1989-1995 and worked as Vice President for Business Sector over the period until 1999
when he assumed his current position as President and CEO of Dallah Albaraka Group.
Moreover, Mr. Abdullah Kamel is Chairman of Aseer Company, Chairman of Amlak
Real Estate Development and Finance and Chairman of Okaz Press and Publishing
Corporation. He is also Vice-Chairman, King Abdullah Economic City Eimaar, and
Board Member of Aljazira Bank. Mr. Abdulla Kamel has been and remains very active in
public and charitable activities through his membership of many international and local
organizations and associations, such as Jeddah Chamber of Commerce (two times as
Board Member), Young Presidents’ Organization, Friends of Saudi Arabia, The Centennial
Fund and the Board of Trustees of the Prince of Wales Business Leaders Forum.

Mr. Saleh Al Yousef

Board Member

Mr. Al Yousef, a Kuwaiti national, holds a Bachelor’s Degree in Commerce from Kuwait
University. Mr. Al Yousef is a Kuwaiti businessman with over 31 years’ experience in
the banking industry. He served as Chairman and Managing Director of The Industrial
Bank of Kuwait K.S.C. from 1988 to 2005. Prior to that, Mr. Al Yousef held a number of
executive positions with The Industrial Bank of Kuwait and the Central Bank of Kuwait.
He is a past Chairman of ABC Islamic Bank (E.C.), Bahrain and of the Supervisory Board
of Arab Banking Corporation – Daus & Co. Gmbh, Frankfurt. He served as a Director of
the Financial Securities Group during 1986. He has also served on the boards of a large
number of other financial institutions, including Gulf Bank K.S.C., Kuwait, Arab Banking
Corporation (B.S.C.), Bahrain, Ahli United Bank B.S.C., London and Gulf Investment
Corporation. He was Chairman and Managing Director of Afkar Holding Co. until
September 2010 and Commissioner, Capital Markets Authority, Kuwait from September
2010 to February 2012. He is currently a Board Member of Al Baraka Bank Lebanon.

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Mr. Adnan Ahmed Yousif

Board Member and President & Chief Executive

Mr. Yousif, is an International Banker, holds a Master of Business Administration degree,

University of Hull, UK. Mr. Yousif has been a Director of Al Baraka Banking Group since
its inception and President & Chief Executive since August 2004. He is also Chairman
of Jordan Islamic Bank, Banque Al Baraka D’Algérie, Al Baraka Turk Participation Bank,
Al Baraka Bank Ltd., South Africa, Al Baraka Bank Egypt, Al Baraka Bank Lebanon,
Al Baraka Bank Syria, Al Baraka Bank Sudan and Al Baraka Bank (Pakistan) Ltd., Vice
Chairman of Al Baraka Islamic Bank, Bahrain and Director of Al Baraka Bank Tunisia.
He has over 38 years’ experience in international banking, including involvement
with numerous financial institutions and social organisations and has twice been
the recipient of the “Islamic Banker of the Year” Award at the World Islamic Banking
Conference, in December 2004 and December 2009. He was appointed Chairman of
the Union of Arab Banks in April 2007 and re-elected for a further three-year term in
April 2010. He was honoured with the Tatweej Award for excellence in leadership and
institutional performance in the category “Wise Leadership in the field of Arab banking
for 2012” granted by the Arab Administrative Development Organization (ARADO)
- an organisation affiliated to the Arab League - in cooperation with the Tatweej
Academy. In addition, he was awarded by LARIBA American Finance House the 2012
“LARIBA Award for Excellence in Achievement”, in recognition of his leadership role in
consolidating and operating the largest diversified Islamic Banking Group in the world.

Mr. Abdul Elah Sabbahi

Board Member

Mr. Sabbahi, a Saudi Arabian national, holds a Bachelor of Science degree in Accounting
from the Faculty of Economics & Administration, King Abdulaziz University, Saudi Arabia.
Mr. Sabbahi has had over 32 years’ experience in international banking, the last 22 of
which with the Dallah Al Baraka Group in Saudi Arabia. He is currently Vice President,
Dallah Al Baraka Group. He also holds positions as Chairman of Al Baraka Bank Tunisia,
Arab Leasing International Finance, Saudi Arabia and La Société de Promotion du Lac de
Tunis. Mr. Sabbahi is also a Member of the Boards of Dallah Al Baraka Holding Co. E.C.,
Bahrain, Al Amin Investment Co., Jordan and a number of other international companies.

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Al Baraka Annual Report 2013

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Board of Directors (continued)

Mr. Ebrahim Fayez Al Shamsi

Board Member

Mr. Al Shamsi, a U.A.E. national, holds a Bachelor of Commerce degree. He brings

with him over 41 years’ varied experience in the financial services industry and in
service of the U.A.E. Government. He is a former Chief Executive Officer of Emirates
Islamic Bank, Dubai and has served as a Director of Arab Fund for Economic & Social
Development, Kuwait over the period 1983-2010. Mr. Al Shamsi has been a Director of
Al Baraka Banking Group since August 2006 and is also a Board Member of Al Baraka
Turk Participation Bank and Al Baraka Bank Syria.

Mr. Jamal Bin Ghalaita

Board Member

Mr. Ghalaita, a U.A.E. national, holds a Bachelor of Science and Business Administration
degree from the University of Arizona, USA. His career as a banker spans over 23 years, with
key roles in the corporate, retail, trade finance and human resources sectors at Emirates NBD
Group. His significant achievements include the planning for the launch of Emirates Islamic
Bank and the establishment of several new areas of business at Emirates NBD, including
Private Banking, Asset Management and Emirates Money. In addition, he is credited with
overseeing the growth of the core Consumer Banking and Wealth Management business.
He now serves as the Chief Executive Officer, Emirates Islamic Bank, a position he moved
into in October 2011, from his previous post as Group Deputy Chief Executive Officer and
General Manager, Consumer Banking and Wealth Management at Emirates NBD. Since his
appointment he has driven unprecedented growth at Emirates Islamic Bank, marking the
bank as the fastest growing in the country over the past few years. His focused approach
has been recognized and acknowledged across the industry through multiple awards both
locally and internationally, including the recognition of Emirates Islamic Bank as the “Best
Islamic Bank” in the U.A.E. Mr. Ghalaita also serves as the Chairman of Emirates Islamic
Financial Brokerage LLC and is a Board Member of Tanfeeth LLC and SHUAA Capital PSC.

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Mr. Yousef Ali Fadil Bin Fadil

Board Member

Mr. Fadil, a U.A.E. national, is an experienced banker with a Bachelor’s Degree in

Mathematics & Computer Science from Gonzaga University, Spokane, Washington
State, USA. He has more than 28 years’ experience. During the period 1984-1998,
Mr. Fadil held a number of senior positions in the National Bank of Umm Al Qaiwain.
He then served Dubai Islamic Bank as Executive Manager for Investment over the
period 1999-2002. In 2003 Mr. Fadil was appointed General Manager of the Emirates
Financial Company. Mr. Fadil has also served as member of the Board of Directors of
several financial institutions including, amongst others, Union Insurance Company,
U.A.E., Bahrain Islamic Bank, Bosnia International Bank and is a past Board Member
of Dubai Islamic Insurance Company. He is currently a Board Member of Al Baraka
Islamic Bank, Bahrain, Ajman Bank and Gulfa Mineral Water.

Dr. Bassem Awadallah

Board Member

Dr. Awadallah, a Jordanian national, earned an M.Sc. degree and a Ph.D. in Economics
from the London School of Economics and Political Science, UK in 1985 and 1988 and
a Bachelor of Science in Foreign Service degree from Georgetown University, Washington
D.C., USA in 1984. He has over 27 years’ experience in a variety of fields. Dr. Awadallah
worked in the investment banking field in the United Kingdom from 1986 to 1991. He
then held a succession of positions in Jordan: as Economic Secretary to the Prime Minister
(1992-1996); Economic Advisor to the Prime Minister (1996-1999); Director of the
Economic Department at the Royal Hashemite Court (1999-2001); Minister of Planning
and International Cooperation (October 2001-February 2005); Minister of Finance (April
2005-June 2005); Director of the Office of His Majesty King Abdullah II of Jordan (April
2006-November 2007) and Chief of the Royal Hashemite Court (November 2007-September
2008). Dr. Awadallah was chosen as a Lee Kuan Yew Fellow in Singapore in 2004 and
a Young Global Leader by the World Economic Forum in 2005, and is the recipient of
the Al Hussein Medal for Distinguished Service of the Hashemite Kingdom of Jordan, the
Al Kawkab Decoration of the First Order of the Hashemite Kingdom of Jordan and the
Al Istiqlal Decoration of the First Order of the Hashemite Kingdom of Jordan. In addition
he has been awarded a number of high decorations from several countries in Europe and
Asia. Dr. Awadallah is currently the Chief Executive Officer of Tomoh Advisory, a financial
and strategic advisory practice based in Dubai, U.A.E.

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Al Baraka Annual Report 2013

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Board of Directors (continued)

Mr. Mohyedin Saleh Kamel

Board Member

Mr. Mohyedin Kamel, a Saudi Arabian national, studied Economics at the University of
San Francisco, USA. He is a prominent Saudi businessman with many years’ experience,
currently serving as Deputy Chief Executive Officer of Dallah Al Baraka Holding Company
and Deputy Chief Executive Officer for Projects at Arab Media Company. Mr. Mohyedin
Kamel has also served on the boards of many other companies and institutions, including
as Chairman of the Board of Directors of Dallah Media Production Company and of
Al Rabie Saudi Foods Co. Ltd., and member of the Board of Directors of, respectively,
Dallah Real Estate Consulting Company – Egypt, Almaza Real Estate Development
Company – Egypt, Arab Company for Real Estate and Tourism Investment – Egypt,
Arab Radio and Television Network (ART) and Sports Events International Company,
where he was Managing Director. He has also served as a member of the Management
Committees of Dallah Al Baraka Holding Co., Jabal Omar Development Company,
Halawani Brothers, Al Khozami Company, Saudi Research and Marketing Group, Dallah
Health Co., Saudi Fund Equestrian and Okaz Organization for Press and Publication.
Mr. Mohyedin Kamel is active in public and community work in Saudi Arabia and is
a past member of the Board of Directors of Jeddah Chamber of Commerce and Industry.

Mr. Fahad Abdullah A. Al-Rajhi

Board Member

Mr. Al-Rajhi, a Saudi Arabian national, was appointed a Member of the Board of
Directors of Al Baraka Banking Group in March 2011 and is also a Member of the Board
of Directors of Al Baraka Turk Participation Bank. He has over 35 years’ experience
in a variety of business and financial fields. He holds a Bachelor of Science degree in
Industrial Management (1978) from King Fahad University of Petroleum and Minerals,
Saudi Arabia. Mr. Al-Rajhi is the Chairman of FAR Venture Holding Company, a position
he has held since 2008, and a Member of the Board of Deutsche Gulf Finance. Earlier,
he was a treasurer in Al-Rajhi Bank between February 1995 and May 2008. He is also
currently serving as Board Member of Resort Cement Co., Najran Cement Co., Bukhait
Investments Group and Tabuk Agricultural Development Co.

Pages 14 & 15
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Head Office Organisation Chart

SHAREHOLDERS

BOARD SHARI’A
EXECUTIVE BOARD OF DIRECTORS SUPERVISORY
COMMITTEE BOARD

BOARD AUDIT &

BOARD AFFAIRS & GOVERNANCE
PRESIDENT & COMMITTEE
REMUNERATION
CHIEF EXECUTIVE
COMMITTEE

HEAD OF
INTERNAL
AUDIT SHARI’A
BOARD RISK INTERNAL
COMMITTEE AUDIT

BOARD SOCIAL
DEPUTY
RESPONSIBILITY
CHIEF EXECUTIVE
COMMITTEE

HEAD OF
HEAD OF HEAD OF HEAD OF HEAD OF HEAD OF
HEAD OF COMPLIANCE TREAS., INVEST.,
STRATEGIC OPERATIONS & FINANCIAL CREDIT & RISK COMMERCIAL
LEGAL AFFAIRS OFFICER AND FIN.
PLANNING ADMINISTRATION CONTROL MANAGEMENT BANKING
INSTITUTIONS

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Executive Management

Mr. Adnan Ahmed Yousif

President & Chief Executive

Mr. Yousif has more than 38 years’ international banking experience. He has been
a Director of ABG since inception and the President & Chief Executive since August
2004. He is the Chairman of Jordan Islamic Bank, Banque Al Baraka D’Algérie,
Al Baraka Turk Participation Bank, Al Baraka Bank Ltd., South Africa, Al Baraka Bank Egypt,
Al Baraka Bank Lebanon, Al Baraka Bank Syria, Al Baraka Bank Sudan and Al Baraka
Bank (Pakistan) Ltd., Vice Chairman of Al Baraka Islamic Bank, Bahrain and Director of
Al Baraka Bank Tunisia.

Mr. Yousif holds a Master in Business Administration degree from University of Hull, UK.

Mr. Majeed H. Alawi

Executive Vice President - Head of Internal Audit

Mr. Alawi has over 33 years of international banking experience, mainly in audit. He
began his career at Banque National de Paris in Bahrain in 1981 as Head of Operations,
subsequently moving to Arab Banking Corporation (B.S.C.)’s Internal Audit Department
in 1988 as an audit team leader, where he carried out audits of the Head Office
departments and the bank’s branches and subsidiaries spread over Europe, the Americas,
the Far East and across the Arab World. He joined ABG in 2000, when it was still under
formation, to establish and head the Internal Audit Department, which is responsible
for reviewing the activities of all ABG’s subsidiary banks as well as of the Group’s Head
Office in Bahrain. The audit function also includes the review of controls over the IT
system, as well as controls to ensure Shari’a compliance. Mr. Alawi reports directly to
the Audit and Governance Committee of the Board of ABG, for whom he also acts as
Secretary. He also participates as an observer member in the meetings of the Audit
Committees of all ABG’s subsidiaries.
Mr. Alawi is an FCCA – Fellow of the Chartered Association of Certified Accountants
from UK (1980).

Pages 16 & 17
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Mr. K. Krishnamoorthy
Executive Vice President - Head of Strategic Planning

Mr. Krishnamoorthy has over 37 years of experience in financial and management

reporting, corporate and structured finance, credit, strategic planning, project
management, equity research, fund management and administration. He has worked in
the Middle East and in North America. After spending several years in the accountancy
field in India and Bahrain, Mr. Krishnamoorthy joined the investment banking subsidiary
of Arab Banking Corporation (B.S.C.), where he served for 11 years before moving to the
parent bank’s Treasury Department to manage its mutual fund investment portfolio
and the Treasury Mid-Office. Following this he spent 2 years as a partner in a regional
investment bank in the Gulf and a further period heading the worldwide banking
solutions business of a major Canadian IT solutions company in Toronto, Canada,
subsequently joining ABG in 2004.

Mr. Krishnamoorthy is an ACA – Associate of the Institute of Chartered Accountants of

India - and holds a B.Com. degree from Osmania University, India.

Mr. Abdulrahman Shehab

Executive Vice President - Head of Operations and Administration

Mr. Shehab has over 40 years of banking experience gained in senior positions with
various international financial institutions, both Islamic and conventional. He commenced
his career with Habib Bank Ltd. in 1973, later working at the Bahrain offices of Chase
Manhattan Bank, Bank of America, American Express Bank and Bahrain Middle East
Bank. After a successful career with Faysal Islamic Bank of Bahrain (now Ithmaar Bank),
in 2002 he was appointed Assistant Chief Executive Officer – Operations at Bahrain
Islamic Bank, subsequently joining ABG in May 2006. Mr. Shehab is a Board Member
of Banque Al Baraka D’Algérie and Al Baraka Bank (Pakistan) Ltd.

Mr. Shehab holds a Master of Business Administration degree from University of Hull, UK.

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Al Baraka Annual Report 2013

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Executive Management (continued)

Mr. Hamad Abdulla Ali Eqab

Senior Vice President - Head of Financial Control

Mr. Eqab has over 20 years’ experience in financial control and auditing. Before joining
ABG in February 2005 he worked at Shamil Bank as Senior Manager, Internal Audit.
Prior to this he was a member of the Audit team at Arthur Andersen. He is the Vice
Chairman of the Accounting and Auditing Standards Board of the Accounting and
Auditing Organization for Islamic Financial Institutions (AAOIFI). He is also a Board
Member of Al Baraka Turk Participation Bank, Jordan Islamic Bank and Banque Al Baraka
D’Algérie. In addition he serves as Chairman of the Board Risk Committee of Banque
Al Baraka D’Algérie and of the Audit Committee of Al Baraka Turk Participation Bank, as
well as being a member of each of the Audit Committees of Jordan Islamic Bank and
Banque Al Baraka D’Algérie and a member of the Social Responsibility Committee of
Jordan Islamic Bank.

Mr. Eqab is a Certified Public Accountant (CPA) and a Chartered Global Management
Accountant (CGMA).

Mr. Jozsef Peter Szalay

Senior Vice President - Head of Credit and Risk Management

Mr. Szalay has over 39 years’ international banking experience encompassing credit and
risk management, corporate banking and trade finance. He commenced his banking
career in international banking with Bank of Montreal, Canada and was later its Middle
East Representative, initially based in Beirut, Lebanon and thereafter in London. He joined
Gulf International Bank B.S.C. (GIB) in 1979 as Regional Marketing and Credit Officer for
Central Europe based in London. He subsequently worked in various capacities in GIB
within Credit and Business Development. In 2001 he was appointed Chief Credit Officer
of GIB in Bahrain, responsible for credit, economics, legal and other related areas. He was
also a member of the Group Risk Committee of GIB. Mr. Szalay has been a member of
ABG’s Executive Management team since September 2006.

Mr. Szalay holds an M.A. (Econ.) from University of Budapest, a Banking Certificate
from the Institute of Canadian Bankers and is a graduate of the Advanced Management
Program at INSEAD France.

Pages 18 & 19
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Mr. Salah Othman Abuzaid

Senior Vice President - Head of Legal Affairs

Mr. Abuzaid has over 29 years’ professional experience as, variously, a practicing
advocate, a legal consultant to a number of local, regional and international law firms
and a judge. After 20 years in legal practice in various capacities in Sudan, he moved
to the Sultanate of Oman in 2001 to work for an Omani law firm associated with
an international law firm and was admitted to practice before all Omani courts by
the Omani Advocates Admission Committee. In 2004, he moved to Bahrain to join
Al Baraka Islamic Bank as Manager, Legal Affairs. This was followed in 2007 by a move to
ABG to take up the position of First Vice President - Head of Legal Affairs & Compliance,
from which position he was subsequently promoted to Senior Vice President. During
this time he has continued also to serve as Secretary to ABG’s Board of Directors and
three Board Committees.

Mr. Abuzaid has an LLB degree from the Faculty of Law, University of Khartoum, Sudan.

Mr. Khalid Al Qattan

First Vice President - Head of Treasury, Investments and Financial Institutions

Mr. Al Qattan has over 28 years of banking experience in Treasury and Operations. He
commenced his banking career at United Gulf Bank, Bahrain as an Operations Clerk in
1983. In 1988, he joined Shamil Bank, Bahrain as Operations Clerk and was subsequently
promoted to Manager in charge of the bank’s Treasury operations. He was later appointed
Treasury Manager at Eskan Bank, Bahrain and served as such between April 2006 and
May 2007, where he was responsible for the overall liquidity management of the bank
and also served on several management committees. In June 2007 he joined ABG as Vice
President and was promoted to the position of First Vice President - Head of Treasury
and Investments in 2008.

Mr. Al Qattan holds a Master of Business Administration degree from the University of
Hull, UK.

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Al Baraka Annual Report 2013

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Directors’ Report

Global and Regional Economies

The majority of the developed and the more sizeable

developing countries’ economies are beginning to show
growth. In particular, the major drivers of the world
economy – the United States, China, Japan and the
eurozone countries of Europe – all appear to have turned
the corner and to be facing a more positive future in
terms of growth. Both the US and China performed well
in the third quarter of 2013 and momentum appears to be
building towards stronger economic performance to come,
with the US achieving a 1.8% growth rate for the year as
a whole and China overcoming a setback in the middle of
the year to end with a 7.7% growth rate. The eurozone,
although recording an aggregate 0.4% decline in annual
GDP (with a marked diversity of results from its component
members) looks set to return to positive growth in 2014.
Japan’s economic recovery continues, although not without
setbacks, and is estimated to have ended the year with
1.7% growth. Among other important economies, Russia’s
grew by 1.5%, South Korea’s by 2.7% and Canada’s by
1.7%, while Britain finally seems to have emerged from its
long stagnation, achieving 1.5% overall growth for the year,
Saleh Abdullah Kamel - Chairman
with 2.7% expansion projected for 2014.

The emerging symbiotic relationship between developing

and developed world, as the economies begin to move into
positive territory in tandem, is exemplified in the economic
performance of many of those countries in which ABG
operates. Six out of the 12 economies recorded growth
rates of 3.0% or above and it is likely that, when the final
calculations have been made, three of the remaining six will
prove to have grown by 2.0% or more in 2014.

Globally and regionally, the outlook is much brighter now

than it appeared to be a year ago. Driven by a 5.2% surge
in global trade, the world economy is now expected to
grow by 2.7% in 2014. The likelihood of a strengthening
US economy, a Chinese economy maintaining a growth
rate above 7.0% and a gradual improvement in the
eurozone economy, along with generally better prospects
in most of the other major economies, certainly bodes
well for the future.

(All figures in US Dollars unless otherwise stated)

Pages 20 & 21
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‘We are committed

to serving the
greater society in
all that we build.’

Total Number of Branches

Al Baraka saw 13%

network growth during
2013, with the opening
of 54 new branches
worldwide. 425
479

2013
2012

Al Baraka Annual Report 2013

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Directors Report (continued)

2013 Review
The Group’s share of total income from jointly financed Once again, we were pleased to note that the majority of
contracts and investments, including its share as Mudarib, our subsidiaries were able to report a positive result for the
was $431 million, 6% higher than in 2012. Income from year. Of the nine units that recorded a net profit, eight had
self financed contracts and investments and Mudarib share increased their net income or reversed an earlier negative
from managing off-balance sheet equity of investment result, in addition to which, of those three which made
account holders was 14% higher at $239 million. Including a loss, two of them reported a reduced loss since 2012.
other operating income and revenues from banking services,
the Group’s total operating income was $909 million, 3% In light of the Group’s performance in 2013, the Board of
higher than the previous year. Total operating expenses Directors has recommended a cash dividend distribution to
also rose, however, by 7% to $489 million, resulting in the shareholders of 3.5% of the paid up capital, amounting
a net income before provisions and taxation of $420 million, to $36.69 million, after a transfer of $14.45 million to
compared with $422 million in 2012. After allocation of the legal reserve, with the remainder of the net income,
prudential provisions and taxation, the net income for the amounting to $93.37 million, being allocated to retained
year was $258 million, a rise of 10% compared with the earnings. The Board has also recommended a bonus
$235 million earned in 2012. dividend of 1 share for every 23 shares held, to be allocated
from retained earnings and amounting to $45.58 million.
An 8% rise in the customer accounts base, to $17.74 The Board has further recommended a remuneration
billion, together with other liabilities including long term distribution of $1.00 million, to be paid following the
borrowing at the subsidiary level, funded an expansion of approval of shareholders at the Annual General Meeting.
the Group’s banking assets. Growth occurred in all areas
of the balance sheet except in the Musharaka financings, Ownership of shares in ABG by Board Members and Executive
in Ijarah receivables and intangible and other assets. The Management (with the exception of that of the Chairman)
Group’s total assets at the end of the year stood at $20.97 is not material and no major trading of such shares took
billion, a 10% increase over 2012. place during 2013. Details of shares held by Directors and
members of the Executive Management are provided in the
Notes to the Consolidated Financial Statements.

(All figures in US Dollars unless otherwise stated)

Pages 22 & 23
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Looking Ahead...
As the global economy continues its gradual recovery All of our units are actively involved in product development
we believe the accumulative positive effects will have an and will continue to introduce – and to share within the ABG
invigorating impact on the economies of the countries in family – new and innovative Shari’a compliant products
which ABG have a presence. The potential dangers, from and services designed to meet our customers’ needs.
the OECD side, chiefly relate to the somewhat anaemic
nature of the recovery in the EU – and especially the For Al Baraka Banking Group, as always we look to the
eurozone – which will in turn impact on the trade and future with one surety: that we go forward together with
service flows between Europe and the MENA countries, our customers, anticipating their needs and assisting them
and the consequential impact of a likely tapering of the to build for the future in the knowledge that we stand
US quantitative easing programme on emerging market behind them.
economies such as India, Turkey, South Africa and Brazil
during 2014. On behalf of the Board I should like to extend our thanks to
Dr. Anwar Ibrahim, who resigned from the Board with effect
We congratulate our operating units for putting in from 16 July 2013, having served as a Member for nearly
a good performance in the face of many difficulties. The eight years. We are immensely grateful to Dr. Ibrahim for
Group has once again shown that its ongoing strategy his wise guidance and devotion to ABG and the Group
remains sound and capable of delivering consistent during his service.
growth and profitability.
In conclusion, I should like as always to extend, on behalf of
We regard the maintenance of a sound risk and corporate the Board and Executive Management, our appreciation to
governance culture as a permanent and never-ending our Shari’a Supervisory Board, the Central Bank of Bahrain,
process at ABG. We will therefore continue the task of the Ministry of Commerce and Industry of Bahrain and all
strengthening internal controls, risk management processes of our subsidiaries’ regulatory authorities, for their support
and procedures to ensure the continuous improvement in and guidance during 2013.
asset quality, whilst always seeking to achieve an optimum
cost:benefit ratio in all Group units and thus to deliver
consistent, increasing returns to our shareholders.

For and on behalf of the Board of Directors

Saleh Abdullah Kamel

Chairman

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Al Baraka Annual Report 2013

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President & Chief Executive’s Report

Management Discussion and Analysis

The year saw many of the countries in which ABG operates

continuing to exhibit signs of economic recovery, the green
shoots of which were just appearing last year. Most of
our subsidiaries maintained - and indeed increased - their
profitability, although in some cases these gains were hard
won and often partially lost again through the impact of local
currency depreciation against the US dollar. We were therefore
pleased with the results presented by our subsidiaries, and
to note that all had demonstrated sustainable performance,
even in difficult circumstances.

ABG’s consolidated total assets grew by 10% in 2013 to

$20.97 billion as total financings and investments rose by
7% to $15.36 billion. Whilst, in absolute terms, the most
part of that growth was seen in the Murabaha receivables
which increased by $0.34 billion, in percentage terms this
reflected a more moderate 3% expansion of that portfolio.
In relative terms, the financing portfolios that experienced
the greatest expansion across the Group were the Istisna’a
– which surged by 49% - the Mudaraba, which rose by
45% and the Ijarah Muntahia Bittamleek, which recorded
Adnan Ahmed Yousif - President & Chief Executive
31% growth. The significant increase in demand for these
products was offset somewhat by a decline in popularity
of Musharaka, where the exposure fell by 3%. As for the
Group’s investment portfolios, the strong growth in its
trading securities, which more than doubled, is noteworthy,
while the non trading investment portfolios recorded
a remarkable growth of 9%.

In the main, growth was spread across the subsidiaries. This

year, however, the impact on the assets and profitability of
individual subsidiaries due to fluctuations in the exchange
rates of their home currencies vis-à-vis the US dollar was
greater than before, even converting increases into declines
in some cases. For example, whereas the total assets of the
Turkish, South African and Syrian subsidiaries expanded
significantly in their local currencies, in terms of the US
dollar this expansion was much less, or even negative.
A similar impact can also be seen in the profitability recorded
at those subsidiaries and also with the unit in Sudan.

Al Baraka Türk Participation Bank (Al Baraka Turkey) recorded

a 40% increase in total assets but due to the depreciation in
the Turkish Lira this equated to only an 18% increase in US
dollar terms. As before, the growth was mostly seen in its
Murabaha financings, although its other financings as well
as its investments, particularly its non-trading investments,
also increased significantly. At Jordan Islamic Bank (Al Baraka
Jordan) assets rose by 9% although, with a 27% increase

(All figures in US Dollars unless otherwise stated)

Pages 24 & 25
Return to Contents

‘We are committed

to the growth of
our people. They
are after all, what
makes Al Baraka the
bank it is today.’

Total Number of Employees

During 2013, Al Baraka

invested over USD 3 million
in training and recruitment.

9,398
9,891

2013
2012

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

in Ijarah Muntahia Bittamleek financings being almost fully 2013, with the balance of the funds temporarily expanding
offset by decreases in other financings and investments, its trading securities portfolio.
most of the net growth was channelled into liquid assets.
Al Baraka Egypt saw a 4% decrease in total financings and At the Group level, financings and investments comprised
investments in US dollar terms, slightly more than the fall the greatest part of its total assets, at 73%, with Murabaha
in total assets. At Banque Al Baraka D’Algerie (Al Baraka receivables comprising 69% of total financings and
Algeria) total assets increased by 6%, as a 10% rise in total investments, followed by non-trading investments
financings and investments and increases in fixed assets constituting 14% and Ijarah Muntahia Bittamleek 6%.
were offset in part by reductions in the values of intangible Murabaha receivables grew by 3% over 2012 to reach $10.63
and other assets. Al Baraka Pakistan’s total assets increased billion, while non-trading investments rose by 9% to $2.19
by 10%, mostly due to a rise in balances at other banks billion and Ijarah Muntahia Bittamleek financings expanded
and Central Bank reserves, as a 14% rise in total financings by 31% to $0.94 billion.
was offset by an 25% drop in investments. Total assets at
Al Baraka Islamic Bank (Al Baraka Bahrain) on the other hand Customer accounts, including equity of Investment
grew by 21%, mostly on account of growth in its financings Accountholders (IAH), grew by 8%, reflecting a 7% increase
and investments, especially its Mudaraba portfolio, and in the largest component, equity of IAH, while customers’
a large rise in the other assets category. current and other accounts grew by 11% and interbank
deposits by 13%. Aggregate off-balance sheet equity of
An 8% overall increase in total financings and investments IAH grew by 19% to $0.71 billion, while contingents and
at Al Baraka Tunisia – where a 17% fall in total financings commitments increased by 4% to $4.95 billion.
led by Murabaha sales receivables was more than offset by
a major surge in non-trading investments - led to a 16% rise Total operating income of the Group rose by 3% to $909
in the bank’s total assets. At Al Baraka Syria, a 44% increase million, as marginally lower revenues from banking services
in total assets in Syrian Pounds was translated into a 23% and other operating income and reduced Mudarib fees from
fall in US dollar terms due to the steep drop in the value managing off-balance sheet equity of IAH were more than
of the local currency. At Al Baraka South Africa, currency offset by a 15% surge in the Group’s self-financed income
depreciation led to a 4% fall in the US dollar equivalent and a 6% rise in its share of income from joint financings
of its total assets, with the financings and investments and investments. Operating expenses at $489 million were
portfolios down by 7% and its fixed, intangible and other however 7% higher than in 2012, which resulted in a net
assets also falling substantially. Al Baraka Lebanon’s 19% rise operating income of $420 million, slightly lower than that in
in total assets was due to a 26% overall rise in financings 2012. However, following allocations for prudential provisions
and investments, with a 36% increase in its Murabaha and taxation charge, the Group recorded a net profit of $258
receivables accounting for the lion’s share. Al Baraka Sudan million, 10% above that for 2012.
reported a 25% increase in total assets, reflecting a 27%
rise in total financings and investments - with a strong
65% expansion in the Murabaha receivables supported
by growth in the Istisna’a and Musharaka portfolios – and
significant increases in liquid and fixed assets. Finally, at
Itqan Capital, the latest member of the Group, total assets
rose by 139%, reflecting the successful launch of its newly
introduced Murabaha financing facilities as it began to utilise
the shareholders’ $27 million subordinated loan granted in

(All figures in US Dollars unless otherwise stated)

Pages 26 & 27
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ABG’s commitment to the development of the Islamic Finance from providers of Shari’a compliant microfinance products
industry was once again demonstrated by its sponsorship of to submit innovative ideas for consideration. This year’s
the 34th Annual Islamic Economics Forum, held in Jeddah, challenge was entitled: ‘Islamic Microfinance Challenge
Saudi Arabia. This annual gathering performs a unique 2013: Beyond Murabaha’.
role, acting as a ‘think tank’ for the industry and creating
a forum for: ABG was honoured that Global Finance Magazine chose
it to receive its annual ‘Best Islamic Financial Institution
• Spreading knowledge of Islamic jurisdictions (Fiqh) in Middle East/Africa’ award for its prominent role in the
with regard to contemporary economic and financial Islamic banking sector, ability to achieve consistent growth,
transactions; its high professional standards and quality of service to its
• Considering problems faced by Islamic banks in the clients and the originality and innovation of its products and
application of different modes of Islamic finance and banking operations. At the same time, five of its subsidiaries
exchanging views of scholars; – based in Jordan, Lebanon, Bahrain, Algeria and South
• Linking Fiqh to contemporary economic issues and Africa – were similarly honoured by ‘Best Islamic Financial
supporting Islamic economic theory to confront competing Institution’ awards in their respective countries.
theories;
• Enriching banking Fiqh and the Islamic Economic Library ABG was also awarded the ‘Most Outstanding Institution
with profound discussion resulting in the issue of new for Contribution to Islamic Finance’ award at the 10th Kuala
Fatwas by renowned scholars; Lumpur Islamic Finance Forum in October 2013, in recognition
• Meeting the needs of those concerned with Islamic of the part played by the Group in the development of
banking Fiqh worldwide; the Islamic finance industry, and was further honoured
• Fulfilling the requirements of all Al Baraka units and by Islamic Business and Finance Magazine’s ‘Best Regional
other Islamic financial institutions in the field of Islamic Retail Bank – Middle East’ Award at its prestigious Annual
banking theory and its applications; Islamic Business & Finance Awards ceremony in Dubai in
• Linking the financing transactions of Fiqh with the December, its second such award in three years.
principles of economics.
• Providing scientific reference for research, Shari’a REVIEW OF UNITS
committees and Shari’a Fatwas within the framework
of Islamic banking; and The following is a brief review of each of our subsidiaries,
• Developing Islamic financing instruments which conform their activities and performance over the past year. All figures
to technical and Shari’a standards. are stated in the US dollar equivalents of the audited local
currency-based balance sheets and income statements,
The 34th Symposium for Islamic Economy considered issues prepared in accordance with the Islamic Accounting Standards
addressing Zakat, dealing in gold and silver, participatory issued by the Accounting and Auditing Organisation for Islamic
transactions and investment by agency. Financial Institutions (and IFRS, where AAOIFI was silent)
and without any Group level consolidation adjustments.
ABG regularly sponsors a variety of Islamic and other
conferences as part of its commitment to economic and Each unit is managed by its respective Board of Directors,
social development. Amongst those ABG sponsored in whose reporting lines are ultimately to the Parent, ABG, but
2013 – in coordination with a number of internationally whose decision-making is decentralised within the Group’s
renowned institutions - was the launch of the second Islamic overall strategic direction and in full compliance with the
Microfinance Challenge, a global contest inviting applications regulations of the respective countries’ Central Banks.

Your Partner Bank

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

06

3. 12
03 08
14
01
10
13 04
02
15

05

07

AL BARAKA GLOBAL NETWORK

A Global Vision of Local Partnership

Pages 28 & 29
09

11

01. Jordan 1978 09. Pakistan 1991

02. Egypt 1980 10. Algeria 1991
03. Tunisia 1983 11. Indonesia 2008 Representative Office
04. Bahrain 1984 12. Syria 2009
05. Sudan 1984 13. Libya 2011 Representative Office
06. Turkey 1985 14. Iraq 2011 Branch of Al Baraka Turk Participation Bank
07. South Africa 1989 15. Saudi Arabia 2007 Itqan Capital
08. Lebanon 1991

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Türk Participation Bank

Founded 1985

The Turkish economy grew by an historically low 3.9% The bank’s total operating income increased by 19% in
in 2013, above that of 2012 but a far cry from the 8.6% Turkish Lira and 12% in US dollar terms to $403 million,
recorded in 2011. Its large current account deficit (7.5% of mainly on account of the bank’s own income on Musharaka
GDP at end-2013) continued to pressure the Turkish Lira, financings and investments but also from its share of
a situation which was not helped by the impending likelihood jointly financed income from financings and investment
of a tapering off of the US Federal Reserve Bank’s quantitative accounts, both as Mudarib and in its own right, and other
easing programme. These circumstances, combined with operating income. The total income from jointly financed
a stubbornly high inflation rate (at 7.5% only slightly below accounts and investments rose by 5% in Turkish Lira but fell
2012’s rate of 7.8%), compelled the Central Bank to maintain by 1% in US dollars, to $359 million. After distribution to
a higher than desired interest rate policy, threatening the the equity of IAH of their share of the income, amounting
weak economic recovery hinted earlier in the year. Lira to $243 million, the bank’s share as fund owner and as
depreciation was around 18% over the year but the weakness Mudarib was 22% higher than the previous year, at $116
was sustained into the new year, compelling the Central million. Its income from its own sales and investments
Bank to more than double its repo rate from 4.5% to 10.0% increased by 16% in Turkish Lira and 9% in US dollar terms
in an effort to rally the currency. at $192 million, while other operating income and revenue
from banking services made up the balance of operating
For Al Baraka Turkey, the government’s decision to issue income. Following deduction of operating expenses of
its first sovereign Sukuk, amounting to $1.5 billion, offered $200 million - 4% up on 2012 - the net operating income
some benefit as it paved the way for Turkish companies to was $202 million, 20% more than the previous year. After
raise funds through this medium, also incidentally permitting accounting for increased provisions and taxation, the net
Turkish participation banks to have access to the liquidity profit at $121 million was 12% above that of 2012.
window of the Central Bank. In addition to taking up
a participation in the government’s Sukuk, Al Baraka Turkey With 30 new branches opened in 2013, the branch network
also successfully closed its own $200 million 10-year Tier 2 stood at 167 branches at end-2013, including 1 branch in
capital Sukuk issue, thus improving its overall capital ratio to Iraq. The bank continued to install new ATMs across the
a healthy 15.1%. The bank also concluded a highly successful country, expanding its network to 179 from 147 at the end
syndicated 1 and 2-year mixed Murabaha financing, raising of 2012. The bank’s product range was again enhanced,
$196 million and €175.5 million. with the introduction of finance packages tailored to the
needs of small businesses (micro-finance), e-participation
Al Baraka Turkey’s total assets rose in 2013 by 40% in Turkish accounts, cumulative participation accounts and dentists’
Lira terms but by 18% in US dollar terms, to $8.14 billion, financing facilities.
in light of the relative decline in the value of the Lira. The
expansion was largely due to increased Murabaha financings, For 2014, Al Baraka Turkey intends to maintain the momentum
reflected in a 12% increase in sales receivables to $5.60 of branch expansion, opening 23 new branches to bring
billion at year-end, together with a 46% expansion in the its network up to 190, in accordance with its current plan
Ijarah Muntahia Bittamleek portfolio. On the liabilities side, to establish a network of 330 branches by 2018. Its ATM
a 26% rise in customer current and other accounts and a 12% network is set to expand by a similar order of magnitude.
increase in equity of IAH to $1.20 billion and $4.70 billion
respectively, together with the aforementioned long term
borrowing exercises, chiefly funded the asset expansion.

(All figures in US Dollars unless otherwise stated)

Pages 30 & 31
 Return to Contents

Al Baraka Türk Participation Bank

Al Baraka Türk Participation Bank was established in 1985 and Unit Head: Mr. Fahrettin Yahsi
started operations in the same year. Al Baraka Türk currently Title: General Manager & Board Member
renders its services through its 167 branches including 1
branch in Iraq, 69 of which are in Istanbul and 97 in the Address: Saray Mahallesi
leading industrial and commercial cities. Dr. Adnan Büyükdeniz Caddesi, No. 6
34768 Ümraniye
Istanbul
Turkey

Tel: +90 216 666 01 01

Fax: +90 216 666 16 00

albarakaturk.com.tr

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Jordan Islamic Bank

Founded 1978

Jordan’s economy continued to grow steadily, with the rate Al Baraka Jordan opened 3 new branches during the year,
of growth reaching 3.2% compared with 3.0% in 2012 and bringing its total network to 80 branches and cash offices.
2.5% the year before. However rising oil and gas import The bank aims to expand its network over the next 5 years
prices, leading to an increase in its (traditionally negative) by 12 new branches and 8 cash offices to reach a total of 100
trade balance, placed a strain on its current account deficit offices by 2018. It installed an additional 12 ATM machines,
which widened to -10.3% of GDP. Its budget deficit rose to and now has a network of 134 machines as it aims for an
-10.4% of GDP. Nevertheless, prospects for improvement eventual ATM network of 160.
over the next few years remain good. The rate of inflation,
at 5.8%, is also forecast to moderate over time. The bank continued to introduce new products and services
to its already impressive range. During the year it launched
Although the weak economic performance at home clearly Iqra’a facilities, based on Ijarah Mawsoufah Bithimmah
affected growth at Jordan Islamic Bank (Al Baraka Jordan) (forward contracts) to help customers finance tuition fees
nevertheless the bank’s total assets rose by 9% to $4.63 at schools, colleges and universities, and Labbayk, to assist in
billion, funded by a 12% increase in customers current and financing Hajj and Umra journeys. To these products it will
other accounts and a 7% rise in equity of IAH. A 27% increase add facilities to provide assistance for medical treatment in
in Ijarah Muntahia Bittamleek coupled with a 10% increase 2014. Its new Contact Centre, opened in 2013, incorporates
in Musharaka financings more than compensated for a 44% a Call Centre to inform customers of its new services and
drop in non-trading investments, with the balance of the assist them in applications. It is planning to introduce mobile
increased liabilities largely being allocated to an increase banking for smart phones under a new system, adding to its
in liquid assets. existing ‘i-banking’ and SMS services. On the IT front it has
been working on centralising its risk and credit management
Total income from jointly financed contracts and investments processes and implementing new scoring and rating systems.
rose by 15% to $234 million of which the Murabaha contribution
was $191 million or 17% above that for 2012, with the balance In 2013 Al Baraka Jordan was honoured to receive the ‘Best
of the increased income emanating from Ijarah Muntahia Islamic Retail Bank in Jordan’ and ‘Best Islamic Financial
Bittamleek contracts which contributed $37 million, a 24% Institution in Jordan’ awards from Global Finance Magazine,
gain. After accounting for the equity of IAH share – slightly acknowledging its progress over recent years in continuing
up on 2012 at $97 million - and including the bank’s share as to develop and manage a first class financial institution.
Mudarib, the bank earned $137 million from this source which
represented a 27% improvement. Including its income from
its self-funded financings and investments, total operating
income was 21% higher at $164 million. Total operating
expenses stood at $72 million or 17% above those for 2012,
leaving a net operating income of $92 million, 24% higher
than the year before. After allocation of reduced provisions
but increased taxation, the bank recorded a net profit of
$64 million, 24% higher than in 2012.

(All figures in US Dollars unless otherwise stated)

Pages 32 & 33
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Jordan Islamic Bank

Jordan Islamic Bank was the first Islamic bank in Jordan and Unit Head: Mr. Musa Shihadeh
was established in 1978 to carry on all types of financing, Title: Vice Chairman & CEO
banking and investment activities in compliance with the
provisions of the glorious Islamic Shari’a. The bank offers its Address: P.O. Box 926225
banking, investment and financing services through its 80 Amman 11190
branches including 15 cash offices, in addition to a bonded Jordan
office, distributed throughout the Kingdom of Jordan. Tel: +9626 567 7377
Fax: +9626 566 6326

jordanislamicbank.com

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Bank Egypt

Founded 1980

With the continuing uncertainty prevailing following the ‘second operating income, the total operating income increased by
wave of revolution’ which began at the end of June 2013 with 14% in Egyptian Pounds but by only 1% in US dollars to
the arrest of ex-president Mohammed Morsi and his impending $103 million. Total operating expenses increased by 22% in
trial, the Egyptian economy has behaved relatively feebly local currency (mainly attributable to increased staff, rental
in the past months. Notwithstanding increased expatriate and other costs) but by only 8% in US dollars to $45 million.
workers’ inward remittances and Suez Canal revenues in Net operating income was therefore $58 million, some 3%
2013, and a rise in value of shares on the Egyptian Stock lower than in 2012. After allocating reduced provisions and
Exchange, business and consumer confidence remains at taxation charge, the net profit for the year was $24 million,
a low ebb. Consequently, Egypt’s GDP rose by only 2.0% in 5% over that for 2012.
2013, similar to 2012’s performance, and growth looks set
to be only slightly higher in 2014. The budget deficit, equal Al Baraka Egypt opened 3 new branches in 2013, bringing
to -13.7% of GDP, is a worrying factor, although the current the number of its branches to 26, plus 4 foreign exchange
account deficit at -2.5% of GDP is sustainable. The rate of offices, spread across Egypt. It plans to open a further 5
inflation over the year is estimated at 8.5%, up from 2012 branches in 2014, well on the way to meeting its target of
but lower than in 2011. The Egyptian Pound meanwhile fell a total network of 40 branches by 2018. As part of its plan
in value, ending the year at EGP6.87/US$ compared with to develop and upgrade all its old branches, it has purchased
EGP6.12/US$ at the end of 2012. new premises in central Cairo to which it will move its Al Alfi
branch and is refurbishing new premises recently acquired
Al Baraka Egypt maintained its conservative financing policy for its Muhiyi Eddin Abu al Ezz branch. Its ATM network
in 2013. As a result its total assets rose by only 9% in has meanwhile been expanded to 24 in total. During the
Egyptian Pounds - in US dollar terms total assets actually year it commenced work on furbishing its new main office
fell by 3% to $2.62 billion - with most of the growth on the premises in the New Cairo district, equipping it with up to
domestic currency balance sheet being seen in non-trading date IT and other equipment, at the same time successfully
investments, Mudaraba financings and liquid assets, while completing the implementation of its Equation core banking
Murabaha sales receivables fell back. Customer accounts system following its solo testing. In October it launched its
including equity of IAH increased by 8% in Egyptian Pounds Al Baraka Bronze Card, the first Islamic credit card in the
but contracted by 4% in US dollar terms. Egyptian market. This issue will be followed by the Al Baraka
Silver and Gold cards in 2014. It is also planning the launch
The bank’s total income from joint financings and investments of a new 3-year Sukuk, a relatively long-term saving product
rose in Egyptian Pound terms by 10%, of which the main which it expects to be met with great interest.
contributors were Murabaha sales receivables (+16%) and
Mudaraba financings (+18%), although in US dollars this healthy Al Baraka Egypt was proud to have received several awards
performance given the circumstances was transformed into during 2013: the Tatweej Award was granted by the Tatweej
a 3% decline to $222 million. After taking into account the Academy of the UAE as one of the best banks implementing
share of the equity of IAH investors, which rose by 10% in Shari’a principles; the European Award for Best Practices
Egyptian Pound terms, the share earned by the bank including bestowed by the European Society for Quality Research
its Mudarib fee was 9% higher (in US dollars, 3% lower at (ESQR); and the Majestic Five Continents Award for Quality
$84 million). After accounting for self-funded investments and Excellence by the prestigious European Foundation
and financings, income from fees and commissions and other Other Ways Management Association Club based in France.

(All figures in US Dollars unless otherwise stated)

Pages 34 & 35
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Al Baraka Bank Egypt

Al Baraka Bank Egypt commenced its activities in accordance Unit Head: Mr. Ashraf El Ghamrawy
with Shari’a principles over 23 years ago and has grown as Title: Vice Chairman & CEO
an Islamic institution to become one of the foremost in the
Egyptian market. It provides a variety of services, products Address: 60, Mohie Elddin Abu Elezz Street
and savings deposit options to suit different requirements P.O. Box 455
and financing programmes to meet the requirements of Dokki, Giza
various sectors of the Egyptian market, in addition to credit Egypt
facilities for companies and joint financings for large and Tel: +2023 748 1222
important national projects. The bank currently has 26 Fax: +2023 761 1436/7
branches and 4 foreign exchange offices, spread across the
major Egyptian cities. albaraka-bank.com.eg

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Banque Al Baraka D’Algerie S.P.A.

Founded 1991

The Algerian economy grew by 3.2% in 2013, a little above including its Mudarib fee, was 16% higher than in 2012, at
the previous 2.5% growth rate. The government maintained $37 million. Nevertheless, with lower receipts from fees
a budget deficit, which reached -2.5% of GDP, in pursuance and banking commissions (due to regulatory restriction on
of its development goals while, driven by a positive trade fx spreads) and other operating income, its total operating
balance with high oil and gas revenues supported by a growing income was 9% below that earned in 2012 at $102 million.
non-hydrocarbon sector, the current account surplus reached As operating expenses were 7% higher at $39 million, the
3.2% of GDP, a little lower than in prior years. Consumer net operating income was 16% lower at $63 million. Even
price inflation fell back to 3.6% from over 8.0% in 2012. including a net recovery of provisions and a reduced taxation
charge, the net profit for the year was 5% below that for
At the same time as taking steps, such as the recently 2012, at $51 million.
inaugurated El Merk processing facility, to support continuation
of its crude oil production, the government is pursuing its From the current 26 branches in 2013, Al Baraka Algeria
long term strategy of investing in non-hydrocarbon projects, intends to finalise the opening of 4 new branches in 2014,
as it seeks to diversify the economy and reduce the high bringing the network up to 30, under a 5-year strategy that
level of unemployment. It has introduced new measures in anticipates a total network of 50 by 2018. Work continued
its 2014 budget to encourage foreign investment. on the construction of its new headquarters building, which
is expected to be inaugurated in 2014. Its ATM service is
In 2013 Al Baraka Algeria’s total assets increased by 6% being expanded alongside the branch network, with 16
to $1.96 billion. Most of this expansion occurred through branches currently offering full service machines, including
a 45% surge in the Ijarah Muntahia Bittamleek portfolio and payment and transfer options, the intention being that all
increases also in Salam and Musharaka financings, offset by branches will eventually contain these services. 2014 is
a 5% reduction in Murabaha sales receivables and a 21% also expected to see the launch of its SMS and e-banking
drop in Istisna’a financings. Funding sources increased by 8%. services. The bank meanwhile has continued to develop its
product range, with finance for real estate rental introduced
In keeping with the slightly reduced Murabaha portfolio, joint in 2013, in addition to microfinance and SME-geared facilities,
income from this source was 6% below the previous year. a variety of Takaful insurance services and Hajj and Umrah
However, total income from joint financings and investments savings accounts.
rose by 13% to $59 million, mainly as a consequence of the
expanded Ijarah Muntahia Bittamleek portfolio. The bank’s In 2013 Al Baraka Algeria was honoured with the award ‘Best
share of income from the jointly financed portfolios, after Islamic Financial Institution in Algeria’ by Global Finance
accounting for the share allocated to the equity of IAH and Magazine.

(All figures in US Dollars unless otherwise stated)

Pages 36 & 37
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Banque Al Baraka D’Algerie S.P.A.

Banque Al Baraka D’Algerie was incorporated in May 1991 Unit Head: Mr. Mohamed Seddik Hafid
as the first Islamic Bank and operates under a commercial Title: Board Member & General Manager
banking license issued by the Bank of Algeria. The main
activities of the bank are retail and commercial banking. Address: Hai Bouteldja Houidef, Villa No. 1
The Bank operates 26 branches. Rocade Sud, Ben Aknoun
Algiers
Algeria

Tel: +213 21 91 64 50 to 55
Fax: +213 21 91 64 58

albaraka-bank.com

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Islamic Bank B.S.C.

Founded 1984 - Bahrain

The Bahrain economy grew by 3.9% in 2013, similar to its total operating income up to $20 million, 10% above
2012, as its oil production was stable and international 2012’s. Operating expenses being 2% below those in 2012
hydrocarbon prices remained at similar levels to 2012. The at $19 million, the net operating income – and net profit
current account surplus was strong at 6.2% of GDP, although - was $1 million, a welcome reversal of the $5 million net
this is forecast to decline somewhat from 2014 onwards as loss suffered in 2012.
the budget deficit, currently at -3.5% of GDP, continues to
rise. Factors contributing to the expanding deficit include Over the years, Al Baraka Bahrain has developed a wide range
the cost of new social housing projects being constructed of products and services, including a spread of personal,
to help alleviate the shortage of affordable housing in the housing and automobile finance offerings, its Taqseet card
Kingdom and measures to try to bring down the level of (repayment by instalments) offering multiple Murabaha
unemployment. Inflation remained stable at 3.2%. finance transactions to assist household in purchasing
a wide variety of electronic and other household goods, and
Al Baraka Bahrain was one of the first Islamic banks to be Takaful insurance. In 2013 it added to its Taqseet range by
established in Bahrain, opening its doors in 1984. Later, it introducing an innovative new product, a variation of Taqseet
spread to Pakistan where it opened a number of branches based on the principle of Ijara whereby the bank, acting as
from 1991 onwards, operating as a foreign bank under lessor, leases to the client a service existing as a Forward
a commercial banking licence from the State Bank of Pakistan. Ijara, allowing for payment in instalments over time, which
It acquired a local bank in Pakistan in 2010, merging it and can be applied to facilities financing education, medical
its own branches under a newly incorporated subsidiary to treatment, travel and tourism, marriage, Hajj and Umrah. It
create the second largest Islamic retail banking institution also unveiled Taqseet facilities geared to expatriate residents
in Pakistan. in Bahrain and online banking services. For 2014, it plans
to bring out Bancassurance policies to cover customers’
In 2013 Al Baraka Bahrain’s total Bahrain-based assets grew automobiles, travel, fire and investments.
by 21% to $863 million. Most of the increase emanated
from the 74% growth in its Mudaraba portfolio and in the To its Bahrain ATM network it added a further 5 machines
other assets category, with important contributions also in 2013, bringing the overall number to 21. Its plan to open
recorded in the Ijarah Muntahia Bittamleek portfolio, which 2 new branches in 2013 having been deferred until 2014,
grew by 12%, the Murabaha financings where the end-year the coming year will see expansion of the bank’s branch
sales receivables balance was 10% higher, and to a lesser network to 8, with the aim of expanding steadily thereafter
extent also in the Musharaka portfolio and the non-trading to reach a total of 16 branches by 2018.
investments. Asset growth was fuelled by a 24% increase
in customer accounts including equity of the equity of IAH. Al Baraka Bahrain was proud to be chosen as the ‘Best Islamic
Bank in the Kingdom of Bahrain’ in February 2013 by the
The bank’s Bahrain-based total income from joint financings Foundation of Islamic Finance News, the Malaysia-based
and investments was 6% higher at $25 million, largely international institution specialising in news for the Islamic
as a result of healthy increases in the joint income from financial sector. The bank also won the ‘Best Islamic Bank
Mudaraba and Musharaka financings and to a lesser extent in Bahrain for 2012’ award from Euromoney Magazine and
Murabaha sales receivables. However, after accounting to the ‘Best Islamic Financial Institution in Bahrain’ from Global
equity of IAH for their share of the income and even after Finance Magazine.
including its fee as Mudarib, the bank’s share of this income
was 5% lower than in 2012, at $12 million. Nonetheless,
its income from self-funded financings and investments,
fees and commissions and other operating income brought

(All figures in US Dollars unless otherwise stated)

Pages 38 & 39
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Al Baraka Islamic Bank B.S.C. - Bahrain

Al Baraka Islamic Bank was incorporated in Bahrain in Unit Head: Mr. Mohammed Al Mutaweh
February 1984 and operates as a retail Islamic bank. It Title: Board Member & CEO
obtained a commercial banking license in Pakistan in 1991.
The bank operates 6 branches in Bahrain. Address: Al Baraka Tower, Building No. 238
Road No. 1704, Block No. 317
Diplomatic Area, P.O. Box 1882
Manama
Kingdom of Bahrain

Tel: +973 17 535 300

Fax: +973 17 533 993

albaraka.bh

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Islamic Bank B.S.C. Bahrain (continued)

Al Baraka Bank (Pakistan) Limited
Founded 2010

The Pakistan economy, still beset by failure to recover Notwithstanding the expansion in the asset base, total
from the energy shortages resulting from the 2010 floods, income from joint financings and investments fell by 13%
continued to weaken in calendar year 2013. For the fiscal to $53 million as, apart from Salam financings – the earnings
year to June 2013 GDP growth was an adequate 6.1% but from which rose by over 200% to nearly $4 million – and
it has fallen since and is forecast to fall further to 3.9% for a small increase in Musharaka income, revenues were down
fiscal 2014. The budget deficit worsened to -8.0% for fiscal across the board. Consequently, the bank’s share of income
2013, but is likely to improve somewhat in the current year, from this source, including its share as Mudarib, produced
projected at -6.3%. The current account deficit, which had earnings 3% lower at a little below $11 million. With the
deteriorated in 2012 to -1.7%, improved a little to -1.0% by inclusion of income from its own sales and investments, fees
the end of the fiscal year to June 2013. The rate of inflation and commissions and other operating income, however, its
also moderated somewhat, to 7.5% compared with 11.0% total operating income was 12% higher than the previous
for the calendar year 2012. year, exceeding $23 million. Operating expenses having
remained unchanged at $20 million, the net operating
The weakened balance of payments position will however profit was transformed from under $0.2 million in 2012 to
be assisted by the $6.64 billion IMF package approved in nearly $3 million. After provisions – significantly lower than
September 2013, in addition to a United States’ aid injection. for 2012 – and reduced taxation charge, the bank ended
The State Bank of Pakistan, constrained by lower reserves, the year with a net loss of only $0.2 million, a significant
has been unable to provide strong support for the Pakistan improvement over 2012’s $6 million loss.
Rupee, which has consequently lost more than 6% of its
value against the US dollar over the last 6 months. The State The bank opened 16 new branches over the course of the year,
Bank, however, maintained its economic stimulation policy focusing on the more rural/agricultural areas of the country.
by reducing its discount rate over the period. This brought its total network to 110 branches covering 63
cities and towns in Pakistan. Under its 5-year rolling plan it
Al Baraka Bank (Pakistan) Limited – Al Baraka Pakistan - intends to have 230 branches established by 2018. It also
began life in 1991 when it was established by Al Baraka created 2 new dedicated departments responsible for Public
Islamic Bank (Al Baraka Bahrain) as a foreign bank under Sector & Institutional Relationships and Commercial &
a commercial banking licence granted by the State Bank of SME Banking, respectively. New products included savings
Pakistan. In 2009 Al Baraka Bahrain received the approval of accounts geared to regular savers, senior citizens and young
the State Bank of Pakistan for its Pakistan arm to be licensed savers, and an international debit card, in addition to an
as a separate bank under the ABG umbrella. In October enhanced consumer automobile Ijarah product. For 2014
2010 the bank’s Pakistan branches were merged with those it plans the launch of SMS banking and Internet banking
of Emirates Global Islamic Bank, the resultant new entity for personal customers, term deposits designed for senior
emerging as a subsidiary of Al Baraka Bahrain and one of citizens and a home financing product. It aims to expand
the largest Islamic banks in Pakistan. The successful growth its ATM network by 32 machines, bringing its total to 75.
strategy was duly reflected in April 2013, when the bank
proudly inaugurated its new Head Office building in Karachi.

Al Baraka Pakistan’s total assets rose by 10% in 2013 to

$825 million, with the main increases being in the Murabaha
sales receivables and the bank’s liquid assets. Musharaka,
Istisna’a, Salam and Ijarah Muntahia Bittamleek portfolios
also contributed, offset by a 25% reduction in non-trading
investments. Customer accounts including equity of IAH
helped to fund the expansion, growing by 10% over the year.

(All figures in US Dollars unless otherwise stated)

Pages 40 & 41
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Al Baraka Bank (Pakistan) Limited

Al Baraka Bank (Pakistan) Limited has been present in its Unit Head: Mr. Shafqaat Ahmed
erstwhile form of 29 branches of Al Baraka Islamic Bank B.S.C. Title: Board Member & CEO
since 1991. In October 2010, it acquired Emirates Global
Islamic Bank to form Al Baraka Bank (Pakistan) Limited with Address: 162, Bangalore Town
a total of 110 branches. Main Shahrah-e-Faisal
Karachi
Pakistan

Tel: +92 21 34315851

Fax: +92 21 34546465

albaraka.com.pk

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Bank Tunisia

Founded 1983

Tunisia’s economic performance remained weak over 2013, Al Baraka Tunisia’s total assets grew by 16% to $658 million
with GDP growth restrained at around 2.7%, similar to that in 2013, as a 40% drop in Murabaha sales receivables to $231
for 2012. The budget deficit was -7.0% of GDP and looks million was more than compensated by 59% growth in the
set to continue at a high rate as the government struggles Mudaraba portfolio and the expansion of its non-trading
to manage costs and reduce subsidies while revenues from investments from $7 million to nearly $138 million, while
tourism, energy, olive oil and mining remain down and trade the value of its fixed assets also rose strongly. Funding for
volumes with the EU and Libya – some of its most important this expansion was provided mainly from a $75 million
trading partners – continue to drop. The Securities and Stock shareholders subordinated loan.
Exchange stayed volatile during the year, while foreign direct
investment continued to decline. These factors all contributed Despite the growth in assets, the bank’s total operating
to the widening of the current account deficit to -8.2% of income was only 2% higher than that of 2012, at $21
GDP. The rate of inflation was 6.1%, while the Tunisian Dinar million. Although its total income from joint financings and
continued to fall against international currencies, especially investments grew by 4%, after accounting to the equity
the euro and the US dollar. It is hoped that the government’s of IAH investors for their share and including its Mudarib
negotiations with the IMF over reforms will lead to greater fee the bank’s share at $14 million was 2% under that of
international support in time. the previous year, the inclusion of revenues from fees and
commissions and other operating income accounting for
In these circumstances the maintenance of liquidity has the difference. Operating expenses were 13% higher at $12
been a priority to Tunisian banks, and the Central Bank has million, leaving a net operating income of $8 million which,
maintained its support through the refinancing window. The however, after allocating lower provisions than in 2012 and
Central Bank has meanwhile begun the process of carrying despite a higher taxation charge, led to a net profit of $6
out a comprehensive audit of the public banks, employing million, 18% above that for 2012.
the services of three international consulting firms. It has
also carried out a study on the provision of micro-finance In preparation for the conversion of the bank to a Tunisian
and prepared a strategy to support this sector by providing onshore institution, Al Baraka Tunisia has recently been
credits and putting in place the necessary infrastructure for adapting its new core banking IT system to accommodate
such financing – a measure that is welcome to those banks the bank’s expansion and development of its new activities.
such as Al Baraka Tunisia that wish to expand into this area During the year it also launched its new Gold MasterCard,
of financing. Also welcome was the passing by the Tunisian which was received well. It has also been preparing a range
Constituent Assembly of a bill establishing the means by of new products to introduce to the market, including
which Islamic instruments can be employed in economic financings to facilitate the purchase by its customers of
transactions in the public and private sectors. residential housing and automobiles and the financing
of Hajj and Umrah pilgrimages. These products, together
The most important event, from Al Baraka Tunisia’s viewpoint, with the introduction of services permitting payment of
to have occurred during the year was the approval by the bills and other transactions via mobile phones and other
authorities to a change in its licence from an offshore bank telephone banking services, and a Visa Platinum card, will
to a full onshore bank. This welcome move, occurring in the be introduced in 2014.
year of the 30th anniversary of its founding in Tunisia, will
establish the bank as a separately capitalised institution in its The bank now plans to open its new business centre at its
own right, whilst permitting it to conduct a greater range of main branch, focusing on the needs of businessmen and
retail activities in local currency and to expand accordingly. enterprises, in 2014. At the same time, it has renewed its
ambition to expand its branch network into all the most
important areas of Tunisia and has purchased premises
for 4 of the 10 branches to be opened in 2014, which will
bring its total network to 18. Its long-term ambition is to
open thereafter 10 branches a year so that it will have
a network of 58 by 2018. Similarly, its current ATM network
will be expanded in 2014 to 70 machines, dealing with local
currency transactions, with 58 dealing in foreign exchange.

(All figures in US Dollars unless otherwise stated)

Pages 42 & 43
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Al Baraka Bank Tunisia

Al Baraka Bank Tunisia was established in 1983. The bank has Unit Head: Mr. Fraj Zaag
both offshore and local retail activities in accordance to Shari’a Title: Board Member & General Manager
principles. The bank operates 8 branches across Tunisia.
Address: 88, Avenue Hedi Chaker 1002
Tunis
Tunisia

Tel: +21671 790000

Fax: +21671 780235

albarakabank.com.tn

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Bank Syria s.a.

Founded 2009

The ongoing conflict in Syria has taken a devastating toll The total operating income was higher in 2013 by 127%,
on its economy, with estimates of the precipitous drop in at SYP3.75 billion – in US dollar terms this translated into
GDP since 2011 of 3.7% in 2011, 18.8% in 2012 and 19.0% a 14% increase to $28 million. Of this, the main contributor
in 2013. The hardest hit economic sectors have been oil fell under the category of other operating income (partly
extraction and production, internal trade and transport, reflecting the Treasury operations referred to above) which
while both public and private investment have fallen sharply. rose by 164% to SYP2.61 billion, with income from joint
The government’s budget for 2014 includes an allocation of financings and investments – largely from Murabaha financings
some $4.5 billion for subsidies, 44.2% of its total expenditure. in absolute terms – being 45% higher at SYP558 million of
From an exchange rate of SYP77/US$ at the beginning of which the bank’s own share after distribution to IAH investors
the year, the Syrian Pound had fallen to SYP144/US$ at the rose by 138% to SYP319 million. Total operating expenses
end of 2013. amounted to SYP686 million ($5 million), producing a net
operating income of SYP3.06 billion or $23 million. After
As a consequence of the fall in value of the Syrian Pound, the allocations for (reduced) provisions and taxation write back,
performance of Al Baraka Syria must be viewed in terms of the net profit was SYP2.61 billion or $20 million.
the local currency alongside the currency of consolidation
into Group accounts i.e. the US dollar. The bank focused The bank’s network remained at 9 branches during the year
on Treasury operations to compensate for the difficulties as it put its branch expansion on temporary hold. However,
in identifying good quality local financing opportunities, it has established plans for opening a further 4 branches in
in addition to the provision of indirect facilities (letters of 2014 if conditions allow, as part of its long term plans for
credit, guarantees etc.) to its prime customers. The bank’s a 30-branch network. It is also finalising its plan to relocate
total assets thus grew by 44% to SYP60.85 billion, but fell to new headquarters in Yafour, outside Damascus, having
by 23% to $424 million in terms of the US dollar. Growth completed the bidding process for the construction of
was largely seen in Mudaraba financings and in liquid assets, a six-floor building at Emaar 8th Gate, Damascus. It aims
offset by falls in Murabaha sales receivables and Musharaka. to launch a new Al Baraka Gold savings account shortly,
Customer accounts and equity of IAH together rose by 23% the first product to facilitate customers’ gold savings in the
in local currency terms but declined by 34% when expressed Syrian market.
in US dollars.
Al Baraka Syria was proud to have obtained the ISO 9001:2008
Quality Management certification in 2013, the only Syrian
bank to have achieved this to date.

(All figures in US Dollars unless otherwise stated)

Pages 44 & 45
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Al Baraka Bank Syria s.a.

Al Baraka Bank Syria started its operations in accordance Unit Head: Mr. Mohammed Halabi
with Shari’a principles during 2009 and has grown as an Title: Chief Executive Officer
Islamic institution offering a variety of financing products
and services that suit different market segments and address Address: Alshahbander Street
their financial needs, via a chain of 9 branches spread across P.O. Box 100
the major cities in Syria. Damascus
Syria

Tel: +963 11 443 78 20

Fax: +963 11 443 78 10

albarakasyria.com

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Bank Limited

Founded 1989 - South Africa

The slowdown in the South African economy experienced fees and commissions and other operating income, the
in 2012 continued into 2013, when a growth rate of total operating income was 16% higher at ZAR172 million
a mere 1.9% reflected the continuing effect on the country’s ($18 million). Operating expenses totalled ZAR129 million
export market of the slow recovery in its major eurozone ($13 million), leaving a 12% higher net operating income of
and Chinese markets. As a result the current account deficit ZAR43 million ($4 million) and, after allocating provisions
rose to -6.5% of GDP, while the budget deficit remained at and increased taxation charge, a net profit of ZAR29 million
about -4.8% of GDP, although this was a little better than ($3 million) compared with ZAR26 million or $3 million
had been expected. The rate of inflation remained high in 2012.
although stable at 5.8%. The Rand depreciated further,
reaching ZAR 10/US$ by the end of the year. Al Baraka South Africa was pleased with the results of its
first full year of retail trading in foreign exchange, utilising
Al Baraka South Africa’s total assets rose in 2013 by 19% an innovative Shari’a compliant contract designed internally.
to ZAR4.41 billion in Rand terms but fell by 4% to $422 It intends to build on this success by establishing up to 10
million in US dollars. The most important contributors to outlets for retail foreign exchange services in the coming years.
the rise were the Murabaha sales receivables, which grew The bank is planning the issue of a ZAR150 million Sukuk in
by 16% to ZAR1.63 billion (in US dollar terms, fell by 5% early 2014 once it receives official approval, which will add
to $156 million) and the Musharaka financings which rose to its Tier 2 capital. Its Debit Card is to be internationalised
14% to ZAR2.12 billion (fell 8% to $202 million). On the shortly using EMV (chip enabled) technology and it will be
liabilities side the customer current and other accounts introducing a Forward Exchange service for its clients during
grew by 63% to ZAR299 million and equity of IAH by 16% the year. Mobile banking services will be unveiled in the
to ZAR3.64 billion. year ahead too, while a Wills and Administration of Estates
department will be established for the benefit of clients. It
The total income from joint financings and investments was plans also to open 1 new branch - in Pietermaritzburg - in
11% higher at ZAR291 million (6% lower at $30 million in 2014 to add to its existing network of 11, under its long
US dollar terms), reflecting the expansion of the Musharaka term plan to add 5 branches to the network.
book and Murabaha sales receivables. Following allocation
to the equity of IAH investors and including its Mudarib fee, In 2013 Al Baraka South Africa was justly proud to be honoured
the bank’s share amounted to ZAR138 million – 12% higher with the ‘Best Islamic Financial Institution in South Africa’
than for 2012 – or $14 million. Adding the bank’s share of award from Global Finance Magazine.
income from trading securities, non-trading investments,

(All figures in US Dollars unless otherwise stated)

Pages 46 & 47
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Al Baraka Bank Limited - South Africa

Al Baraka Bank Limited was established in 1989 and operates Unit Head: Mr. Shabir Chohan
as a commercial Islamic bank. The bank has 3 corporate Title: Board Member & CEO
offices and 7 retail branches and a business office.
Address: 2 Kingsmead Boulevard
Kingsmead Office Park
Stalwart Simelane Street, P.O. Box 4395
Durban 4000
South Africa

Tel: +2731 364 9000

Fax: +2731 364 9001

albaraka.co.za

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Bank Lebanon S.A.L.

Founded 1991

Both the Lebanese political scene and the economy, with its figure. Operating expenses were 12% higher than the
historically strong links with Syria, continue to be impacted by year before, at $10 million, leaving a net operating loss of
the civil war in Syria. Lebanon has been without a government $0.5 million and, after accounting for provisions charge,
for several months and negotiations between political parties a net loss of $1.5 million for the year.
seem to be making little progress. Activity on the Beirut
Stock Exchange has fallen sharply on a year-to-year basis. Determined to rise above the problems permeating the
Unemployment remains high and the influx of refugees economy, Al Baraka Lebanon sought various avenues to
from across the border – adding an estimated 30% to the encourage growth and assist business and individual customers
Lebanese population - has imposed a strain on the country’s alike. It signed a number of protocol agreements with Chambers
resources. Tourism has fallen significantly. Reflecting these of Commerce, various associations and investment funds
factors, the economy has performed weakly, with latest to help promote Shari’a compliant financings to SMEs and
estimates of an optimistic 1.3% growth rate in 2013. The rate entrepreneurs, and an agreement with the University of
of inflation is estimated to have remained subdued, however, Lebanon to offer scholarships and practical training on
despite 9% wage increases for public sector workers. The Islamic banking operations. It is meanwhile implementing
current account deficit has stayed high and is estimated to an action plan aimed at becoming SR ISO 26000 compliant
be around -9.0% of GDP. and developing its training unit with the intention of it
becoming a centre for Islamic banking education and training
Total assets at Al Baraka Lebanon grew by 19% to $357 in Lebanon, offering courses and workshops in these fields
million in 2013. The biggest component as usual was the externally. Al Baraka Lebanon was honoured during the year
Murabaha sales receivables which rose by 36% to reach to receive the ‘Best Islamic Financial Institution in Lebanon’
$150 million, with other contributors to the rise being award from Global Finance Magazine.
chiefly Mudaraba financing, which expanded by 17%, trading
securities, investments in properties and other assets. The New products announced in 2013 include a credit and charge
growth was funded by customer accounts including equity card designed to appeal to ladies and providing discounts,
of IAH which grew in aggregate by 19% to $307 million. gifts and other free services available at a select group of
suppliers and service providers, in addition to enhanced
Total income from joint financings and investments was ATM services and online banking services. A number of
5% down on the year at $12 million, as a 24% increase in other new products are being developed to be launched
Murabaha financing income was more than offset by a fall in 2014, including SMS banking, a banking application for
in income from investments. The bank’s share including its mobile phones, a 24 hour customer interaction centre and
Mudarib fee amounted to $6 million, a 9% decline from the a prepaid MasterCard for international travel. Two new ATMs
previous year. With the inclusion of income from self-funded have been installed during the year. These new products
financings and other investments, fees and commissions expanded the existing range of facilities which, inter alia,
from banking activities and other operating income, total provide assistance to customers to finance residential housing,
operating income amounted to $9 million, 6% below 2012’s car purchases, dentists’ equipment, wedding expenses, Hajj
and Umrah insurance and travel costs, school and university
fees, a wide variety of current and investment accounts and
several different credit, debit and charge cards.

(All figures in US Dollars unless otherwise stated)

Pages 48 & 49
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Al Baraka Bank Lebanon S.A.L.

Al Baraka Bank Lebanon was founded in 1991 and operated Unit Head: Mr. Mutasim Mahmassani
under a commercial banking licence until 2004 when Title: Board Member & General Manager
an Islamic Banking Law was instituted and the Bank
obtained an Islamic banking licence. Its activities comprise Address: Justinian Street,
retail and commercial banking in accordance with Islamic BAC Center,12th floor
Shari’a principles. The Bank operates 7 branches in various Sanayeh, near Chamber of Com & Inds.
Lebanese cities. Beirut
Lebanon

Tel: +9611 748061 to 65

Fax: +9611 748061 to 65 Ext: 700

al-baraka.com

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Bank Sudan

Founded 1984

The Sudanese economy is estimated to have grown by 3.0% ($18 million) and, after accounting to the equity of IAH
in 2013, aided by increased domestic oil production, oil investors, the bank’s share including its Mudarib fee was
transportation levies from South Sudan – which have started SP86 million ($15 million). However, its income from self-
to flow through as a result of the two countries reaching funded financings and investments, fees and commissions
a level of agreement on the matter – and gradually rising gold and other operating income contributed SP56 million
production. The economy was however adversely affected ($10 million) to the total. After operating expenses, 36% higher
by the steps taken by the government to reduce petrol at SP82 million ($14 million), the net operating income was
subsidies and increase taxation and customs duties. The SP61 million ($11 million) which, following lower provisions
Sudanese Pound continued its decline against international but higher taxation charge, resulted in a net profit of SP50
currencies, reaching SP5.7/US$ compared with SP4.4/US$ at million or $9 million, comparing well with the $5 million
the beginning of the year. The rate of inflation also increased, reported in 2012.
reaching 29.4% according to local sources.
The bank opened 1 new branch in 2013, in Omdurman, in
In 2013 Al Baraka Sudan’s total assets rose by 25% to SP1.85 addition to an exchange office in Kosti, bringing its network
billion or in US dollar terms $311 million. Most of the increase to a total of 27 branches. It intends to revert to its network
emanated from a 64% expansion in the Murabaha sales expansion programme by opening at least 1 new branch
receivables but other important contributors included the a year to reach 32 by 2018. Its ATM network now covers 36
Istisna’a, Musharaka, and Salam portfolios which grew by sites and is expected to expand similarly. During the year
69%, 23% and more than 600% respectively while fixed it completed the centralisation of its electronic clearing
and other assets also grew significantly. Customer current processes, contributing to an overall increase in efficiency.
and other accounts rose by 12% to SP872 million ($146 On the product front, it continued to expand its mortgage
million) while the equity of IAH increased by 37% to SP367 portfolio aimed at Sudanese workers abroad and to increase
million ($62 million). financing facilities to the mining and export sectors. In 2014
it will be launching a mobile banking service, incorporating
In line with the increase in earning assets, the total operating a bill payment service which may be utilised through either
income expanded by 29% to SP142 million ($25 million – mobile phone or the bank’s ATMs, and plans to launch an
although, due to exchange rate movements over the year, education funding facility as well as expand on the range
this represents a 6% decline over 2012). The income from of Takaful products it offers.
joint financings and investments amounted to SP100 million

(All figures in US Dollars unless otherwise stated)

Pages 50 & 51
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Al Baraka Bank Sudan

Al Baraka Bank Sudan was established in 1984 and its activities Unit Head: Mr. Abdulla Khairy Hamid
comprise retail, corporate, commercial and investment Title: General Manager
banking. The bank operates 27 branches.
Address: Al Baraka Tower
P.O. Box 3583
Qasr ST
Khartoum
Sudan

Tel: +249187 112 000

Fax: +249183 788 585

albaraka.com.sd

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Itqan Capital
Founded 2007

The Saudi Arabian economy remained in a moderately At the end of 2013 Itqan Capital’s total assets, reflecting
healthy state in 2013 with the GDP growth rate estimated the shareholders’ subordinated loan injection, rose from
at 2.9% and rising. GDP growth is projected to remain $17 million to $41 million. Its total operating income
positive over the next few years, backed by rising state and amounted to $1.7 million (compared with less than
private sector investment and a supportive fiscal policy. The $1 million in 2012), comprising mainly its total income from
budget surplus was equal to 6.1% of GDP while the current self financed investments and its fees from banking services.
account surplus was 18.4% of GDP. Inflation was contained Its operating expenses amounted to $4.5 million, slightly less
at an annual rate of 3.7%. than that for 2012, of which staff costs and related expenses
made up over 70%. The resultant operating loss – and net
ABG purchased 60% of the issued shares of Al Tawfeek loss for the year - was a little under $3 million, compared
Financial Group in 2012 and the name of the Company was with a net loss of almost $4 million in 2012.
subsequently changed to Itqan Capital. Although the Company
is a direct subsidiary of Al Baraka Islamic Bank, in light of For 2014, the Company plans to maintain the momentum
a management contract agreed between ABG and Al Baraka of its successful product development with, in addition
Islamic Bank whereunder the control and management of to extensions of existing products unveiled in 2013, new
the Company is transferred to ABG, it is treated as a direct issues including a Securitization Fund, a Global Real Estate
subsidiary of ABG in the consolidation of the accounts. Itqan Fund and a Fund of Funds. Internally, it will concentrate
Capital is a Saudi Arabia based investment company licensed on enhancing its technology and processes, including the
by the Capital Market Authority, engaged in asset and portfolio introduction of Cloud-based technology and the further
management, custody, debt and equity arrangement and development and strengthening of compliance, corporate
the provision of research and advisory services. It specialises governance, anti-money laundering and other processes.
in the generation of investment opportunities to pension It also aims to open 1 branch as part of its 5-year plan to
funds, foundations, charities, endowments, private and public have 5 branches established across the region by 2018.
companies, high net-worth individuals and family offices.
It is strategically important to the Group as it gives ABG
access to the extensive base of investors in Saudi Arabia
and the opportunity to introduce them to the Group’s wide
range of Shari’a compliant products.

In February 2013 Itqan Capital’s major shareholders injected

$26.6 million as a subordinated loan. Deployment of these
funds will be spread over two or more years but is focused
mainly on building a sustainable income stream, with
a portion set aside for product development. In March the
Company successfully closed its second real estate income
fund (REIF-II), at the same time announcing the distribution
of its first dividend under REIF-I, delivering a 7.5% return to
investors. In April and May it launched its first and second
portfolio management product, Al Joud Liquidity Management
Program and Real Estate Income Portfolio Management
Program (REIP), respectively. In October it established the
first joint private equity fund focused on investments in the
education sector. Finally, at the end of the year it launched
REIF-III, its third real estate income fund.

(All figures in US Dollars unless otherwise stated)

Pages 52 & 53
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Itqan Capital
Itqan Capital is a Saudi Arabia based investment company Unit Head: Mr. Adil S. Dahlawi
licensed by the Capital Market Authority, engaged in asset Title: MD & CEO
and portfolio management, principal investment, debt and
equity arrangement, Itqan Capital aspires to be the Kingdom’s Address: Al Shatei Center, Al Malik Road
pre-eminent provider of investment offering to pension P.O. Box 8021
funds, foundations, charities, endowments, private and public Jeddah 21482
companies, high net worth individuals and family offices. Kingdom of Saudi Arabia

Tel: +966 2 234 7000

Fax: +966 2 234 7222

itqancapital.com

Al Baraka Annual Report 2013

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President & Chief Executive’s Report (continued)

Al Baraka Banking Group Representative Office, Indonesia

Founded 2008 Unit Head: Mr. Moesfian Mokhtar
Title: Chief Representative
Indonesia’s economic growth in 2013 is estimated to have
been 5.6% compared with 6.3% in 2012. The current account Address: Ravindo Building, 10th Floor
remained in deficit at -3.5% of GDP having swung into deficit Jalan Kebon Sirih, No. 75
in 2012 from a small surplus in 2011. The budget deficit was Jakarta Pusat 10340
-3.3% of GDP but is improving. The rate of inflation increased Indonesia
to 7.1% from 4.4% however. The Indonesian government’s Tel: +62 21 316 1345
policy is to boost economic growth and investment, but Fax: +62 21 316 1074
it is proposing to cut fuel subsidies substantially in 2014,
a controversial step. albaraka.com

The Indonesian government’s policy in recent years has been

one of encouragement of Islamic banking in the country,
with a long term target of increasing Islamic banking assets
to 5% of total banking assets. Islamic finance in Indonesia
began to expand from 2008, from which base it has shown
strong growth. The favourable regulatory environment,
growing economy and the fact that Indonesia has the
largest Muslim population in the world, makes Indonesia
an attractive destination for Islamic banks, including ABG.

ABG’s representative office serves as a base for the Group

to conduct research on local banks and their potential for
acquisition and for assessing the business potential of the
country from the Group’s perspective. The representative office
is also responsible for maintaining contact with regulators
and major banking groups in Indonesia and for preserving
the image and brand value of the Group. With trade flows
between Indonesia and many of the countries where the
Group operates growing rapidly, the Indonesia Representative
Office pro-actively identifies business opportunities and
generates leads that are directed towards ABG subsidiaries.

Pages 54 & 55
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Al Baraka Banking Group Representative Office, Libya

Founded 2011 Unit Head: Mr. Mohamed ElKhazmi
Title: Chief Representative
Conditions in Libya currently render economic statistics
rather unreliable, but GDP is estimated to have increased by Address: Tripoli Tower, Tower 1
about 1.5% in 2013. The current account was in surplus, at 14th Floor, Office No. 144
about 4.8% of GDP, with a small budget deficit forecast for P.O. Box 93271
the year as a whole. The inflation rate was steady at about Tripoli
Libya
3.2%. The economy is at a difficult point as the government
attempts to stabilise the environment so that the economic Tel: +218 (21) 336 2310
infrastructure, seriously damaged during the revolution, can +218 (21) 336 2311
be addressed and much needed reforms put in place. Fax: +218 (21) 336 2312
albaraka.com
Following the end of the revolution in 2011, as the situation
began to return to normality albeit amid sporadic instances
of uncertainty, ABG commenced operations at its new
representative office in early 2013 in order to place the Group
advantageously in the promising Libyan banking market. The
representative office is tasked with supporting and liaising with
the other ABG units to seek to generate business, establish
and maintain relationships with local regulators and banks
and explore other appropriate business avenues.

Al Baraka Annual Report 2013

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‘We believe that we

have a particular
obligation to
society, through
patronage and
sponsorship of
educational and
social projects.’

Pages 56 & 57
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Corporate Governance

ABG was formed in 2002 to bring together 10 individual • ensuring that ABG and its subsidiaries’ operations are
banks, sharing common ownership and ethical vision but supported by an appropriate control environment
separate in all other respects, under a single management i.e. that Internal Audit, compliance, risk management
group focused on the achievement of strong yet sustainable and financial control and reporting functions are well
financial returns and the building of consistent shareholder resourced and structured;
value over the long term. From the beginning ABG regarded • ensuring that the Group’s operations are supported by
the inculcation of a disciplined corporate governance and risk a reliable, sufficient and well integrated information system;
management culture as a fundamental prerequisite to effective • recognising and communicating to Executive Management
management of the Group. The adoption and maintenance, the importance of the internal audit function at ABG and
through continual and vigilant review, of the highest standards its subsidiaries, periodically reviewing internal control
of corporate governance and risk management have thus been procedures and taking measures to enhance the function
key to building a strong, ethical, responsible organisation, of internal audit and to act in a timely and effective manner
establishing an overarching governing structure under which on its findings; approving the writing off of credit facilities
the functions, roles and responsibilities are clearly divided and investments where appropriate, in accordance with
between the Board of Directors and Executive Management, the Group’s policies and procedures;
officers and staff of the organisation. • approving strategic investments by ABG and its
subsidiaries;
THE BOARD OF DIRECTORS • monitoring potential conflicts of interest and preventing
The Board of Directors is responsible for the establishment abusive related party transactions;
and oversight of the Group’s business strategy and priorities, • approving material transactions outside the normal
for setting its high-level policies and for overall management, course of business or in excess of the limits of approval
and is accountable to shareholders for the financial and authority delegated to Executive Management;
operational performance of the Group. It is responsible • ensuring the preparation of financial statements which
for the raising and allocation of capital, monitoring of accurately disclose the Group’s financial position,
Executive Management and its conduct of the Group’s on a regular and consistent basis, and for reviewing
operations, for making critical business decisions and for and approving for dissemination its periodic financial
building long-term shareholder value. The Board ensures statements and annual reports;
that the Group manages risk effectively, through approving • approving all significant changes in the Group’s
and monitoring the Group’s risk appetite and identifying accounting and reporting policies;
and guarding against the longer term strategic threats to • ensuring compliance with all relevant requirements
the business. of Shari’a and Islamic Accounting Standards issued by
the Accounting and Auditing Organization for Islamic
The Board is also responsible, inter alia, for: Financial Institutions (AAOIFI);
• ensuring that the Group establishes and maintains
• setting and reassessing periodically the Group’s corporate an approved employee Code of Conduct and is in
goals and objectives; compliance therewith;
• establishing policies to further the achievement of the • ensuring that the control environment maintains
Group’s corporate goals and objectives; necessary client confidentiality and that clients’ rights
• establishing and regularly reviewing the management and assets are properly safeguarded ;
structure and responsibilities and monitoring the • convening and preparing the agenda for shareholder
effectiveness of Executive Management including its meetings;
ability to plan and execute strategies; • ensuring the equitable treatment of all shareholders
• holding Executive Management accountable for results; including minority shareholders; and
• putting in place adequate policies and processes for • performing any other functions required of the Board of
approving budgets and reviewing performance against Directors under applicable laws and regulations.
those budgets and against key performance indicators;
• ensuring that an adequate, effective, comprehensive and In its regular review of the Group’s strategy, the Board reviews
transparent corporate governance framework is in place; the Group’s business plans and the inherent level of risk
• establishing and approving policies and procedures in those plans; assesses the adequacy of capital to support
designed to ensure ethical behaviour and compliance with the business risks of the Group; sets performance objectives;
laws and regulations, auditing and accounting standards and oversees major capital expenditures, divestitures
and the Group’s own corporate governance policy; and acquisitions.

Al Baraka Annual Report 2013

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Corporate Governance (continued)

The Board of Directors has overall responsibility for the shortfalls. The CBB, ABG’s shareholders, the Board of Directors
Group’s system of internal control and its effectiveness and Executive Management have all been fully apprised of
and for defining and enforcing standards of accountability any such shortfalls and the milestones set. Accordingly,
that enable Executive Management to achieve the Group’s ABG has applied for and received the consent of the CBB to
corporate objectives. The Board ensures that the systems the appointment of the Chairman of the Board of Directors
and controls framework, the Board structure and the notwithstanding that he is not an independent director as
organisational structure of the Group are appropriate for defined in the CBB Rulebook. The Board Audit and Governance
the Group’s business and associated risks and regularly Committee members possess adequate awareness of Shari’a
assesses the systems and controls framework to that end. principles in relation to Islamic banking transactions and are
There are established and ongoing procedures in place therefore competent to oversee the audit of Shari’a-related
for identifying, evaluating and managing significant risks governance issues. ABG ensures on a continuous basis that
faced by the Group, which are regularly reviewed by the the minority shareholders of the Group are well represented
Board. The Group’s system of internal control provides for on the Board of Directors through the independent directors,
a documented and auditable trail of accountability and who have additional responsibility for protection of the rights
applies across its operations, is designed to ensure effective of minority shareholders.
and efficient operation and compliance with all applicable
laws and regulations, and seeks to manage risk with a view The Board of Directors meets regularly (at least four times
to avoiding material errors, losses and fraud. a year) and has a formal schedule of matters reserved to it,
considering key aspects of the Group’s affairs referred to it
In meeting its responsibility to ensure efficient governance for decision. The Board reviews the Group’s strategy and
in all matters related to ABG, the Board has established financial plans, all proposed material changes to the Group’s
a written compliance policy governing the Group’s compliance policies, structure and organisation, reports provided to it on
with all applicable laws and regulations, in particular those the operations of the Group (with emphasis on organisational
enacted by the Central Bank of Bahrain (CBB) and other development, risk management and information technology
local regulators. The Board has delegated responsibility for development) and the performance of Executive Management.
monitoring compliance to the President & Chief Executive, which All Directors attend all Board meetings whenever possible
responsibility is carried out through a dedicated Compliance and in any event not less than 75% of meetings in any
Department, whose mandate covers all aspects of compliance year, and maintain informal contact between themselves
including: formulation of effective policies and processes for in between meetings.
the management of the Group’s compliance risk; assisting
Executive Management and staff in managing risk; advising The Chairman is responsible for leadership of the Board and
on laws and regulations and applicable compliance standards; for its efficient functioning. He ensures that all members
disseminating compliance policies and providing guidelines receive an agenda, minutes of prior meetings and background
to ABG staff members; ensuring an effective compliance information in writing before each Board meeting and between
methodology; providing periodical reports to the Board in meetings when necessary. The Board and its Committees
connection with compliance controls; and implementing are supplied with full and timely information to enable
operational controls, Robust Anti-money laundering (AML) them to discharge their responsibilities. In this respect,
and Know Your Customer (KYC) framework. ABG is in the the Board, its Committees and all Directors individually
continuous process of enhancing its compliance framework have access to Executive Management, external legal or
and that of each of its subsidiaries. other professional consultants and advisors at the Group’s
expense, and to the Board Secretary, who is responsible
In October 2010 the CBB introduced new requirements to be for ensuring that the Board procedures and applicable
met by all licensees under Volumes 2 and 6 of Module HC of rules and regulations are observed. The Board encourages
its Rulebook, with respect to corporate governance principles participation by members of Executive Management at Board
in line with the Principles relating to the Corporate Governance meetings if appropriate regarding matters which the Board
Code issued by the Ministry of Industry & Commerce of the is considering and where the President & Chief Executive
Kingdom of Bahrain, international best practice corporate believes management should have exposure to the Board.
governance standards set by bodies such as the Basel Committee
for Banking Supervision and related high level controls and Under ABG’s Articles of Association the Board of Directors
policies. ABG conducts annual detailed internal assessments shall consist of not less than five and not more than fifteen
to ensure compliance with these requirements and has set members. Members of the Board of Directors hold office
specific milestones for implementation of any identified for a three-year renewable term, although the term of

Pages 58 & 59
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office may be extended at the request of the Board for decision making and performance. The posts of Chairman,
a period not exceeding six months with the approval of the Vice Chairman and President & Chief Executive are held
Minister of Industry & Commerce of Bahrain. by different Directors and the President & Chief Executive
has separate, clearly defined responsibilities. The Board
There is no maximum age limit at which a Director must retire and its Committees are regularly assessed with respect to
from the Board of Directors. Each Director’s membership their size and composition, while individual Directors are
of the Board shall terminate upon the expiry of his/her assessed annually for their effectiveness, contribution and
term, or upon the resolution of the shareholders in General independence in light of interests disclosed and conduct.
Meeting, or as a result of one of a number of specified The independence or non-independence of directors is
events or circumstances, including: reviewed annually.

• the original appointment being found to be contrary to ABG does not provide for any performance-linked stock
the provisions of ABG’s Articles of Association; incentives for the Board or Executive Management. All
• abuse by the individual of his/her position as director; directors are remunerated solely by means of an annual
• the individual’s failure to attend three consecutive Board retainer fee and sitting fees paid for each meeting attended, in
meetings without lawful excuse notified in writing to addition to reimbursement of travel expenses as appropriate.
the Board;
• upon the individual’s formal resignation from the Board The Board of Directors has adopted a formal Code of Business
following reasonable prior notice; or Conduct and Ethics applicable to Directors and Executive
• occupation of any other remunerative office within ABG Management, officers, employees and agents, consultants
unless specifically approved by the Board of Directors. and others representing or acting for the Group. Details of
the Code are provided in the Additional Public Disclosures
When an announcement is made requesting nominations section of this report.
for the position of membership of the Board of Directors
whose three year term is due to expire, such nominations In line with international best practice and the CBB Rulebook,
must be submitted to the Chairman of the Board within the Board has instituted corporate governance measures to
the time frame provided in the announcement. As part of ensure that the interests of the shareholders are protected,
the nomination process, each nomination must comply including the appointment to the Board of five independent
with local rules and regulations and must be submitted for directors as defined in the CBB Rulebook.
approval to the CBB in order to ensure compliance with the
CBB’s “Fit and Proper” criteria. The names of all nominated In 2013 the members of the Board were:
individuals so approved by the CBB are then submitted to
the shareholders at the next AGM for consideration and Non-Executive Directors
election. Election of ABG Directors takes place in accordance 1. Shaikh Saleh Abdullah Kamel – Chairman
with the rules and procedures set out in the Commercial 2. Mr. Abdullah Saleh Kamel – Vice Chairman
Companies Law and ABG’s Articles of Association. 3. Mr. Abdul Elah Sabbahi
4. Mr. Yousef Ali Fadil bin Fadil
Each new director elected to the Board has a written 5. Mr. Mohyedin Saleh Kamel
appointment agreement with ABG, detailing the powers, 6. Mr. Fahad Abdullah A. Al Rajhi
duties, responsibilities and obligations of that director and
other relevant terms and conditions of his appointment. Independent Directors*
1. Mr. Abdulla A. Saudi – Vice Chairman
There are currently twelve Directors on the Board, who 2. Mr. Saleh Al Yousef
have varied backgrounds and experience and who are 3. Mr. Ebrahim Fayez Al Shamsi
individually and collectively responsible for performing the 4. Mr. Jamal bin Ghalaita
responsibilities of the Board and for exercising independent 5. Dr. Bassem Awadallah
and objective judgement. No individual Director or group
of Directors has unfettered powers of decision making or Executive Director
dominates the Board’s decision making. Other than the Mr. Adnan Ahmed Yousif – President & Chief Executive
President & Chief Executive all Directors are non-executive
and fully independent of management and are individually All current Directors were elected for a 3-year term on 23
responsible for scrutinising and challenging management March, 2011.

* Dr. Anwar Ebrahim was an Independent Director until his resignation with effect from 16 July 2013

Al Baraka Annual Report 2013

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Corporate Governance (continued)

BOARD COMMITTEES The Board Audit and Governance Committee

The Board has put in place a number of Board committees, The Board Audit and Governance Committee is chaired by
membership of which is drawn from the Board membership Mr. Saleh Al Yousef. Other members are Mr. Ebrahim Fayez
and to which it has delegated specific responsibilities. The Al Shamsi and Dr. Bassem Awadallah. The Committee is governed
principal Board committees are: by a formal written charter adopted by it and approved by
the Board. The Committee meets formally at least four times
Board Executive Committee a year. External auditors attend at least one meeting annually.
The Board Executive Committee is chaired by Mr. Abdullah The external auditors, moreover, have unrestricted access to
Saleh Kamel and the other members are Mr. Adnan Ahmed the Committee and its Chairman throughout the year.
Yousif, President & Chief Executive, Mr. Abdul Elah Sabbahi and
Mr. Yousef Ali Fadil bin Fadil. The Board Executive Committee The Board of Directors has delegated to the Board Audit and
comprises a minimum of four Directors and meets at least two Governance Committee the responsibility for ensuring that
times a year. The Board has delegated to the Board Executive an effective internal auditing, continuous internal controls
Committee, under a formal written charter adopted by it, the monitoring, sound system of accounting, and financial control
responsibility to make recommendations to the Board, for the is in place. The Committee achieves this through regular
Board’s approval, concerning the Group’s overall strategies review of internal audit reporting, review of external auditors
and business plan, or any significant change to them, or any management letters, review of central banks inspection reports,
major change to its capital or organisation structure, assets and review of the Group’s accounting and financial policies,
or investments. financial reporting and disclosures and review of the adequacy
and effectiveness of the internal control procedures at the Head
Board Affairs and Remuneration Committee Office and in ABG’s subsidiaries. The Committee considers all
The Board Affairs and Remuneration Committee operates in matters relating to financial control and reporting, internal and
accordance with a formal written charter adopted by it. The external audits and their scope and results, risk management
Committee is chaired by Mr. Ebrahim Fayez Al Shamsi and its and compliance with regulatory and legal requirements,
other members are Mr. Jamal bin Ghalaita and Mr. Yousef Ali accounting standards and Shari’a requirements. It also considers
Fadil bin Fadil. The Committee meets at least twice a year and and approves the annual audit plans, ensures coordination
considers all material elements relating to remuneration policy, between the internal and external auditors, monitors the
including, inter alia, the approval of the remuneration of the independence, qualifications, effectiveness and performance
Directors, based on their attendance at Board and Committee of the external auditors and makes recommendations to the
meetings, and recommendation to the Board of the level of Board regarding the appointment, retirement and remuneration
remuneration of the Executive Management members and of the external auditors and the appointment of the Head of
other ABG employees under an approved performance-linked the Group’s Internal Audit Department.
incentive structure. The Committee also performs the role of
a Nominations Committee as described below. The Committee reviews the Group’s annual and interim
financial statements to recommend their approval to the
The Committee conducts an annual evaluation of the Board of Directors, the adequacy of provisions and any
performance of the Board, Board Committees and the President reports by external consultants on specific investigative or
& Chief Executive. When an issue relating to the personal advisory engagements.
interest of a Director is discussed in the Committee, the
interested Director withdraws from the meeting and abstains The Committee ensures that there are in place systems
from voting. The Committee is responsible for identifying of control appropriate to the business of the Group and
persons qualified to become members of the Board or the chief the information needs of the Board, including systems and
executive officer, the chief financial officer, the Board Secretary functions for identifying and monitoring risk, the financial
and other executive officers considered appropriate (with the position of the Group and compliance with applicable laws,
exception of the Head of the Internal Audit Department) and regulations and best banking practices and that all such
for making recommendations accordingly. It is also responsible information is produced on a timely basis. The various
for inducting, educating and orienting new Directors and for internal controls and processes are subject to independent
conducting seminars and other training programmes from review by the Group’s Internal Audit Department, which
time to time for Members of the Board. reports directly to the Committee. Management letters
and Issues of Importance issued by external auditors and
inspection reports issued by the inspector team of the
Central Bank of Bahrain or of any local central bank where

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ABG operates or issued by other regulatory authority are ensuring that all necessary steps are taken by management to
reviewed by the Committee once issued. The reports of identify, measure, monitor and control risk. The Committee’s
all these bodies are forwarded to the Board Audit and objective is to oversee the Group’s risk management systems,
Governance Committee who, acting on behalf of the Board, practices and procedures to ensure effective risk identification
ensures that appropriate corrective action is taken where and management and compliance with internal guidelines
required. The Committee is informed directly by Internal and external requirements. The Committee reviews issues
Audit’s reports submitted to it and by its discussions with identified by the Internal Audit and Compliance departments
external auditors of the work undertaken by them and their of ABG and/or any of its subsidiaries, such as weaknesses or
conclusions and recommendations. breakdowns in controls.

The Committee also oversees and monitors the implementation Board Social Responsibility Committee
of the corporate governance policy framework, providing the The Board Social Responsibility Committee is chaired by
Board with reports and recommendations based on its findings. Dr. Bassem Awadallah and other members are Mr. Adnan Ahmed
Yousif, Mr. Yousef Ali Fadil Bin Fadil and Mr. Fahad Abdulla
The Board has adopted a ‘whistleblower’ programme under Al Rajhi. The Committee leads the Al Baraka Social Responsibility
which employees can confidentially raise concerns about Programme. The Committee oversees the formulation of
possible improprieties in financial or legal matters. Under the policies and strategies by the Executive Management and the
programme, concerns may be communicated directly to any Management Committee of Social Responsibility in making
member of the Board Audit and Governance Committee or ABG and all its subsidiaries a model Islamic banking group
alternatively to an identified officer or employee who in turn offering banking and financial services in a socially responsible
reports the matter to the Committee. manner and in conformity with the objectives of Shari’a.

Board Risk Committee The Committee aims to adhere to the spirit of Islamic finance
The Board Risk Committee is chaired by Mr. Abdul Elah Sabbahi, that enjoins social responsibility as a principal feature of
with its other members being Mr. Jamal bin Ghalaita, Mr. Fahad Islamic banking and finance. The Committee demonstrates
A. Al Rajhi and Mr. Mohyedin Saleh Kamel. Membership of its commitment to the inherent social responsibility spirit
the Committee comprises a minimum of four Directors, all of Islamic finance by setting various quarterly and annual
of whom must be non-executive directors. The Board Risk targets for the Executive Management.
Committee meets formally at least twice a year but will
meet more frequently at the request of the Chairman of the The Committee comprises four Board Members and is chaired
Committee. It can call for the attendance of the President & by an independent Director. All minutes and reports of meetings
Chief Executive, Head of Credit and Risk Management and of the Committee are disseminated to all members of the
other senior executives of the Group at any of its meetings. Board of Directors.
The Group’s risk appetite is determined by the Board based on
the recommendations of the Board Risk Committee. The Board
Risk Committee is responsible for setting acceptable levels
of risks to which the Group may be exposed, for approving
management’s strategy for the managing of risk and for

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Corporate Governance (continued)

DIRECTORS’ ATTENDANCE AT MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES IN 2013

Name of Board / No. of meetings Dates of the No. of meetings Details of

Committees Members’ Name in 2013 meetings attended Attendance

Shaikh Saleh Abdullah Kamel 2 Attended 20/2, 16/7

Mr. Abdulla A. Saudi 6
Mr. Abdullah Saleh Kamel 5 Except 12/5
Mr. Saleh Al Yousef 20/02/2013 5 Except 20/2
Mr. Adnan Ahmed Yousif 19/03/2013 6
Dr. Anwar Ibrahim* 12/05/2013 -
Board of Directors Mr. Abdul Elah Sabbahi 6 16/07/2013 6
Mr. Ebrahim Fayez Al Shamsi 10/11/2013 6
Mr. Yousef Ali Fadil Bin Fadil 26/12/2013 6
Mr. Jamal Bin Ghalaita 4 Except 16/7, 26/12
Dr. Bassem Awadallah 6
Mr. Mohyedin Saleh Kamel 6
Mr. Fahad Abdulla A. Al-Rajhi 5 Except 26/12

Mr. Abdullah Saleh Kamel 30/01/2013 4

Board Executive Mr. Abdul Elah Sabbahi 4 02/05/2013 4
Committee Mr. Yousef Ali Fadil Bin Fadil 12/09/2013 4
Mr. Adnan Ahmed Yousif 16/12/2013 4

20/02/2013
Mr. Saleh Al Yousif 12/05/2013 5 Except 20/2
Board Audit and Dr. Anwar Ibrahim* 6 16/07/2013 -
Governance Mr. Ebrahim Fayez Al Shamsi 04/08/2013 6
Committee Dr. Bassem Awadallah 10/11/2013 6
26/12/2013

Board Affairs and Mr. Ebrahim Fayez Al Shamsi 09/01/2013 4

Committee Mr. Jamal Bin Ghalaita 4 17/04/2013 3 Except 3/7
Remuneration Mr. Yousef Ali Fadil Bin Fadil 03/07/2013 4
06/10/2013

Mr. Abdul Elah Sabbahi 13/02/2013 4

Board Risk Mr. Jamal Bin Ghalaita 4 12/05/2013 4
Committee Mr. Fahad Abdulla A. Al Rajhi 03/07/2013 4
Mr. Mohyedin Saleh Kamel 10/11/2013 3 Except 3/7

Board Social Dr. Bassem Awadallah 2

Responsibility Mr. Adnan Ahmed Yousif 2 19/03/2013 2
Committee Mr. Yousef Ali Fadil Bin Fadil 10/11/2013 2
Mr. Fahad Abdulla A. Al Rajhi 2

* Resigned with effect from 16th July 2013

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SHARI’A SUPERVISORY BOARD agreement specifying the rights and obligations attaching
ABG’s Shari’a Supervisory Board (SSB) is elected by the to the office of that member.
shareholders at AnnualGeneral Meeting upon recommendation
by the Board of Directors. The SSB is actively involved in the Executive Management also exercises control via the
development of the Group’s products and services and certifies following Committees, which have the following specific
or oversees the certification by individual subsidiaries’ SSBs responsibilities:
of every product and service accordingly as complying with
the standards and principles of Shari’a. Executive Management Committee
The Executive Management Committee’s role is to oversee
The SSB operates within its own charter which covers its the implementation of the strategic objectives of the
policies, procedures and responsibilities. In carrying out Group in relation to its business direction, operations, risk,
its responsibilities, the SSB has full access to the Board, expansion plans and overall policies and procedures. The
Executive Management and management and officers of the Committee is chaired by the President & Chief Executive
subsidiaries. In addition to reviewing and advising on Shari’a with the remaining membership comprising the Heads of
compliance of all products and services, it oversees the audit Strategic Planning, Operations and Administration, Credit
of the operations of the Group from a Shari’a perspective. and Risk Management and Treasury, Investments and
Financial Institutions, with the Heads of Financial Control,
The SSB meets at least 6 times a year. Its members are Legal Affairs and Internal Audit as observer-members.
remunerated by annual retainer fee and sitting fees per
meeting attended, with travel expenses reimbursed as Asset and Liability Committee
appropriate. Its members are not paid any performance- The Asset and Liability Committee’s mandate is to
related remuneration. monitor the liquidity and capital adequacy of the Group
and review the Group’s long term equity investments
EXECUTIVE MANAGEMENT and its penetration into the different markets. The
The Board of Directors has delegated to the Group’s Committee reviews liquidity and cash flow of ABG and
Executive Management Team the primary responsibility the Group and sets balance sheet growth targets, besides
for implementing the strategy of the Group, identifying monitoring the distribution of profits to investors. The
and evaluating significant risks to the business of the Committee is chaired by the President & Chief Executive
Group and for the design and operation of appropriate and its remaining members are the Heads of Treasury,
internal controls. Its other responsibilities include: Investments and Financial Institutions, Credit and Risk
ensuring that resolutions of the Board of Directors are Management, Strategic Planning, Financial Control and
carried out; ensuring that the Group operates at all times Operations and Administration, together with a senior
in accordance with the principles of Shari’a and that the member from the Bahrain based subsidiary, Al Baraka
decisions and recommendations of the Shari’a Supervisory Islamic Bank (Al Baraka Bahrain).
Board are carried out; providing the Board of Directors with
analyses, assessments and recommendations regarding Head Office Credit Committee
the Group’s activities and supplying the CBB with all The Head Office Credit Committee is the authority that
information required under the CBB Law and relevant approves credits and considers issues of Group credit
regulations. In meeting these responsibilities, Executive policy and Group credit exposures, problem credits and
Management has established a system for filtering down provisioning levels. The Head Office Credit Committee
to Group units strategic and other central decisions taken is chaired by the President & Chief Executive, with the
at the parent level, thus ensuring the implementation of remaining membership being drawn from among the
Groupwide policies and common operational processes Executive Management.
and procedures.
Management Risk Committee
As at the end of 2013, the Executive Management Team The Management Risk Committee’s role is to assist the
consisted of the President & Chief Executive and the Heads Board Risk Committee in managing and controlling risks
of Financial Control, Internal Audit, Strategic Planning, and to introduce and support such measures which
Credit and Risk Management, Treasury, Investments and enhance the efficiency of risk management policies,
Financial Institutions, Operations and Administration and procedures, practices and controls within the Group.
Legal Affairs. All members of the Executive Management It is chaired by the President & Chief Executive with
Team have been provided with a written appointment remaining membership comprising the Heads of Credit

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Corporate Governance (continued)

and Risk Management, Operations and Administration a Compliance Officer who is responsible for formulating
and Financial Control, and the Manager of Credit Review Group compliance strategy and a Group compliance
and Analysis. management framework, reflecting the following core
principles and practices which are embedded throughout
Head Office IT Steering Committee the Group:
The Head Office IT Steering Committee’s role is to draw
up the Group’s short and long term IT strategy and • complying with both the letter and spirit of all laws, rules
oversee and monitor its implementation throughout and regulatory standards applicable to it and each of its
the Group with a view to effecting standardisation in subsidiaries;
information and operation management. Membership of • ABG and each of its subsidiaries conducting themselves
the Committee is comprised of the Heads of Operations strictly in accordance with all regulatory and ethical
and Administration, Financial Control, Strategic Planning standards;
and Credit and Risk Management, together with senior • encouraging a strong compliance culture, under which
support nominees drawn from the Group. compliance is deemed to be the responsibility of every
individual in the Group; and
Human Resources & Compensation Committee • maintaining a strong corporate governance environment
The role of the Human Resources & Compensation at all times.
Committee is to review the Human Resources policies,
management and planning at the Group’s Head Office. Group compliance in ABG is an independent function
Membership of the Committee is comprised of the Heads responsible for:
of Operations and Administration, Strategic Planning and
Financial Control. • proactively identifying and evaluating compliance risks;
• developing compliance policies, programmes and plans
Head Office Insiders Committee and implementing procedures;
The Head Office Insiders Committee was set up in • monitoring, managing, mitigating and reporting
accordance with the guidelines issued by the CBB and compliance risks;
the Bahrain Bourse (BB) and is aimed at ensuring the • monitoring, investigating and reporting compliance
maintenance of a fair, orderly and transparent securities breaches, incidents and risks; and
market and enhancing and developing the practices • advising management and staff on compliance and
relating to the risk management systems and internal regulatory matters.
controls within listed companies and other similar
institutions. The Committee is responsible for monitoring The Compliance Officer reports directly to the President
and supervising issues relating to insiders in order to & Chief Executive. He provides an independent oversight
regulate their dealings in the Group’s securities and to on behalf of the Board of Directors whenever deemed
ensure that Group insiders are acquainted with and aware necessary by the Board. In addition, the Compliance
of the legal and administrative requirements regarding Officer has the right and the authority to contact the
their holdings and dealings in the Group’s securities, in CBB as and when considered necessary. The Compliance
addition to preventing the abuse of inside information by Officer is supported by dedicated Compliance functions
such insiders. The Committee is chaired by the President & in all ABG subsidiaries. At the Group level the Compliance
Chief Executive and the other members are the Heads of Officer is responsible for coordinating the identification
Internal Audit, Legal Affairs, Operations and Administration and management of the Group’s compliance risk in
and Investors’ Relations. collaboration with local Heads of Compliance in each of
the subsidiaries.
Other committees
The Executive Management forms ad hoc committees as Throughout its network of offices,ABG has developed written
and when required to address specific initiatives in which guidelines to staff on the appropriate implementation
the Group may be engaged from time to time. of laws, regulations, rules and standards through policies
and procedures, including the Compliance Policy. ABG’s
COMPLIANCE, POLICIES AND PROCEDURES Compliance Policy requires all subsidiaries, officers and
Group Compliance staff to comply with all relevant laws, rules, regulations and
In accordance with its resolve to apply and maintain the standards of good market practice.
highest standards of compliance, ABG has appointed

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In the Group, compliance risks fall broadly under the At the Group level, ABG has appointed a Group MLRO
following categories: whose responsibilities include formulating, issuing and
implementing the Group’s AML strategies and policies
• Regulatory compliance and Corporate Governance; on an ongoing basis, coordinating the activities of each
• Anti-money Laundering and Countering Financing of subsidiary’s MLRO, overseeing appropriate AML training
Terrorism (AML/CFT); for all relevant staff and reporting to the Board Audit and
• International sanctions; and Governance Committee and the Board of Directors on
• Foreign Account Tax Compliance Act (FATCA). critical money laundering issues.

Regulatory Compliance and Corporate Governance International Sanctions

At the Group level ABG is continuing to develop Group Owing to a raft of sanctions imposed by local and
policies for managing its compliance risks in all the above international regulatory bodies, sanctions compliance is
categories, which are cascaded down to its subsidiaries. one of the primary challenges faced by banks, particularly
Thereafter, suitable local policies in line with local those operating across multiple geographies. Breaches of
regulatory requirements are developed and implemented. sanctions expose banks to regulatory, reputational and
In addition, the Group has a strict Code of Conduct to commercial risks, including financial losses.
which all employees are required to adhere at all times. As
mentioned above, ABG has also developed a Whistleblower Being mindful of such risks, the Group has a Sanctions
Policy, which provides a formal channel for staff to report Policy in place to ensure adherence to all relevant sanctions
any unethical conduct or corporate wrongdoing. Staff orders. This Sanctions Policy sets out various restrictions
members are encouraged to report their concerns through and prohibitions relating to customers and transactions
communication channels which protect their identities, subject to sanctions. These restrictions sometimes extend
without fear of reprisal or victimisation. Reportable beyond the strict requirements of applicable laws in order
disclosures may include legal or regulatory wrongdoing, to safeguard the Group’s good reputation and standing.
fraud or any other malpractice. Other policies such as
Corporate Governance, Fair Treatment of Customers, Group strategy and policy for managing sanctions risk
Insider Trading and other such compliance-related policies is determined at the Group level and implemented
are in the course of being developed or enhanced. throughout ABG’s subsidiaries. Increasing attention to
sanctions compliance and implementation of screening
Anti-money Laundering and Countering Financing of systems is being directed towards managing and minimising
Terrorism sanctions risk. Being mindful of its responsibilities in this
Risks relating to financial crime are managed proactively regard, the Group is committed to further enhancing its
at the Group and subsidiary levels.The Group is committed sanctions risk management framework.
to adherence to laws and regulations with respect to AML/
CFT and to the recommendations of the Basel Committee Foreign Account Tax Compliance Act (FATCA)
and Financial Action Task Force which in turn are reflected US legislation known as FATCA is aimed at preventing tax
in the AML/CFT policies of the subsidiaries. The Group evasion by US citizens and residents by hiding their assets
has strict Know Your Customer policies which include in accounts with non-US banks became law in 2010.
detailed requirements for identification and verification FATCA requires Foreign Financial Institutions (FFIs) such
of customers. These policies preclude all operating units as ABG and its subsidiaries to enter into FFI agreements
from establishing a new business relationship until all under which they agree to identify and provide the US
relevant parties to the relationship have been identified Internal Revenue Service (IRS) with information on
and verified and the nature of the business they expect to accounts held by US persons and US owned foreign
conduct has been established. entities, or otherwise face 30% withholding tax on
certain payments made to the FFI. In addition, FFIs will
In line with the requirements of the CBB and Group AML be required to withhold tax on certain payments made to
Policy, Money Laundering Reporting Officers (MLROs) are FFIs that have not entered into an FFI agreement and on
appointed in all subsidiaries. The MLROs are responsible payments made to account holders who do not respond
for ensuring compliance with all relevant laws, regulations to requests to confirm their US person status and/or do
and policies in respect of AML/CFT and for reviewing not agree to the FFI reporting certain account related
and reporting to their respective host regulators of any information to the IRS.
suspicions concerning a customer or a transaction.

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Corporate Governance (continued)

The IRS has offered Intergovernmental Agreements (IGA) In order for the Group to be in full compliance with the CBB
Model 1 and 2 in connection with the implementation disclosure requirements as specified in the abovementioned
of FATCA. The Bahrain Government has announced that it Rulebook, the Group will disclose all the required information
expects to enter into an IGA Model 1 with the US. Some in its published quarterly reviewed financial statements
other jurisdictions where ABG subsidiaries operate have and its annual audited financial statements and any
also made similar announcements. It is anticipated that an applicable ad hoc information requirement of the CBB
IGA would reduce the compliance costs and operational from time to time.
burdens of FATCA. If the IGA agreements with the US are
signed within the deadlines established by the FATCA As a listed company on the BB and NASDAQ Dubai, ABG
regulations, ABG subsidiaries will be required to report is committed to adhering on a timely basis to all periodic
the necessary US account-related information to their information dissemination requirements of the BB and
nominated local authorities; otherwise, in accordance NASDAQ Dubai, as stipulated in their respective directives
with FATCA requirements, the FFIs will be required to and rulebooks in this respect.
provide such information directly to the IRS.
Additionally, the Group will publicly disclose and broadly
Realising that FATCA regulations will impact all FFIs and their disseminate material information immediately upon becoming
customers worldwide, ABG has made substantial investment aware of circumstances or events that underlie such material
to ensure that it will be able to adhere to the requirements information or when a decision to implement a material
of FATCA from compliance and reporting perspectives change is made by the Board of Directors or Executive
across all jurisdictions in which it operates. From the outset, Management of the Group.
all necessary steps were taken to address the new legislation
and to build awareness of it in all ABG subsidiaries. A Group As a listed company, ABG adheres to a strict policy which
FATCA strategy and policy has been developed and is in delegates to certain specific individuals the authority to
the course of being implemented throughout the Group. As issue press releases or announce to the public information,
a result, the Group expects to be ready in time for registration financial or non-financial, on the Group. Only the following
with the IRS and to be FATCA compliant in accordance with persons are authorised to make public information via
the effective dates announced by the US authorities. the media:

Group Disclosure Policy • Chairman of the Board of Directors

The Group communication strategy aims to help achieve • Vice-Chairmen of the Board of Directors
the Group’s objective of keeping the market informed of • President & Chief Executive
material information. The Group’s communications with
the market ensures compliance with the CBB’s directives In the event that any of the abovementioned persons is
as detailed in the Public Disclosure Module of its Rulebook, requested to make statements relating to the financial
Volume 2, Part A and the CBB Disclosure Standards as statements, financial indicators or general financial performance
specified under the CBB Capital Markets Regulations. of the Group, that person will consult and/or confirm with
the Head of Financial Control with regard to the accuracy,
Material information is any information, financial or non- timeliness and reliability of the information prior to making
financial, relating to the business and affairs of the Group any public announcements.
and ABG’s subsidiaries that results in, or would reasonably
be expected to result in, a significant change in the market The Group mails its Financial Statements and Prudential
price of the Group’s shares or in the decision of a prudent Returns to the CBB, BB and NASDAQ Dubai on a quarterly
investor to sell, buy or hold the Group’s shares or cause to and an annual basis, following which the Group makes this
change a prudent investor’s decision to transact or refrain information available on its website.
from transacting with the Group or its units. Material
information consists of, but is not limited to, both material Press releases are posted on the Group’s website and published
facts and material changes relating to the business and in a minimum of one local newspaper either in Arabic or
affairs of the Group and ABG’s subsidiaries. English. Persons authorised by the Group to make public
disclosures will not make any announcement on a one-
The Group is committed to adhering to all the require­ to-one basis before disseminating the information on the
ments outlined in the CBB’s Rulebook, Public Disclosure Group’s website or in local newspapers.
Requirements section.

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The Group has in place effective procedures for dealing The Group took all necessary steps to achieve in time the
with complaints received from its shareholders and required degree of sophistication in risk assessment to enable
stakeholders. Different channels have been established to it to comply with the requirements of Basel II as stipulated
enable communication with investors, including through by the CBB. It has adopted the Basic Indicator Approach for
the offices of the Registrar, an online enquiry centre on the operational risk and the Standardized Approach for credit
Group’s website and dedicated telephone and facsimile lines. and market risk under the CBB’s Rulebook and the Group has
All complaints received are transmitted to the concerned been adhering to the requirements of the CBB under Basel
department, Executive Management and the Board. In II since July 2007. It is also set to comply with the Basel III
accordance with the CBB’s disclosure requirements, the requirements when they are fully introduced.
Group maintains at least three years’ financial information
on its website. Pursuant to the Group’s Compliance Policy, which was approved
and adopted by the Board of Directors in November 2009,
Regulation ABG has appointed a Compliance Officer, whose role is to
The Group complies with all the regulatory requirements assist management to ensure the Group’s adherence to
governing Islamic Banks issued by the CBB, which include, the Group Compliance Policy, in particular that all Group
inter alia, regulations governing the Group’s capital adequacy, activities are conducted in conformity with all applicable
asset quality and risk management, liquidity and fund laws and regulations and in accordance with best practice.
management and corporate governance.
Financial Performance Monitoring
The CBB as the home supervisor sets and monitors ABG’s capital Executive Management has in place various measures that help
requirements on both a consolidated and an unconsolidated monitor and control the activities of the Group worldwide.
basis, while ABG’s banking subsidiaries are directly regulated A comprehensive financial consolidating procedure exists
by their local banking supervisors, who set and monitor and is working effectively, whereunder all subsidiaries submit
their capital adequacy requirements. their financial data in a format that is compatible with Islamic
Accounting Standards issued by AAOIFI and with International
The CBB requires each Bahrain-based bank or banking group Financial Reporting Standards (IFRS). These are consolidated
to maintain a minimum ratio of total capital to on- and off- quarterly and a consolidated set of financial results is produced.
balance sheet risk-weighted assets of 8% on a single bank basis Additionally, subsidiaries submit a monthly return to Group
and 12% on a consolidated basis, which requirement exceeds headquarters providing details of their financial performance,
the 8% minimum ratio guideline of the Basel Committee on measured against approved budgets.
Banking Supervision under its 1988 Capital Accord. A new
Capital Accord (Basel II) announced by the Basel Committee Related Party Transactions
replaces the 1988 Accord and is designed to achieve a more Dealings with persons or entities connected with the Group
sophisticated degree of risk differentiation in establishing the (including directors and shareholders) are called Related Party
amount of capital that banks should allocate to different Transactions. The Group treats all such transactions at arms
categories of their credit risk exposure, in addition to including length and furthermore requiring the specific approval of the
a capital charge for operational risk and incorporating an Board. As stated above, if a director is an interested party he
earlier guideline in relation to capital charges for market abstains from voting on the matter. In 2013 there were no
risk. Regulators have been given wider discretion to increase such Related Party Transactions.
or decrease capital requirements for banks according to
their individual circumstances. The new rules also require RISK MANAGEMENT
greater transparency of published information relating to The Group is committed to complying with internationally
bank risk management. Subsequently, in 2010 global banking established principles and policies in relation to risk management.
regulators agreed on a further package, known as Basel III, In particular the Group fully subscribes to the guiding principles
which sets a new minimum key capital ratio requirement of risk management for Islamic financial services institutions
of tier one capital to assets of 4.5%, together with a buffer set down by the Islamic Financial Services Board and the need
of a further 7.0%, failure to achieve which will result in for a comprehensive risk management and reporting process.
banks facing restrictions on their dividend payments and ABG’s Head of Credit and Risk Management is responsible for
discretionary bonuses. As a second measure under Basel III, formulating and monitoring the Group’s policies relating to all
a new 5.0% minimum liquidity coverage ratio has recently aspects of risk, developing the framework for risk measurement
been introduced. These measures are to be implemented and coordinating with the Group subsidiaries all necessary steps
gradually over a period extended to 2019. for adhering to the Basel II and, where and when applicable,

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Corporate Governance (continued)

Basel III requirements under the CBB rules. He is also responsible Systems in the Units has started and is expected to be
for introducing and implementing risk measurement software, completed during 2014 throughout the Group.
monitoring the Group’s compliance with risk measurement
standards and providing Group management with reports The Group has continued to make determined efforts to
on the various risks. maintain the momentum towards achieving optimal risk
management policies, practices and procedures, pursuing
Risk management is an integral part of the Group’s decision five key objectives:
making process. The Board of Directors defines and sets
the Group’s overall levels of risk appetite, risk diversification 1. Continuous improvement in credit and risk management
and asset allocation strategies including the policies as practices and intensified efforts on collections, recoveries
regards related parties’ transactions, their reporting and and settlement of outstanding debts to bring about
approval. The Management Risk Committee and other ongoing improvement in the Group’s non-performing
executive committees guide and assist with overall loans (NPL) ratio and provisioning coverage.
management of the Group’s balance sheet risks. The Group 2. All subsidiaries ensure that their NPL provisioning
manages exposure by setting limits approved by the Board policies are in line with both Group policies and local
of Directors. Risk policies and processes to mitigate the regulatory requirements.
risks are regularly reviewed. 3. Subsidiaries continue to strive to ensure a high degree
of cooperation between their business arms and risk
The Group’s risk management has the following objectives: management departments through hiring and training
of credit and risk management staff as an ongoing
a. unified Groupwide risk management to enable the Group priority in each unit.
to calculate risk adjusted return on capital; 4. Each subsidiary has its own approved Credit and Risk
b. inculcation of a professional risk management culture Management Manual, covering credit, liquidity, market,
throughout the Group with a prudent, disciplined operational, profit rate and reputation risk, which accords
approach to risk-taking based on comprehensive with Group policies and procedures.
Groupwide policies, processes and limits; 5. All subsidiaries submit timely quarterly risk management
c. professionally qualified staff and ongoing credit training; reports to Head Office which fully meet regulatory
d. investing in technology and systems enabling best requirements; reports continue to be expanded to
practice risk management; provide Head Office with increasingly comprehensive
e. throughout the Group, strict segregation of duties and data to meet its internal requirements.
reporting lines between personnel transacting business
and personnel processing that business; A standard risk management framework has been
f. strict compliance with all Shari’a and legal requirements established across the Group, reflected in operational
and regulatory directives; and manuals that closely adhere to Group policy as regards all
g. maintaining clear, well documented policies via the major categories of risk faced by the Group in carrying
a Group Risk Management Manual and a Credit and out its business: Credit, Liquidity, Market (including Equity,
Risk Management Manual in each of the subsidiaries, Profit Rate and Foreign Exchange risk), Operational and
incorporating the uniform policies and procedures of the Shari’a Compliance risks. Each of these major risks is
Group in addition to the local requirements. discussed below.

Each of ABG’s subsidiaries is managed by its respective Credit Risk

Board of Directors. Group subsidiaries follow documented Credit risk is the risk that one party to a financial contract will
credit policies and procedures which as stated above fail to discharge an obligation and cause the other party to
reflect Groupwide policies and thus ensure that sound risk incur a financial loss. It applies to the Group in its management
management is in place in all ABG’s subsidiaries. of the financing exposures arising out of receivables and
leases (for example, Murabaha and Ijarah) and working capital
Following implementation during 2010 of a consolidating financing transactions (Salam, Istisna’a or Mudaraba).
system for the calculation of capital adequacy taking
into account credit, market and operational risk, all in Each Group subsidiary has in place a framework for credit
accordance with Basel II requirements, the required data is risk management that includes identification, measurement,
now retrievable automatically at Head Office. During 2013, monitoring, reporting and control of credit risks. Each
implementation of the Operational Risk Management subsidiary controls credit risk through the process of initial

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approval and granting of credit, subsequent monitoring of Musharaka and other investments. Based on Group policies,
counterparty creditworthiness and the active management of each subsidiary ensures that its valuation methodologies are
credit exposures. Authority to approve credits is delegated by appropriate and consistent, and assesses the potential impact
the subsidiary’s Board of Directors to committees entrusted of its methods on profit calculations and allocations mutually
with the task of credit assessment and evaluation, under agreed between that subsidiary and its partners. Further,
specific credit policies and operational procedures in place each subsidiary has defined and established appropriate exit
in that subsidiary. strategies and risk management and reporting processes in
respect of its equity investment activities.
Mitigation of credit risk is chiefly achieved through the obtaining
of various forms of collateral where this is deemed necessary. Profit Rate Risk or Rate of Return Risk
Profit rate risk or rate of return risk is the risk that the
Each subsidiary maintains an internal audit department Group will incur a financial loss as a result of a mismatch
responsible for carrying out reviews of credit exposures to in the profit rate on the Group’s assets and unrestricted
counterparties and assessing their quality and adherence investment accounts. The Group is not liable to pay any
to laid down approval procedures. Each subsidiary also predetermined returns to investment account holders,
maintains policies and procedures in covering case by case although it does apply appropriate income smoothing
approval of related party transactions. techniques to ensure that profits are fairly distributed to
the investment account holders.
Liquidity Risk
Liquidity risk is the risk that the Group will be unable to Foreign Exchange Risk
meet its payment obligations when they fall due under Foreign exchange rate risk arises from the movement of
normal or stressed circumstances. the rate of exchange of one currency against another over
a period of time, leading to an adverse impact on the Group’s
ABG and its subsidiaries each has in place a liquidity management earnings or shareholders’ equity. The Group is exposed to
framework, taking into account its liquidity exposures in foreign exchange rate risk in that the value of a financial
respect of its current and savings accounts, deposits from instrument, or its net investment in its foreign subsidiaries,
banks and other financial institutions and its restricted and may fluctuate due to changes in foreign exchange rates.
unrestricted investment accounts, so as to ensure that it The Group’s significant net foreign currency exposures
maintains liquid assets at prudential levels so that cash can as at 31 December 2013 are detailed in Note 27 to the
quickly be made available to honour all its obligations. Liquidity Financial Statements.
management also recognises the impact of potential cash
outflows arising from irrevocable commitments to fund new Operational Risk
assets, as well as the potential risk impact of withdrawals Operational risk is the risk of financial loss or damage
by large single depositors, ensuring that there is no reliance resulting from inadequate or failed internal processes,
on one customer or small group of customers. In addition people and systems or from external events.
to its own internal liquidity management policies, each
subsidiary is further required to maintain cash deposits Management of operations risk is through internal procedures
with its respective Central Bank equal to a percentage and monitoring mechanisms, while management of legal
of its deposits as directed by that Central Bank – in most risk is through effective consultation with internal and
cases 20%. ABG additionally holds substantial liquid funds external legal counsel. Other kinds of operational risk are
which are earmarked and available for its subsidiaries in the managed by ensuring that trained and competent people and
unlikely event that they should require assistance. Liquidity appropriate infrastructure, controls and systems are in place
management reporting conforms to all local regulations. to ensure the identification, assessment and management
of all substantial risks.
Equity Price Risk
Equity price risk is the risk that the fair value of equities The Group is also exposed to risks relating to its fiduciary
decreases as a result of changes in the levels of equity responsibilities towards fund providers. Fiduciary risk arises
indices and the value of individual stocks. from the failure to perform in accordance with explicit and
implicit standards applicable to an Islamic bank’s fiduciary
Each Group subsidiary has in place appropriate strategies, risk responsibilities, leading to losses in investments or failure to
management and reporting processes in respect of the risk safeguard the interests of the investment account holders.
characteristics of equity investments, including Mudaraba, Group subsidiaries have in place appropriate mechanisms

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Corporate Governance (continued)

to safeguard the interests of all fund providers. Where Shari’a Supervisory Boards, to ensure compliance with all
investment account holders’ funds are commingled with Shari’a rules and principles. In accordance with CBB regulations
a Group subsidiary’s own funds, the respective Group and AAOIFI Standards, the Group has been certified by the
subsidiary ensures that the bases for asset, revenue, expense Shari’a Supervisory Board to be in compliance with Shari’a
and profit allocations are established, applied and reported in Standards and Principles.
a manner consistent with the Group’s fiduciary responsibilities.
CAPITAL MANAGEMENT/CAPITAL ADEQUACY
As mentioned above, Group policy dictates that the Capital is managed at ABG with a view to meeting the
operational functions of booking, recording and monitoring capital maintenance requirements directed by the CBB
of transactions are carried out by staff independent of and achieving optimum utilisation in the course of carrying
the staff initiating the transactions. Group subsidiaries out its business, in accordance with its predetermined risk
have primary responsibility for identifying and managing appetite and intended risk profile and with the ultimate aim
their own operational risks. Each subsidiary is guided by of maximising shareholders’ returns. Capital management
policies, procedures, and controls that are relevant for includes pro-actively making appropriate and necessary
each function. Internal control policies and procedures adjustments to reflect changes in the economic environment
dictate the segregation of duties, delegation of authorities, or in the degree or nature of risk associated with the Group’s
exceptions reporting, exposures management and reporting, activities, including adjustment to its dividend policy, issue
and reconciliations, and are based on the submission of of Tier 1 or Tier 2 securities by way of public issue or private
timely and reliable management reporting. placement, etc.

Separate Internal Control units carry out ongoing monitoring Optimum capital management therefore addresses such
of day-to-day procedures and ensure adherence to key crucial issues as:
control functions. As the Group is continuously updating its
technology base, having replaced its legacy systems with new, • ensuring that adequate capital is held at all times to meet
modern hardware and systems, it is now able to integrate unexpected calls occasioned by such events as sudden
required control functions into its new processing systems. withdrawals by depositors, earlier than expected drawdown
of facilities, or unexpected losses;
Compliance Risk • achieving the Group’s return on capital objectives;
Compliance risk is defined as the risk of legal or regulatory • meeting capital adequacy ratio targets and regulatory
sanctions, material or financial loss or loss to reputation imperatives; and
a bank may suffer as a result of its failure to comply with • maintaining the Group’s strong credit rating.
laws, regulations, rules, reporting requirements, codes of
conduct and standards. It is the probability and impact of an The Group’s capital adequacy ratio as at 31 December
event that results in a failure to act in accordance with laws, 2013 was 16.49%, comfortably above the CBB’s minimum
rules, regulations, codes and good governance in an entity. regulatory requirement of 12%.
The landscape for compliance has changed substantially
in recent years and as a result ABG and its subsidiaries are Each of ABG’s banking subsidiaries is directly regulated
making concerted efforts to enhance their compliance risk by its own home regulator, which stipulates a minimum
management framework, as explained above. capital adequacy ratio in respect of that subsidiary. ABG
ensures that each subsidiary adheres to these local capital
Shari’a Compliance Risk adequacy requirements.
Shari’a compliance risk arises from the failure to comply
with the rules and principles of Shari’a and in this respect INFORMATION TECHNOLOGY
is therefore akin to reputation risk. It also includes the The role of the Head Office IT Steering Committee is to govern
risk of legal or regulatory sanctions that the Group or its and support IT strategies, projects and initiatives across all
subsidiaries may suffer as a result of failure to comply with the ABG subsidiaries and to ensure that they are in line with the
requirements of laws and regulations. As mentioned above, Group’s overall strategic aims as well as each subsidiary’s
the Group has in place a Compliance Policy that provides own strategies. The Group’s short, medium and long term
for the assessment of compliance risks, the implementation IT strategies are now well established, standardised around
of appropriate controls, monitoring of effectiveness, and a few carefully chosen core banking solutions for Groupwide
correction and eradication of exceptions. Group subsidiaries implementation. The final stage of the Group’s IT strategy
have in place systems and controls, including their respective and governance framework, developed in collaboration

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with the subsidiaries and with the assistance of a leading in Q4 2012. Al Baraka Algeria and Al Baraka Sudan, who
advisory firm, is now set for implementation. selected iMAL from Path Solutions as their new core banking
system, have both gone live with the application and expect
ABG’s initial web-based financial consolidation and reporting to achieve project sign off for all other optional modules
application is now widely used as a corporate performance by Q1 2014.
measurement solution, utilising Key Performance Indicators
(KPI) based on Group strategic objectives. It is used in Al Baraka Tunisia meanwhile has successfully upgraded its
setting performance benchmarks for each subsidiary and for existing core banking system (TEMENOS-T24), which now
monitoring their individual performances on a continuous incorporates e-banking, mobile and SMS services. Al Baraka
basis and will gradually be integrated into all core system Turkey, who employed an in-house solution some time
applications implemented throughout the Group. ago which is working well, is however currently defining
a strategy to move to a new core application in the near
The monthly, quarterly and annual consolidations, currently future as part of an expansive “Bank Transformation” project.
performed through the financial consolidation module, enables Finally, Al Baraka Syria, who selected iMAL, has gone live
the collection, processing, reporting and analyzing of data with the application and the project is in the final stage of
in multiple currencies as well as reporting on the effects of implementation of optional modules with the first quarter
currency fluctuations. ABG’s Financial Control Department 2014 targeted for final sign off.
can now consolidate data from many business perspectives,
for instance at the subsidiary level, by geographical region In 2009 the Group IT Department launched a new initiative
or Islamic product line, as well as by multiple structure to achieve “Business Excellence through IT” in partnership
versions such as year to date, current year’s results, previous with a leading IT advisory firm. Important milestones have
year’s results and so on. been achieved under this initiative, which has increased the
value of IT to the business and the level of collaboration
Following an intensive evaluation of the Group’s requirements among Group subsidiaries. ABG IT has also focused on
for risk management systems from both Islamic and regulatory establishing a standardized global Disaster Recovery Plan
perspectives, the Risk Management team selected the most (DRP) throughout the Group. With the new core applications
suitable system, which carried with it the additional weight having been fully implemented across the Group and all
that the product comes highly recommended by several local DR centres having been established at each subsidiary,
other Islamic institutions using it, both in the Kingdom of ABG subsidiaries are now fully protected against any sudden,
Bahrain and abroad. The modules relating to operational unexpected service loss.
risk management and capital adequacy calculation based
on credit, market and operational risk are now live at the
Head Office and at Al Baraka Islamic Bank Bahrain, with
implementation planned at the remaining subsidiaries
throughout 2013 and beyond.

Careful selection by the IT Steering Committee of an approved

list of core banking system solutions was followed by each
subsidiary arriving at its own system choice to suit its
individual requirements.

Five subsidiaries – Al Baraka Bahrain, Al Baraka South Africa,

Al Baraka Lebanon, Al Baraka Pakistan and Al Baraka Egypt
– opted for the Equation core banking system from Misys.
Al Baraka Bahrain achieved full implementation in 2009
followed by Al Baraka Lebanon and Al Baraka South Africa
in 2011. Al Baraka Egypt went live with Equation in 2012
and Al Baraka Pakistan anticipates going live during 2014.

Implementation of Al Baraka Jordan’s choice of the ICBS

(NIBRAS) Banking System as its core banking system was
achieved in 2011 and full project completion was achieved

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Corporate Social Responsibility

The success of the contemporary Islamic banking and finance ...and our central philosophy as embodied in the concept
movement owes much to the contribution and patronage of Partnership, under which we hold that our shared
of Shaikh Saleh Kamel, the founder of Al Baraka Banking beliefs create strong bonds that form the basis of long-
Group. Although the Group is young as a single legal entity, term relationships with customers and staff, leading to
its antecedents go back to the late 1960s, when Shaikh our promise:
Kamel directed the devising of Islamic contracts for use
in his business operations when dealing with conventional “Your Partner Bank”.
banks (there being no Islamic banks in existence at that
time), which was his preferred route for doing business What is Social Responsibility?
with them. This early insistence on strict adherence to Social Responsibility is, in essence, an approach towards all
fundamental Islamic principles was quickly overtaken by aspects of an organisation’s business activities with the aim
the next stage of development when, in the early 1970s, of meeting the needs of the organisation, its shareholders,
Shaikh Kamel oversaw the establishment across the Arab employees and customers whilst sustaining the resources
world of a string of Islamic financial institutions bearing – human and natural – that will be needed over the long
the Al Baraka name. Today, Al Baraka Banking Group brings term. To paraphrase the Union of Arab Banks, it is “the way
together under one unified grouping the accumulated in which firms integrate social, environmental and economic
experience of 11 such banks which have been delivering concerns into their values, culture, decision making, strategy
Islamic products and services for over three decades. We and operations in a transparent and accountable manner
at ABG are proud to look back on this heritage, whilst and thereby establish better practices within the enterprise,
keenly looking ahead to the next stage in our development, create wealth and improve society”.
expanding into new regions and new markets, building
an ever-widening and stronger customer base, all the Social Responsibility aims to create long-term economic
time following the ideals of Islamic banking and finance. growth through the careful management of natural resources
(e.g. reduction of energy usage, waste management, etc.),
From inception we at Al Baraka have, through our founding development of human resources (through training, personal
ethos, embodied the spirit of Social Responsibility in our development and career and succession planning), and the
corporate view, as encapsulated in: general enhancement of the quality of life throughout society.
Our Vision Statement:
The concept of Social Responsibility fits easily with the ethics
“We believe society needs a fair and equitable financial of Islam and, therefore, with Al Baraka’s traditional principles.
system: one which rewards effort and contributes to the As members of a banking group founded on Islamic principles
development of the community” and values, we at Al Baraka believe that we have a particular
obligation to society, through patronage and sponsorship
Our Mission Statement:
of educational and social projects, to enhance the living
“To meet the financial needs of communities across the world conditions and quality of life of needful individuals in the
by conducting business ethically in accordance with our beliefs, local communities of which we are part. In meeting this
practicing the highest professional standards and sharing the commitment to society we make all possible effort to apply
mutual benefits with the customers, staff and shareholders one of the important philosophical pillars of Islamic banking:
who participate in our business success”. the concept of E’mar Al Ardh or construction, or development,
of land, which means adding tangible value to assets (whether
natural or human).

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Our philosophy, in essence, is that Allah grants mankind the 7. Promoting Islamic banking and finance scholarly works.
capacity to inherit the land on this earth and therefore that 8. Investing in people.
mankind is not the owner of wealth but is entrusted with it.
9. Nurturing and encouraging local talent.
As the purpose of mankind is to construct, embellish and
build on this earth, we are therefore ordained to create jobs 10. Promoting programmes that protect the environment by
for others. Thus, the wealth bestowed upon us belongs to adopting various conservation strategies, such as reduction
Allah and, therefore, we must apply Shari’a rules related to the of paper usage, energy and water conservation.
ownership of wealth in creating the wealth and in investing, 11. Taking steps to develop and enhance Al Baraka’s social
exchanging, growing and spending the wealth. This concept responsibility reputation.
has a direct relevance to the development of society and A Board Social Responsibility Committee has been formed, to
its social and economic progress and we seek to apply it oversee the activities of the Management Social Responsibility
through active investment mediation, which complements Committee, whose role inter alia is to:
real and value-added production, and through the exchange of
commodities and services, which enables us to offer practical 1. Keep the Al Baraka Social Responsibility Programme
alternatives to those financial intermediaries that provide no current with the most recent international research and
benefit to society at large. popular strategies to enhance the objectives of Shari’a.
2. Manage and supervise the Groupwide implementation
We consider the role of Social Responsibility in our organisation of the Programme.
to be essential to the application of the principles derived from
3. Ensure that the Programme remains one of the leading
divine power and on which our business activities in all the
programmes within the Islamic banking and finance
countries in which we operate are based. All our subsidiaries
industry in general, by developing new research in Shari’a
embrace Islamic ethical principles and apply them to their
and economic analyses of the subject.
banking operations and services.
4. Provide appropriate guidance for the implementation of
The Al Baraka Social Responsibility Programme the Programme.
To these ends, we have established the “Al Baraka Social 5. Compile, consolidate and publish annual and other periodic
Responsibility Programme”, the first such programme social responsibility reports.
to be introduced by any Islamic banking and financial 6. Develop and update procedures that may result in enhancing
services institution. the adequacy and effectiveness of the Programme at
Group level.
The scope of the Al Baraka Social Responsibility Programme
7. Exercise all necessary powers in relation to the Programme
encompasses the following initial ad minima features of its
to achieve the objectives and remain consistent with the
business model:
rationale of the Committee.
1. Assessing the social impact of ABG’s business at the local 8. Coordinate with other local and international social
and transactional levels. responsibility programmes.
2. Investing in and supporting socially responsible businesses.
3. Supervising and monitoring development in the Al Baraka
Microfinance programme.
4. Supporting the local economies.
5. Supporting academic institutions and centres of excellence.
6. Promoting Islamic classical arts and literature.

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Corporate Social Responsibility (continued)

A detailed report of the Group’s activities and progress in the Al Baraka Türk Participation Bank
area of Social Responsibility over the past year will be published Al Baraka Turkey’s contribution towards the Philanthropic
annually and may also be found on the ABG website. The report Programme was an impressive $3.411 million, 60% of which
highlights ABG’s commitment to advancing and expanding was directed at its own scholarship programme for the talented
its Social Responsibility Programme, which comprises: and needy, with other important beneficiaries including the
arts, culture and literature categories.
1. Al Baraka Philanthropic Programme, which covers promotion
and funding of a broad spectrum of activities ranging
Jordan Islamic Bank
from the arts, literature and culture, scholarly and literary
Al Baraka Jordan gave a total of $0.696 million to philanthropic
works, facilitating people with special needs and in their
activities, including community development, funding of
own efforts through vocational training.
infrastructure at educational institutions, scholarship programmes
2. Al Baraka Economic Opportunities & Social Investments for the talented and needy, and contributions to the arts,
Programme, covering community development including culture and literature. It also invested in a wide range of
financing and investments in projects supporting affordable community development, micro-financing and financing for
housing and a spectrum of healthcare and related activities, small businesses, affordable housing and other projects, with
micro, small and medium sized enterprises, local and a total contribution to the Economic Planning Programme
other industries. of $44.758 million. Additionally, it provided $7.115 million in
Qard Hassan.
3. Al Baraka Qard-Hassan Programme, covering benevolent
loans extended on a charitable or goodwill basis.
Al Baraka Bank Egypt
4. Al Baraka Time Commitment Programme, under which Al Baraka Egypt’s total contribution amounted to $216.563
ABG units commit a certain number of hours of their million, with $0.138 million to philanthropic activities – mainly
officers’ time in social and educational contributions to directed at community development and education – and
the local community. $216.425 million towards economic and social investments
in local industrial, service and commercial industries.
Based on the latest available 2012 Report, the respective
contributions of ABG and each of its subsidiaries may be Banque Al Baraka D’Algerie S.P.A.
summarised as follows: Al Baraka Algeria contributed $0.433 million towards philanthropic
activities wholly in the field of community development, whilst
Al Baraka Group providing a further $1.220 million of funding for the agriculture,
The Group’s aggregate investments in the Economic Opportunities fishing and forestry, industry, services, production and trade
and Social Investments Programme amounted to $925.428 sectors under the Economic Opportunities Programme.
million, a little over 6.5% of its total financings and investments,
as funds were increasingly targeted towards these areas. Total Al Baraka Islamic Bank B.S.C., Bahrain
Groupwide contributions in the Philanthropic Programme Al Baraka Bahrain contributed $0.104 million towards philanthropy,
reached $5.955 million, while Group contributions to Qard encompassing mainly youth activities and training contracts,
Hassan totalled $8.694 million. The total of all financial which formed part of a total $228.104 million invested in
contributions to the Social Responsibility Programme was the Philanthropic and Economic Opportunities Programmes.
therefore $940.077 million.
Al Baraka Bank (Pakistan) Limited
At the Head Office level, ABG funded $0.549 million towards Al Baraka Pakistan participated in a range of activities in
a variety of philanthropic activities, ranging from funding its contribution to the Philanthropic Programme – where it
vocational training to employee and community development, invested $0.059 million in funding vocational training and
youth engagement, arts, culture and literature, scholarships, training contracts – and for funding in the micro-financing and
etc. It also provided $0.450 million in Qard Hassan, funding financing for small and medium sized businesses areas under
a range of initiatives and activities. the Economic Opportunities Programme, providing $51.806
million chiefly for the industrial sector but also to services,
healthcare, food, construction and mining and other sectors.
It also provided $0.314 million in Qard Hassan.

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Al Baraka Bank Tunisia

Al Baraka Tunisia contributed $0.025 million to the Philanthropy
Programme in a variety of areas, notably for youth engagement
and sport.

Al Baraka Bank Syria s.a.

Notwithstanding the adverse situation in Syria, Al Baraka
Syria’s contribution in 2012 amounted to $85.255 million,
spread between its scholarship programme, community
development, scholarly encouragement and training contracts,
totalling $0.053 million, and financing economic development
across various economic sectors, totalling $85.203 million
under the Economic Opportunities Programme.

Al Baraka Bank Limited - South Africa

Al Baraka South Africa funded philanthropic activities to the
extent of $0.148 million, spread across the fields of community
development, scholarly and literary activities, youth engagement
and sports, special needs, education and other sectors. Funding
provided under the Economic Opportunities Programme
amounted to $215.515 million in 2012, extended chiefly to
the micro-financing and SME financing sectors, along with
local industries and community and development financings.

Al Baraka Bank Lebanon S.A.L.

Al Baraka Lebanon contributed $0.386 million towards the
Philanthropic and Economic Opportunities Programmes,
with $0.215 million devoted to community development,
HR development and youth engagement and sports, among
other categories, and $0.171 million directed towards funding
local community development and local industries. It provided
a further $0.815 million in Qard Hassan.

Al Baraka Bank Sudan

Al Baraka Sudan invested $0.124 million in the Philanthropic
Programme – mainly spent on its scholarship, community
development and educational initiatives – and $82.330 million
under its Economic Opportunities Programme, focused largely
on the industrial and services industries.

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Unified Shari’a Supervisory Board Report

For the year ended 31 December 2013

In the name of Allah, The Beneficent, The Merciful, Ever Merciful

Praise be to Allah and peace be upon our Prophet Mohamed, His Apostles and Companions
TO: AL BARAKA BANKING GROUP SHAREHOLDERS
May peace and Allah’s Mercy and Blessings Be upon You

In accordance with Article (58) of the Articles of Association of Al Baraka Banking Group, we are required to submit the
following report:
FIRST:
We have conducted six meetings during 2013, two of which were conducted at the premises of Al Baraka Banking Group’s
subsidiaries in which we met the subsidiaries’ Shari'a Board members, Shari'a auditors and employees and conducted
several small seminars and replied to many of the employees and customers’ inquiries. In addition, we have made sure
that the operations of the transactions are conducted in compliance with Shari'a rules and principles, the other four
meetings were conducted at our premises in Jeddah, in which we studied Shari’a audit reports prepared by the Group’s
Shari’a Audit for the year ended 31 December 2013 and gave few Shari’a related comments on those reports. These
reports were rectified through coordination between Shari’a Audit and the relative local subsidiaries’ Shari’a Boards.
In addition, the executive committee of the Unified Shari’a Supervisory Board conducted several meetings in which
a number of commercial contracts and agreements signed by the Financial Institutions Department in the Group with
the subsidiaries and other financial institutions and organizations has been reviewed.
SECOND:
We have reviewed the principles applied by the Group and reviewed the 2013 Shari’a reports issued by the Group Units’
Shari’a Supervisory Boards. We have also reviewed their financial statements when needed. In addition, we examined the
Group’s financial position as of 31 December 2013 and Statement of Income and their notes for the year then ended. We
have queried from some of the Technical’s on the points that need explanation and statement. We have also reviewed the
process of calculating Zakah in accordance with the Shari’a Standard number (35) and the Financial Accounting Standard
number (9) issued by the Accounting and Auditing Organization for Islamic financial Institutions and according to what
was approved by Al Baraka Symposium 1/31 and by the Unified Shari’a Supervisory Board.
THIRD:
The Group and Units’ management are responsible for the execution and implementation of the Unified Shari’a Supervisory
Board resolutions and to bring to the attention of the Unified Shari’a Supervisory Board any transactions or issues that
require Shari’a approval. The Unified Shari’a Supervisory Board is responsible for supervising the implementation of the
resolution from a Shari’a point of view and issue opinion based on the Group and Units’ Shari’a reports and financial
statements.
The Unit’s Shari’a Supervisory Boards, as is clear from their report, have supervised the Units’ business activities including
examining on test basis documentations and procedures applied by the Group and its Units.
The Units’ Shari’a Supervisory Boards, as is clear from their reports, planned and performed reviews so as to obtain all
the information and explanations they considered necessary in order to provide them with sufficient evidence to provide
reasonable assurance that the Group and its Units have not violated Shari’a Rules and Principles.
IN OUR OPINION:
1. The Contracts, transactions and dealings entered into by the Group and its Units during the year ended 31 December
2013 are made in compliance with Shari’a Rules and Principles.
2. The allocation of profit and charging of losses relating to investment accounts conform to the basis that have been
approved by the Units’ Shari’a Supervisory Boards in accordance with Shari’a Rules and Principles.
3. All earnings realized from sources or by means prohibited by Islamic Shari’a Rules and Principles have been committed
by the Management to dispose it off to Charitable Causes.
4. The attached Zakah calculation was prepared in accordance with the provisions and principles of Islamic Shari’a
according to the Net Invested Fund Method in accordance to the Shari’a Standard number (35) and the Financial

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Accounting Standard number (9) issued by the Accounting and Auditing Organization for Islamic financial Institutions
and according to what was approved by the Unified Shari’a Supervisory Board. Since the Group and the Units are
not empowered to pay Zakah, shareholders should pay their share of Zakah. The Zakah per share is 0.67 US cents.
In case of unavailability of liquidity, it is allowed to postponed the Zakah and become a debt until the liquidity
become available.
Praise be to Allah
Issued on 13 Rabi’a Al Thani 1435 H, corresponding to 13 February 2014 AD.

Shaikh Dr. Abdul Sattar Abu Ghudah Shaikh Abdulla bin Sulieman Al Mannea
Chairman Member

Shaikh Dr. Abdullatif Al Mahmood Shaikh Dr. Abdulaziz bin Fowzan Al Fowzan Dr. Ahmed Mohiyeldin Ahmed
Member Member Member

ZAKAH CALCULATION FOR THE YEAR ENDED 31 DECEMBER 2013

US$ ‘000
Equity Attributable to Shareholders 1,298,651
Less: Investment of the parent on the shareholding of Al Baraka Bank Egypt, Al Baraka Bank Sudan
and Itqan Capital (155,253)
NET ZAKATABLE EQUITY ATTRIBUTABLE TO SHAREHOLDERS 1,143,398
Less:
Musharaka underlined by unzakatable assets (55,345)
Investment in Islamic Sukuk underlined by unzakatable assets (253,269)
Ijarah Muntahia Bittamleek (222,241)
Long-term investment in real estate (35,459)
Properties and equipment (246,000)
Intangible assets (95,684)
Investment in Associates (20,380)
Prepayments (12,483)
Deferred tax asset (191)
Add:
Shareholders share on Zakatable Assets by Associates 12,566
Borrowing to finance Unzakatable Assets 55,945
Sale of long-term investment in real estate during the year 518
Deferred tax liability 284
ZAKATABLE AMOUNT 271,659
Zakah Percentage 2.5770%
TOTAL ZAKAH DUE 7,001
Number of Shares (thousands) 1,040,168
ZAKAH PER SHARE (US$ CENTS) 0.67

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Independent Auditors’ Report

to the Shareholders of Al Baraka Banking Group B.S.C.

REPORT ON THE CONSOLIDATED FINANCIAL made by the Board of Directors and management, as well
STATEMENTS as evaluating the overall presentation of the consolidated
We have audited the accompanying consolidated financial financial statements.
statements of Al Baraka Banking Group B.S.C. (“the Bank”) and
its subsidiaries (“the Group”) which comprise the consolidated We believe that the audit evidence we have obtained is
statement of financial position as at 31 December 2013 sufficient and appropriate to provide a basis for our audit
and the consolidated statements of income, cash flows, opinion.
changes in owners’ equity and changes in off-balance sheet
equity of investment accountholders for the year then Opinion
ended, and a summary of significant accounting policies In our opinion, the consolidated financial statements
and other explanatory information. present fairly, in all material respects, the financial position
of the Group as at 31 December 2013, and its financial
Board of Directors’ and management’s responsibility performance and cash flows for the year then ended in
for the consolidated financial statements accordance with Financial Accounting Standards issued
The Board of Directors and the management are responsible by the Accounting and Auditing Organisation for Islamic
for the preparation and fair presentation of these consolidated Financial Institutions.
financial statements in accordance with the Financial
Accounting Standards issued by the Accounting and Auditing REPORT ON OTHER REGULATORY REQUIREMENTS
Organisation for Islamic Financial Institutions and for As required by the Bahrain Commercial Companies Law
such internal control as the Board of Directors and the and the Central Bank of Bahrain (CBB) Rule Book (Volume
management determine is necessary to enable the preparation 2), we report that:
of consolidated financial statements that are free from
material misstatement, whether due to fraud or error. a. the Bank has maintained proper accounting records and
In addition, the Board of Directors and the management the consolidated financial statements are in agreement
are responsible for the Group’s undertaking to operate in therewith; and
accordance with Islamic Shari’a rules and principles.
b. the financial information contained in the Report of the
Auditors’ responsibility Board of Directors is consistent with the consolidated
Our responsibility is to express an opinion on these consolidated financial statements.
financial statements based on our audit. We conducted our
audit in accordance with both the Auditing Standards for We are not aware of any violations of the Bahrain Commercial
Islamic Financial Institutions and International Standards Companies Law, the Central Bank of Bahrain and Financial
on Auditing. Those standards require that we comply with Institutions Law, the CBB Rule Book (Volume 2 and applicable
relevant ethical requirements and plan and perform the audit provisions of Volume 6) and CBB directives, regulations
to obtain reasonable assurance whether the consolidated and associated resolutions, rules and procedures of the
financial statements are free from material misstatement. Bahrain Bourse or the terms of the Bank’s memorandum and
articles of association during the year ended 31 December
An audit involves performing procedures to obtain audit 2013 that might have had a material adverse effect on the
evidence about the amounts and disclosures in the consolidated business of the Bank or on its financial position. Satisfactory
financial statements. The procedures selected depend explanations and information have been provided to us by
on our judgment, including the assessment of the risks management in response to all our requests. The Bank has
of material misstatement of the consolidated financial also complied with the Islamic Shari’a Rules and Principles as
statements, whether due to fraud or error. In making those determined by the Shari’a Supervisory Board of the Group.
risk assessments, we consider internal control relevant
to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also 23 February 2014
includes evaluating the appropriateness of accounting Manama, Kingdom of Bahrain
policies used and the reasonableness of accounting estimates

Pages 78 & 79
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Consolidated Statement of Financial Position

At 31 December 2013

2013 2012
Notes US$ ‘000 US$ ‘000

ASSETS
Cash and balances with banks 4 4,797,487 3,927,583
Receivables 5 10,818,219 10,462,501
Mudaraba and Musharaka financing 6 1,192,125 953,554
Investments 7 2,402,830 2,183,754
Ijarah Muntahia Bittamleek 8 942,048 719,619
Property and equipment 9 405,880 386,496
Other assets 10 408,970 421,624
TOTAL ASSETS 20,967,559 19,055,131

LIABILITIES, EQUITY OF INVESTMENT ACCOUNTHOLDERS AND OWNERS’ EQUITY

LIABILITIES
Customer current and other accounts 4,249,181 3,820,735
Due to banks 1,095,868 972,280
Long term financing 11 540,680 12,796
Other liabilities 12 698,999 677,012

Total liabilities 6,584,728 5,482,823

EQUITY OF INVESTMENT ACCOUNTHOLDERS 13 12,399,444 11,604,628

OWNERS’ EQUITY 14
Share capital 1,048,291 1,014,475
Treasury shares (8,123) (8,475)
Share premium 16,753 16,352
Reserves 131,684 121,253
Cumulative changes in fair values (2,380) (3,636)
Foreign currency translations (232,928) (133,591)
Retained earnings 263,086 218,222
Proposed appropriations 82,268 69,323

Equity attributable to parent’s shareholders 1,298,651 1,293,923

Non-controlling interest 684,736 673,757

Total owners’ equity 1,983,387 1,967,680

TOTAL LIABILITIES, EQUITY OF INVESTMENT ACCOUNTHOLDERS AND

OWNERS’ EQUITY 20,967,559 19,055,131

Saleh Abdullah Kamel Adnan Ahmed Yousif

Chairman Member of the Board and President and Chief Executive

The attached notes 1 to 30 form part of these consolidated financial statements.

Al Baraka Annual Report 2013

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Consolidated Statement of Income

Year ended 31 December 2013

2013 2012
Notes US$ '000 US$ '000
INCOME
Net income from jointly financed contracts and investments 15 1,031,031 1,018,482

Return on equity of investment accountholders before

Group’s share as a Mudarib (912,092) (874,470)
Group's share as a Mudarib 16 311,935 261,609
Return on equity of investment accountholders (600,157) (612,861)
Group’s share of income from equity of investment accountholders
(as a Mudarib and Rabalmal) 430,874 405,621
Mudarib share for managing off-balance sheet equity of investment
accountholders 2,958 4,320
Net income from self financed contracts and investments 15 236,067 204,613
Profit on long term financing (12,342) -
Other fees and commission income 17 179,098 184,746
Other operating income 18 72,829 80,470
TOTAL OPERATING INCOME 909,484 879,770

Staff expenses 293,898 262,327

Depreciation and amortisation 19 39,126 35,299
Other operating expenses 20 156,396 160,440
TOTAL OPERATING EXPENSES 489,420 458,066

NET INCOME FOR THE YEAR BEFORE PROVISIONS, IMPAIRMENTS

AND TAXATION 420,064 421,704
Provisions and impairments 21 (65,796) (99,323)

NET INCOME BEFORE TAXATION 354,268 322,381

Taxation (96,489) (87,139)
NET INCOME FOR THE YEAR 257,779 235,242

Attributable to:
Equity holders of the parent 144,506 133,028
Non-controlling interest 113,273 102,214
257,779 235,242
Basic and diluted earnings per share - US cents 22 13.90 12.79

Saleh Abdullah Kamel Adnan Ahmed Yousif

Chairman Member of the Board and President and Chief Executive

The attached notes 1 to 30 form part of these consolidated financial statements.

Pages 80 & 81
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Consolidated Statement of Cash Flows

Year ended 31 December 2013

2013 2012
Notes US$ ‘000 US$ ‘000
OPERATING ACTIVITIES
Net income before taxation 354,268 322,381
Adjustments for:
Depreciation and amortisation 19 39,126 35,299
Impairment of intangible assets 10 (a) - 57
Depreciation on Ijarah Muntahia Bittamleek 15.4 402,894 100,106
Unrealised gain on equity and debt-type instruments at
fair value through statement of income 15.3 (283) (330)
Gain on sale of property and equipment 18 (9,153) (17,332)
Gain on sale of investment in real estate 15.3 (957) (2,426)
Gain on sale of equity-type instruments at fair value through equity 15.3 (891) (185)
Gain on sale of equity and debt-type instruments at fair value
through statement of income 15.3 (2,500) (125)
Gain on sale of associate 15.3 (46) -
Income from associates 15.3 (1,958) (1,600)
Provisions and impairments 21 65,796 99,323
Operating profit before changes in operating assets and liabilities 846,296 535,168
Net changes in operating assets and liabilities:
Reserves with central banks (515,445) (340,999)
Receivables (403,398) (2,330,500)
Mudaraba and Musharaka financing (239,931) (12,461)
Ijarah Muntahia Bittamleek (625,323) (256,004)
Other assets (12,185) (38,643)
Customer current and other accounts 428,441 260,418
Due to banks 123,588 318,818
Other liabilities (5,023) (4,872)
Equity of investment accountholders 793,585 1,140,192
Taxation paid (81,157) (85,113)
Net cash from (used in) operating activities 309,448 (813,996)
INVESTING ACTIVITIES
Net purchase of investments (212,232) (73,573)
Net purchase of property and equipment (44,321) (86,681)
Dividends received from associates 1,197 -
Net purchase of investment in associate (1,739) (8,014)
Net cash used in investing activities (257,095) (168,268)
FINANCING ACTIVITIES
Long term financing 536,912 12,796
Dividends paid to equity holders of the parent (35,507) (30,434)
Net movement in treasury shares 753 239
Net changes in non-controlling interest (27,135) (15,799)
Net cash from (used in) financing activities 475,023 (33,198)
Foreign currency translation adjustments (172,917) (31,234)
NET CHANGES IN CASH AND CASH EQUIVALENTS 354,459 (1,046,696)
Cash and cash equivalents at 1 January 1,950,294 2,996,990
CASH AND CASH EQUIVALENTS AT 31 DECEMBER 23 2,304,753 1,950,294

The attached notes 1 to 30 form part of these consolidated financial statements.

Al Baraka Annual Report 2013

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Consolidated Statement of Changes in Owners’ Equity

Year ended 31 December 2013

Attributable to equity
Reserves

Share Treasury Share Statutory

capital shares premium reserve
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Balance at 1 January 2013 1,014,475 (8,475) 16,352 78,687

Dividends paid - - - -
Bonus shares issued (note 14) 33,816 - - -
Movement in treasury shares - 352 401 -
Net movement in cumulative change in fair value - - - -
Net movement in other reserves - - - -
Foreign currency translation - - - -
Net income for the year - - - -
Transfer to statutory reserve - - - 14,451
Proposed dividends - - - -
Proposed bonus shares - - - -
Dividends of subsidiaries - - - -
Zakah paid by subsidiaries - - - -
Effects of acquisition of non-controlling interest - - - -
Net movement in non-controlling interest - - - -
Balance at 31 December 2013 1,048,291 (8,123) 16,753 93,138

Balance at 1 January 2012 869,550 (7,319) 16,420 65,384

Dividends paid - - - -
Bonus shares issued (note 14) 144,925 - - -
Movement in treasury shares - (1,156) (68) -
Net movement in cumulative change in fair value - - - -
Net movement in other reserves - - - -
Foreign currency translation - - - -
Net income for the year - - - -
Transfer to statutory reserve - - - 13,303
Proposed dividends - - - -
Proposed bonus shares - - - -
Dividends of subsidiaries - - - -
Effects of acquisition of non-controlling interest - - - -
Net movement in non-controlling interest - - - -
Balance at 31 December 2012 1,014,475 (8,475) 16,352 78,687

The attached notes 1 to 30 form part of these consolidated financial statements.

Pages 82 & 83
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shareholders of the parent

Cumulative Foreign Non- Total

changes in currency Retained Proposed controlling owners’
Other reserves fair values translations earnings appropriations Total interest equity
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

42,566 (3,636) (133,591) 218,222 69,323 1,293,923 673,757 1,967,680

- - - - (35,507) (35,507) - (35,507)
- - - - (33,816) - - -
- - - - - 753 - 753
- 1,256 - - - 1,256 500 1,756
(4,020) - - - - (4,020) (2,502) (6,522)
- - (99,337) - - (99,337) (73,580) (172,917)
- - - 144,506 - 144,506 113,273 257,779
- - - (14,451) - - - -
- - - (36,690) 36,690 - - -
- - - (45,578) 45,578 - - -
- - - - - - (26,469) (26,469)
- - - (2,501) - (2,501) (1,914) (4,415)
- - - (422) - (422) 422 -
- - - - - - 1,249 1,249
38,546 (2,380) (232,928) 263,086 82,268 1,298,651 684,736 1,983,387

39,223 (10,910) (112,163) 167,584 175,359 1,203,128 596,022 1,799,150

- - - - (30,434) (30,434) - (30,434)
- - - - (144,925) - - -
- - - 1,463 - 239 - 239
- 7,274 - - - 7,274 1,160 8,434
3,343 - - (1,261) - 2,082 1,079 3,161
- - (21,428) - - (21,428) (9,806) (31,234)
- - - 133,028 - 133,028 102,214 235,242
- - - (13,303) - - - -
- - - (35,507) 35,507 - - -
- - - (33,816) 33,816 - - -
- - - - - - (27,875) (27,875)
- - - 34 - 34 (34) -
- - - - - - 10,997 10,997
42,566 (3,636) (133,591) 218,222 69,323 1,293,923 673,757 1,967,680

Al Baraka Annual Report 2013

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Consolidated Statement of Changes

in Off-Balance Sheet Equity of Investment Accountholders
Year ended 31 December 2013

Investment Ijarah
Sales Mudaraba in real Muntahia
Cash receivables financing estate Bittamleek Investments Others Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Balance at 1 January 2013 57,403 84,056 206,123 34,220 - 153,856 63,137 598,795
Deposits 134,441 299,376 1,137,689 18,145 28,571 100,347 241,055 1,959,624
Withdrawals (84,976) (322,062) (1,064,518) (1,875) (2,680) (103,866) (270,004) (1,849,981)
Income net of expenses - 10,805 3,087 654 2,099 5,430 437 22,512
Mudarib’s share - (2,315) (1) (176) (155) (163) (148) (2,958)
Foreign exchange translations - - - (509) - 4 (13,239) (13,744)
Balance at 31 December 2013 106,868 69,860 282,380 50,459 27,835 155,608 21,238 714,248

Balance at 1 January 2012 17,189 105,361 200,702 35,310 - 126,381 38,185 523,128
Deposits 99,843 600,478 893,299 2,892 - 64,612 198,296 1,859,420
Withdrawals (59,629) (632,706) (889,432) (4,371) - (41,365) (168,273) (1,795,776)
Income net of expenses - 13,769 1,556 445 - 8,210 2,574 26,554
Mudarib’s share - (2,846) (2) (56) - (873) (543) (4,320)
Foreign exchange translations - - - - - (3,109) (7,102) (10,211)
Balance at 31 December 2012 57,403 84,056 206,123 34,220 - 153,856 63,137 598,795

The attached notes 1 to 30 form part of these consolidated financial statements.

Pages 84 & 85
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Notes to the Consolidated Financial Statements

31 December 2013

1 ACTIVITIES
Al Baraka Banking Group B.S.C. (‘the Bank’) is a joint stock company incorporated in the Kingdom of Bahrain on
27 June 2002, under Commercial Registration (CR) number 48915. The Bank is engaged in banking activities in the
Middle East, Europe, North African and South African region. The address of the Bank’s registered office is P.O. Box
1882, Diplomatic Area, Manama, Kingdom of Bahrain. The Bank is listed on Bahrain Bourse and NASDAQ Dubai.

The Bank operates under an Islamic wholesale banking license issued by the Central Bank of Bahrain (‘the CBB’).

The principal activities of the Bank and its subsidiaries (‘the Group’) comprise of international and commercial
banking, financing, treasury and investment activities. The Bank is supervised and regulated by the CBB.

The consolidated financial statements were approved by the Board of Directors on 23 February 2014.

2 SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the consolidated financial statements are set out
below:

a. Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for investment in real
estate, equity-type instruments through statement of income and equity-type instruments through equity that
have been measured at fair value. The consolidated financial statements are presented in United States Dollars
(‘US Dollars’) being the reporting currency of the Group. All values are rounded to the nearest US Dollar thousands
unless otherwise indicated.

New accounting standard

Durintg 2012, AAOIFI issued new Financial Accounting Standard (FAS 26) “Investment in real estate”, which is
effective as of 1 January 2013.

The adoption of FAS 26 had no effect on the classification and measurement of the Groups investments in real estate.

b. Statement of compliance
The consolidated financial statements are prepared in accordance with the Financial Accounting Standards issued by
the Accounting and Auditing Organisation for Islamic Financial Institutions (‘AAOIFI’), the Shari’a Rules and Principles
as determined by the Shari’a Supervisory Board of the Group, the Bahrain Commercial Companies Law, the Central
Bank of Bahrain and Financial Institutions Law and the CBB Rule Book (Volume 2 and applicable provisions of
Volume 6) and CBB directives, regulations and associated resolutions, rules and procedures of the Bahrain Bourse or
the terms of the Bank’s memorandum and articles of association. In accordance with the requirements of AAOIFI,
for matters for which no AAOIFI standard exists, the Group uses the relevant International Financial Reporting
Standards (‘the IFRS’) issued by International Accounting Standards Board (the ‘IASB’).

c. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at and
for the year ended 31 December each year. The financial statements of the subsidiaries are prepared for the same
reporting year as the Bank, using consistent accounting policies.

All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group
transactions are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control,
and continue to be consolidated until the date that control ceases. Control is achieved where the Group has the
power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Non-controlling interest in a subsidiary’s net assets is reported as a separate item in the Group’s owners’ equity.
In the consolidated statement of income, non-controlling interest is included in net profit, and shown separately
from that of the shareholders.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Non-controlling interests consist of the amount of those interests at the date of the original business combination
and the non-controlling interests’ share of changes in owners’ equity since the date of combination. Losses
applicable to the non-controlling interest in excess of the non-controlling interest in a subsidiary’s owners’
equity are allocated against the interests of the Group except to the extent that the non-controlling interest has
a binding obligation and is able to make an additional investment to cover the losses. Changes in the ownership
interest in a subsidiary that do not result in a loss of control are accounted for as an owners’ equity transaction.

The following are the principal subsidiaries of the Bank, which are consolidated in these consolidated financial
statements:

No. of
branches/
offices at 31
Ownership Ownership Year of Country of December
Bank for 2013 for 2012 incorporation incorporation 2013
Held directly by the Bank
Banque Al Baraka D’Algerie (BAA) 55.90% 55.90% 1991 Algeria 26
Al Baraka Islamic Bank - Bahrain (AIB) 91.12% 91.12% 1984 Bahrain 117
Al Baraka Bank Tunis (ABT) * 78.40% 78.40% 1983 Tunisia 8
Al Baraka Bank Egypt (ABE) 73.68% 73.68% 1980 Egypt 26
Al Baraka Bank Lebanon (ABBL) 98.86% 98.71% 1991 Lebanon 7
Jordan Islamic Bank (JIB) 66.01% 66.01% 1978 Jordan 80
Al Baraka Turk Participation Bank (ATPB) 56.64% 56.64% 1985 Turkey 167
Al Baraka Bank Limited (ABL) 62.15% 62.15% 1989 South Africa 11
Al Baraka Bank Sudan (ABS) ** 76.09% 82.08% 1984 Sudan 27
Al Baraka Bank Syria (ABBS) 23.00% 23.00% 2009 Syria 9

* From 1 January 2014, ABT has changed its license from an off-shore bank to an on-shore bank and its reporting currency has been officially
changed from US Dollar to Tunisian Dinar.
** During the year other shareholders of ABS have paid their share of the capital increase, which the Group has already paid in previous years.
This resulted in change of the ownership percentage during the year.

The following are the subsidiaries held indirectly through the principal subsidiaries of the Bank:

Subsidiary Effective Effective

held Ownership Ownership Year of Country of
Company/ Bank through for 2013 for 2012 incorporation incorporation
Held indirectly by the Bank
Al Baraka Bank (Pakistan) Limited AIB 58.90% 58.90% 2010 Pakistan
Itqan Capital (note 3) AIB 54.67% 54.67% 2007 Saudi Arabia
Al- Rizq Trading Company JIB - 59.40% 1994 Jordan
Al-Omariya School Company JIB 62.31% 62.31% 1987 Jordan
Al-Samaha Real Estate Company JIB 65.15% 66.01% 1998 Jordan
Future Applied Computer Technology Company JIB 66.01% 66.01% 1998 Jordan
Sanable Alkhair for Financial Investment JIB 66.01% 66.01% 2006 Jordan
Al Baraka Properties (Pty) Ltd. ABL 62.15% 62.15% 1991 South Africa

d. Business combinations
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 interest in the acquiree. For each business combination, the Group elects whether it measures
the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s

Pages 86 & 87
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Notes to the Consolidated Financial Statements

31 December 2013

identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. 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.

e. Cash and cash equivalents

Cash and cash equivalents as referred to in the consolidated statement of cash flows comprise cash and cash in
transit, balances with central banks excluding mandatory reserves and balances with other banks with an original
maturity of three months or less.

f. Receivables
Receivables comprise Sales (Murabaha) receivables, Ijarah receivables, Salam receivables and Istisna’a receivables.

Sales (Murabaha) receivables

Sales (Murabaha) receivables consist mainly of Murabaha and international commodities stated net of deferred
profits and provision for doubtful amount.

Ijarah receivables
Ijarah receivables is the outstanding rental at the end of the year less any provision for doubtful amount.

Salam receivables
Salam receivables is the outstanding amount at the end of the year less any provision for doubtful amount.

Istisna’a receivables
Istisna’a receivables is the outstanding amount at the end of the year less any provision for doubtful amount.

g. Mudaraba and Musharaka financing

Mudaraba and Musharaka financing are partnerships in which the Bank contributes capital. These are stated at the
fair value of consideration given less impairment.

h. Investments
Investments comprise equity-type instruments at fair value through statement of income, equity-type instruments
at fair value through equity, debt-type instruments at amortised cost, investment in real estate and investment
in associates.

Investment in real estate

Properties held for rental, or for capital appreciation purposes, or both, are classified as investment in real estate.
Investments in real estate are initially recorded at cost, being the fair value of the consideration given and acquisition
charges associated with the property. Subsequent to initial recognition, investment in real estate are re-measured
at fair value and changes in fair value (only gains) are recognised as property fair value reserve in the consolidated
statement of changes in owners’ equity.

Losses arising from changes in the fair values of investment in real estate are firstly adjusted against the property fair
value reserve to the extent of the available balance and then the remaining losses are recognised in the consolidated
statement of income. If there are unrealised losses that have been recognised in the consolidated statement of
income in the previous financial periods, the current period unrealised gain shall be recognised in the consolidated
statement of income to the extent of crediting back such previous losses in the consolidated statement of income.
When the property is disposed of, the cumulative gain previously transferred to the property fair value reserve, is
transferred to the consolidated statement of income.

Investment in associates
The Group’s investment in its associates is accounted for under the equity method of accounting. An associate is
an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under
the equity method, the investment in the associate is carried in the consolidated statement of financial position

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
h. Investments (continued)

Investment in associates (continued)

at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an
associate is included in the carrying amount of the investment and is not amortised. The consolidated statement
of income reflects the Group’s share of the results of operations of the associate. 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 owners’ equity. Profits and losses resulting from
transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The reporting dates of the associates and the Group are identical and the associates accounting policies conform
to those used by the Group for like transactions and events in similar circumstances.

Equity-type instruments at fair value through statement of income

This includes instruments held for trading purposes to gain profits from market fluctuations in the short term.
These are initially recognised at cost, being the fair value of the consideration given excluding acquisition costs.
These are subsequently re-measured at fair value. All related realised and unrealised gains or losses are included
in the consolidated statement of income.

All other investments are initially recognised at cost, being the fair value of the consideration given including
acquisition costs.

Equity-type instruments at fair value through equity

This includes all instruments that are not covered above. Subsequent to acquisition, investments designated at
fair value through equity are re-measured at fair value with unrealised gains or losses recognised proportionately
in owners’ equity and equity of investment accountholders until the investment is derecognised or determined
to be impaired at which time the cumulative gain or loss previously recorded in owners’ equity or equity of
investment accountholders is recognised in consolidated statement of income.

Debt-type instruments at amortised cost

Debt-type instruments which are managed on a contractual yield basis and are not held for trading and has not
been designated at fair value through statement of income are classified as debt-type instruments at amortised
cost. Such investments are carried at amortised cost, less provision for impairment in value. Amortised cost is
calculated by taking into account any premium or discount on acquisition. Any gain or loss on such investment
is recognised in the consolidated statement of income, when the investment is de-recognised or impaired.

i. Ijarah Muntahia Bittamleek

Assets acquired for leasing (Ijarah) are stated at cost, less accumulated depreciation.

Depreciation is provided on the straight line method over the useful life of the asset or the period of the lease,
whichever is lower.

j. Property and equipment

Property and equipment are initially recognised at cost. The cost of additions and major improvements are
capitalised; maintenance and repairs are charged to the consolidated statement of income as incurred. Gains
or losses on disposal are reflected in other operating income. Depreciation is provided on the straight-line basis
over the estimated useful lives of the assets other than freehold land, which is deemed to have an indefinite life.

The calculation of depreciation is on the following basis:

Buildings 30 years
Office furniture and equipment 4 - 10 years
Vehicles 3 years
Others 4 - 5 years

Pages 88 & 89
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Notes to the Consolidated Financial Statements

31 December 2013

k. Fair values
For investments actively traded in organised financial markets, fair value is determined by reference to quoted
market bid prices.

For investment where there is no quoted market price, a reasonable estimate of the fair value is determined by
reference to the current market value of another instrument, which is substantially the same or is based on the
assessment of future cash flows. The cash equivalent values are determined by the Group at current profit rates
for contracts with similar term and risk characteristics.

For Sales (Murabaha) receivables the fair value is determined at Bank or subsidiary level at the end of the financial
period at their cash equivalent value.

l. Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business
combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate
that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the
synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those
units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill
relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment
loss is recognised.

m. Intangible assets
Intangible assets comprise principally the value of computer software. Intangible assets acquired are measured on
initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated
amortisation and any accumulated impairment losses.

n. Collateral pending sale

Collateral acquired in settlement of certain financing facilities is stated at the lower of the net realisable value of
the related financing facilities and the current fair value of such assets. Gains or losses on disposal, and revaluation
losses, are recognised in the consolidated statement of income.

o. Employees’ end of service benefits

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

p. Provision
Provisions are recognised when there is 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.

q. Dividends
Dividends to shareholders are recognised as liabilities in the year in which they are declared.

r. Equity of investment accountholders

All equity of investment accountholders are carried at cost plus accrued profit and related reserves. Investment
risk reserves and profit equalisation reserves are made at the Bank or subsidiary level.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

s. Investment risk reserve

Investment risk reserves are amounts appropriated out of the income of equity of investment accountholders,
after allocating the mudarib share, in order to cater against future losses for equity of investment accountholders.

t. Profit equalisation reserve

Profit equalisation reserves are amounts appropriated out of the Mudaraba income, before allocating the mudarib
share, in order to maintain a certain level of return on investments for equity of investment accountholders.

u. Off-balance sheet equity of investment accountholders

Off-balance sheet equity of investment accountholders represent funds received by the Group from third
parties for investment in specified products as directed by the investment account holders. These assets are
managed in a fiduciary capacity and the Group has no entitlement to these assets. Clients bear all of the risks
and earn all of the rewards on these investments. Off-balance sheet equity of investment accountholders are
not included in the consolidated statement of financial position since the Group does not have the right to use
or dispose these investments except within the conditions of the contract between the Group and off-balance
sheet equity of investment accountholders.

v. Treasury shares
Own equity instruments which are reacquired (treasury shares) are deducted from equity of the parent and
accounted for at weighted average cost. Consideration paid or received on the purchase, sale, issue or cancellation
of the Group’s own equity instruments is recognised directly in equity of the parent. No gain or loss is recognised
in consolidated statement of income on the purchase, sale, issue or cancellation of own equity instruments.

w. Revenue recognition
Sales (Murabaha) receivables
Profit from Sales (Murabaha) receivables is recognised when the income is both contractually determinable and
quantifiable at the commencement of the transaction. Such income is recognised on time-apportioned basis
over the period of the transaction. Where the income from a contract is not contractually determinable or
quantifiable, it is recognised when the realisation is reasonably certain or when actually realised. Income related
to accounts that are 90 days overdue is excluded from the consolidated statement of income.

Salam and Istisna’a receivables

Income on Salam and Istisna’a is recognised on time-apportioned basis when the income from a contract is
contractually determinable or quantifiable.

Mudaraba and Musharaka financing

Income on Mudaraba and Musharaka financing is recognised when the right to receive payment is established
or on distribution by the Mudarib. Income related to accounts that are 90 days overdue is excluded from the
consolidated statement of income.

Ijarah Muntahia Bittamleek

Income net of depreciation is recognised on a time-apportioned basis over the lease term.

Fee and commission income

Fee and commission income is recognised when earned.

Other income
Other income on investments is recognised when the right to receive payment is established.

Group’s share as a Mudarib

The Group’s share of profit as a Mudarib for managing equity of investment accountholders is based on the
terms and conditions of the related mudarib agreements.

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Notes to the Consolidated Financial Statements

31 December 2013

Mudarib’s share of off-balance sheet equity of investment accountholders

The Group shares profit for managing off-balance sheet equity of investment accountholders based on the terms
and conditions of related contracts.

x. Return on equity of investment accountholders

Equity of investment accountholders’ share of income is calculated based on the applicable local laws and based on
the underlining individual Mudaraba contract. It represents the income generated from joint investment accounts
and after deducting other expenses. Other expenses include all expenses incurred by the Group including specific
provisions. The Group’s share is deducted before distributing such income.

y. Joint and self financed

Investments, financing and receivables that are jointly owned 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 financed solely by the Group are classified under “self financed”.

z. Taxation
There is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign operations is provided in
accordance with the fiscal regulations of the respective countries in which the subsidiaries operate. The Group
accounts for its share of associates profit after accounting for corporate taxation. Deferred income tax is provided
using the liability method on temporary differences at the financial position date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.

aa. Shari’a supervisory board

The Group’s business activities are subject to the supervision of a Shari’a supervisory board consisting of five
members appointed by the general assembly.

bb. Zakah
The responsibility of payment of Zakah is on individual shareholders of the Group, its equity of investment
accountholders and other account holders except for few subsidiaries where the responsibility of payment of Zakah
is on the individual subsidiary as a single entity. The calculation of Zakah per share is presented as an attachment
to the Shari’a Supervisory Board Report.

cc. Earnings prohibited by Shari’a

The Group is committed to avoid recognising any income generated from non-Islamic source. Accordingly, all non-
Islamic income is credited to a charity account where the Group uses these funds for various social welfare activities.

dd. Impairment of financial assets

An assessment is made at each financial position date to determine whether there is objective evidence that
a specific financial asset or a group of financial assets may be impaired. If such evidence exists, the estimated
recoverable amount of that asset is determined and any impairment loss, based on the assessment by the Group
of the estimated cash equivalent value, is recognised in the consolidated statement of income. Specific provisions
are created to reduce all impaired financial contracts to their realisable cash equivalent value. Financial assets are
written off only in circumstances where effectively all possible means of recovery have been exhausted.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment value was recognised, the previously recognised impairment loss is
reversed. Any subsequent reversal of an impairment loss is recognised in the consolidated statement of income.

In addition, the Group maintains a provision to reflect a potential loss that may occur as a result of currently
unidentifiable risks in relation to receivables, financings or investment assets. The amount reflects estimated losses
affecting these assets attributable to events that have already occurred at the date of the financial statements,
and not estimated losses attributable to future events.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

ee. Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the consolidated statement
of financial position when there is a religious or legal right to offset the recognised amounts and there is actual
expectation of the Group to settle on a net basis.

ff. Foreign currencies

Foreign currency transactions at the subsidiary level
Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. The
monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling
at the financial position date. All differences are taken to income statement at the entity level.

Foreign currency translations

As at the reporting date, the assets and liabilities in foreign currencies are translated into the presentation
currency of the Group (United States Dollars) at the rate of exchange ruling at the financial position date and
their income statements are translated at the average exchange rates for the year. The exchange differences
arising on the translation are taken directly to a separate component of owners’ equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in owners’ equity relating to that
particular foreign entity is recognised in the consolidated statement of income.

gg. Judgments
In the process of applying the Group’s accounting policies, management has made the following judgments, apart
from those involving estimations, which effects the amounts recognised in the consolidated financial statements:

Classification of investments
Management decides on acquisition of an investment whether it should be classified as equity-type instrument
at fair value through statement of income, equity-type instrument at fair value through equity or debt-type
instrument at amortised cost.

Going concern
The Bank’s management has made an assessment of the Group’s ability to continue as 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 financial statements continue to be prepared on the going
concern basis.

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Notes to the Consolidated Financial Statements

31 December 2013

hh. Use of estimates in preparation of the consolidated financial statements

The preparation of the consolidated financial statements requires management to make estimates and assumptions
that affect the reported amounts of financial assets and liabilities at the date of the consolidated financial statements.
The use of estimates is used primarily to the determination of provisions for sales (Murabaha) receivable, mudaraba
financing, musharaka financing, equity-type instrument at fair value through equity, debt-type instrument at
amortised cost, ijarah receivable and other assets.

ii. Derecognition
A financial asset (or, where applicable a part of a financial asset or part of a Group of similar financial assets) is
derecognised when:
(i) the right to receive cash flows from the asset have expired;
(ii) the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them
in full without material delay to a third party under a ‘pass through’ arrangement; or
(iii) the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired.

3 ACQUISITION OF ITQAN CAPITAL

On 1 July 2012, the Group acquired 58.32% of the voting shares of Itqan Capital through its subsidiary Al Baraka
Islamic Bank. Itqan Capital is an unlisted company based in Kingdom of Saudi Arabia, licensed by the Capital Market
Authority and specialising in the asset management, principle investment, investment banking, and custodial services.
Further Al Baraka Islamic Bank via a management agreement dated 1 July 2012 assigned the control to govern the
financial and operating policies of Itqan Capital to the Group. Al Baraka Islamic Bank has authorised the Group to
represent it in the shareholders’ meetings and to exercise control on Itqan Capital to do any or all acts and deeds
and exercise all powers of Al Baraka Islamic Bank pursuant to the Charter Document referred in the management
agreement and or under any applicable laws.

Assets acquired and liabilities assumed

The fair value of the identifiable assets and liabilities of Itqan Capital as at the date of acquisition were US$ 10,594
thousand and the goodwill arising on acquision was US$ 17,082 thousand. The total purchase consideration
transferred is US$ 27,676 thousand.

The goodwill of US$ 17,082 thousands comprises the value of expected synergies arising from the acquisition,
which is not separately recognised.

From the date of acquisition till 31 December 2012, Itqan Capital has contributed US$ 389 thousands of revenue
and a loss of US$ 2,044 thousands to the net profit before tax of the Group. If the acquisition had taken place at
the beginning of the year 2012, revenue contributed would have been US$ 817 thousand and a loss of US$ 3,803
thousand to the net profit before tax of the Group for the year 2012.

The Group has elected to measure the non-controlling interest in the Itqan Capital at their proportionate share of the
acquirer’s identifiable net assets resulting in the non-controlling interest of US$ 7,063 thousand at 31 December 2012.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

4 CASH AND BALANCES WITH BANKS

2013 2012
US$ ‘000 US$ ‘000
Balances with central banks* 3,681,621 2,876,719
Balances with other banks 791,780 681,064
Cash and cash in transit 324,086 369,800
4,797,487 3,927,583

* Balances with the central banks include mandatory reserves amounting to US$ 2,492,734 thousand (2012: US$ 1,977,289 thousand). These
amounts are not available for use in the Group’s day-to-day operations.

5 RECEIVABLES
2013 2012
US$ ‘000 US$ ‘000
Sales (Murabaha) receivables (5.1) 10,632,286 10,297,161
Ijarah receivables (5.2) 20,504 32,587
Salam receivables (5.3) 126,174 106,400
Istisna’a receivables (5.4) 39,255 26,353
10,818,219 10,462,501

5.1 Sales (Murabaha) receivables

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
International Commodity
Murabaha 60,406 327,012 387,418 63,835 312,232 376,067
Other Murabaha 1,711,299 10,019,224 11,730,523 1,380,402 10,118,986 11,499,388
Gross Sales (Murabaha)
receivables 1,771,705 10,346,236 12,117,941 1,444,237 10,431,218 11,875,455
Deferred profits (177,273) (915,326) (1,092,599) (166,028) (1,017,762) (1,183,790)
1,594,432 9,430,910 11,025,342 1,278,209 9,413,456 10,691,665
Provisions (note 21) (57,795) (335,261) (393,056) (42,177) (352,327) (394,504)
1,536,637 9,095,649 10,632,286 1,236,032 9,061,129 10,297,161

2013 2012
US$ ‘000 US$ ‘000
Non-performing 456,082 495,745

The Group considers the promise made in Sales (Murabaha) receivables to the purchase orderer as obligatory.

Pages 94 & 95
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Notes to the Consolidated Financial Statements

31 December 2013

5.2 Ijarah receivables

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Gross Ijarah receivables 567 25,715 26,282 1,081 39,562 40,643

Provisions (note 21) - (5,778) (5,778) - (8,056) (8,056)
567 19,937 20,504 1,081 31,506 32,587

2013 2012
US$‘000 US$‘000
Non-performing 11,666 14,480

5.3 Salam receivables

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Gross Salam receivables - 130,417 130,417 - 109,084 109,084

Provisions (note 21) - (4,243) (4,243) - (2,684) (2,684)
- 126,174 126,174 - 106,400 106,400

2013 2012
US$ ‘000 US$ ‘000
Non-performing 7,303 8,415

5.4 Istisna’a receivables

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Gross Istisna’a receivables - 40,565 40,565 - 26,839 26,839

Provisions (note 21) - (1,310) (1,310) - (486) (486)
- 39,255 39,255 - 26,353 26,353

2013 2012
US$ ‘000 US$ ‘000
Non-performing 2,852 941

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

6 MUDARABA AND MUSHARAKA FINANCING

2013 2012
US$ ‘000 US$ ‘000
Mudaraba financing (6.1) 809,178 557,787
Musharaka financing (6.2) 382,947 395,767
1,192,125 953,554

6.1 Mudaraba financing

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Gross Mudaraba financing 322,626 497,662 820,288 185,031 389,109 574,140
Provisions (note 21) - (11,110) (11,110) - (16,353) (16,353)
322,626 486,552 809,178 185,031 372,756 557,787

2013 2012
US$‘000 US$‘000
Non-performing 10,872 16,612

6.2 Musharaka financing

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Gross Musharaka financing 70,550 319,789 390,339 82,442 321,854 404,296
Provisions (note 21) - (7,392) (7,392) - (8,529) (8,529)
70,550 312,397 382,947 82,442 313,325 395,767

2013 2012
US$‘000 US$‘000
Non-performing 14,964 22,328

7 INVESTMENTS
2013 2012
US$ ‘000 US$ ‘000
Equity and debt-type instruments at fair value through statement of income (7.1) 34,644 14,492
Equity-type instruments at fair value through equity (7.2) 97,087 176,104
Debt-type instruments at amortised cost (7.3) 2,093,920 1,831,118
2,225,651 2,021,714
Investment in real estate (7.4) 139,350 127,829
Investment in associates (7.5) 37,829 34,211
2,402,830 2,183,754

Pages 96 & 97
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Notes to the Consolidated Financial Statements

31 December 2013

7.1 Equity and debt-type instruments at fair value through statement of income

2013 2012
Self Jointly Self Jointly Total
financed financed Total financed financed US$
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 ‘000
Quoted investments
Debts 29,046 2,638 31,684 5,127 5,257 10,384
Equities 2,262 698 2,960 2,582 - 2,582
31,308 3,336 34,644 7,709 5,257 12,966
Unquoted investments
Debts - - - 1,526 - 1,526
- - - 1,526 - 1,526
31,308 3,336 34,644 9,235 5,257 14,492

7.2 Equity-type instruments at fair value through equity

2013 2012
Self Jointly Self Jointly Total
financed financed Total financed financed US$
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 ‘000
Quoted investments
Equities 4,820 43,373 48,193 5,787 47,969 53,756
Managed funds 1,751 14,650 16,401 17,178 14,351 31,529
6,571 58,023 64,594 22,965 62,320 85,285

Unquoted investments
Equities 19,520 7,549 27,069 55,189 24,059 79,248
Managed funds - 10,485 10,485 - 28,380 28,380
19,520 18,034 37,554 55,189 52,439 107,628
Provisions (note 21) (2,744) (2,317) (5,061) (10,524) (6,285) (16,809)
23,347 73,740 97,087 67,630 108,474 176,104

7.3 Debt-type instruments at amortised cost

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Quoted investments
Sukuk and similar items 477,269 490,730 967,999 312,828 461,337 774,165
477,269 490,730 967,999 312,828 461,337 774,165
Unquoted investments
Sukuk and similar items 56,639 1,072,263 1,128,902 55,933 1,004,397 1,060,330
56,639 1,072,263 1,128,902 55,933 1,004,397 1,060,330
Provisions (note 21) - (2,981) (2,981) - (3,377) (3,377)
533,908 1,560,012 2,093,920 368,761 1,462,357 1,831,118

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

7 INVESTMENTS (continued)

7.4 Investment in real estate

2013 2012
Self Jointly Self Jointly Total
financed financed Total financed financed US$
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 ‘000
Land 1,158 75,982 77,140 1,343 46,382 47,725
Buildings 7,340 54,870 62,210 3,204 76,900 80,104
8,498 130,852 139,350 4,547 123,282 127,829

The following is a reconciliation between the carrying amounts of investment in real estate at the beginning and end
of the year:

2013 2012
US$ ‘000 US$ ‘000
Beginning balance of the year 127,829 128,111
Acquisition 11,290 15,595
Net gain (loss) from fair value adjustments 6,988 (93)
Disposal (1,860) (6,739)
Foreign exchange translation / others - net (4,897) (9,045)
11,521 (282)
Ending balance of the year 139,350 127,829

Pages 98 & 99
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Notes to the Consolidated Financial Statements

31 December 2013

7.5 Investment in associates

Investments in associates comprise the following:

2013
Market
Self Jointly Total Value
Ownership Country of financed financed US$ US$
% incorporation US$ ‘000 US$ ‘000 ‘000 ‘000
Quoted
Investment Banking
Al Amin for Investment 29.70 Jordan - 5,606 5,606 4,065
Insurance
The Islamic Insurance Company 33.20 Jordan - 7,549 7,549 7,762
Others
Jordan International Trading Centre 28.40 Jordan - 2,187 2,187 1,836
Arabian Steel Pipes Manufacturing
Company Limited 26.00 Jordan - 5,520 5,520 8,713
- 20,862 20,862 22,376
Unquoted
Real Estate
Egyptian Saudi Finance Real Estate 40.00 Egypt - 327 327
REIF 1 Real Estate Income Fund 37.47 Saudi Arabia 7,152 - 7,152
REIF 2 Real Estate Income Fund 19.90 Saudi Arabia 2,101 - 2,101
Insurance
Takaful for Pension
and Life Insurance 50.00 Turkey 2,391 - 2,391
Others
BEST Lease 28.00 Tunisia 4,996 - 4,996
16,640 327 16,967
16,640 21,189 37,829

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

7 INVESTMENTS (continued)

7.5 Investment in associates (continued)

2012
Self Jointly
financed financed Market
Ownership Country of US$ US$ Total Value
% incorporation ‘000 ‘000 US$ ‘000 US$ ‘000
Quoted
Investment Banking
Al Amin for Investment 29.70 Jordan - 5,660 5,660 4,401
Insurance
The Islamic Insurance Company 33.20 Jordan - 7,304 7,304 7,312
Others
Jordan International Trading Centre 28.40 Jordan - 2,052 2,052 1,618
Arabian Steel Pipes Manufacturing
Company Limited 26.00 Jordan - 5,512 5,512 8,086
- 20,528 20,528 21,417
Unquoted
Real Estate
Egyptian Saudi Finance Real Estate 40.00 Egypt - 368 368
REIF 1 Real Estate Income Fund 41.33 Saudi Arabia 8,319 - 8,319
Others
BEST Lease 28.00 Tunisia 4,996 - 4,996
13,315 368 13,683
13,315 20,896 34,211

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Notes to the Consolidated Financial Statements

31 December 2013

8 IJARAH MUNTAHIA BITTAMLEEK

2013 2012
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Land and building
Cost - 1,037,203 1,037,203 - 737,870 737,870
Accumulated depreciation - (313,285) (313,285) - (178,911) (178,911)
Net book value - 723,918 723,918 - 558,959 558,959
Equipment
Cost 41,672 422,041 463,713 33,719 334,562 368,281
Accumulated depreciation (7,656) (261,176) (268,832) (10,705) (218,756) (229,461)
Net book value 34,016 160,865 194,881 23,014 115,806 138,820
Others
Cost 1,851 31,025 32,876 2,714 30,845 33,559
Accumulated depreciation (1,851) (7,776) (9,627) (2,714) (9,005) (11,719)
Net book value - 23,249 23,249 - 21,840 21,840
TOTAL
Cost 43,523 1,490,269 1,533,792 36,433 1,103,277 1,139,710
Accumulated depreciation (9,507) (582,237) (591,744) (13,419) (406,672) (420,091)
Net book value 34,016 908,032 942,048 23,014 696,605 719,619

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

9 PROPERTY AND EQUIPMENT

Office
furniture
Land and and
buildings equipment Vehicles Others Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Cost:
At 1 January 2012 254,171 150,178 10,562 57,179 472,090
Additions 46,489 30,927 890 52,809 131,115
Disposals (1,219) (4,756) (1,510) (4,777) (12,262)
Foreign exchange translations (11,553) (6,164) (1,274) (4,183) (23,174)
At 31 December 2012 287,888 170,185 8,668 101,028 567,769
Additions 38,996 22,286 1,865 26,739 89,886
Disposals (1,908) (2,929) (821) (5,582) (11,240)
Foreign exchange translations (26,368) (9,649) (450) (9,306) (45,773)
At 31 December 2013 298,608 179,893 9,262 112,879 600,642
Depreciation:
At 1 January 2012 48,411 90,976 6,247 12,523 158,157
Provided during the year (note 19) 10,395 13,672 1,135 6,248 31,450
Relating to disposals (515) (4,436) (1,221) (9,541) (15,713)
Foreign exchange translations 544 7,290 (694) 239 7,379
At 31 December 2012 58,835 107,502 5,467 9,469 181,273
Provided during the year (note 19) 10,497 15,363 1,001 7,231 34,092
Relating to disposals (620) (2,269) (732) (797) (4,418)
Foreign exchange translations (6,683) (6,380) (410) (2,712) (16,185)
At 31 December 2013 62,029 114,216 5,326 13,191 194,762
Net book values:
At 31 December 2013 236,579 65,677 3,936 99,688 405,880
At 31 December 2012 229,053 62,683 3,201 91,559 386,496

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Notes to the Consolidated Financial Statements

31 December 2013

10 OTHER ASSETS
2013 2012
US$ ‘000 US$ ‘000
Bills receivables 109,102 117,521
Goodwill and intangible assets (note 10 (a)) 104,946 107,784
Collateral pending sale 75,471 73,166
Good Faith Qard 24,359 11,058
Deferred taxation 19,022 31,897
Prepayments 46,422 56,531
Others 45,154 35,286
424,476 433,243
Provisions (note 21) (15,506) (11,619)
408,970 421,624

10 (a) Goodwill and intangible assets

2013 2012
Intangible Intangible
Goodwill assets Total Goodwill assets Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
At 1 January 93,785 13,999 107,784 76,593 9,785 86,378
Additions - 10,032 10,032 17,082 8,248 25,330
Amortisation charge for the year - (5,034) (5,034) - (3,849) (3,849)
Impairment loss for the year - - - - (57) (57)
Foreign exchange translations (6,237) (1,599) (7,836) 110 (128) (18)
At 31 December 87,548 17,398 104,946 93,785 13,999 107,784

Goodwill acquired through business combinations with indefinite lives have been allocated to five individual cash-generating
units. The carrying amount of goodwill allocated to each of the cash-generating units is as follows:

2013 2012
US$ ‘000 US$ ‘000
Al Baraka Turk Participation Bank 24,152 28,651
Al Barak Bank Egypt 2,107 2,367
Jordan Islamic Bank 26,646 26,646
Al Baraka Bank (Pakistan) Limited 17,561 19,039
Itqan Capital 17,082 17,082
87,548 93,785

The recoverable amount of the cash-generating units were determined based on value in use calculation using cash flow
projections from financial budgets approved by the Group’s senior management covering a five year period. Management
determined budgeted spreads based on the cash-generating units’ past performance and its expectation of market
development.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

11 LONG TERM FINANCING

2013 2012
US$ ‘000 US$ ‘000
Murabaha financing 296,584 -
Subordinated financing to a subsidiary 204,487 -
Istisna'a financing 39,609 12,796
540,680 12,796

Murabaha financing
During the year, Al Baraka Turk Participation Bank obtained US$ 293 million murabaha financing with an average
annual profit rate of 1.59%, for a period of two years. The murabaha financing is obtained in US$ and Euros.

Subordinated financing to a subsidiary

During the year, Al Baraka Turk Participation Bank obtained US$ 200 million subordinated financing with an annual
profit rate of 7.75%, for a period of ten years. These subordinated financing are obtained in US$ and are considered
part of tier II capital in the capital adequacy calculation of Al Baraka Turk Participation Bank as per the banking
regulations in the Republic of Turkey.

12 OTHER LIABILITIES
2013 2012
US$ ‘000 US$ ‘000
Payables 254,266 380,035
Cash margins 202,313 108,336
Managers' cheques 9,256 7,172
Other provisions (note 21) * 30,306 18,210
Current taxation ** 61,723 47,949
Deferred taxation ** 686 12,003
Accrued expenses 78,301 59,817
Charity fund 7,432 3,803
Others 54,716 39,687
698,999 677,012

* Other provisions mainly comprise of general provisions and specific provisions on commitment and contingent items.
** In view of the operations of the Group being subject to various tax jurisdictions and regulations, it is not practical to provide a reconciliation
between the accounting and taxable profits together with the details of effective tax rates.

Pages 104 & 105

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Notes to the Consolidated Financial Statements

31 December 2013

13 EQUITY OF INVESTMENT ACCOUNTHOLDERS (IAH)

2013 2012
US$ ‘000 US$ ‘000
Equity of investment accountholders 12,268,218 11,488,978
Profit equalisation reserve (note 13.1) 12,126 9,444
Investment risk reserve (note 13.2) 110,424 98,429
Cumulative changes in fair value attributable to equity of investment
accountholders - net (13.3) 8,676 7,777
12,399,444 11,604,628

13.1 Movement in profit equalisation reserve

2013 2012
US$ ‘000 US$ ‘000
Balance at 1 January 9,444 8,034
Amount apportioned from income allocable to equity of investment accountholders 2,643 1,842
Foreign exchange translations 39 (432)
Balance at 31 December 12,126 9,444

13.2 Movement in investment risk reserve

2013 2012
US$ ‘000 US$ ‘000
Balance at 1 January 98,429 93,653
Amount appropriated to provision (note 21) (21,807) (3,946)
Amount apportioned from income allocable to equity of investment accountholders 48,634 4,895
Foreign exchange translations (14,832) 3,827
Balance at 31 December 110,424 98,429

13.3 Movement in accumulated changes in fair value attributable to equity of investment accountholders - net

2013 2012
US$ ‘000 US$ ‘000
Balance at 1 January 7,777 5,313
Change in fair values during the year 2,771 6,369
Realised gain transferred to consolidated statement of income (751) (2,039)
Deferred taxation effect (606) (1,299)
Transfer to shareholders equity (515) (567)
8,676 7,777

Attributable to investment in real estate 10,009 7,220

Attributable to equity-type instruments at fair value through equity (1,333) 557
8,676 7,777

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

14 OWNERS’ EQUITY
2013 2012
US$ ‘000 US$ ‘000
Share capital
Authorised 1,500,000,000 shares of US$ 1 each 1,500,000 1,500,000

2013 2012
US$ ‘000 US$ ‘000
Issued and fully paid up
At beginning of the year
1,014,475,000 (2012: 869,550,000) shares of US$1 each 1,014,475 869,550

Issued during the year

33,815,833 Bonus shares (2012: 144,925,000) of US$1 each 33,816 144,925

At end of the year

1,048,290,833 (2012: 1,014,475,000) shares of US$1 each 1,048,291 1,014,475

Proposed appropriations
At the Annual General Meeting held on 19 March 2013 (2012: 21 March 2012), the shareholders of the Group resolved
to distribute US$ 35,507 thousand as cash dividends and US$ 33,816 thousand as bonus shares (2011: US$ 30,434
thousand as cash dividends and US$ 144,925 thousand as bonus shares).

Treasury shares

No. 2013 2012

thousand US$ ‘000 US$ ‘000
At 1 January 8,475 8,475 7,319
Purchase of treasury shares 39 39 1,634
Sale of treasury shares (391) (391) (478)
At 31 December 8,123 8,123 8,475

The market value of the treasury shares is US$ 6,268 thousand (2012: US$ 6,013 thousand) and it represents 0.8%
(2012: 0.8%) of the outstanding shares.

Pages 106 & 107

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Notes to the Consolidated Financial Statements

31 December 2013

Additional information on shareholding pattern

i) Names and nationalities of the major shareholders and the number of shares in which they have an interest of 5%
or more of outstanding shares:

At 31 December 2013
Nationality/ %
Incorporation No. of shares holding
Saleh Abdulla Kamel Saudi 315,645,330 30.11%
Dallah AlBaraka Holding Company E.C. Bahrain 258,255,951 24.64%
Altawfeek Company For Investment Funds Cayman Island 202,570,854 19.32%
Abdulla AbdulAziz AlRajihi Saudi 72,656,256 6.93%

At 31 December 2012

Nationality/
Incorporation No. of shares % holding
Saleh Abdulla Kamel Saudi 305,463,223 30.11%
Dallah AlBaraka Holding Company E.C. Bahrain 249,925,114 24.64%
Altawfeek Company For Investment Funds Cayman Island 196,036,311 19.32%
Abdulla AbdulAziz AlRajihi Saudi 69,520,688 6.85%

ii) The Bank has only one class of shares and the holders of these shares have equal voting rights.
iii) Distribution schedule of shares, setting out the number and percentage of holders in the following categories:

At 31 December 2013
% of total
No. of outstanding
Categories: No. of shares shareholders shares
Less than 1% 69,096,191 1,123 6.59%
1% up to less than 5% 130,066,251 7 12.41%
5% up to less than 10% 72,656,256 1 6.93%
10% up to less than 20% 202,570,854 1 19.32%
20% up to less than 50% 573,901,281 2 54.75%
1,048,290,833 1,134 100.00%

At 31 December 2012

% of total
No. of No. of outstanding
Categories: shares shareholders shares
Less than 1% 67,659,095 1,124 6.67%
1% up to less than 5% 125,870,569 7 12.41%
5% up to less than 10% 69,520,688 1 6.85%
10% up to less than 20% 196,036,311 1 19.32%
20% up to less than 50% 555,388,337 2 54.75%
1,014,475,000 1,135 100.00%

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

14 OWNERS’ EQUITY (continued)

a. Share premium/Equity transaction cost

Amounts collected in excess of the par value of the issued share capital during any new issue of shares, net of issue
costs, are treated as share premium. This amount is not available for distribution, but can be utilised as stipulated in
the Bahrain Commercial Companies Law.

Equity transaction cost, represent costs incurred by the Bank that are directly related to raising capital and have been
incurred in cash.

b. Statutory reserve
In accordance with the Bahrain Commercial Companies Law and the Bank’s articles of association, 10% of the parent’s
share of the net income for the year is transferred to the statutory reserve until such time as the reserve reaches 50%
of the Bank’s paid-up share capital.

c. Cumulative changes in fair values

This represents the net unrealised fair value gains and losses relating to the equity of the parent on equity-type
instruments at fair value through equity and investment in real estate.

d. Foreign currency translations

The foreign currency translations are used to record exchange differences arising from the translation of the financial
statements of foreign subsidiaries.

The following table shows summarises the subsidiary wise foreign currency translation balance as at 31 December:

2013 2012
Subsidiary Currency US$ ‘000 US$ ‘000
Banque Al Baraka D’Algerie (BAA) Algerian Dinar 8,995 10,257
Al Baraka Bank (Pakistan) Limited Pakistani Rupees 10,314 6,528
Al Baraka Bank Egypt (ABE) Egyptian Pound 25,124 11,125
Al Baraka Turk Participation Bank (ATPB) Turkish Lira 139,806 67,461
Al Baraka Bank Limited (ABL) South African Rand 9,107 4,024
Al Baraka Bank Sudan (ABS) Sudanese Pound 28,238 28,097
Al Baraka Bank Syria (ABBS) Syrian Pound 11,344 6,099
232,928 133,591

e. Other reserves
Other reserves mainly consist of general banking risk reserves maintained by the subsidiaries in accordance with local
regulations.

Pages 108 & 109

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Notes to the Consolidated Financial Statements

31 December 2013

f. Proposed Appropriations

2013 2012
US$ ‘000 US$ ‘000
Cash dividend 3.5% (2012: 3.5%) 36,690 35,507
Bonus shares 45,578 33,816
82,268 69,323

The above proposed appropriations exclude appropriations to the statutory reserve as mentioned above and will be
submitted for formal approval at the Annual General Meeting subject to regulatory approval.

The Bank proposed issuance of bonus shares from the retained earnings at one bonus share for each 23 shares held. This
will be submitted for formal approval at the Annual General Meeting subject to regulatory approval.

The proposed appropriations for the year 2012 was approved at the Annual General Meeting on 19 March 2013 and was
effected in 2013 following that approval.

g. Net movement in non-controlling interest

This mainly includes the effect of changes in capital of subsidiaries, buying (selling) by the non-controlling interest from
(to) the Group.

15 NET INCOME FROM JOINTLY AND SELF FINANCED CONTRACTS AND INVESTMENTS

2013 2012
US$ ‘000 US$ ‘000
Receivables (note 15.1) 937,762 921,642
Mudaraba and Musharaka financing (note 15.2) 81,803 58,846
Investments (note 15.3) 194,224 200,881
Ijarah Muntahia Bittamleek (note 15.4) 70,835 54,066
Others 14,438 4,519
1,299,062 1,239,954

Net income from jointly financed contracts and investments 1,031,031 1,018,482
Income from self financed contracts and investments 268,031 221,472
Profit paid on wakala financing (31,964) (16,859)
Net income from self financed contracts and investments 236,067 204,613

15.1 Receivables
2013 2012
US$ ‘000 US$ ‘000
Sales (Murabaha) receivables 925,471 911,598
Salam receivables 9,011 6,370
Istisna'a receivables 3,280 3,674
937,762 921,642

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

15 NET INCOME FROM JOINTLY AND SELF FINANCED CONTRACTS AND INVESTMENTS (continued)

15.2 Mudaraba and Musharaka financing

2013 2012
US$ ‘000 US$ ‘000
Mudaraba financing 21,325 21,443
Musharaka financing 60,478 37,403
81,803 58,846

15.3 Investments
2013 2012
US$ ‘000 US$ ‘000

Equity-type instruments at fair value through equity 9,236 9,323

Debt-type instruments at amortised cost 177,094 185,066
Unrealised gain on equity-type instruments at fair value through statement of income 283 330
Gain on sale of equity-type instruments at fair value through equity 891 185
Gain on sale of equity-type instruments at fair value through statement of income 2,500 125
Rental income 1,259 1,826
Income from associates 1,958 1,600
Gain on sale of investment in real estate 957 2,426
Gain on sale of associate 46 -
194,224 200,881

15.4 Ijarah Muntahia Bittamleek

2013 2012
US$ ‘000 US$ ‘000

Income from Ijarah Muntahia Bittamleek 473,729 154,172

Depreciation on Ijarah Muntahia Bittamleek (402,894) (100,106)
70,835 54,066

16 GROUP’S SHARE AS A MUDARIB

Group’s share as a Mudarib is determined at the level of each subsidiary and is based on the terms and conditions of
the related agreements.

Pages 110 & 111

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Notes to the Consolidated Financial Statements

31 December 2013

17 OTHER FEES AND COMMISSION INCOME

2013 2012
US$ ‘000 US$ ‘000

Banking fees and commissions 72,418 81,772

Letters of credit 53,501 52,311
Guarantees 44,877 44,895
Acceptances 8,302 5,768
179,098 184,746

18 OTHER OPERATING INCOME

2013 2012
US$ ‘000 US$ ‘000

Foreign exchange gain 61,764 61,896

Gain on sale of property and equipment 9,153 17,332
Others 1,912 1,242
72,829 80,470

19 DEPRECIATION AND AMORTISATION

2013 2012
US$ ‘000 US$ ‘000

Property and equipment depreciation (note 9) 34,092 31,450

Intangible assets amortisation (note 10 (a)) 5,034 3,849
39,126 35,299

20 OTHER OPERATING EXPENSES

2013 2012
US$ ‘000 US$ ‘000

General and administration 87,926 89,665

Professional and business expenses 22,981 26,873
Premises related expenses 45,489 43,902
156,396 160,440

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

21 PROVISIONS AND IMPAIRMENTS

Sales
(Murabaha) Ijarah
receivables receivables
US$ ‘000 US$ ‘000
2013 (note 5.1) (note 5.2)

Provisions at 1 January 394,504 8,056

Charged during the year 106,257 3,147
Written back during the year (62,540) (1,484)
43,717 1,663
438,221 9,719
Written off during the year (41,417) (1,181)
Amount appropriated from (to) investment risk reserve (note 13.2) 21,738 -
Foreign exchange translations/others - net (25,486) (2,760)
Provisions at 31 December 393,056 5,778

During the year an impairment loss of US$ 3,349 thousand (2012: Nil) was charged against investments.

2012

Provisions at 1 January 333,666 2,506

Charged during the year 99,728 2,428
Written back during the year (22,223) (1,679)
77,505 749
411,171 3,255
Written off during the year (13,966) (147)
Amount appropriated from (to) investment risk reserve (note 13.2) 3,993 -
Foreign exchange translations/others - net (6,694) 4,948
Provisions at 31 December 394,504 8,056

Pages 112 & 113

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Notes to the Consolidated Financial Statements

31 December 2013

Salam Istisna’a Mudaraba Musharaka Other Other

receivables receivables financing financing Investments assets liabilities Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
(note 5.3) (note 5.4) (note 6.1) (note 6.2) (note 7.2 & 7.3) (note 10) (note 12)

2,684 486 16,353 8,529 20,186 11,619 18,210 480,627

2,258 1,091 1,730 1,347 969 5,582 8,974 131,355
(710) (337) - (1,718) (1,001) (1,117) (1) (68,908)
1,548 754 1,730 (371) (32) 4,465 8,973 62,447
4,232 1,240 18,083 8,158 20,154 16,084 27,183 543,074
- - (5,233) - (7,521) (998) (28) (56,378)
17 57 - (5) - - - 21,807
(6) 13 (1,740) (761) (4,591) 420 3,151 (31,760)
4,243 1,310 11,110 7,392 8,042 15,506 30,306 476,743

4,272 544 11,924 4,996 14,699 11,908 15,303 399,818

1,231 355 5,888 4,387 4,026 3,763 5,583 127,389
(2,592) (185) - (386) (376) (314) (311) (28,066)
(1,361) 170 5,888 4,001 3,650 3,449 5,272 99,323
2,911 714 17,812 8,997 18,349 15,357 20,575 499,141
(11) - - - - (441) (480) (15,045)
- - - (47) - - - 3,946
(216) (228) (1,459) (421) 1,837 (3,297) (1,885) (7,415)
2,684 486 16,353 8,529 20,186 11,619 18,210 480,627

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

21 PROVISIONS AND IMPAIRMENTS (continued)

These provisions relate to the following geographical areas:

Sales
(Murabaha) Ijarah
receivables receivables
US$ ‘000 US$ ‘000

2013
Middle East 217,624 -
North Africa 32,188 4,361
Europe 119,666 -
Others 23,578 1,417
Total 393,056 5,778

2012
Middle East 221,173 1,181
North Africa 35,970 5,962
Europe 110,726 -
Others 26,635 913
Total 394,504 8,056

The fair value of collateral that the Group holds relating to non performing facilities at 31 December 2013
amounts to US$ 304.9 million (31 December 2012: US$ 414.2 million). The collateral consists of cash margin,
securities and properties. The utilisation of the collaterals will be on customer by customer basis and will be
limited to the customer’s total exposure.

Pages 114 & 115

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Notes to the Consolidated Financial Statements

31 December 2013

Salam Istisna’a Mudaraba Musharaka Other Other

receivables receivables financing financing Investments assets liabilities Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

- - 11,110 241 5,324 6,120 27,469 267,888

2,197 1,118 - 51 960 2,777 2,837 46,489
- - - - - 1,343 - 121,009
2,046 192 - 7,100 1,758 5,266 - 41,357
4,243 1,310 11,110 7,392 8,042 15,506 30,306 476,743

- - 16,353 276 15,962 6,120 17,170 278,235

2,343 348 - 51 3,150 116 1,040 48,980
- - - - - 907 - 111,633
341 138 - 8,202 1,074 4,476 - 41,779
2,684 486 16,353 8,529 20,186 11,619 18,210 480,627

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

22 BASIC AND DILUTED EARNINGS PER SHARE

Basic and diluted earnings per share amounts are calculated by dividing net income for the year attributable to equity
holders of the parent by the weighted average number of shares outstanding during the year as follows:

2013 2012

Net income attributable to the

equity shareholders of the parent for the year - US$ ‘000 144,506 133,028

Weighted average number of shares outstanding

at the beginning of the year (in thousands) 1,040,005 1,040,972
Treasury shares effect (in thousands) (114) (34,783)
Bonus shares effect during the year (in thousands)* - 33,816
Weighted average number of shares
outstanding at the end of the year (in thousands) 1,039,891 1,040,005
Earnings per share - US cents 13.90 12.79

*The weighted average number of shares of the previous year has been adjusted on account of the bonus share issue made in 2013.

23 CASH AND CASH EQUIVALENTS

2013 2012
US$ ‘000 US$ ‘000

Balances with central banks excluding mandatory reserve 1,188,887 899,430

Balances with other banks 791,780 681,064
Cash and cash in transit 324,086 369,800
2,304,753 1,950,294

Pages 116 & 117

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Notes to the Consolidated Financial Statements

31 December 2013

24 RELATED PARTY TRANSACTIONS

Related parties comprise major shareholders, directors of the Group, entities owned or controlled, jointly controlled or
significantly influenced by them and companies affiliated by virtue of shareholding in common with that of the Group
and Shari’a supervisory board members.

The income and expenses in respect of related parties were as follows:

Directors
and key Other
Associated Major management related
companies shareholders personnel parties 2013 2012
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Net income from jointly financed

contracts and investments 2,235 401 28 - 2,664 2,976
Net income (loss) from self
financed financing and
investments 520 246 - - 766 (1,163)
Return on equity of investment
accountholders (186) (131) (601) (2) (920) (654)
Mudarib share for managing off-
balance sheet - - - - - 19
Other fees and commission
income 416 - 1 - 417 29

Compensation of key management personnel of the Bank, included in consolidated statement of income, is as follows:

2013 2012
US$ ‘000 US$ ‘000

Short term benefits 4,635 4,151

Long term benefits 893 748

Director’s remuneration accrued for the year ended 31 December 2013 amounted to USD 1 million (2012: USD 1
million).

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

24 RELATED PARTY TRANSACTIONS (Continued)

The significant balances with related parties at 31 December were as follows:

Directors
and key Other
Associated Major management related
companies shareholders personnel parties 2013 2012
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Assets:
Receivables 8,290 - 628 - 8,918 60,451
Mudaraba and Musharaka
financing - 1,729 928 - 2,657 8,517

Investments 37,805 - - 257 38,062 53,278

Ijarah Muntahia Bittamleek - - 1,097 - 1,097 502
Other assets - 57 639 66 762 1,327

Liabilities:
Customer current and other
accounts 3,826 4,943 2,985 257 12,011 9,488
Due to banks 211 15,219 - - 15,430 20,086
Other Liabilities 2,076 20 - 2 2,098 2,811

Equity of investment
accountholders 11,626 5,784 10,017 2,280 29,707 20,526

Off-balance sheet equity of

investment accountholders 4,386 8,567 369 - 13,322 20,934

All related party exposures are performing and are free of any provision for possible credit losses.

Pages 118 & 119

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Notes to the Consolidated Financial Statements

31 December 2013

Details of Directors’ and Executive Management direct and indirect interests in the Bank’s shares as at the end of the
year were:

2012 Transaction 2013*

No. of No. of No. of
Name of directors Position Nationality shares shares shares

Saleh Abdullah Kamel Chairman Saudi 555,388,337 - 573,901,281

Abdulla Ammar Saudi Vice Chairman Bahraini 543,898 - 562,027
Abdullah Saleh Kamel Vice Chairman Saudi 276,376 - 285,588
Fahad Abdulla AlRajhi Board Member Saudi 20,521,240 - 21,205,281
Mohyedin Saleh Kamel Board Member Saudi 240,202 344,051 597,136
Abdul Elah Sabbahi Board Member Saudi 184,388 - 190,534
Adnan Ahmed Yousif Board Member (President
& Chief Executive) Bahraini 299 - 308
Abdulrahman Shehab Executive Vice President,
Head of Operations Bahraini 111,207 - 114,913

* Includes the effect of the Bank’s issuance of bonus shares at one bonus share for each 30 shares held following shareholders’ approval at the
Annual General Meeting on 19 March 2013.

25 COMMITMENTS AND CONTINGENCIES

2013 2012
US$ ‘000 US$ ‘000

Letters of credit 1,111,881 1,110,826

Guarantees 2,881,336 2,943,529
Acceptances 180,282 94,014
Undrawn Commitments 773,961 601,625
Others 207 3,600
4,947,667 4,753,594

26 SEGMENTAL ANALYSIS

Segmental information is presented in respect of the Group’s geographical segments. The geographical segments are
based upon the location of the units responsible for recording the transactions and reflects the manner in which financial
information is evaluated by the Bank’s management and the Board of Directors.

For financial reporting purposes, the Group is divided into the following geographic segments:

Middle East
North Africa
Europe
Others

The results reported for the geographic segments are based on the Group’s internal financial reporting systems. The
accounting policies of the segments are the same as those applied in the preparation of the Group’s consolidated financial
statements as set out in Note 2. Transactions between segments are conducted at estimated market rates on an arm’s
length basis.

No business segment are presented as that is not applicable to the Group.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

26 SEGMENTAL ANALYSIS (Continued)

Segment assets, liabilities and equity of investment accountholders were as follows:

2013 2012
Assets Liabilities IAH Assets Liabilities IAH
Segment US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Middle East 8,746,346 2,463,265 5,458,582 8,360,928 2,228,323 5,316,442
North Africa 2,588,865 1,099,882 1,136,874 2,385,801 979,449 1,060,280
Europe 8,076,290 2,593,951 4,790,278 6,874,838 1,936,161 4,250,096
Others 1,556,058 427,630 1,013,710 1,433,564 338,890 977,810
20,967,559 6,584,728 12,399,444 19,055,131 5,482,823 11,604,628

Segment operating income, net operating income and net income were as follows:

2013 2012
Total Net Total Net
operating operating Net operating operating Net
income income income income income income
Segment US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Middle East 323,815 143,606 70,317 307,846 141,706 61,448
North Africa 128,060 68,068 47,999 131,470 80,717 55,139
Europe 391,526 190,965 127,672 375,135 183,219 118,186
Others 66,083 17,425 11,791 65,319 16,062 469
909,484 420,064 257,779 879,770 421,704 235,242

Pages 120 & 121

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT

Risk management is an integral part of the Group’s decision-making process. The management risk committee and
executive committees guide and assist with overall management of the Group’s balance sheet risks. The Group manages
exposures by setting limits approved by the Board of Directors. These risks and the processes to mitigate these risks have
not significantly altered from the previous year.

The most important types of risk are liquidity risk, credit risk, market risk and other operational risk. Market risk includes
currency risk, equity price risk and profit rate risk.

a) Liquidity risk

Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal
and stress circumstances. To limit this risk, management has arranged diversified funding sources, manages assets
with liquidity in mind, and monitors liquidity on regular basis. Each of the Group’s subsidiaries has a documented and
implemented domestic and foreign currency liquidity policy appropriate to the nature and complexity of its business.
The policy addresses the subsidiaries’ goal of protecting financial strength even for stressful events.

The table next page summarises the maturity profile of the Group’s assets and liabilities based on contractual repayment
arrangements. The contractual maturities of assets and liabilities have been determined on the basis of the remaining
period at the financial position date to the contractual maturity date and do not take account of the effective maturities
as indicated by the Group’s retention history of its investment account holders and the availability of bank lines.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT (continued)

a) Liquidity risk (continued)

The consolidated maturity profile at 31 December 2013 was as follows:

Up to 1 to 3 3 to 6
1 Month months months
US$ ‘000 US$ ‘000 US$ ‘000
ASSETS
Cash and balances with banks 2,304,753 - -
Receivables 1,688,879 1,282,832 1,693,454
Mudaraba and Musharaka financing 623,652 12,374 12,583
Investments 831,181 227,845 154,236
Ijarah Muntahia Bittamleek 10,328 14,113 141,435
Property and equipment - - -
Other assets 59,142 11,300 10,086
Total assets 5,517,935 1,548,464 2,011,794

LIABILITIES
Customer current and other accounts 4,249,181 - -
Due to banks 374,175 264,104 187,149
Long term financing - - -
Other liabilities 290,303 45,016 52,845
Total Liabilities 4,913,659 309,120 239,994
Equity of investment accountholders 5,174,927 1,384,986 1,093,554
Total liabilities and equity of investment accountholders 10,088,586 1,694,106 1,333,548
Net liquidity gap (4,570,651) (145,642) 678,246
Cumulative net liquidity gap (4,570,651) (4,716,293) (4,038,047)
Off-balance sheet equity of investment accountholders 95,648 105,162 171,309

Pages 122 & 123

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Notes to the Consolidated Financial Statements

31 December 2013

6 months 1 to 3 3 to 5 5 to 10 10 to 20 20 years
to 1 year years years years years and above Undated Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

- - - - - - 2,492,734 4,797,487
1,875,021 2,847,564 979,430 394,925 6,030 175 49,909 10,818,219
23,982 276,409 102,038 120,917 16,568 - 3,602 1,192,125
491,390 393,465 131,074 29,926 1,411 - 142,302 2,402,830
27,737 117,397 175,959 190,831 250,519 2,390 11,339 942,048
- - - - - - 405,880 405,880
16,620 62,765 55,169 6,285 1,965 - 185,638 408,970
2,434,750 3,697,600 1,443,670 742,884 276,493 2,565 3,291,404 20,967,559

- - - - - - - 4,249,181
203,607 22,000 - - - - 44,833 1,095,868
- 273,072 63,163 204,445 - - - 540,680
35,884 44,600 9,719 167 - - 220,465 698,999
239,491 339,672 72,882 204,612 - - 265,298 6,584,728
1,337,513 2,508,538 830,033 3,493 - - 66,400 12,399,444
1,577,004 2,848,210 902,915 208,105 - - 331,698 18,984,172
857,746 849,390 540,755 534,779 276,493 2,565 2,959,706 1,983,387
(3,180,301) (2,330,911) (1,790,156) (1,255,377) (978,884) (976,319) 1,983,387
315,228 13,632 7,316 5,953 - - - 714,248

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT (continued)

a) Liquidity risk (continued)

The consolidated maturity profile at 31 December 2012 was as follows:

Up to 1 to 3 3 to 6
1 Month months months
US$ ‘000 US$ ‘000 US$ ‘000
ASSETS
Cash and balances with banks 1,950,294 - -
Receivables 1,473,098 1,234,714 1,483,936
Mudaraba and Musharaka financing 441,016 10,658 11,128
Investments 813,016 179,056 187,036
Ijarah Muntahia Bittamleek 11,355 10,404 93,558
Property and equipment - - -
Other assets 81,949 5,833 13,852
Total assets 4,770,728 1,440,665 1,789,510

LIABILITIES
Customer current and other accounts 3,820,735 - -
Due to banks 592,170 104,315 44,927
Long term financing - - -
Other liabilities 261,513 35,024 52,304
Total Liabilities 4,674,418 139,339 97,231
Equity of investment accountholders 2,528,078 1,260,004 1,457,831
Total liabilities and equity of investment accountholders 7,202,496 1,399,343 1,555,062
Net liquidity gap (2,431,768) 41,322 234,448
Cumulative net liquidity gap (2,431,768) (2,390,446) (2,155,998)
Off-balance sheet equity of investment accountholders 153,504 154,632 32,855

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Notes to the Consolidated Financial Statements

31 December 2013

6 months 1 to 3 3 to 5 5 to 10 10 to 20 20 years Restated

to 1 year years years years years and above Undated Total
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

- - - - - - 1,977,289 3,927,583
1,886,856 2,650,402 1,184,327 482,347 6,145 316 60,360 10,462,501
27,215 99,840 216,256 118,108 10,908 7,183 11,242 953,554
261,056 418,758 62,781 76,608 8,408 - 177,035 2,183,754
32,243 76,088 145,324 154,426 191,655 2,486 2,080 719,619
- - - - - - 386,496 386,496
9,650 97,812 18,852 2,007 - - 191,669 421,624
2,217,020 3,342,900 1,627,540 833,496 217,116 9,985 2,806,171 19,055,131

- - - - - - - 3,820,735
227,636 3,232 - - - - - 972,280
- - - 12,796 - - - 12,796
18,384 30,626 20,602 30,487 - - 228,072 677,012
246,020 33,858 20,602 43,283 - - 228,072 5,482,823
2,740,540 2,745,716 801,290 69,560 1,609 - - 11,604,628
2,986,560 2,779,574 821,892 112,843 1,609 - 228,072 17,087,451
(769,540) 563,326 805,648 720,653 215,507 9,985 2,578,099 1,967,680
(2,925,538) (2,362,212) (1,556,564) (835,911) (620,404) (610,419) 1,967,680
58,832 5,396 113,404 5,305 - - 74,867 598,795

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT (continued)

b) 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 controls credit risk by monitoring credit exposures, and continually assessing the
creditworthiness of counterparties. Financing contracts are mostly secured by the personal guarantees of individuals
who own the counterparty, by collateral in form of mortgage of the objects financed or other types of tangible
security.

Type of credit risk

Financing contracts mainly comprise Sales (Murabaha) receivables, Salam receivables, Istisna’a receivables, Mudaraba
financing, Musharaka financing and Ijarah Muntahia Bittamleek.

Sales (Murabaha) receivables

The Group finances these transactions through buying a commodity which represents the object of the Murabaha
and then resells this commodity to the murabeh (beneficiary) at a profit. The sale price (cost plus the profit margin)
is repaid in instalments by the murabeh over the agreed period. The transactions are secured at times by the object
of the Murabaha (in case of real estate finance) and other times by a total collateral package securing all the facilities
given to the client.

Salam receivables
Salam is a contract whereby the Group makes an immediate payment to a seller for the future delivery of a commodity.
To protect itself from risk associated with the commodity the Group simultaneously enters into Parallel Salam contract
whereby it sells the commodity for deferred delivery for immediate payment.

Istisna’a receivables
Istisna’a is a sale agreement between the Group as the seller and the customer as the ultimate purchaser whereby
the Group undertakes to have manufactured (or acquire) goods and sell it to the customer for an agreed upon price
on completion at future date.

Mudaraba financing
The Group enters into Mudaraba contracts by investing in funds managed primarily by other banks and financial
institutions for a definite period of time.

Musharaka financing
An agreement between the Group and a customer to contribute to a certain investment enterprise, whether existing
or new, or the ownership of a certain property either permanently or according to a diminishing arrangement ending
up with the acquisition by the customer of the full ownership. The profit is shared as per the agreement set between
both parties while the loss is shared in proportion to their shares of capital or the enterprise.

Ijarah Muntahia Bittamleek

This is a lease whereby the legal title of the leased asset passes to the lessee at the end of the Ijarah (lease) term,
provided that all Ijarah instalments are settled.

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Notes to the Consolidated Financial Statements

31 December 2013

Maximum exposure to credit risk before collateral held or other credit enhancements

Maximum exposure
2013 2012
US$ ‘000 US$ ‘000
Receivables 10,818,219 10,462,501
Mudaraba and Musharaka financing 1,192,125 953,554
Investments 2,402,830 2,183,754
Ijarah Muntahia Bittamleek 942,048 719,619
Other assets 163,109 152,246
Total 15,518,331 14,471,674

Commitments and contingencies 4,947,667 4,753,594

20,465,998 19,225,268

Credit quality by type of islamic financing contracts

The table below shows the credit quality by type of islamic financing contracts, based on the Group’s credit rating
system as of:

31 December 2013
Non
Neither performing
past due islamic
nor non Past due but financing
performing performing contracts Total
Type of Islamic Financing Contracts US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Receivables 10,661,039 83,664 477,903 11,222,606
Mudaraba and Musharaka financing 1,095,832 88,959 25,836 1,210,627
Other asset 161,301 28 17,286 178,615
11,918,172 172,651 521,025 12,611,848

31 December 2012
Non
Neither performing
past due islamic
nor non Past due but financing
performing performing contracts Total
Type of Islamic Financing Contracts US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Receivables 10,280,770 67,880 519,581 10,868,231
Mudaraba and Musharaka financing 877,823 61,673 38,940 978,436
Other assets 144,593 6 19,266 163,865
11,303,186 129,559 577,787 12,010,532

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Aging analysis of past due but performing Islamic financing contracts

The following table summarises the aging of past due but performing islamic financing contracts as of:

31 December 2013

Less than 31 to 60 61 to 90
30 days days days Total
Type of Islamic Financing Contracts US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Receivables 43,779 19,422 20,463 83,664
Mudaraba and Musharaka financing 74,107 12,201 2,651 88,959
Other assets - 22 6 28
117,886 31,645 23,120 172,651

31 December 2012
Less than 31 to 60 61 to 90
30 days days days Total
Type of Islamic Financing Contracts US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Receivables 39,268 13,052 15,560 67,880
Mudaraba and Musharaka financing 53,486 6,141 2,046 61,673
Other assets 3 1 2 6
92,757 19,194 17,608 129,559

Credit Risk Mitigation

All the Group’s subsidiaries, with exposures secured by real estate or other collateral carry out regular and periodic
collateral verification and evaluation. This collateral verification and valuation is conducted by an independent qualified
assessor or Collateral Analyst at the subsidiary. The frequency of such collateral verification is determined as a part
of the credit or investment policy and approval process. The Group’s subsidiaries allow cars, ships, aircraft, satellites,
railcars, and fleets as collateral for a credit and investment product but do not accept perishable assets or any other
assets with depreciable life of less than five years. Subsidiaries do not accept any assets as collateral if the assets are
susceptible for obsolescence in case they are moved (e.g. furniture). Subsidiaries also ensure that these assets are
insured in order to be accepted as collateral.

Third party cheques are accepted as collateral by the Group’s subsidiaries. The Group’s subsidiaries accept commercial
papers as qualifying collateral if they are issued by banks or corporations of good credit standing. Since the maturity
tenor of the commercial papers are generally short in nature, they are not accepted as collateral for long–term
facilities (i.e. the financing tenor should not exceed the commercial papers maturity tenor). The subsidiaries do not
accept vehicle or equipments, if new, as qualifying collateral for more than 80% of its market value. No vehicles or
equipments, if used, are accepted as qualifying collateral for more than 50% of its insured value.

Collaterals listed hereunder may attract capital relief from capital adequacy requirements as per the Central Bank of
Bahrain’s stipulations:

1) Hamish Jiddiyyah (Good faith deposit): Subsidiaries take this type of collateral in the transactions for which non-
binding promises to perform is given by the customer. If a customer does not honour his promise to perform,
the subsidiary has recourse to the deposit.

2) Third party guarantee: The subsidiary should have recourse to the guarantor in case of customer’s default. In
order to qualify as eligible collateral, the guarantee should be unconditional and irrevocable. The guarantor must
be solvent and, if applicable of investment grade rating.

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Notes to the Consolidated Financial Statements

31 December 2013

3) Urbon: This is the amount that should be taken from a purchaser or lessee when a contract is established and it is
the first line of defense for the subsidiary if the purchaser or lessee breaches the contract.

4) Underlying assets of the lease contract: The underlying asset must be of monetary value and the subsidiary must
have legal access to it, own it and sell it to cover the open exposure with the customers in question. The assets
have also to be free of any of any kind of encumbrance.

Any excess amount resulting from the closure of the pledge by the subsidiary should be returned to the customer
(pledger). The subsidiary should conduct at least annual evaluation of the pledged assets and keep adequate
documentation of this evaluation.

5) Cash deposit free from any legal encumbrance with the subsidiary either in the form of equity of investment
accountholders or off-balance sheet equity of investment accountholders.

6) Rated and unrated senior sukuk issued by first class financial institutions or by GCC sovereigns.

Credit Quality
Credit Risk Management at the Group will be based upon the creation and maintenance of a Credit Rating System (CRS)
for the non-retail business. All the Group’s units are to incorporate into their respective credit policies the CRS as the
framework for credit management taking into consideration the methodology requirements of their local central banks,
in this respect. The methodology for obligor (issuer) rating will reflect the specifics of the Group’s main business and
the geographical diversity of its operations. Ratings of countries, governments and financial institutions are carried out
in centralised fashion at the Bank in Bahrain whereas rating of corporates is done at the subsidiaries level, unless the
exposure to the corporate involves cross-border risk, in which case, that rating will also be at the Bank as part of the
credit limit approval.

The CRS at the Bank has also been designed to be comparable to the rating system of major international rating agencies
(Moody’s, Standard & Poor’s, Fitch) in respect of their foreign currency rating of countries, governments and financial
institutions.

Accordingly, countries, governments and financial Institutions will be rated on the basis of their unsecured medium term
foreign currency obligations. This means that for governments and financial institutions the cross-border risk will also be
part of the rating and the country’s rating will be, in most cases, the ceiling on the financial institution’s rating.

The basic approach of the major credit rating agencies to rating is the same as what the Group credit policies require
i.e. a comprehensive fundamental analysis of all relevant quantitative and non quantitative factors aimed at identifying
actual and potential vulnerability. Credit rating will be applied to countries and single obligors. Single obligors, in turn
are categorised as financial institutions, corporates, governments and retail. CRS therefore rates obligors (issuers) and
not facilities. The obligor rating of countries and single obligors will identify the relative probability of default but will
not take into account the impact of collateral security and other mitigants in the event of default. Facility ratings by
contrast, combine both the probability of default and loss severity in case of defaults. However, initially the Group wide
policy will be to set up obligor ratings only (which does not prevent individual subsidiaries internally to also rate facilities
if they so wish).

c) Concentration risk

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.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT (continued)

c) Concentration risk (continued)

In order to avoid excessive concentrations of risk, the Group policies and procedures include specific guidelines to
focus on country and counter party limits and maintaining a diversified portfolio. Identified concentrations of credit
risks are controlled and managed accordingly.

The distribution of assets, liabilities and equity of investment accountholders items by economic sectors was as follows:

2013 2012
Assets Liabilities IAH Assets Liabilities IAH
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Manufacturing 3,227,128 236,521 218,488 3,107,675 129,759 157,132
Mining and quarrying 130,116 1,657 17,237 110,693 1,941 26,052
Agriculture 60,270 1,716 13,733 56,303 1,650 13,390
Construction and real estate 2,465,574 37,046 18,948 2,444,318 43,443 23,905
Financial 2,584,615 2,012,009 1,735,894 2,229,134 328,450 1,420,901
Trade 1,771,409 178,337 234,779 1,749,522 162,217 194,686
Personal and consumer finance 2,480,616 3,154,443 8,911,711 2,426,407 2,773,755 8,531,145
Government 5,236,727 28,058 60,738 4,565,030 29,244 64,375
Other Services 3,011,104 934,941 1,187,916 2,366,049 2,012,364 1,173,042
20,967,559 6,584,728 12,399,444 19,055,131 5,482,823 11,604,628

d) Market risk

Market risk arises from fluctuations in profit rates, equity prices and foreign exchange rates. Under Market Risk Policies
currently implemented the management of the Group have set certain limits on the level of risk that may be accepted.
This is monitored by the local management at the subsidiary level.

Profit rate risk

Profit rate risk is the risk that the Group will incur a financial loss as a result of mismatch in the profit rate on the Group’s
assets and on equity of investment accountholders. The profit distribution to equity of investment accountholders is
based on profit sharing agreements. Therefore, the Group is not subject to any significant profit rate risk.

However, the profit sharing agreements will result in displaced commercial risk when the Group’s results do not allow
the Group to distribute profits in line with the market rates.

Equity price risk

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity
indices and the value of individual stocks. The equity price risk exposure arises from the investment portfolio. The
Group manages this risk through diversification of investments in terms of geographical distribution and industry
concentration.

The Group has total equity portfolio of US$ 100,047 thousand (2012: US$ 178,686 thousand) comprising of equity-
type instruments at fair value through equity amounting to US$ 97,087 thousand (2012: US$ 176,104 thousand)
and equity-type instruments at fair value through statement of income amounting to US$ 2,960 thousand (2012:
US$ 2,582 thousand). Variation of 10% increase or decrease in the portfolio value will not have a significant impact
on the Group’s consolidated net income or owners’ equity.

Foreign exchange risk

Foreign exchange risk arise from the movement of the rate of exchange over a period of time. Positions are monitored
on a regular basis to ensure positions are maintained within established approved limits.

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Notes to the Consolidated Financial Statements

31 December 2013

Following is the Group’s exposure to different currencies in equivalent US dollars:

2013
Operational Strategic Total
equivalent equivalent equivalent
Long Long Long
(short) (short) (short)
Currency US$ ‘000 US$ ‘000 US$ ‘000

Turkish Lira (152,571) 392,016 239,445

Jordanian Dinar (12,571) 246,406 233,835
Egyptian Pound 183,030 124,230 307,260
Sudanese Pound 1,963 23,837 25,800
Algerian Dinar - 143,069 143,069
Lebanese Pound (584) 18,597 18,013
Pound Sterling 41 - 41
Tunisian Dinar 46,307 - 46,307
Euro (4,999) - (4,999)
South African Rand 5,271 22,607 27,878
Pakistani Rupees (18,047) 62,234 44,187
Syrian Pound (15,481) 6,956 (8,525)
Others 11,054 - 11,054

2012
Operational Strategic Total
equivalent equivalent equivalent
Long Long Long
(short) (short) (short)
Currency US$ ‘000 US$ ‘000 US$ ‘000

Turkish Lira (137,396) 390,044 252,648

Jordanian Dinar 34,044 220,726 254,770
Egyptian Pound (33,434) 123,726 90,292
Sudanese Pound 882 18,814 19,696
Algerian Dinar - 139,803 139,803
Lebanese Pound 165 17,825 17,990
Pound Sterling (2,232) - (2,232)
Tunisian Dinar 117 - 117
Euro 29,310 - 29,310
South African Rand - 26,445 26,445
Pakistani Rupees 2,517 41,181 43,698
Syrian Pound (22,665) 8,488 (14,177)
Others 7,877 - 7,877

The strategic currency risk represents the amount of equity of the subsidiaries.

Foreign currency risk sensitivity analysis

In order to measure its exposures to currency risk, the Group stress tests its exposures following the standard shocks
adopted by Derivatives Policy Group in this respect which calculates the effect on assets and income of the Group as
a result of appreciation and depreciation in foreign currencies in relation to the reporting currency of the Group. This is
done using various percentages based upon the judgement of the management of the Group.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT (continued)

d) Market risk (continued)

Following is the sensitivity analysis that calculates the effect of a reasonable possible movement of the currency
exchange rate against the US Dollar with all other variables held constant on the consolidated statement of income
and the consolidated statement of owners’ equity.

At 31 December 2013
Change in Change in
net net income
Maximum income and Maximum and
expected owners’ expected owners’
Exposures decrease equity increase equity
Currency Particular in US$ ‘000 % US$ ‘000 % US$ ‘000

Algerian Dinar Net Income 44,077 (10%) (4,007) 10% 4,897

Total owners’ equity 112,873 (10%) (23,267) 10% 28,438

Egyptian Pound Net Income 20,926 (15%) 3,523 20% (3,918)

Total owners’ equity 44,375 (15%) (21,992) 20% 42,151

Turkish Lira Net Income 127,672 (20%) (21,279) 20% 31,918

Total owners’ equity 300,046 (20%) (115,344) 20% 173,016

Sudanese Pound Net Income 8,932 (15%) (1,165) 25% 2,977

Total owners’ equity 7,491 (15%) (4,086) 25% 10,443

S.African Rand Net Income 3,009 (10%) (274) 10% 334

Total owners’ equity 13,769 (10%) (3,307) 10% 4,042

Syrian Pound Net Income 11,320 (10%) (1,029) 25% 3,773

Total owners’ equity 23,287 (10%) (2,749) 25% 10,081

Pakistani Rupees Net Income (151) (10%) (17) 15% 20

Total owners’ equity 2,391 (10%) 8,663 15% (2,693)

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Notes to the Consolidated Financial Statements

31 December 2013

At 31 December 2012

Change in net Change in

income and net income
Maximum owners’ Maximum and owners’
Exposures expected equity expected equity
Currency Particular in US$ ‘000 decrease % US$ ‘000 increase % US$ ‘000

Algerian Dinar Net Income 52,937 (10%) (4,812) 10% 5,882

Total owners' equity 110,296 (10%) (22,736) 10% 27,789

Egyptian Pound Net Income 26,203 (15%) (3,418) 20% 6,551

Total owners' equity 44,195 (15%) (21,903) 20% 41,890

Turkish Lira Net Income 118,186 (20%) (19,698) 20% 29,546

Total owners' equity 298,537 (20%) (114,763) 20% 172,145

Sudanese Pound Net Income 3,400 (15%) (443) 25% 1,133

Total owners' equity 4,109 (15%) (2,990) 25% 7,641

S.African Rand Net Income 2,769 (10%) (252) 10% 308

Total owners' equity 16,106 (10%) (3,868) 10% 4,728

Syrian Pound Net Income 6,656 (10%) (605) 25% 2,219

Total owners' equity 28,415 (10%) (3,355) 25% 12,301

Pakistani Rupees Net Income (5,698) (10%) (633) 15% 743

Total owners' equity 10,210 (10%) 5,710 15% (6,703)

e) Operational Risk

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems
or from external events. This definition includes legal risk, but excludes strategic and reputational risk.

Operational Risk Management Framework

The Group guidelines have the following sections: (1) Operational Risk Appetite, (2) Operational Risk Management
– Structure and Rules, (3) Risk and Control Assessment, (4) Internal Audit, (5) Operational Risk and Basel II and (6)
Operational Risk Capital Requirement.

The Group’s Operational Risk Appetite is defined as the level of risk which the Group chooses to accept in its identified risk
categories. Operational risk appetite is expressed in terms of both impact (direct loss) and the probability of occurrence.

The Operational Risk framework will be subject to periodic Internal Audit.

The Group categorizes operational risk loss events into the following categories:

Infrastructure Risks
Availability of information technology is of paramount importance to the Group’s infrastructure. The operations of the
Group and the subsidiaries might be disrupted and severe operational risks could occur.

In order to hedge the subsidiaries from the infrastructure risk as outlined above, every subsidiary must take all the necessary
measures indicated in the Business Continuity Plan and/or Disaster Recovery Plan (BCP and DRP) to cater for these risks.

Al Baraka Annual Report 2013

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Notes to the Consolidated Financial Statements

31 December 2013

27 RISK MANAGEMENT (continued)

e) Operational Risk (continued)

Information Technology Risks

The main risks that the Group is exposed to in this context is from inadequate software and hardware quality,
unauthorized access by third parties or employees, etc.

Staff risk
The main risks that arises from staff risks are risks due to larceny, fraud, corruption, crime, etc. In order to prevent
these risks from occurring, the Group has established Group Human Resources Policies and Code of Conduct which
entails constructive ways in dealing with mistakes and frauds. The Group has also established approval control steps in
business processes as well as creating separate internal control processes. Further, the Group has established measures
of organizational structure in terms of segregation of duties as well as diverse training measures to reduce human
errors and frauds, etc.

Business risk
This risk may take on the following forms:

1. Processes without clear definitions, for example, when insufficient time was spent on documenting or updating
the already documented processes.

2. Outdated process descriptions in cases where “reality” already strongly differs from the guidelines laid down in
the past.

3. The extreme case of a completely missing documentation. To hedge this risk, the Group adopts sound documentation
policies of business processes as it is a basic requirement for a well functioning process organization. The process
description are up to date and clear; furthermore, it is accessible to all employees.

f) Corporate governance

Board of Directors
The Board of Directors is responsible for approving the Group’s overall business strategy, monitoring its operations
and taking critical business decisions. In line with international leading practices, the Board has instituted corporate
governance measures to ensure that the interests of the shareholders are protected, including the appointment to
the Board of four independent non-executive directors as defined in the Rule Book of the CBB.

The Bank is administered by a Board of Directors consisting of not less than five and not more than fifteen members.
However, subject to the provisions of the law, the shareholders at an Ordinary General Meeting may determine that
the number of directors shall exceed fifteen in certain circumstances. Members of the Board of Directors hold office
for a three-year renewable term, although the term of office may be extended at the request of the Board for a period
not exceeding six months by resolution of the Bahrain Minister of Industry and Commerce.

There are currently thirteen Directors on the Board, who have varied backgrounds and experience and who individually
and collectively exercise independent and objective judgment. Other than the President and Chief Executive, all
Directors are non-executive. The posts of Chairman and President and Chief Executive are held by different Directors
and each has separate, clearly defined responsibilities.

The Board of Directors meets regularly (usually four times a year) and has a formal schedule of matters reserved to it,
considering key aspects of the Group’s affairs referred to it for decision. The Board reviews the Group’s strategy and
financial plans, all proposed material changes to the Group’s policies, structure and organisation, reports provided to
it on the operations of the Group (with emphasis on organisational development, risk management and information
technology development) and the performance of executive management. The Board and its committees are supplied

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Notes to the Consolidated Financial Statements

31 December 2013

with full and timely information to enable them to discharge their responsibilities. All Directors have access to the
advice and services of the secretary, who is responsible for ensuring that the Board procedures and applicable rules and
regulations are observed.

The Board of Directors has overall responsibility for the Group’s system of internal control and its effectiveness. There
are established and ongoing procedures in place for identifying, evaluating and managing significant risks faced by the
Group, which are regularly reviewed by the Board. The Group’s system of internal control provides for a documented and
auditable trail of accountability and applies across its operations, is designed to ensure effective and efficient operation
and compliance with all applicable laws and regulations, and seeks to manage risk with a view to avoiding material errors,
losses and fraud.

28 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties
in an arm’s length transaction. Consequently, differences can arise between carrying values and fair value estimates.

Quoted equity type instruments are investments which are fair valued using quoted prices in active markets for identical
instruments and unquoted equity type instruments are investments that are fair valued using directly or indirectly
observable inputs.

The Group’s investments in sukuk held at amortised cost which have fair values amounting to US$ 2,123 million (2012:
US$ 1,528 million).

Also included under investments are unquoted equity-type instruments at fair value through equity amounting to
US$ 36,587 thousand (2012: US$ 106,661 thousand) which are carried at cost due to lack of other reliable methods for
arriving at a reliable fair value for these investments.

The fair values of other on-balance sheet financial instruments are not significantly different from the carrying values
included in the consolidated financial statement.

29 EARNINGS PROHIITED BY SHARI’A

Earnings realised during the year from transactions that were not permitted by Shari’a amounted to US$ 12.1 million
(2012: US$ 2.7 million). This amount has been taken to charity.

30 COMPARATIVE FIGURES

Certain of the prior year’s figures have been reclassified to conform to the presentation adopted in the current year. Such
reclassification did not affect previously reported consolidated income or consolidated owners’ equity.

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

1 CAPITAL STRUCTURE AND CAPITAL ADEQUACY

The primary objectives of the Group’s capital management 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.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and
the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were
made in the objectives, policies and processes from the previous year.

The Group’s capital structure is primarily made of its paid-up capital, including the share premium and reserves, and profit
equalization reserve and investment risk reserve. From regulation’s perspective, the significant amount of the Group’s
capital are in Tier I as defined by the CBB, i.e., most of the consolidated capital are of permanent nature.

To assess its capital adequacy requirements in accordance with the CBB requirements, the Group adopts the standardised
approach for its Credit Risk, Basic Indicator Approach for its Operational Risk and Standardised Measurement Approach
for its Market Risk. To calculate its capital adequacy, the Group follows the accepted approaches approved by the CBB
Rulebook. The Group consolidates all subsidiaries for Capital Adequacy Ratio (CAR) calculation. The Group strives to
sustain reasonably higher capital cushion that strikes the balance between its business conduct and the regulatory
requirements stipulated in the CBB capital adequacy requirements as a minimum accepted level of capital adequacy.

Table – 1. Capital Structure (PD-1.3.12, 1.3.13, 1.3.14 & 1.3.15)

The following table summarizes the eligible capital after deductions for calculation as of:

31 December 2013 31 December 2012

Tier 1 Tier 2 Tier 1 Tier 2
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Tier 1 Capital Components
Issued and fully paid up ordinary shares 1,040,168 - 1,006,000 -
Disclosed reserves
Legal/statutory reserves 93,138 - 78,687 -
Share premium 16,753 - 16,352 -
Others (194,382) - (21,702) -
Retained profit brought forward 345,071 - 217,892 -
Unrealized gains arising from fair valuing equities (45% only) 127 - 149 -
Non-controlling interest in consolidated subsidiaries 684,736 - 673,757 -
Less:
Goodwill 87,548 - 93,785 -
Unrealized gross losses arising from fair valuing equity securities 51,056 - 47,840 -
Tier 1 Capital before PCD deductions 1,847,007 - 1,829,510 -
Tier 2 Capital Components
Asset revaluation reserve - Property, plant, and equipment (45% only) - 525 - 118
Unrealized gains arising from fair valuing equities (45% only) - 21,379 - 19,773
Profit equalization reserve - 12,126 - 9,444
Investment risk reserve - 110,424 - 98,429
Tier 2 Capital before PCD deductions - 144,454 - 127,764
Total Available Capital - 1,991,461 - 1,957,274

Pages 136 & 137

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Additional Public Disclosures

31 December 2013

Table – 1. Capital Structure (PD-1.3.12, 1.3.13, 1.3.14 & 1.3.15) (continued)

The following table summarises the capital requirements for credit risk, market risk and operational risk as of:

31 December 2013 31 December 2012

Tier 1 Tier 2 Tier 1 Tier 2

Deduction
Investment in insurance entity greater than or equal to 20% (5,454) (5,454) (4,136) (4,136)

Net Available Capital 1,841,553 139,000 1,825,374 123,629

TOTAL ELIGIBLE CAPITAL 1,980,553 1,949,003

Table – 2. Capital requirement for different type of risks (PD-1.3.18, 1.3.19)

The following table summarises the capital requirements for credit risk, market risk and operational risk as of:

31 December 2013 31 December 2012

Risk Minimum Risk Minimum
weighted capital weighted capital
assets requirements assets requirements
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Credit Risk 9,327,487 1,119,298 8,227,452 987,294
Market Risk 1,107,128 132,855 915,231 109,828
Operational Risk 1,574,526 188,943 1,411,561 169,387
12,009,141 1,441,096 10,554,244 1,266,509

Table – 3. Capital requirement by type of Islamic financing contracts (PD-1.3.17)

The following table summarises the capital requirements by type of Islamic financing contracts as of:

31 December 2013 31 December 2012

Risk Minimum Risk Minimum
weighted capital weighted capital
assets requirements assets requirements
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Islamic financing contracts
Receivables 5,912,093 709,451 5,566,662 667,999
Mudaraba and Musharaka financing 735,269 88,232 674,390 80,927
Ijarah Muntahia Bittamleek 654,938 78,593 416,823 50,019
7,302,300 876,276 6,657,875 798,945

Table – 4. Capital Adequacy Ratios (PD-1.3.20 (a))

The following are Capital adequacy ratios for total capital and Tier 1 capital as of:

31 December 31 December
2013 2012

Total capital ratio 16.49% 18.47%

Tier 1 capital ratio 15.33% 17.30%

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

1 CAPITAL STRUCTURE AND CAPITAL ADEQUACY (continued)

Table - 5. The Group’s Subsidiaries Capital Adequacy Ratios (PD-1.3.20 (b))

The following are the Group’s subsidiaries capital adequacy ratio prepared on the basis of CBB requirements,
which may differ form the local requirements of the countries in which the subsidiaries operate, as of:

31 December 31 December
2013 2012
Tier 1 Total Tier 1 Total
capital capital capital capital
ratio ratio ratio ratio

Head Office 28% 28% 31% 31%

Banque Al Baraka D’Algerie 29% 30% 28% 29%
Al Baraka Islamic Bank * 14% 14% 18% 18%
Al Baraka Bank Tunis 23% 41% 23% 23%
Al Baraka Bank Egypt 17% 17% 19% 19%
Al Baraka Bank Lebanon 12% 13% 14% 14%
Jordan Islamic Bank 16% 16% 18% 18%
Al Baraka Turk Participation Bank 14% 19% 14% 14%
Al Baraka Bank Limited 22% 26% 24% 25%
Al Baraka Bank Sudan 13% 14% 11% 11%
Al Baraka Bank Syria 17% 18% 14% 15%

* These ratios represents the consolidated ratios and Al Baraka Pakistan has tier 1 capital ratio of 17.07% (2012: 30%)
and total capital ratio of 21.12% (2012: 30%).

Legal restrictions on capital and income mobility (PD-1.3.6 (c))

There are no major restrictions in distributing profits by the subsidiaries to the Bank. Such distribution should
go through the legal and regulatory channels applicable in each jurisdiction. Mobilisation of capital, reserves and
equivalent funds out of the subsidiaries to the parent is subject to the local rules and regulations. The parent is not
subject to any restriction to support its subsidiary in the form of deposits or capital. However, as a procedure, a prior
written approval has to be obtained from the CBB for increasing investments in subsidiaries.

Table – 6. Distribution of ownership of shares by nationality (PD-1.3.10(i))

The following table summarizes the distribution of ownership of shares by nationality/ incorporation as of:

31 December 31 December
2013 2012
Nationality/ Incorporation % holding % holding
Bahraini 26.01 26.01
Saudi 42.74 42.71
Cayman Islands 19.32 19.32
Emirati 8.58 8.52
Kuwaiti 1.09 1.09
Others 2.26 2.35

Pages 138 & 139

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT

The Group’s risk management strategies have been effectively implemented and the objectives outlined at the beginning
of year 2012 across subsidiaries were successfully achieved. The Group is striving to bolster and instil the best practices
of risk management in subsidiaries’ risk management functions for the next reporting period by ensuring prudent
implementation of risk management policies which entails risk identification, limit controls, monitoring and reporting.

The Group’s risk management has the following objectives:

a. Unified Group-wide risk management to enable the Group to produce risk adjusted return on capital.
b. Creation of professional risk management culture throughout the Group with prudent, disciplined approach to risk
taking based on comprehensive Group-wide policies, processes and limits.
c. Professionally qualified staff and ongoing credit training.
d. Investing in technology and systems for best practice risk management.
e. Throughout the Group, strict segregation of duties and reporting lines between personnel transacting business and
personnel processing that business.
f. Strict compliance with all Shari’a and legal requirements and regulatory directives.
g. Maintaining clear, well documented policies via Group Risk Management Manual and also Risk Management Manuals
by each of the Group’s subsidiaries which incorporate the uniform policies and procedures of the Group in addition
to the local requirements.
a) Liquidity risk
The liquidity management policy at a minimum includes the following:
a. Provide clear guidance on the composition and role of the asset/liability committee or such other committee or
department responsible for managing liquidity.
b. Establish approval processes to ensure adherence to liquidity risk management processes.
c. Require periodic calculations to determine the extent to which the subsidiary is funding long-term assets with short-
term liabilities.
d. Establish liquidity ratio benchmarks, e.g. parameters for the funding of long-term assets with short-term liabilities
to guide liquidity management and the method for computing liquidity indicators.
e. Establish limits on the degree of concentrations that are deemed acceptable. This should:
i) Ensure diversification of funding by origin and term structure by, for example, guarding against concentration by
individuals or groups of depositors, types of deposit instruments, market sources of deposit, geographical sources,
term to maturity, and deposit currencies. Where concentrations occur, the Group’s subsidiaries manage their assets
and liquidity profile to mitigate the risk; and
ii) Set procedures for the orderly restoration of the liquidity position in the event of loss of funding where such
concentrations are unavoidable. In addition, the Group’s subsidiaries conduct an impact analysis on its dependency
on any such concentrations.
f. Periodic review of the deposit structure. The review should include the volume and trend of various types of deposits
offered, maturity distributions of time deposits, profit rate paid on each type of deposit, prevailing market profit rate,
limits on large time deposits, public funds, and non-resident deposits.
g. Review of alternate funding sources including stand-by facilities and lines of credit.
h. Establish a framework for the composition of assets.
i. Assess the acceptable mismatch in combination with currency commitments. The Group’s subsidiaries undertake
separate analysis of their strategy for each currency individually. They set and regularly review limits on the size of cash
flow mismatches over particular time horizons for foreign currencies in aggregate, and for each significant currency.

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

a) Liquidity risk (continued)

Table – 7. Liquidity Ratios (PD-1.3.37)

The following table summarises the liquidity ratios as of:
31 December 31 December
2013 2012

Short term assets to short term liabilities 78% 78%

Liquid assets to total assets 27% 25%

b) Credit risk
General credit policies and guiding principles
The following principles summarise the Group’s financing and investing policies and form the framework of all financing
decisions:
a) Financing will be extended when the Group can confidently expect that it will be repaid by the customer as agreed.
This necessitates a thorough knowledge of the customer and clear understanding of the risks underlying the credit
requests.
b) Financing should be extended where there are at least two clear sources of repayments.
c) It is generally preferred that the repayments are from cash generated by the customers’ productive and ongoing
income or activities.
d) Amounts, profits/other charges and terms under the prevailing market conditions for any proposed financing are
to be consistent with the perceived quality of the risk being undertaken.
e) Financing should generally be extended where the Group’s seniority as creditors is pari passu or better than any
other financing.
f) Financing should be structured appropriately considering the purpose of the credit and the source of repayment.
g) Financing needs to be assessed on a stand alone basis as well as on portfolio basis to assess its impact on the total
financing portfolio.
h) Compliance with all applicable local statutory and regulatory directives guidelines should be ensured in all cases.
i) Propriety and ethical standards should be taken into account in all financing decisions.

Pages 140 & 141

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Additional Public Disclosures

31 December 2013

Table - 8. Gross funded and unfunded exposure (PD-1.3.23(a))

The Group’s assets are funded by equity of investment accountholders (IAH) as well as the Group’s own capital and
current accounts (Self). The percentage of funding varies for each of the Group’s subsidiary based on market conditions
and applicable rules and regulations.

The following table summarises the amount of gross funded and unfunded credit exposure and average gross funded
and unfunded exposure as of:

31 December 2013
Self financed Financed by IAH
*Average *Average
gross credit gross credit
Total gross exposure Total gross exposure
credit over the credit over the
exposure year exposure year

Funded Exposure

Receivables 5,244,708 5,212,360 5,573,511 5,519,545

Mudaraba and Musharaka financing 671,144 536,011 520,981 501,280
Investments 1,143,439 1,047,987 1,259,391 1,176,131
Ijarah Muntahia Bittamleek 433,111 391,118 508,937 470,924
Other assets 82,344 84,784 80,765 79,454

Unfunded Exposure
Commitments and contingencies 4,947,667 5,074,194 - -

12,522,413 12,346,453 7,943,585 7,747,334

*Average Balances are computed based on quarter-end balances.

31 December 2012
Self financed Financed by IAH

*Average *Average
gross credit gross credit
Total gross exposure Total gross exposure
credit over the credit over the
exposure year exposure year

Funded Exposure

Receivables 4,730,290 4,384,945 5,732,211 5,304,102

Mudaraba and Musharaka financing 473,187 428,714 480,367 463,810
Investments 924,761 776,455 1,258,993 1,177,784
Ijarah Muntahia Bittamleek 322,250 295,314 397,369 367,366
Other assets 78,091 111,120 74,155 93,592

Unfunded Exposure
Commitments and contingencies 4,753,594 4,953,716 - -

11,282,173 10,950,264 7,943,095 7,406,653

*Average Balances are computed based on quarter-end balances.

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Table - 9. Geographic distribution of the gross funded exposure (PD-1.3.23(b))

The following table summarises the geographic distribution of gross funded exposure as of
31 December 2013, broken down into significant areas by major types of credit exposure:

Self financed
Middle East North Africa Europe Others
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Receivables 1,428,990 416,541 3,208,996 190,181

Mudaraba and Musharaka financing 457,075 91,945 61,621 60,503
Investments 444,010 83,864 474,078 141,487
Ijarah Muntahia Bittamleek 219,137 171,442 34,073 8,459
Other Assets 52,038 8,493 5,876 15,937

2,601,250 772,285 3,784,644 416,567

The following table summarises the geographic distribution of gross funded exposure as
of 31 December 2012, broken down into significant areas by major types of credit exposure:

Self financed
Middle East North Africa Europe Others
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Receivables 1,430,948 490,337 2,670,772 138,233

Mudaraba and Musharaka financing 297,692 46,175 67,126 62,194
Investments 469,117 17,647 293,100 144,897
Ijarah Muntahia Bittamleek 172,601 119,509 23,141 6,999
Other Assets 42,439 14,434 7,278 13,940

2,412,797 688,102 3,061,417 366,263

Pages 142 & 143

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Additional Public Disclosures

31 December 2013

Financed by IAH
Middle East North Africa Europe Others
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

2,524,366 324,324 2,389,776 335,045

223,840 81,870 - 215,271
1,078,657 60,321 - 120,413
359,381 126,355 77 23,124
46,147 6,507 8,046 20,065

4,232,391 599,377 2,397,899 713,918

Financed by IAH
Middle East North Africa Europe Others
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

2,653,778 425,964 2,336,523 315,946

196,387 54,330 - 229,650
1,063,940 4,596 - 190,457
292,207 83,771 195 21,196
33,717 10,563 11,171 18,704

4,240,029 579,224 2,347,889 775,953

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Table - 10. Exposure by counterparty type (PD-1.3.23(c))

The following table summarises the distribution of funded and unfunded exposure by
counterparty type, broken down by major types of credit exposures as of 31 December 2013:

Funded Exposures
Mudaraba and
Receivables Musharaka financing Investments
Self IAH Self IAH Self IAH
US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000

Claims on sovereigns 350,718 619,417 - 1,845 969,573 1,039,089

Claims on multi-lateral
development banks 2,992 10,075 - - - -
Claims on investment firms - - - - 31,038 -
Claims on banks 147,295 318,891 162,681 58,442 16,659 56,947
Claims on corporates 3,997,081 3,003,431 6,209 61,782 7,092 23,438
Claims on retail 703,737 1,477,774 - 956 - -
Past dues receivables 42,885 143,923 - 3,391 - -
Equity investment - - 347,623 100,233 57,701 43,855
Investment in Funds - - - - 15,141 8,496
Specialized Lending - - 154,631 294,332 - -
Other assets - - - - 46,235 87,566

Total 5,244,708 5,573,511 671,144 520,981 1,143,439 1,259,391

Pages 144 & 145

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Additional Public Disclosures

31 December 2013

Funded and
Unfunded Exposures Unfunded Exposures
Ijarah Muntahia Commitments and
Bittamleek Other Assets contingencies Total
Self IAH Self IAH Self IAH Self IAH
US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000

- 26,157 - - 18,785 - 1,339,076 1,686,508

- - - - - - 2,992 10,075
- - - - - - 31,038 -
186 3,010 - - 116,762 - 443,583 437,290
93,207 146,268 - - 4,542,304 - 8,645,893 3,234,919
337,478 329,905 - - 260,257 - 1,301,472 1,808,635
2,240 3,597 - - 9,559 - 54,684 150,911
- - - - - - 405,324 144,088
- - - - - - 15,141 8,496
- - - - - - 154,631 294,332
- - 82,344 80,765 - - 128,579 168,331

433,111 508,937 82,344 80,765 4,947,667 - 12,522,413 7,943,585

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Table -10. Exposure by counterparty type (PD-1.3.23 (c))

The following table summarises the distribution of funded and unfunded exposure by
counterparty type, broken down by major types of credit exposures as of 31 December 2012:

Funded Exposures
Mudaraba and
Receivables Musharaka financing Investments
Self IAH Self IAH Self IAH
US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000

Claims on sovereigns 393,242 629,787 - - 715,739 1,032,046

Claims on multi-lateral
development banks 3,850 14,603 - - - -
Claims on investment firms - - - - - -
Claims on banks 167,099 332,314 16,948 67,383 37,907 34,416
Claims on corporates 3,547,314 2,939,254 5,319 35,818 - 11,621
Claims on retail 588,728 1,686,320 - 222 - -
Past dues receivables 30,057 129,933 - 10,885 - -
Equity investment - - 327,826 71,291 97,700 78,022
Investment in Funds - - - - 31,819 19,860
Specialized Lending - - 123,094 294,768 - -
Other assets - - - - 41,596 83,028

Total 4,730,290 5,732,211 473,187 480,367 924,761 1,258,993

The Group is working in a highly regulated environment which monitors high risk credit exposures on a regular basis.

Pages 146 & 147

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Additional Public Disclosures

31 December 2013

Funded and
Unfunded Exposures Unfunded Exposures
Commitments and
Ijarah Muntahia Bittamleek Other Assets contingencies Total
Self IAH Self IAH Self IAH Self IAH
US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000

- 23,403 - - 57,644 - 1,166,625 1,685,236

- - - - - - 3,850 14,603
- - - - - - - -
- 43,483 - - 42,311 - 264,265 477,596
34,107 167,926 - - 4,443,432 - 8,030,172 3,154,619
288,143 157,759 - - 210,207 - 1,087,078 1,844,301
- 4,798 - - - - 30,057 145,616
- - - - - - 425,526 149,313
- - - - - - 31,819 19,860
- - - - - - 123,094 294,768
- - 78,091 74,155 - - 119,687 157,183

322,250 397,369 78,091 74,155 4,753,594 - 11,282,173 7,943,095

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Large Credit Exposure (PD - 1.3.23 (f))

The Group follows the CBB’s guidelines with respect to the definition and measurement of large exposures at the
consolidated level as stipulated in the CBB Rulebook for Islamic Banks.

There are no large exposures to individual counterparties where the exposure is in excess of the 15% individual obligor
limit that qualifies for the deduction requirement as per CBB’s guidelines.

Past due, non-performing Islamic financing contracts and provisions (PD-1.3.22 (a))
Past due represents instalments that are not received on the contractual repayments date. The Group considers
non-performing Islamic financing contracts as the contracts that are overdue for a period of 90 or more days. These
exposures are placed on a non-accrual status with profit being recognised to the extent that it is actually received. It
is the Group’s policy that when an exposure is overdue for a period of 90 or more days, the whole financing facility
extended is considered as past due, not only overdue instalments/payments.

Table -11. Credit quality of Islamic financing contracts by counterparty type (PD-1.3.23(h), 1.3.24 (b))

The following table summarises the total past due, non performing and neither past due nor non performing Islamic
financing contracts and aging of non performing Islamic financing contracts disclosed by counterparty type as of
31 December 2013:

Aging of non performing

Islamic financing contracts
Non
Neither performing
past due Past Islamic 90 days 1 year
nor non due but financing to 1 to 3 Over 3
Total performing performing contracts year years years
US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000

Sovereign 1,085,355 1,081,496 3,859 - - - -

Bank 1,598,839 1,594,781 - 4,058 3,683 - 375
Investment Firms 70,563 33,860 - 36,703 - 155 36,548
Corporates 6,554,999 6,173,394 51,070 330,535 84,070 93,092 153,373
Retail 3,302,092 3,034,641 117,722 149,729 38,604 45,884 65,241
12,611,848 11,918,172 172,651 521,025 126,357 139,131 255,537

Pages 148 & 149

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Additional Public Disclosures

31 December 2013

The following table summarises the total past due, non performing and neither past due nor non performing Islamic
financing contracts and aging of non performing Islamic financing contracts disclosed by counterparty type as of
31 December 2012:

Aging of non performing

Islamic financing contracts
Neither
past due Past Non performing 90 days 1 year
nor non due but Islamic financing to 1 to 3 Over 3
Total performing performing contracts year years years
US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000 US$‘000

Sovereign 1,040,093 1,039,738 355 - - - -

Bank 1,453,394 1,450,605 - 2,789 2,228 - 561
Investment Firms 192,705 155,708 - 36,997 - 155 36,842
Corporates 5,898,080 5,525,352 37,878 334,850 110,688 101,888 122,274
Retail 3,426,260 3,131,783 91,326 203,151 61,671 98,987 42,493
12,010,532 11,303,186 129,559 577,787 174,587 201,030 202,170

Table -12. Specific provisions by counterparty type (PD-1.3.23 (h), 1.3.24 (d))

The following table summarises the total specific provisions disclosed by counterparty type as of 31 December 2013:

Specific provisions
Write- Appropriation Foreign
Charges Write-Back offs (to) from IAH exchange Balance
Opening during during the during during the translations/ at the end
Balance the year year the year year others - net of the year
US$‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000

Bank 2,963 - - - - (350) 2,613

Investment Firms 10,481 600 (491) (5,699) - (526) 4,365
Corporates 328,796 109,425 (63,634) (39,076) 17,759 (29,905) 323,365
Retail 120,177 12,356 (4,782) (11,575) 4,048 (4,130) 116,094
462,417 122,381 (68,907) (56,350) 21,807 (34,911) 446,437

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Table -12. Specific provisions by counterparty type (PD-1.3.23 (h), 1.3.24 (d)) (continued)

The following table summarises the total specific provisions disclosed by counterparty type as of 31 December 2012:

Specific provisions
Appropriation Foreign Balance
Charges Write-Back Write-offs (to) from IAH exchange at the
Opening during the during the during the during the translations/ end of
Balance year year year year others - net the year
US$‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Bank 2,650 1,777 - - - (1,464) 2,963
Investment Firms 7,994 2,683 - - - (196) 10,481
Corporates 270,529 96,852 (24,246) (13,438) (2,601) 1,700 328,796
Retail 103,342 20,494 (3,509) (1,127) 6,547 (5,570) 120,177
384,515 121,806 (27,755) (14,565) 3,946 (5,530) 462,417

Table -13. General provisions movement (PD-1.3.23 (h), 1.3.24 (d))

The following table summarises the movement of general provisions during the year ended:
31 December 31 December
2013 2012
US$‘000 US$‘000
Opening Balance 18,210 15,303
Charges during the year 8,974 5,583
Write-Back during the year (1) (311)
Write-offs during the year (28) (480)
Foreign exchange translations/ others - net 3,151 (1,885)
Balance at the end of the year 30,306 18,210

This represents collective provision against exposures which, although not specifically identified, have a greater risk
of default than when originally granted.

Pages 150 & 151

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Additional Public Disclosures

31 December 2013

Table - 14. Past due and non-performing Islamic financing contracts and provisions by geographic areas
(PD-1.3.23(i), PD-1.3.24(c))

The following table summarises the total past due and non performing Islamic financing contracts and provisions disclosed
by geographical area as of:

31 December 2013 31 December 2012

Past due and Past due and
non performing non performing
Islamic financing Specific General Islamic financing Specific General
contracts provision provision contracts provision provision
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Middle East 282,742 240,419 27,469 329,049 261,065 17,170
North Africa 73,834 43,652 2,837 81,600 47,940 1,040
Europe 132,453 121,009 - 124,923 111,633 -
Others 204,647 41,357 - 171,774 41,779 -
693,676 446,437 30,306 707,346 462,417 18,210

Table - 15. Renegotiated Islamic financing contracts (PD-1.3.23(j))

31 December 31 December
2013 2012
US$‘000 US$‘000
Renegotiated Islamic financing contracts 140,299 86,435

There is no significant impact of the renegotiated Islamic financing contracts on the provisions as well as present and
future earnings. In addition, the magnitude of the restructuring activities is immaterial.

Others (PD-1.3.23(k), (l), PD-1.3.25(b) & (c))

The Group has no significant obligations with respect to recourse transaction.

The Group has not imposed any material penalties on customers for defaults.
The Group does not make use of eligible collaterals and guarantees in its credit risk analysis.

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Table – 16. Counterparty Credit (PD-1.3.26 (b))

The following table summarises the counterparty credit risk exposure covered by collateral after the application of
haircuts as of:

31 December 31 December
2013 2012
US$ ‘000 US$ ‘000
Gross positive fair value of contracts 15,355,222 14,319,428
Netting Benefits - -
Netted Current Credit Exposure 15,355,222 14,319,428
Collateral held:
Cash 458,379 518,222
Others 4,668,140 4,235,862
Real Estate 9,900,605 10,327,654
15,027,124 15,081,738

The utilisation of the collaterals will be on a customer by customer basis and will be limited to the customer’s total
exposure.

c) Market risk

Market risk includes profit rate risk, displaced commercial risk, equity price risk and foreign exchange rate risk. The
management of the Group have set limits on the level of risk that may be accepted. This is monitored by the local
management at the subsidiary level.

Table – 17. Market Risk Capital Requirements (PD-1.3.27 (b))

The following table summarises the capital requirement for each category of market risk as of:

31 December 2013 31 December 2012

Equity Foreign Equity Foreign
position exchange position exchange
risk risk risk risk
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Risk weighted exposure (RWE) - 1,107,128 - 915,231
Capital requirements (12%) - 132,855 - 109,828
Maximum value of RWE - 1,107,128 1,750 1,047,826
Minimum value of RWE - 871,496 - 915,231

Pages 152 & 153

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Additional Public Disclosures

31 December 2013

Profit rate risk

Profit rate risk is the risk that the Group will incur a financial loss as a result of mismatch in the profit rate on the Group’s
assets and IAH. The profit distribution to IAH is based on profit sharing agreements. Therefore, the Group is not subject
to any significant profit rate risk.

Displaced Commercial Risk

The Group is exposed to displaced commercial risk in the event of having IAH profit rates that are lower than market
rates. The Group has partially mitigated this risk through the setting up of reserves that will be used in case of a drop
in IAH profit rates. The policies and procedures for displaced commercial risk are formulated and implemented at the
individual subsidiary level.

Equity price risk

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices
and the value of individual stocks. The equity price risk exposure arises from the Group’s investment portfolio.

Equity-type instruments at fair value through equity and investments in real estate are kept for capital gain purposes.

If financial instruments qualify to be included in the trading book, these must not exceed 25% of the total subsidiary’s
assets portfolio. For equity securities, the subsidiaries are required to observe the sectoral concentration limits outlined
by the Group and/or their local requirement in this respect. Since trading securities in the trading book would be under
marked-to-market requirement, the Risk Manager at the subsidiary level should immediately bring to the Credit and Risk
Management at the Group as well as the subsidiary’s asset/liability committee any volatility of position’s value that is
15% or higher than the subsidiary’s eligible capital to decide upon the appropriate course of action.

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

b) Credit risk (continued)

Table – 18. Equity Position Risk in Banking Book (PD-1.3.31 (b) (c) & (f))

The following table summarises the total and average gross exposure of equity based financing structures by types
of financing contracts and investments as of 31 December 2013:

Average
gross
exposure
gross Total over the Publicly Privately Capital
exposure year held held requirement
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Sukook and similar items 2,125,604 1,903,011 999,683 1,125,921 37,019
Equity Investment 113,037 142,516 72,015 41,022 45,275
Managed funds 24,839 45,706 16,401 8,438 6,075
2,263,480 2,091,232 1,088,099 1,175,381 88,369

The following table summarises the total and average gross exposure of equity based financing structures by types
of financing contracts and investments as of 31 December 2012:

Average
gross
exposure
gross Total over the Publicly Privately Capital
exposure year held held requirement
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Sukook and similar items 1,841,380 1,593,497 774,165 1,067,215 13,788
Equity Investment 162,273 179,755 78,514 83,759 44,834
Managed funds 52,272 50,241 31,529 20,743 6,528
2,055,925 1,823,493 884,208 1,171,717 65,149

Pages 154 & 155

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Additional Public Disclosures

31 December 2013

Table – 19. Equity gains or losses in banking book (PD-1.3.31 (d) and (e))

The following table summarises the cumulative realised and unrealised gains or losses during the year ended:

31 December 31 December
2013 2012
US$ ‘000 US$ ‘000
Cumulative realised gains arising from sales or liquidations in the reporting year 3,391 310
Total unrealized losses recognised in the consolidated statement of financial
positions but not through consolidated statement of income (3,547) (3,899)
Unrealised gross losses included in Tier 1 Capital (51,056) (47,840)
Unrealised gains included in Tier 1 Capital (45% only) 127 149
Unrealised gains included in Tier 2 Capital (45% only) 21,379 19,773

Foreign exchange risk

Foreign exchange risk arise from the movement of the rate of exchange over a period of time. Positions are monitored
on a regular basis to ensure positions are maintained within established approved limits.

d) Operational Risk

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems
or from external events. This definition includes legal risk, but excludes strategic and reputational risk.

Table - 20. Operational risk exposure (PD-1.3.30 (a), (b) & (c))

The following table summarises the amount of exposure subject to basic indicator approach of operational risk and
related capital requirements:

Gross income
2013 2012 2011 2010
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Total Gross Income 909,484 879,770 729,987 648,741

2013 2012
Indicators of operational risk
Average Gross income (US$ '000) 839,747 752,833
Multiplier 12.5 12.5
10,496,838 9,410,408

Eligible Portion for the purpose of the calculation 15% 15%

TOTAL OPERATIONAL RISK WEIGHTED EXPOSURE (US$ ‘000) 1,574,526 1,411,561

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

2 RISK MANAGEMENT (continued)

d) Operational Risk (continued)

The Group has no material legal contingencies including pending legal action.

The Group guidelines have the following sections: (1) Operational Risk Appetite, (2) Operational Risk Management –
Structure and Rules (3) Risk and Control Assessment (4) Internal Audit (5) Operational Risk and Basel II (6) Operational
Risk Capital Requirement.

The Group’s Operational Risk Appetite is defined as the level of risk which the Group chooses to accept in its identified
risk categories. Operational risk appetite is expressed in terms of both impact (direct loss) and the probability of
occurrence.

The Group’s policy also lays out the Operational Risk Management structure and the roles of all staff associated with
operational risk. The major functional roles are defined for:

− Risk Management Committee

− Head of Credit and Risk Management
− Head of Operational, Liquidity and Market Risk
− Various departments

Operational Risk Management Framework

The Risk Control Self Assessment exercise is viewed as an important part of the Group’s Operational Risk Framework.
It is proposed to be conducted every year by the Risk Management Department in coordination with the Internal Audit
Department. In addition, the assessment shall also be based on the severity of the residual risks identified through
Internal Audit reviews.

The Key processes identified in a Risk Control Self Assessment are:

− Risk and Control Identification Process

− Measurement of Operational Risk Exposures
− Identifying Unacceptable Risk Exposures
− Risk Action Plans.

The Operational Risk framework will be subject to periodic internal audit.

3 CORPORATE GOVERNANCE

Code of business conduct and ethics for members of the board of directors

Purpose:
The primary objectives of the following Code of Business Conduct and Ethics ( the “Code”) is to enable each Director
to focus on areas of ethical risks, to help them recognize and deal with ethical issues, to provide mechanisms for
reporting unethical conduct, and to foster a culture of honesty and accountability within the Group.

Pages 156 & 157

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Additional Public Disclosures

31 December 2013

Conflict of interest:
Each Director must avoid any situation which may give rise to a conflict between their interests and those of the Group.
Any situation which either will or may involve, a conflict of interest should be disclosed promptly to the Board of Directors
in writing in advance of the meeting or verbally in the meeting itself. The concerned Director shall abstain from any
discussion or decision on the matter of question. A conflict of interest can occur when a Director’s personal interest is
adverse to, or appears to be, adverse to the interests of the Group. Conflicts of interest also arise when a Director, or
a member of their immediate family, receives an improper personal benefit as a result of their position as a Director
of the Group. Common conflicts which Directors must endeavor to avoid include, but are not limited to, the following:

1 Engagement in any conduct or activity which may conflict with the best interests of the Group, or which may
disrupt or impair Group’s standing with any person or entity with whom or which the Group has to proposes to
enter into a business or contractual relationship.
2 Acceptance of compensation (in any form) for services performed in relation to the Group from any source other
than from the Group.
3 Acceptance by them or any member of their family of gifts from persons or entities who or which deal with the
Group where acceptance of such gifts could generate a sense of obligation and thereby create a potential conflict
of interest.
4 Utilization of the Group’s assets, employees or information for personal use without obtaining the prior approval
of the Board of Directors.

Confidentiality:
Confidential information includes all non-public information relating to the Group, whether in written or in oral form.
Directors are under continuous obligation to maintain the confidentiality of information entrusted directly to them by
the Group and any other confidential information about the Group which comes to them, from whatever source, in
their capacity as a Director. Directors may disclose confidential information if such disclosures are mandated by the law.

Compliance with Rules, Laws and Regulation:

Directors shall, at all times, comply with all laws, rules and regulations applicable to the Group, including insider trading
laws.

Remuneration
The Group incentivise its Board members, executives and senior management and its Shari’a Board members in accordance
to the remuneration policies and procedures approved by the Board. This policy links the incentives to the performance
appraisal. The Group’s corporate governance policy details the performance appraisal for the Board members.

The following table summarises remuneration of the Group’s Directors, Shari’a Committee members, President & Chief
Executive, Deputy Chief Executive and the Department Heads at Group Headquarters during the year ended:

31 December 31 December
2013 2012
US$ ‘000 US$ ‘000
Directors remuneration 1,000 1,000

Executive Management
Salary and other remuneration, including meeting allowance 3,505 3,177
Fees 135 82
Bonuses 876 777
Benefits-in-kind 1,012 863
5,528 4,899
Shari’a Committee Members fee and remuneration 354 367
6,882 6,266

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

3 CORPORATE GOVERNANCE (continued)

Complaints
The Group has adopted a special media approach to ensure that all the Group’s stakeholders are well channelled
through to the management. The contracted special media watch detect any news or complaints related to the Group
and bring them to the attention of the Group’s executive management.

Related party transactions

Related party transactions are governed by the Group corporate governance policy and individual subsidiaries’ local
rules and regulations. All related party transactions were conducted at arm’s length.

External Auditors
The Board Audit Committee has continued to review the work carried out by the external auditors during the year,
in particular timeliness of reporting, quality of work and related fees. Overall the Audit Committee believes that the
work of the external auditors has been of a sufficiently high standard and that the fees are reasonable and therefore
recommended to the Board and accordingly to the annual general meeting (AGM) to re-appoint the external auditors
as auditor for the 2013 financial year. The AGM has approved the reappointment of the external auditor for the year
2013 on 19 March 2013 and the related regulatory approval were taken.

4 EQUITY OF INVESTMENT ACCOUNTHOLDERS DISCLOSURES

The Group is exposed to some of the price risk on assets funded by IAH. The CBB requires the Group to maintain
capital to cover the price risk arising from 30% of assets funded by IAH on a pro-rata basis. IAH funds are invested
and managed in accordance with Shari’a requirements.

Table – 21. Equity of IAH (PD-1.3.33 (a), (b) & (c)

The following table summarises the breakdown of IAH and return on IAH as of:

31 December 31 December
2013 2012
US$ ‘000 US$ ‘000
IAH - Banks 441,176 214,622
IAH - Non-banks 11,827,042 11,274,356
Profit equalisation reserve (PER) - Banks 443 180
Profit equalisation reserve (PER) - Non-banks 11,683 9,264
Investment risk reserve (IRR) - Banks 4,038 1,873
Investment risk reserve (IRR) - Non-banks 106,386 96,556
Cumulative changes in fair value attributable to IAH 8,676 7,777
12,399,444 11,604,628

Table – 22. Return on average IAH (PD-1.3.33 (d))

2013 2012
% %
Return on average IAH Equity 5.0 5.6
Return on average IAH Assets 7.6 7.9

Table – 23. Ratio by type of IAH (PD-1.3.33 (g))

31 December 31 December
2013 2012
% %
IAH - Banks 4 2
IAH - Non-banks 96 98

Pages 158 & 159

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Additional Public Disclosures

31 December 2013

The appropriation percentage of IAH into profit equalisation reserve and investment risk reserve varies between each of
the Group’s subsidiary based on market conditions and applicable rules and regulations.

Table – 24. IAH by Islamic financing product type (PD-1.3.33 (h))

The following table summarises the percentage of IAH financing for each type of Shari’a-compliant contract to total
IAH financing as of:

31 December 31 December
2013 2012
% %
Receivables 84 87
Mudaraba and Musharaka financing 8 7
Ijarah Muntahia Bittamleek 8 6

Table – 25. IAH by Counterparty Type (PD-1.3.33 (i))

The following table summarises the percentage of financing for each category of counterparty to total financing as of:

31 December 31 December
2013 2012
% %
Sovereign 2 2
Bank 3 9
Investment Firms 9 1
Corporates 15 15
Retail 71 73

IAH Share of Profit (PD-1.3.33 (e) & (q))

The Group’s share of profit as a Mudarib for managing IAH and the IAHs’ share of income is based on the terms and
conditions of the related Mudaraba agreements. These Mudaraba agreements are done at the individual subsidiary level.
The rates and return are highly variable based on each of the subsidiaries’ local environment as well as local rules and
regulations. Detailed disclosures on IAH returns are analysed at the local level.

Table – 26. IAH by type of Assets (PD-1.3.33 (r) & (s))

The following table summarises the types of assets in which the funds are invested, the actual allocation among various
types of assets and the changes in the asset allocation in the last six months of the year ended:

31 December 2013 31 December 2012

Opening Opening Closing
Actual Closing Actual Actual Actual
Allocation Movement Allocation Allocation Movement Allocation
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Cash and balances with banks 3,823,239 504,908 4,328,147 3,374,610 141,153 3,515,763
Receivables 5,440,607 132,904 5,573,511 5,195,684 536,527 5,732,211
Mudaraba and Musharaka financing 508,736 12,245 520,981 461,489 18,878 480,367
Investments 1,121,502 137,889 1,259,391 1,117,426 141,567 1,258,993
Ijarah Muntahia Bittamleek 457,821 51,116 508,937 352,412 44,957 397,369
Other assets 215,968 (7,491) 208,477 213,808 6,117 219,925
11,567,873 831,571 12,399,444 10,715,429 889,199 11,604,628

Al Baraka Annual Report 2013

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Additional Public Disclosures

31 December 2013

4 EQUITY OF INVESTMENT ACCOUNTHOLDERS DISCLOSURES (continued)

Table – 27. Treatment of Assets financed by Equity of IAH (PD-1.3.33 (v))

The following table summarises the treatment of assets financed by IAH in the calculation of risk weighted assets
(RWA) for capital adequacy purposes as of:

31 December 2013 31 December 2012

RWA for RWA for
Capital Capital
adequacy Capital adequacy Capital
RWA purposes Charges RWA purposes Charges
Type of Claims US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Claims on Sovereign 846,446 253,934 30,472 573,041 171,912 20,629
Claims on PSEs 1,845 554 66 3,412 1,023 123
Claims on MDBs 10,075 3,023 363 - - -
Claims on Banks 64,082 19,225 2,307 67,781 20,334 2,440
Claims on Corporates 5,139,529 1,541,859 185,023 5,206,785 1,562,035 187,444
Regulatory Retail Portfolio 689,985 206,996 24,840 762,486 228,746 27,450
Mortgage 774,937 232,481 27,898 780,779 234,234 28,108
Past due facilities 158,001 47,400 5,688 157,308 47,192 5,663
Investment in securities 294,028 88,208 10,585 240,636 72,191 8,663
Holding of Real Estates 194,470 58,341 7,001 187,462 56,239 6,749
Other Assets 577,724 173,317 20,798 659,690 197,907 23,749
8,751,122 2,625,338 315,041 8,639,380 2,591,813 311,018

5 OFF-BALANCE SHEET EQUITY OF INVESTMENT ACCOUNTHOLDERS

Off-balance sheet equity of investment accountholders funds are invested and managed in accordance with Shari’a
requirements.

The Group as fund manager will manage and administer the investment account in a proper, diligent and efficient
manner in accordance with applicable laws and local regulations.

The Group has appropriate procedures and controls in place commensurate to the size of its portfolio which includes:

(a) Organizing its internal affairs in a responsible manner, ensuring it has appropriate internal controls and risk
management systems and procedures and controls designed to mitigate and manage such risks;

(b) Observing high standards of integrity and fair dealing in managing the scheme to the best interest of its investors;
and

(c) Ensuring that the Group has the requisite level of knowledge and experience for the tasks that is undertaken
and is competent for the work undertaken.

Pages 160 & 161

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Additional Public Disclosures

31 December 2013

Table – 28. Off-balance sheet equity of IAH by Islamic Financing product type (PD-1.3.33 (h))

The following table summarises the percentage of financing for each type of Shari’a-compliant contract to total
financing as of:

31 December 31 December
2013 2012
% %
Receivables 20 29
Mudaraba and Musharaka financing 80 71

Table – 29. Off-balance sheet equity of IAH by Counterparty Type (PD-1.3.33 (i))

The following table summarises the percentage of financing for each category of counterparty to total financing as of:

31 December 31 December
2013 2012
% %
Sovereign 2 1
Investment Firms 6 5
Bank 39 38
Corporates 11 14
Retail 42 42

Off-Balance Sheet Equity of IAH Share of Profit (PD-1.3.33 (e) & (q))

The Group’s share of profit as a Mudarib for managing IAH and off-balance sheet IAH’s share of income is based on
the terms and conditions of the related mudaraba agreements. These mudaraba agreements are done at the individual
subsidiary level. The rates and return are highly variable based on each of the subsidiaries’ local environment as well as
local rules and regulations. Detailed disclosures on off-balance sheet equity of investment accountholders’ returns are
analysed at the local level.

Al Baraka Annual Report 2013

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ABG HEAD OFFICE MANAGEMENT

Mr. Adnan Ahmed Yousif

President and Chief Executive

Internal Audit
Mr. Majeed H. Alawi
Executive Vice President – Head of Internal Audit
• Mr. Mohammed Alawi Hassan Alawi
First Vice President – Internal Audit
• Mr. Hassan Y. Al Banna
First Vice President – Internal Audit

Strategic Planning
Mr. K. Krishnamoorthy
Executive Vice President – Head of Strategic Planning
• Mr. Chandresh H. Mehta
First Vice President – Strategic Planning

Operations & Administration

Mr. Abdulrahman Shehab
Executive Vice President – Head of Operations & Administration
• Mr. Hood Hashem
First Vice President – Information Technology

Financial Control
Mr. Hamad Abdulla Ali Eqab
Senior Vice President – Head of Financial Control

Credit & Risk Management

Mr. Jozsef Peter Szalay
Senior Vice President – Head of Credit & Risk Management
• Mr. Salah Y.H.Al Busaiteeni
First Vice President – Credit & Risk Management
• Mr. Amr Ehab Tantawi
First Vice President - Credit & Risk Management

Legal Affairs
Mr. Salah Othman Abuzaid
Senior Vice President – Head of Legal Affairs
• Dr. Adel Basha
First Vice President - Legal Affairs
• Dr. Ali Adnan Ibrahim
First Vice President - Legal Affairs

Treasury, Investments & Financial Institutions

Mr. Khalid Al Qattan
First Vice President – Head of Treasury, Investments & Financial Institutions

Group Compliance
Mr. Qutub Yousafali
Compliance Officer

Pages 162 & 163

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Al Baraka Global Network

Al Baraka Türk Participation Bank

ADDRESS: Saray Mahallesi TEL: +90 216 666 01 01

Dr. Adnan Büyükdeniz Caddesi, No. 6 FAX: +90 216 666 16 00
34768 Ümraniye, Istanbul, Turkey albarakaturk.com.tr

Jordan Islamic Bank

ADDRESS: P.O. Box 926225 TEL: +9626 567 7377
Amman 11190 FAX: +9626 566 6326
Jordan jordanislamicbank.com

Al Baraka Bank Egypt

ADDRESS: 60, Mohie Elddin Abu Elezz Street TEL: +2023 748 1222
P.O. Box 455 FAX: +2023 761 1436/7
Dokki, Giza, Egypt albaraka-bank.com.eg

Banque Al Baraka D’Algerie S.P.A.

ADDRESS: Hai Bouteldja Houidef, Villa No. 1 TEL: +213 21 91 64 50 to 55
Rocade Sud, Ben Aknoun FAX: +213 21 91 64 58
Algiers, Algeria albaraka-bank.com

Al Baraka Islamic Bank B.S.C. - Bahrain

ADDRESS: Al Baraka Tower, Building No. 238 TEL: +973 17 535 300
Road No. 1704, Block No. 317 FAX: +973 17 533 993
Diplomatic Area, P.O. Box 1882 albaraka.bh
Manama, Kingdom of Bahrain

Al Baraka Bank (Pakistan) Limited

ADDRESS: 162, Bangalore Town TEL: +92 21 34315851

Main Shahrah-e-Faisal FAX: +92 21 34546465
Karachi, Pakistan albaraka.com.pk

Al Baraka Bank Tunisia

ADDRESS: 88, Avenue Hedi Chaker 1002 TEL: +21671 790000
Tunis, Tunisia FAX: +21671 780235
albarakabank.com.tn

Al Baraka Annual Report 2013

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Al Baraka Global Network

Al Baraka Bank Syria s.a.

ADDRESS: Alshahbander Street TEL: +963 11 443 78 20
P.O. Box 100 FAX: +963 11 443 78 10
Damascus albarakasyria.com
Syria

Al Baraka Bank Limited - South Africa

ADDRESS: 2 Kinsmead Boulevard TEL: +2731 364 9000

Kingsmead Office Park FAX: +2731 364 9001
Stalwart Simelane Street albaraka.co.za
Durban 4000, South Africa

Al Baraka Bank Lebanon S.A.L.

ADDRESS: Justinian Street TEL: +9611 748061 to 65
BAC Center, 12th floor FAX: +9611 748061 to 65
Sanayeh, near Chamber of Com & Inds. Ext: 700
Beirut, Lebanon al-baraka.com

Al Baraka Bank Sudan

ADDRESS: Al Baraka Tower TEL: +249187 112 000
P.O. Box 3583, Qasr ST FAX: +249183 788 585
Khartoum, Sudan albaraka.com.sd

Itqan Capital - Saudi Arabia

ADDRESS: Al Shatei Center, Al Malik Road TEL: +966 2 234 700
P.O. Box 8021, Jeddah 21482 FAX: +966 2 234 7222
Kingdom of Saudi Arabia itqancapital.com

Al Baraka Banking Group, Representative Office - Indonesia

ADDRESS: Ravindo Building, 10th Floor TEL: +62 21 316 1345
Jalan Kebon Sirih, No. 75 FAX: +62 21 316 1074
Jakarta Pusat 10340 albaraka.com
Indonesia

Al Baraka Banking Group, Representative Office - Libya

ADDRESS: Tripoli Tower, Tower 1 TEL: +218 (21) 336 2310
14th Floor, Office No. 144 +218 (21) 336 2311
P.O. Box 93271 FAX: +218 (21) 336 2312
Tripoli, Libya albaraka.com

Page 164
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albaraka.com