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GFH FINANCIAL GROUP BSC
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
30 JUNE 2022
GFH FINANCIAL GROUP BSC
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the six months ended 30 June 2022
CONTENTS Page
Independent auditors' report on review of condensed consolidated interim financial information 1
Condensed consolidated interim financial information
Condensed consolidated statement of financial position 2
Condensed consolidated income statement 3
Condensed consolidated statement of changes in owners' equity 4-5
Condensed consolidated statement of cash flows 6
Condensed consolidated statement of changes in restricted investment accounts 7
Condensed consolidated statement of sources and uses of zakah and charity fund 8
Notes to the condensed consolidated interim financial information 9-33
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121h Floor. Fakhro Tower PO Box 710, Manama Kingdom of Bahrain
Telephone +973 17 224807
Fax +973 17 227443
Website: home.kpmg/bh CR No. 6220
lndeoendent auditors· reoort on review or condensed consolidated interim flnanc1a1information
To the Board of Directors
GFH Financial Group BSC
M an ama, Kingdom of Bahrain
We have reviewed the accompanying 30 June 2022 condensed consolidated interim financial informat ion of GFH Finan cial Group BSC (the "Bank") andits subsidiaries (together the "Group"), which comprises:
• the condensed consolidated statement of financial position as at 30 June 2022;
• the condensed consolidated income statement for the three-month and s, x-month periods ended 30 June 2022 ;
• the condensed consolidated statement of changes in owners' equity for the six•mont h period ended 30 June 2022;
• the condensed consolidated statement of cash flows for the six-month per iod ended 30 June 2022,
• the condensed consolidated statement of changes in restricted investment accounts for the six month period ended 30 June 2022;
• the condensed consolidated statement of sources and uses of zakah and charity fund for the si-x mont h per iod ended 30
June 2022; and
• notes to the condensed consolidated interim financial information .
The Board of Directors of the Bank is responsible for the preparation and presentation of this condensed consolidated inter im financial information in accordance with the basis of preparation and presentation as stated in note 2 of this condensed consolidated interim financial information. Our responsibility is to express a cone usion on this condensed consol dated inter im financial information based on our review.
Scope of Rcv,c w
We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A rev1ew of interim financial information consists of making inquiries, primarily of persons responsible for financial and account fng matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Au,d ting standards for Islamic Financial Institutions and consequently does not enable us to obtain assurance that we would become aware of alt significant matters that mightbe identffied in an audit. Accord ingly, we do not express an audit opinion.
( ont lu o n
l 'trAugust2022
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ASSETS
Cash and bank balances
Treasury portfolio 8
Financing assets 9
Investment in real estate 10
Proprietary investments 11
Co-investments 12
Receivables and other assets 13
Property and equipment
Total assets
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Clients' funds
Placements from financial, non-financial institutions and individuals
Customer current accounts
Term financing 14
Other liabilities
Total liabilities
Total equity of investment account holders OWNERS' EQUITY
Share capital Treasury shares Statutory reserve
Investment fair value reserve Foreign currency translation reserve Retained earnings
Share grant reserve
Total equity attributable to shareholders of the Bank
Non-controlling interests
Total owners' equity
Total liabilities, equity of investment account holders and owners' equity
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Ghazi Faisal Ebrahim Alhajeri
Chairman Chief Executive Officer & Board member
The accompanying notes 1 to 23 form an integral part of the condensed consolidated interim financial information.
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Investment banking income
Asset management Deal related income
Commercial banking income
Income from financing
Treasury and investment income Fee and other income
Less: Return to investment account holders Less: Finance expense
Income from proprietary and co-investments
Income from sale of real estate assets Leasing and operating income
Direct investment income, net
Share of profit from equity-accounted investees Income from co-investments
Treasury and other income
Finance and treasury portfolio income, net Other income, net
Total income
Operating expenses Finance expense
Impairment allowances 15
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Attributable to: Shareholders of Bank Non-controlling interests
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Basic and diluted earnings per share (US cents) 16
Ghazi Faisal Ebrahim Alhajeri
Chairman Chief Executive Officer & Board member
The accompanying notes 1 to 23 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY
for the six months ended 30 June 2022 US$ 000's
Attributable to shareholders of the Bank |
Non- Controlling Interests (NCI) |
Total owners' equity | |||||||
30 June 2022 (reviewed) |
Share capital |
Treasury shares |
Statutory reserve |
Investment fair value reserve | Foreign currency translation reserve |
Retained earnings |
Total | ||
Balance at 1 January 2022 |
1,000,638 |
(48,498) |
27,970 |
(28,561) |
(70,266) |
81,811 |
963,094 |
205,027 |
1,168,121 |
Profit for the period |
- |
- |
- |
- |
- |
42,180 |
42,180 |
3,196 |
45,376 |
Transfer on reclassification from FVTE to amortised cost | - | - | - | 41,320 | - | - | 41,320 | - | 41,320 |
Fair value changes during the period | - | - | - | (69,084) | - | - | (69,084) | (2,335) | (71,419) |
Transfer to income statement on disposal of sukuk | - | - | - | (2,514) | - | - | (2,514) | - | (2,514) |
Total recognised income and expense | - | - | - | (30,278) | - | 42,180 | 11,902 | 861 | 12,763 |
Bonus shares issued |
15,000 |
- |
- |
- |
- |
(15,000) |
- |
- |
- |
Dividend declared | - | - | - | - | - | (45,000) | (45,000) | - | (45,000) |
Purchase of treasury shares | - | (53,650) | - | - | - | - | (53,650) | - | (53,650) |
Transfer to zakah and charity fund | - | - | - | - | - | (1,483) | (1,483) | - | (1,483) |
Sale of treasury shares | - | 31,865 | - | - | - | 121 | 31,986 | - | 31,986 |
Transferred to income statement on deconsolidation of subsidiaries | - | - | - | - | 70,266 | - | 70,266 | - | 70,266 |
Adjusted on deconsolidation of subsidiaries (Note 22) | - | - | - | - | - | - | - | (141,295) | (141,295) |
Additional NCI on acquisition of subsidiary (Note 23) | - | - | - | - | - | - | - | 363 | 363 |
Balance at 30 June 2022 |
1,015,638 |
(70,283) |
27,970 |
(58,839) |
- |
62,629 |
977,115 |
64,956 |
1,042,071 |
The accompanying notes 1 to 23 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY
for the six months ended 30 June 2022 (continued) US$ 000's
Attributable to shareholders of the Bank | Non - controlling interests | Total owners' equity | ||||||||
30 June 2021 (reviewed) |
Share capital |
Treasury shares |
Statutory reserve |
Investment fair value reserve | Foreign currency translatio n reserve |
Retained earnings |
Share grant reserve |
Total | ||
Balance at 1 January 2021 (as previously reported) |
975,638 |
(63,979) |
19,548 |
5,593 |
(46,947) |
22,385 |
1,093 |
913,331 |
272,733 |
1,186,064 |
Effect of adoption of FAS 32 | - | - | - | - | - | (2,096) | - | (2,096) | - | (2,096) |
Balance at 1 January 2021 (restated) | 975,638 | (63,979) | 19,548 | 5,593 | (46,947) | 20,289 | 1,093 | 911,235 | 272,733 | 1,183,968 |
Profit for the period | - | - | - | - | - | 37,044 | - | 37,044 | 7,101 | 44,145 |
Fair value changes during the period | - | - | - | 11,200 | - | - | - | 11,200 | (6) | 11,194 |
Transfer to income statement on disposal of sukuk | - | - | - | (12,684) | - | - | - | (12,684) | - | (12,684) |
Total recognised income and expense | - | - | - | (1,484) | - | 37,044 | - | 35,560 | 7,095 | 42,655 |
Bonus shares issued |
25,000 |
- |
- |
- |
- |
(25,000) |
- |
- |
- |
- |
Dividends declared for 2020 | - | - | - | - | - | (17,000) | - | (17,000) | - | (17,000) |
Transfer to zakah and charity fund | - | - | - | - | - | (1,572) | - | (1,572) | (142) | (1,714) |
Transfer to statutory reserve | - | - | 4,510 | - | - | (4,510) | - | - | - | - |
Purchase of treasury shares | - | (26,777) | - | - | - | - | - | (26,777) | - | (26,777) |
Sale of treasury shares | - | 28,522 | - | - | - | 921 | - | 29,443 | - | 29,443 |
Foreign currency translation differences | - | - | - | - | (3,311) | - | - | (3,311) | (1,411) | (4,722) |
Acquisition of NCI without a change in control | - | - | - | - | - | 7,768 | - | 7,768 | (38,253) | (30,485) |
Balance at 30 June 2021 |
1,000,638 |
(62,234) |
24,058 |
4,109 |
(50,258) |
17,940 |
1,093 |
935,346 |
240,022 |
1,175,368 |
The accompanying notes 1 to 23 form an integral part of the condensed consolidated interim financial information.
GFH FINANCIAL GROUP BSC 6
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 30 June 2022 US$ 000's
30 June 2022 (reviewed) | 30 June 2021 (reviewed) | ||
OPERATING ACTIVITIES | |||
Profit for the period | 45,376 | 44,145 | |
Adjustments for: | |||
Income from commercial banking | (26,321) | (33,065) | |
Income from proprietary investments | (37,282) | (18,931) | |
Income from dividend and gain on treasury investments | (53,024) | (85,628) | |
Foreign exchange gain | (1,305) | (1,105) | |
Finance expense | 80,691 | 80,953 | |
Impairment allowances | (2,869) | 13,709 | |
Depreciation and amortisation | 776 | 2,621 | |
6,042 | 2,699 | ||
Changes in: | |||
Placements with financial institutions (maturities of more than 3 months) | - | (100,995) | |
Financing assets | (146,756) | 14,330 | |
Other assets | (19,209) | 44,773 | |
CBB Reserve and restricted bank balance | (982) | (10,319) | |
Clients' funds | (68,689) | (42,159) | |
Placements from financial and non-financial institutions | 359,808 | 304,879 | |
Customer current accounts | 89,528 | 9,706 | |
Equity of investment account holders | (108,800) | 64,561 | |
Payables and accruals | 17,099 | (36,367) | |
Net cash generated from operating activities |
128,041 |
251,108 | |
INVESTING ACTIVITIES | |||
Payments for purchase of equipment | (74) | (851) | |
Proceeds from sale of proprietary investment securities, net | 415 | 23,129 | |
Purchase of treasury portfolio, net | (269,077) | (411,882) | |
Cash acquired on acquisition of a subsidiary | 407 | - | |
Cash paid on acquisition of a subsidiary | (5,215) | - | |
Dividends received from proprietary investments and co-investments | 25,528 | 7,449 | |
Advance paid for development of real estate | (22,652) | (5,081) | |
Net cash used in investing activities |
(270,668) |
(387,236) | |
FINANCING ACTIVITIES | |||
Financing liabilities, net | 149,146 | 180,341 | |
Finance expense paid | (82,531) | (72,767) | |
Purchase of sukuk | (2,028) | - | |
Dividends paid | (853) | (17,299) | |
Purchase of treasury shares, net | (21,785) | 1,746 | |
Net cash generated from financing activities |
41,949 |
92,021 | |
Net decrease in cash and cash equivalents during the period |
(100,678) |
(44,107) | |
Cash and cash equivalents at 1 January | 844,344 | 655,455 | |
Cash and cash equivalents at 30 June |
743,666 |
611,348 | |
Cash and cash equivalents comprise: | |||
Cash and balances with banks (excluding CBB Reserve balance and restricted cash) |
615,504 |
538,438 | |
Placements with financial institutions (less than 3 months) | 128,162 | 72,910 | |
743,666 | 611,348 |
The accompanying notes 1 to 23 form an integral part of the condensed consolidated interim financial information.
GFH FINANCIAL GROUP BSC 7
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED INVESTMENT ACCOUNTS
for the six months ended 30 June 2022
30 June 2022 (reviewed) | Balance at 1 January 2022 | Movements during the period | Balance at 30 June 2022 | |||||||||
Company |
No of units (000) |
Average value per share US$ |
Total US$ 000's |
Investment/ (withdrawal) US$ 000's |
Revalua- tion US$ 000's |
Gross income US$ 000's |
Dividends paid US$ 000's | Group's fees as an agent US$ 000's |
Administration expenses US$ 000's |
No of units (000) |
Average value per share US$ |
Total US$ 000's |
Mena Real Estate Company KSCC |
150 |
0.33 |
50 |
- |
- |
- |
- |
- |
- |
150 |
0.33 |
50 |
Al Basha'er Fund | 12 | 7.87 | 94 | - | - | - | - | - | - | 12 | 7.87 | 94 |
Safana Investment (RIA 1) | 1,247 | 2.65 | 3,305 | - | - | - | - | - | - | 1,247 | 2.65 | 3,305 |
Shaden Real Estate Investment WLL (RIA 5) |
269 |
2.65 |
713 |
- | - | - | - | - | - |
269 |
2.65 |
713 |
4,162 | - | - | - | - | - | - | 4,162 |
30 June 2021 (reviewed) | Balance at 1 January 2021 | Movements during the period | Balance at 30 June 2021 | |||||||||
Company |
No of units (000) |
Average value per share US$ |
Total US$ 000's |
Investment/ (withdrawal) US$ 000's |
Revalua- tion US$ 000's |
Gross income US$ 000's |
Dividends paid US$ 000's | Group's fees as an agent US$ 000's |
Administration expenses US$ 000's |
No of units (000) |
Average value per share US$ |
Total US$ 000's |
Mena Real Estate Company KSCC |
150 |
0.33 |
50 |
- |
- |
- |
- |
- |
- |
150 |
0.33 |
50 |
Al Basha'er Fund | 12 | 7.91 | 95 | (2) | - | - | - | - | - | 12 | 7.91 | 93 |
Safana Investment (RIA 1) | 6,254 | 2.65 | 16,573 | - | - | - | - | - | - | 6,254 | 2.65 | 16,573 |
Shaden Real Estate Investment WLL (RIA 5) |
3,434 |
2.65 |
9,100 |
- |
- |
- |
- |
- |
- |
3,434 |
2.65 |
9,100 |
Locata Corporation Pty Ltd (RIA 6) | 2,633 | 1.00 | 2,633 | - | - | - | - | - | - | 2,633 | 1.00 | 2,633 |
28,451 | (2) | - | - | - | - | - | 28,449 |
The accompanying notes 1 to 23 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF SOURCES AND USES OF ZAKAH AND CHARITY FUND
for the six months ended 30 June 2022 US$ 000's
Sources of zakah and charity fund | 30 June 2022 (reviewed) | 30 June 2021 (reviewed) | |
Contribution by the Group | 2,529 | 1,714 | |
Non-Islamic income | 21 | 18 | |
Total sources |
2,550 |
1,732 | |
Uses of zakah and charity fund |
(1,775) |
(1,828) | |
Utilization of zakat and charity fund | |||
Total uses |
(1,775) |
(1,828) | |
0BSurplus of sources over uses |
775 |
(96) | |
Undistributed zakah and charity fund at beginning of the period | 5,196 | 5,346 | |
1BUndistributed zakah and charity fund at end of the period |
5,971 |
5,250 |
Represented by: | |||
Zakah payable | 826 | 1,013 | |
Charity fund | 5,145 | 4,237 | |
5,971 |
5,250 |
The accompanying notes 1 to 23 form an integral part of the condensed consolidated interim financial information.
1 Reporting entity
The condensed consolidated interim financial information for the six months ended 30 June 2022 comprise the financial information of GFH Financial Group BSC (GFH or the "Bank") and its subsidiaries (together referred to as "the Group").
The following are the principal subsidiaries consolidated in the condensed consolidated interim financial information.
Investee name |
Country of incorporation | Effective ownership interests as at 30 June 2022 |
Activities |
GFH Capital Limited | United Arab Emirates | 100% | Investment management |
GFH Capital S.A. | Saudi Arabia | 100% | Investment management |
Khaleeji Commercial Bank BSC ('KHCB') |
Kingdom of Bahrain | 85.14% | Islamic retail bank |
Al Areen Project companies | 100% | Real estate development | |
GBCORP Tower Real Estate WLL | 62.91% | Islamic investment firm | |
Residential South Real Estate Development Company (RSRED) | 100% | Real estate development | |
Britus International School for Special Education W.L.L | 100% | Educational institution | |
Gulf Holding Company KSCC | State of Kuwait | 53.63% | Investment in real estate |
SQ Topco II LLC (Note 23) | United States | 51% | Property asset management Company |
Roebuck A M LLP | United Kingdom | 60% | Property asset management Company |
The Bank has other investment holding companies, SPV's and subsidiaries, which are set up to supplement the activities of the Bank and its principal subsidiaries.
GFH Group has carried out a group restructuring program (the 'program') which involves the spinning out of its infrastructure and real estate assets under a new entity "Infracorp B.S.C." ("Infracorp"), which has been capitalized with more than US$1 billion in infrastructure and development assets. Infracorp will specialise in investments focusing on accelerating growth and development of sustainable infrastructure assets and environments across the gulf and global markets.
Under this program certain real estate and infrastructure assets as well as certain investments in securities, equity accounted investees and subsidiaries have been transferred from the Group to Infracorp for an in-kind consideration in the form of Sukuk and/ or equity shares issued by Infracorp. A majority stake of 60% in Infracorp equity was divested during the period ended 31 March 2022. See note 22 for more details.
2 Basis of preparation
The condensed consolidated interim financial information of the Group has been prepared in accordance with applicable rules and regulations issued by the Central Bank of Bahrain ("CBB"). These rules and regulations require the adoption of all Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI).
The accounting policies used in the preparation of annual audited consolidated financial information of the Group for the year ended 31 December 2020 and 31 December 2021 were in accordance with FAS as modified by CBB (refer to the Group's audited financial statements for the year ended 31 December 2021 for the details of the COVID-19 related modifications applied). Since the CBB modification were specific to the financial year 2020 and no longer apply to both the current and comparative periods presented, the Group's interim financial information for the six months ended 30 June 2022 has been prepared in accordance with FAS issued by AAOIFI (without any modifications).
These condensed consolidated interim financial information are reviewed and not audited. The condensed consolidated interim financial information does not include all the information required for full annual financial statements and should be read in conjunction with the Group's last audited consolidated financial statements for the year ended 31 December 2021. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual audited consolidated financial statements as at and for the year ended 31 December 2021.
3 Significant accounting policies
The accounting policies and methods of computation applied by the Group in the preparation of the condensed consolidated interim financial information are the same as those used in the preparation of the Group's last audited consolidated financial statements as at and for the year ended 31 December 2021, except those arising from adoption of the following standards and amendments to standards effective from 1 January 2022. The impact of adoption of these standards and amendments is set out below.
a. New standards, amendments and interpetations issued and effective for annual periods beginning on or after 1 January 2022:
FAS 38 Wa'ad, Khiyar and Tahawwut
AAOIFI has issued FAS 38 Wa'ad, Khiyar and Tahawwut in 2020. The objective of this standard is to prescribe the accounting and reporting principles for recognition, measurement and disclosures in relation to shariah compliant Wa'ad (promise), Khiyar (option) and Tahawwut (hedging) arrangements for Islamic financial institutions. This standard is effective for the financial reporting periods beginning on or after 1 January 2022.
This standard classifies Wa'ad and Khiyar arrangements into two categories as follows: a)"ancillary Wa'ad or Khiyar" which is related to a structure of transaction carried out using other
products i.e. Murabaha, Ijarah Muntahia Bittamleek, etc.; and
b) "product Wa'ad and Khiyar" which is used as a stand-alone Shariah compliant arrangement.
Further, the standard prescribes accounting for constructive obligations and constructive rights arising from the stand-alone Wa'ad and Khiyar products.
There was no material impact on the Group upon adoption of this standard.
3 Significant accounting policies (continued)
b. New standards, amendments and interpretations issued but not yet effective
(i) FAS 39 Financial Reporting for Zakah
AAOIFI has issued FAS 39 Financial Reporting for Zakah in 2021. The objective of this standard is to establish principles of financial reporting related to Zakah attributable to different stakeholders of an Islamic financial Institution. This standard supersedes FAS 9 Zakah and is effective for the financial reporting periods beginning on or after 1 January 2023 with an option to early adopt.
This standard shall apply to institution with regard to the recognition, presentation and disclosure of Zakah attributable to relevant stakeholders. While computation of Zakah shall be applicable individually to each institution within the Group, this standard shall be applicable on all consolidated and separate / standalone financial statements of an institution.
This standard does not prescribe the method for determining the Zakah base and measuring Zakah due for a period. An institution shall refer to relevant authoritative guidance for determination of Zakah base and to measure Zakah due for the period.
The Group is assessing the impact of adoption of this standard.
(ii) FAS 1 General Presentation and Disclosures in the Financial Statements
AAOIFI has issued the revised FAS 1 General Presentation and Disclosures in the Financial Statements in 2021. This standard describes and improves the overall presentation and disclosure requirements prescribed in line with the global best practices and supersedes the earlier FAS 1. It is applicable to all the Islamic Financial Institutions and other institutions following AAOIFI FAS's. This standard is effective for the financial reporting periods beginning on or after 1 January 2023 with an option to early adopt.
The revision of FAS 1 is in line with the modifications made to the AAOIFI conceptual framework for financial reporting. Some of the significant revisions to the standard are as follows:
a) Revised conceptual framework is now integral part of the AAOIFI FAS's;
b) Definition of Quasi equity is introduced;
c) Definitions have been modified and improved;
d) Concept of comprehensive income has been introduced;
e) Institutions other than Banking institutions are allowed to classify assets and liabilities as current and non-current;
f) Disclosure of Zakah and Charity have been relocated to the notes;
g) True and fair override has been introduced;
h) Treatment for change in accounting policies, change in estimates and correction of errors has been introduced;
i) Disclosures of related parties, subsequent events and going concern have been improved;
j) Improvement in reporting for foreign currency, segment reporting;
k) Presentation and disclosure requirements have been divided into three parts. First part is applicable to all institutions, second part is applicable only to banks and similar IFI's and third part prescribes the authoritative status, effective date an amendments to other AAOIFI FAS's; and
l) The illustrative financial statements are not part of this standard and will be issued separately.
The Group is assessing the impact of adoption of this standard and expects changes in certain presentation and disclosures in its consolidated financial statements.
4 Estimates and judgements
Preparation of condensed consolidated interim financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The areas of significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were similar to those applied to the audited consolidated financial statements as at and for the year ended 31 December 2021.
Russia-Ukraine conflict
On 24 February 2022, a military conflict between Russia and Ukraine emerged (the "conflict"). Owing to this various countries and international bodies have imposed trade and financial sanctions on Russia and Belarus. Further, various organisations have discontinued their operations in Russia. This conflict has resulted in an economic downturn and increased volatility in commodity prices due to disruption of supply chain.
The management has carried out an assessment of its portfolio and has concluded that it does not have any direct exposures to / from the impacted countries. However, indirect impact is pervasive in the market and at this stage it is difficult to quantify the full impact of this conflict since it depends largely on the nature and duration of uncertain and unpredictable events, such as further military action, additional sanctions, and reactions to ongoing developments by global financial markets. The management will continue to closely monitor impact of this evolving situation on its portfolio to assess indirect impact, if any. During the period ended 30 June 2022, the Group's investment portfolio reduced in market value by US$ 69,084 thousand for investments carried as FVTE and US$ 22,005 thousand for investments carried as FVTPL due to volatile market movements. However, the Group does not trade in such securities and does not expect to liquidate any of it's market portfolio in short term.
5 Financial risk management
The Group's financial risk management objectives and policies are consistent with those disclosed in the audited consolidated financial statements for the year ended 31 December 2021.
Regulatory ratios
a. Net stable funding Ratio (NSFR)
The objective of the NSFR is to promote the resilience of banks' liquidity risk profiles and to incentivise a more resilient banking sector over a longer time horizon. The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on-balance sheet and off-balance sheet items, and promotes funding stability.
NSFR as a percentage is calculated as "Available stable funding" divided by "Required stable funding".
The Consolidated NSFR calculated as per the requirements of the CBB rulebook, is as follows:
As at 30 June 2022
No. |
Item |
No Specified Maturity |
Less than 6 months |
More than 6 months and less than one year |
Over one year |
Total weighted value |
Available Stable Funding (ASF): | ||||||
1 | Capital: | |||||
2 | Regulatory Capital | 1,059,069 | - | - | 50,851 | 1,109,920 |
3 | Other Capital Instruments |
- |
- |
- |
- |
- |
4 | Retail deposits and deposits from small business customers: | |||||
5 | Stable deposits |
- |
176,266 |
24,769 |
4,177 |
195,160 |
6 | Less stable deposits |
- |
1,498,093 |
275,805 |
132,219 |
1,728,727 |
7 | Wholesale funding: | |||||
8 | Operational deposits | - | - | - | - | - |
9 | Other Wholesale funding | - | 3,022,773 | 814,421 | 1,018,189 | 2,126,084 |
10 | Other liabilities: | |||||
11 | NSFR Shari'a-compliant hedging contract liabilities |
- |
- |
- | ||
12 | All other liabilities not included in the above categories |
- |
316,756 |
17,775 |
52,570 |
52,570 |
13 | Total ASF | 5,212,461 | ||||
Required Stable Funding (RSF): | ||||||
14 | Total NSFR high-quality liquid assets (HQLA) |
1,664,881 |
85,576 | |||
15 | Deposits held at other financial institutions for operational purposes |
- |
- |
- |
- |
- |
16 | Performing financing and sukuk/ securities: |
- |
702,253 |
- |
749,801 |
742,669 |
17 | Performing financial to financial institutions by level 1 HQLA |
- |
- |
- |
- |
- |
18 | Performing financing to financial institutions secured by non-level 1 HQLA and unsecured performing financing to financial institutions |
- |
- |
5,026 |
1,025,947 |
874,568 |
19 | Performing financing to non- financial corporate clients, financing to retail and small business customers, and financing to sovereigns, central banks and PSEs, of which: |
- |
268,059 |
161,157 |
253,571 |
379,429 |
No. |
Item | No Specified Maturity," |
Less than 6 months | More than 6 months and less than one year |
Over one year | Total weighted value |
20 | With a risk weight of less than or equal to 35% as per the CBB Capital Adequacy Ratio guidelines |
- |
- |
- |
- |
- |
21 | Performing residential mortgages, of which: |
- |
- |
- |
- |
- |
22 | With a risk weight of less than or equal to 35% under the CBB Capital Adequacy Ratio Guidelines |
- |
- |
- |
- |
- |
23 | Securities/sukuk that are not in default and do not qualify as HQLA, including exchange- traded equities |
- |
848,827 |
290,784 |
488,423 |
1,058,228 |
24 | Other assets: | |||||
25 | Physical traded commodities, including gold |
- |
- | |||
26 | Assets posted as initial margin for Shari'a-compliant hedging contracts and contributions to default funds of CCPs |
- |
- |
- |
- | |
27 | NSFR Shari'a-compliant hedging assets |
- |
- |
- |
- | |
28 | NSFR Shari'a-compliant hedging contract liabilities before deduction of variation margin posted |
- |
- |
- |
- | |
29 | All other assets not included in the above categories |
1,903,173 |
- |
- |
- |
1,903,173 |
30 | OBS items | - | - | - | 44,723 | |
31 | Total RSF | 1,819,140 | 456,966 | 2,517,741 | 5,088,366 | |
32 | NSFR (%) | 102% |
As at 31 December 2021
No. |
Item |
No Specified Maturity |
Less than 6 months | More than 6 months and less than one year |
Over one year |
Total weighted value |
Available Stable Funding (ASF): | ||||||
1 | Capital: | |||||
2 | Regulatory Capital | 1,070,314 | - | - | 49,953 | 1,120,267 |
3 | Other Capital Instruments |
- |
- |
- |
- |
- |
4 | Retail deposits and deposits from small business customers: | |||||
5 | Stable deposits | - | 182,112 | 25,962 | 2,749 | 200,420 |
6 | Less stable deposits | - | 1,314,514 | 430,372 | 90,957 | 1,661,355 |
7 | Wholesale funding: | |||||
8 | Operational deposits | - | - | - | - | - |
9 | Other Wholesale funding |
- |
2,860,814 |
861,346 |
773,058 |
1,896,078 |
10 | Other liabilities: | |||||
11 | NSFR Shari'a-compliant hedging contract liabilities |
- |
- |
- | ||
12 | All other liabilities not included in the above categories |
- |
136,864 |
18,759 |
71,437 |
71,437 |
13 | Total ASF | 4,949,558 | ||||
Required Stable Funding (RSF): | ||||||
14 | Total NSFR high-quality liquid assets (HQLA) |
1,493,881 |
73,941 | |||
No. |
Item |
No Specified Maturity |
Less than 6 months | More than 6 months and less than one year |
Over one year |
Total weighted value |
15 | Deposits held at other financial institutions for operational purposes | |||||
16 | Performing financing and sukuk/ securities: |
- |
636,283 |
- |
720,739 |
708,071 |
17 | Performing financial to financial institutions by level 1 HQLA |
- |
- |
- |
- |
- |
18 | Performing financing to financial institutions secured by non-level 1 HQLA and unsecured performing financing to financial institutions |
- |
5,000 |
- |
174,023 |
150,419 |
19 | Performing financing to non- financial corporate clients, financing to retail and small business customers, and financing to sovereigns, central banks and PSEs, of which: |
- |
320,720 |
91,696 |
205,595 |
339,845 |
20 | With a risk weight of less than or equal to 35% as per the CBB Capital Adequacy Ratio guidelines |
- |
- |
- |
- |
- |
21 | Performing residential mortgages, of which: |
- |
- |
- |
- |
- |
22 | With a risk weight of less than or equal to 35% under the CBB Capital Adequacy Ratio Guidelines |
- |
- |
- |
- |
- |
23 | Securities/sukuk that are not in default and do not qualify as HQLA, including exchange- traded equities |
- |
615,521 |
634,536 |
291,421 |
916,449 |
24 | Other assets: | |||||
25 | Physical traded commodities, including gold |
- |
- | |||
26 | Assets posted as initial margin for Shari'a- compliant hedging contracts and contributions to default funds of CCPs |
- |
- |
- |
- | |
27 | NSFR Shari'a-compliant hedging assets |
- |
- |
- |
- | |
28 | NSFR Shari'a-compliant hedging contract liabilities before deduction of variation margin posted |
- |
- |
- |
- | |
29 | All other assets not included in the above categories |
2,672,214 |
- |
- |
- |
2,672,214 |
30 | OBS items | - | - | - | 27,946 | |
31 | Total RSF | 1,577,524 | 726,232 | 1,391,778 | 4,888,886 | |
32 | NSFR (%) | 101% |
5 Financial risk management (continued)
b. Liquidity Coverage Ratio (LCR)
LCR has been developed to promote short-term resilience of a bank's liquidity risk profile. The LCR requirements aim to ensure that a bank has an adequate stock of unencumbered high-quality liquidity assets (HQLA) that consists of assets that can be converted into cash immediately to meet its liquidity needs for a 30-calendar day stressed liquidity period. The stock of unencumbered HQLA should enable the Bank to survive until day 30 of the stress scenario, by which time appropriate corrective actions would have been taken by management to find the necessary solutions to the liquidity crisis.
LCR is computed as a ratio of Stock of HQLA over the Net cash outflows over the next 30 calendar days.
Average balance | ||
30 June 2022 | 31 December 2021 | |
Stock of HQLA |
259,086 |
292,998 |
Net cashflows | 221,628 | 148,599 |
LCR % | 122% | 221% |
Minimum required by CBB | 80% | 80% |
c. Capital Adequacy Ratio
30 June 2022 | 31 December 2021 | |
CET 1 Capital before regulatory adjustments |
998,476 |
1,063,515 |
Less: regulatory adjustments | - | - |
CET 1 Capital after regulatory adjustments | 998,476 | 1,063,515 |
T 2 Capital adjustments | 46,462 | 53,374 |
Regulatory Capital | 1,044,938 | 1,116,889 |
Risk weighted exposure: | ||
Credit Risk Weighted Assets | 6,967,411 | 7,574,496 |
Market Risk Weighted Assets | 39,045 | 38,325 |
Operational Risk Weighted Assets | 655,034 | 655,034 |
Total Regulatory Risk Weighted Assets | 7,661,490 | 8,267,855 |
Investment risk reserve (30% only) | 2 | 2 |
Profit equalization reserve (30% only) | 3 | 3 |
Total Adjusted Risk Weighted Exposures | 7,661,490 | 8,267,850 |
Capital Adequacy Ratio (CAR) | 13.64% | 13.51% |
Tier 1 Capital Adequacy Ratio | 13.03% | 12.86% |
Minimum CAR required by CBB | 12.50% | 12.50% |
6 Seasonality
Due to the inherent nature of the Group's business (investment banking, commercial banking and leisure and hospitality management business), the six-month results reported in this condensed consolidated interim financial information may not represent a proportionate share of the overall annual results.
7 Comparatives
The comparative figures have been regrouped in order to conform with the presentation for current year. Such regrouping did not affect previously reported profit for the period or total equity.
8
|
|
|
Placements with financial institutions Equity type investments
At fair value through income statement
- Structured notes
Debt type investments
At fair value through equity
- Quoted sukuk
At amortised cost
- Quoted sukuk *
- Unquoted sukuk
Less: Impairment allowances
* Short-term and medium-term facilities of US$ 1,690,298 thousand (31 December 2021: US$ 1,417,800 thousand) are secured by quoted sukuk of US$ 2,234,966 thousand (31 December 2021: US$ 2,070,315 thousand), structured notes of US$ 324,481 thousand (31 December 2021: US$
403,986 thousand).
Reclassification
During the period, based on completion of the Group re-organization and on review of the overall balance sheet funding structure the Bank has reassessed its business model of managing its yielding treasury portfolio. In anticipation of the short-term and long-term liquidity needs, during the first quarter of 2022, the Bank has re-assessed the objective of its treasury portfolio wherein it would manage the underlying assets the following distinct business models:
i) Held-to-collect business model
This portfolio includes short-term and long-term Sukuk and treasury instruments that are held to meet core liquidity requirements of high-quality liquid assets and are typically held to their contractual maturity. Assets under this model are classified and measured at amortised cost. Although management considers fair value information, it does so from a liquidity perspective, and the main focus of its review of financial information under this business model is on the credit quality and contractual returns.
8. Treasury portfolio (continued) Reclassification (contined)
ii) Classified as fair value through P&L
These include instruments that do not meet the contractual cash flow characteristic and include embedded option features or instruments held under an active trading portfolio for short-term profit taking. This portfolio includes structured notes and other hybrid debt-type instruments that are do not have a typical constant yield features.
iii) Both held-to-collect and for sale business model
The remaining fixed income treasury portfolio is held under active treasury management to collect both contract cash flows and for sale. These include Sukuk and other treasury instruments where yield is determinable. The key management personnel consider both of these activities as integral in achieving the objectives set for the Treasury business unit. This portfolio, while generating returns primarily through yield, is also held to meet expected or unexpected commitments, or to fund anticipated acquisitions or growth in other business units. Assets under this model are classified and measured at fair value through equity.
Until 31 December 2021, the Bank classified its whole Sukuk portfolio as FVTE only under a 'both held- to-collect and for sale' business model. The Board of Directors have assessed that the group re- organisation has significantly changed the liquidity management and strategy within the Bank and the above classification of the treasury portfolio best reflects the way the assets will be managed in order to meet the objectives of the new business model and the way information is provided to management. Due to the above change in the business model, the Bank has reclassified its treasury portfolio as at 1 January 2022 as follows:
US$ 000's
Assets subject to reclassification | Fair value through equity (FVTE) | Reversal of amounts recognized in investment fair value reserve | Reclassified to Amortised cost |
Sukuk | 894,194 | 41,320 | 935,514 |
9 Financing assets
30 June 2022 | 31 December 2021 | 30 June 2021 | |||
(reviewed) | (audited) | (reviewed) | |||
Murabaha | 1,066,393 | 995,324 | 949,930 | ||
Musharaka | - | - | 277 | ||
Wakala | 239 | 239 | 239 | ||
Mudharaba | 12,436 | 2,576 | 2,624 | ||
Istisnaa | - | - | 37 | ||
Assets held-for-leasing | 449,360 | 384,312 | 366,886 | ||
1,528,428 | 1,382,451 | 1,319,993 | |||
Less: Impairment allowances | (70,670) | (71,449) | (67,057) | ||
1,457,758 |
1,311,002 |
1,252,936 |
Murabaha financing receivables are net of deferred profits of US$ 55,215 thousands (31 December 2021: US$ 44,979 thousands).
The movement on financing assets is as follows:
30 June 2022 (reviewed) | Stage 1 | Stage 2 | Stage 3 | Total |
Financing assets (gross) | 1,293,478 | 140,040 | 94,910 | 1,528,428 |
Expected credit loss | (22,245) | (6,162) | (42,263) | (70,670) |
Financing assets (net) |
1,271,233 |
133,878 |
52,647 |
1,457,758 |
31 December 2021 (audited) | Stage 1 | Stage 2 | Stage 3 | Total |
Financing assets (gross) |
1,015,953 |
251,500 |
114,998 |
1,382,451 |
Expected credit loss | (19,995) | (7,109) | (44,345) | (71,449) |
Financing assets (net) |
995,958 |
244,391 |
70,653 |
1,311,002 |
30 June 2021 (reviewed) | Stage 1 | Stage 2 | Stage 3 | Total |
Financing assets (gross) |
1,010,224 |
180,066 |
129,703 |
1,319,993 |
Expected credit loss | (22,065) | (4,732) | (40,260) | (67,057) |
Financing assets (net) |
988,159 |
175,334 |
89,443 |
1,252,936 |
The movement on impairment allowances is as follows:
Stage 1 | Stage 2 | Stage 3 | Total | |
At 1 January 2022 | 19,995 | 7,109 | 44,345 | 71,449 |
Net movement between stages | 1,859 | (1,302) | (557) | - |
Net charge for the period | 391 | 355 | 870 | 1,616 |
Writeoffs | - | - | (2,395) | (2,395) |
At 30 June 2022 (reviewed) |
22,245 |
6,162 |
42,263 |
70,670 |
Stage 1 | Stage 2 | Stage 3 | Total | |
At 1 January 2021 | 20,841 | 6,255 | 28,914 | 56,010 |
Net movement between stages | 796 | 822 | (1,618) | - |
Net charge for the period | (1,640) | (64) | 18,080 | 16,376 |
Transfer to off balance sheet | - | - | (12) | (12) |
Disposal | (2) | 96 | (1,019) | (925) |
At 31 December 2021 (audited) |
19,995 |
7,109 |
44,345 |
71,449 |
Stage 1 | Stage 2 | Stage 3 | Total | |
At 1 January 2021 | 20,841 | 6,255 | 28,914 | 56,010 |
Net movement between stages | 984 | (862) | (122) | - |
Net charge for the period | 240 | (661) | 11,468 | 11,047 |
At 30 June 2021 (reviewed) |
22,065 |
4,732 |
40,260 |
67,057 |
10 Investment in real estate
30 June 2022 | 31 December 2021 | 30 June 2021 | |||
Investment Property | (reviewed) | (audited) | (reviewed) | ||
- Land | 520,773 | 529,076 | 481,370 | ||
- Building | 165,716 | 63,758 | 63,854 | ||
686,489 | 592,834 | 545,224 | |||
Development Property | |||||
- Land | 100,405 | 592,926 | 761,206 | ||
- Building | 399,011 | 719,838 | 511,069 | ||
499,416 | 1,312,764 | 1,272,275 | |||
1,185,905 |
1,905,598 |
1,817,499 |
11 Proprietary investments
30 June 2022 | 31 December 2021 | 30 June 2021 | |||
Equity type investments | (reviewed) | (audited) | (reviewed) | ||
At fair value through income statement - Structured notes |
41,483 |
41,197 |
- | ||
- Listed securities | 7,464 | - | - | ||
- Unlisted fund | 10,000 | 10,000 | 10,000 | ||
58,947 | 51,197 | 10,000 | |||
At fair value through equity | |||||
- Listed securities | 13 | 13 | 13 | ||
- Unquoted securities * | 959,190 | 91,425 | 84,902 | ||
959,203 | 91,438 | 84,915 | |||
Equity-accounted investees * |
123,509 |
69,003 |
76,442 | ||
1,141,659 |
211,638 |
171,357 |
* Comprises of Bank's 40% equity stake in issued share capital of Infracorp B.S.C. (c) ("IC") and holdings in perpetual sukuk issued by IC.
12 Co-investments
30 June 2022 | 31 December 2021 | 30 June 2021 | |||
(reviewed) | (audited) | (reviewed) | |||
At fair value through equity | |||||
- Unquoted securities | 125,439 | 164,547 | 120,689 | ||
At fair value through income statement | |||||
- Unquoted securities | 10,630 | 7,330 | 7,583 | ||
136,069 |
171,877 |
128,272 |
13 Receivables and other assets
30 June 2022 | 31 December 2021 | 30 June 2021 | |||
(reviewed) | (audited) | (reviewed) | |||
Investment banking receivables | 142,120 | 148,985 | 147,784 | ||
Financing to projects, net | 45,034 | 42,383 | 42,890 | ||
Receivable on sale of development properties |
45,368 |
59,914 |
30,691 | ||
Advances and deposits | 81,537 | 58,222 | 63,038 | ||
Employee receivables | 18,508 | 18,898 | 5,326 | ||
Profit on sukuk receivable | 11,423 | 17,273 | 15,455 | ||
Lease rentals receivable | 2,549 | 2,175 | 3,261 | ||
Re-possessed assets | - | - | 29,572 | ||
Prepayments and other receivables | 204,765 | 194,313 | 245,789 | ||
Less: Impairment allowances net of write-off | (11,107) | (10,675) | (5,470) | ||
540,197 |
531,488 |
578,336 |
14 Term financing
30 June 2022 | 31 December 2021 | 30 June 2021 | |||
(reviewed) | (audited) | (reviewed) | |||
Murabaha financing * | 1,719,685 | 1,449,852 | 885,289 | ||
Sukuk ** | 248,743 | 250,943 | 308,995 | ||
Ijarah financing | 18,862 | 20,093 | 45,914 | ||
Other borrowings | 1,557 | 29,779 | 29,221 | ||
1,988,847 |
1,750,667 |
1,269,419 |
* Murabaha financing comprise:
Short-term and medium-term facilities of US$ 1,690,298 thousand (31 December 2021: US$ 1,417,800 thousand) are secured by quoted sukuk of US$ 2,234,966 thousand (31 December 2021: US$ 2,070,315 thousand), structured notes of US$ 324,481 thousand
(31 December 2021: US$ 403,986 thousand).
** Sukuk
During 2020, the Group raised US$ 500,000 thousand through issuance of unsecured sukuk certificates with a profit rate of 7.5% p.a. repayable by 2025. The Bank has repurchased cumulative sukuk of US$ 258,511 thousand during the year ended 31 December 2020 and 2021 and the period ended 30 June 2022. The outstanding sukuk also includes accrued profit of US$ 7,254 thousand.
15
|
Expected credit loss on: Bank balances Treasury portfolio
Financing assets, net (note 9) Other receivables
Impairment on investment in equity securities Commitments and financial guarantees
16 Earnings per share
The calculation of basic earning per share has been based on the following profit attributable to the ordinary shareholders and weighted-average number of ordinary shares outstanding. The Group does not have any diluted potentially ordinary shares as of the reporting dates. Hence, the basic and diluted earning per share is similar.
Six months ended | Three months ended | ||||
30 June 2022 | 30 June 2021 | 30 June 2022 | 30 June 2021 | ||
Profit for the period attributable to shareholders of the Bank | (reviewed) | (reviewed) | (reviewed) | (reviewed) | |
42,180 |
37,044 |
23,062 |
20,922 | ||
Weighted average number of shares outstanding during the period (in thousands) |
3,457,589 |
3,056,479 |
3,418,599 |
3,056,605 | |
Basic and diluted earning per share (US Cents) |
1.22 |
1.21 |
0.67 |
0.68 |
17 Related party transactions
|
30 June 2022 (reviewed)
Assets
Cash and bank balances Treasury portfolio Financing assets Proprietary investments
Co-investments Receivables and prepayments
Liabilities
Placements from financial, non-financial institutions and individuals
Customer accounts Payables and accruals
Equity of investment account holders
Income
Income from Investment banking
Income from commercial banking
- Income from financing
- Fee and other income
- Less: Return to investment account holders
- Less: Finance expense Income from proprietary and co-investments
Treasury and other income Real estate income
Expenses
Operating expenses
- Staff cost Finance cost
17
|
31 December 2021 (audited)
Assets
Cash and bank balance Treasury portfolio Financing assets Proprietary investments
Co-investments Receivables and prepayments
Liabilities
Placements from financial, non-financial institutions and individuals
Customer accounts Payables and accruals
Equity of investment account holders
30 June 2021 (reviewed) Income
Income from Investment banking
Income from commercial banking
- Income from financing
- Fee and other income
- Less: Return to investment account holders
- Less: Finance expense Income from proprietary and co-investments
Income from real estate Treasury and other income
Operating expenses
- Staff cost
- Board remuneration Finance Cost
-
18 Segment reporting
|
30 June 2022 (reviewed) Segment revenue Segment expenses Segment result
Segment assets Segment liabilities
Equity of investment account holders Other segment information Impairment allowance
Proprietary investments (Equity-accounted investees)
Commitments
18
|
30 June 2021 (reviewed) Segment revenue Segment expenses Segment result
Segment assets Segment liabilities
Other segment information
Impairment allowance
Proprietary investments (Equity-accounted investees)
Equity of investment account holders Commitments
for the six months ended 30 June 2022 US$ 000's
19 Commitments and contingencies
The commitments contracted in the normal course of business of the Group:
30 June 2022 US$ 000's (reviewed) | 31 December 2021 US$ 000's (audited) | 30 June 2021 US$ 000's (reviewed) | |||
Undrawn commitments to extend finance | 122,480 | 95,347 | 86,412 | ||
Financial guarantees | 76,562 | 39,995 | 41,788 | ||
Capital commitment for infrastructure development projects |
60,446 |
16,171 |
20,104 | ||
Commitment to invest | 1,610 | 3,915 | 4,914 | ||
261,098 |
155,428 |
153,218 |
Performance obligations
During the ordinary course of business, the Group may enter performance obligations in respect of its infrastructure development projects. It is the usual practice of the Group to pass these performance obligations, wherever possible, on to the companies that own the projects. In the opinion of the management, no liabilities are expected to materialise on the Group at 30 June 2022 due to the performance of any of its projects.
Litigations, claims and contingencies
The Group has several claims and litigations filed against it in connection with projects promoted by the Bank in the past and with certain transactions. Further, claims against the Group entities also have been filed by former employees and customers. Based on the advice of the Bank's external legal counsel, the management is of the opinion that the Bank has strong grounds to successfully defend itself against these claims. Where applicable, appropriate provision has been made in the books of accounts. No further disclosures regarding contingent liabilities arising from any such claims are being made by the Bank as the directors of the Bank believe that such disclosures may be prejudicial to the Bank's legal position.
20 Financial instruments Fair values
Fair value is an amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm's length transaction. This represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value of quoted Sukuk carried at amortised cost (net of impairment allowances) of USD 1,987,956 thousand (31 December 2021: USD 860,616 thousand) is USD 1,816,788 thousand as
at 30 June 2022 (31 December 2021: USD 883,618 thousand). There are no material changes in the fair values of the Sukuk's carried at amortised cost subsequent to the reporting date until the date of signing the condensed consolidated interim financial information for the period ended 30 June 2022.
Underlying the definition of fair value is a presumption that an enterprise is a going concern without any intention or need to liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms.
for the six months ended 30 June 2022 US$ 000's
20 Financial instruments (continued)
Fair value hierarchy
The different levels have been defined as follows:
· Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
· Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e.as prices) or indirectly (i.e. derived from prices).
· Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The following table shows the valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable inputs used:
Type |
Valuation technique | Significant unobservable inputs | Inter-relationship between significant unobservable inputs and fair value measurement |
Structured note | Fair value of underlying reference portfolio adjusted for embedded derivatives that protect downside risk and cap upside potential over the period of the contract. | Credit risk of counterparty and volatility assumptions for time to maturity | Ability of the Group to hold the structure note to maturity and impact of the value of embedded derivatives (strike prices and barriers for coupon and principal). |
Equity investments | Discounted cash flow | Marketability factor and Discount rate | Ability of Group to exit these investments and their impact on the overall value as these are unquoted investments. |
|
|
Equity instruments- marketability factor (±10%) Structure notes- impact in underlying index (±5%)
for the six months ended 30 June 2022 US$ 000's
20 Financial instruments (continued)
The table below analyses the financial instruments carried at fair value, by valuation method.
30 June 2022 (reviewed) | Level 1 | Level 2 | Level 3 | Total |
i) Proprietary investments | ||||
Investment securities carried at fair value through: | ||||
- income statement | - | 58,947 | - | 58,947 |
- equity | 900,013 | - | 59,190 | 959,203 |
900,013 | 58,947 | 59,190 | 1,018,150 | |
ii) Treasury portfolio | ||||
Investment securities carried at fair value through: | ||||
- income statement | - | 184,080 | 140,401 | 324,481 |
- equity | 882,594 | - | - | 882,594 |
882,594 | 184,080 | 140,401 | 1,207,075 | |
iii) Co-investments | ||||
Investment securities carried at fair value through | ||||
- equity | - | - | 125,439 | 125,439 |
- income statement | - | - | 10,630 | 10,630 |
- | - | 136,069 | 136,069 | |
1,782,607 |
243,027 |
335,660 |
2,361,294 |
31 December 2021 (audited) | Level 1 | Level 2 | Level 3 | Total |
i) Proprietary investments | ||||
Investment securities carried at fair value through: | ||||
- income statement | - | 51,197 | - | 51,197 |
- equity | 13 | - | 91,425 | 91,438 |
13 | 51,197 | 91,425 | 142,635 | |
ii) Treasury portfolio | ||||
Investment securities carried at fair value through: | ||||
- income statement | - | 224,086 | 179,900 | 403,986 |
- equity | 1,656,088 | - | - | 1,656,088 |
1,656,088 | 224,086 | 179,900 | 2,060,074 | |
iii) Co-investments | ||||
Investment securities carried at fair value through | ||||
- equity | - | - | 164,547 | 164,547 |
- income statement | - | - | 7,330 | 7,330 |
171,877 | 171,877 | |||
1,656,101 |
275,283 |
443,202 |
2,374,586 |
for the six months ended 30 June 2022 US$ 000's
20 Financial instruments (continued)
The following table analyses the movement in Level 3 financial assets during the period:
30 June 2022 2022 | 31 December 2021 | ||
(reviewed) | (audited) | ||
At beginning of the period | 443,202 | 390,567 | |
Total gains / (losses) in income statement | (22,005) | (17,223) | |
Transfer from Level 2 | (39,499) | 24,650 | |
Disposals at carrying value | (45,382) | (27,532) | |
Purchases | (656) | 69,129 | |
Fair value changes during the period | - | 3,611 | |
At end of the period |
335,660 |
443,202 |
21 Assets under management and custodial assets
The Group provides corporate administration, investment management and advisory services to its project companies, which involve the Group making decisions on behalf of such entities. Assets that are held in such capacity are not included in these consolidated financial statements. At the reporting date, the Group had assets under management of US$ 6,679 million (31 December 2021: US$ 5,297 million). During the period, the Group had charged management fees amounting to US$ 3,584 thousands (30 June 2021: US$ 1,599 thousands) to its assets under management.
Assets under management includes funds under discretionary portfolio management ('DPM') accepted from investors amounting to US$ 701,211 thousands (31 December 2021: US$639,599 thousand) out of which US$ 592,531 thousands (31 December 2021: US$407,877 thousand) has been invested in to Bank's own investment products.
22 Deconsolidation of subsidiaries
During the period, GFH Group has carried out a group restructuring program (the 'program') which involves the spinning off of its infrastructure and real estate assets under a new entity "Infracorp" ("the Company"), which wase capitalized with US$1.1 billion in infrastructure and development assets. Infracorp will specialise in investments focusing on accelerating growth and development of sustainable infrastructure assets and environments across the Gulf and global markets.
Under this program certain real estate and infrastructure assets were transferred from the group entities, including the Bank, to Infracorp for an in-kind consideration financed by US$ 200 million of equity shares and US$ 900m of Hybrid Sukuk (perpetual equity) issued by Infracorp.
The transfer of these assets were affected in the quarter ended 31 March 2022. Subsequent to the transfer of these assets GFH sold 60% of its equity in Infracorp to third party investors, resulting in loss of controlling stake and this resulted in Infracorp no longer being a subsidiary of GFH as at 30 June 2022 and has been accounted for as an equity accounted investee. The results of operation of Infracorp till the date of its disposal are consolidated in these condensed interim consolidated financial statements. The impact of the disposal of Infracorp is presented below:
for the six months ended 30 June 2022 US$ 000's
22. Deconsolidation of subsidiaries (continued)
30 June 2022 | |
(reviewed) | |
ASSETS | |
Cash and bank balances | 80,119 |
Treasury portfolio | 50,912 |
Financing assets | 38,100 |
Real estate investment | 847,221 |
Proprietary investment | 67,861 |
Co-Investments | 120,735 |
Receivables & prepayments | 87,645 |
Property and equipments | 81,201 |
Total |
1,373,794 |
LIABILITIES | |
Term financing | 24,467 |
Payables and accruals | 108,032 |
Total |
132,499 |
Non-controlling interest |
141,295 |
Net assets transferred |
1,100,000 |
Consideration on the date of transfer: | |
Equity in Infracorp | 200,000 |
Hybrid perpetual sukuk | 900,000 |
1,100,000 | |
30 June 2022 | |
(reviewed) | |
Net profit included in the current period condensed consolidated income statement ** |
(438) |
** Net profits includes cumulative profit from all the assets and subsidiaries transferred as part of the consolidation of subsidiaries
Discontinuing operations:
The assets of the business forming part of Infracorp were not necessarily operated as stand-alone segment and largely reflect land bank and infrastructure development projects of the Bank that were carved-out under a new business model. Hence, the net assets transferred in infracorp were not classified as discountinued operations other than as disclosed below in relation to its industrial operations.
for the six months ended 30 June 2022 US$ 000's
22. Deconsolidation of subsidiaries (continued)
A. Results of discontinued operation
30 June 2022 | 30 June 2021 | ||
Revenue | 5,391 | 5,226 | |
Expenses | 5,347 | 5,305 | |
Net profit |
44 |
(79) |
B. Cash flows used in discontinued operation
30 June 2022 | 30 June 2021 | ||
Net cash flow from operating activities | 182 | (863) | |
Net cash flow used in investing activities | (317) | (1) | |
Net cash flow from financing activities | 3 | 266 | |
Net cash flows used in discontinued operation |
(132) |
(598) |
23 Acquisition of subsidiaries
|
SQ Topco II LLC
Consideration transferred and non-controlling interests
The consideration transferred for the acquisition was in the form of cash and in-kind for the services rendered by the Group. The consideration transferred is generally measured at fair value and the stake held by shareholders other than the Group in the subsidiaries is recognised in the consolidated financial statements under "Non-controlling interests" based on the proportionate share of non-controlling shareholders' in the recognised amounts of the investee's net assets or fair value at the date of acquisition of the investee on a transaction by transaction basis based on the accounting policy choice of the Group. Where consideration includes contingent consideration payable in future based on performance and service obligations of continuing employees, these are accounted under IFRS 2 - Share based payments.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the six months ended 30 June 2022 US$000
23 Acquisition of subsidiaries (continued)
Identifiable assets acquired and liabilities assumed
Entity acquired was considered as a business. The fair value of assets, liabilities, equity interests have been reported on a provisional basis. If new information, obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date, identifies adjustments to the above amounts, or any additional provisions that existed at the acquisition date, then the acquisition accounting will be revised. Revisions to provisional acquisition accounting are required to be done on a retrospective basis.
The reported amounts below represent the adjusted acquisition carrying values of the acquired entities at the date of acquisition reported on a provisional basis as permitted by accounting standards.
Total | |
Receivables | 337 |
Cash and bank balances | 407 |
Total assets |
744 |
Accruals and other liabilities |
2 |
Total liabilities |
2 |
Total net identifiable assets and liabilities (A) |
742 |
Total | |
Consideration | 5,125 |
Non-controlling interests recognised | 363 |
Total consideration (B) |
5,488 |
Intangibles recognised (A-B) |
(4,746) |
For the purpose of consolidated statement of cash flows, net cash acquired on business combination is given below:
Total | |
Cash and bank balances acquired as part of business combination |
407 |
Less: Cash consideration | (5,125) |
Net cash flows from acquisition of subsidiaries |
(4,718) |
The Group has also acquired assets under management of USD 1,196 thousand along with the above acquisition. Income for the first six months assuming the transaction was done at the beginning of the year would have been USD 802 thousand.