Samba Financial Group Annual Report 2019
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Samba Financial Group Annual Report & Accounts 2019
Contents
Review 02 A History of Samba 04 Board Members 06 Chairman’s Statement 08 Chief Executive Officer’s Statement 10 Our Locations 13 Business Review 34 Corporate Governance 36 Directors’ Report 56 International Recognition
Financial Statements 58 Independent Auditors’ Report 62 Statements of Consolidated Financial Position 63 Statements of Consolidated Income 64 Statements of Consolidated Comprehensive Income 65 Statements of Consolidated Changes in Equity 66 Statements of Consolidated Cash Flows 67 Notes to the Consolidated Financial Statements IBC Branches / Overseas Branches Samba SpeedCash Centres
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Samba Financial Group Annual Report & Accounts 2019
The Custodian of the Two Holy Mosques His Royal Highness King Salman Bin Abdulaziz Al Saud Prince Mohammad bin Salman bin Abdulaziz Al Saud Crown Prince, Deputy Premier, Minister of Defence
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Samba Financial Group Annual Report & Accounts 2019
A History of Samba: 1955-2019
1980 1999
Citibank Saudi Arabia moves to Samba Financial Group merges with majority local ownership and becomes United Saudi Bank, creating one of the Saudi American Bank. largest financial institutions in the Middle East.
1955 1984
Citibank opens its first branch in Jeddah. Samba Financial Group opens its first It opens another branch in Riyadh in 1966. overseas branch in London.
Samba Financial Group - formerly Saudi American Bank - was The new entity entered into a technical management agreement Samba moved to full local management on 31 October 2003. An incorporated by royal decree number M/3 on 12 February 1980. It with Citibank, under which Citibank agreed to manage Samba’s Extraordinary Shareholders’ Meeting, held on 14 December 2003, was formed to take over the two branches of Citibank N.A. in Jeddah operations. Citibank seconded staff to the new bank and provided adopted the name “Samba Financial Group”. and Riyadh, which were opened in 1955 and 1966 respectively. technical support. It was not eligible to receive any compensation for the service (other than its entitlement as a shareholder) apart On 9 March 2005, the Extraordinary Shareholders’ Meeting The creation of Samba was partly the result of a program that was in from reimbursement for the actual expenses it incurred. increased the share capital of Samba from SR 4,000,000,000 to place in the Kingdom in the 1980s, which encouraged banks to sell SR 6,000,000,000, divided into 120,000,000 of equal nominal their majority stake to Saudi nationals. Samba began business on 12 By the end of 1991, Citibank sold part of its equity holding in Samba value of fifty Saudi Riyals cash shares, all of which will be ordinary February 1980 and ended its first fiscal year on 31 December 1980. to two Saudi national agencies for social welfare. This move and as one class in all respects. ensured that Saudi nationals held 70% of Samba’s equity, while Under the takeover deal, 44.5% of the equity was sold to the Saudi Citibank retained 30%. Over the years since then, Citibank has public for cash. The share allocations favoured small subscribers gradually reduced its foreign holdings in the institution until they and created a base of 166,000 individual subscribers. Another reached zero percent. 15.5% of the equity was sold for cash to a selected group of Saudi founders, including the original Saudi members of the Board of In 1999, Samba merged with the United Saudi Bank (USB). The Directors. The arrangement helped transfer 60% of the equity to merged bank retained the Samba name and there was no change Saudi nationals. Citibank acquired the remaining 40% of the equity in the composition of the Board of Directors. in exchange for the assets of the Riyadh and Jeddah branches.
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Samba Financial Group Annual Report & Accounts 2019
A History of Samba: 1955-2019
2007 2010
Samba acquires a majority stake in Crescent Samba becomes the first Saudi Bank to Commercial Bank in Pakistan, obtains a establish a presence in Qatar with core license to operate in Dubai and creates operations including corporate and SambaCapital, a new specialized investment investment banking. house in Saudi Arabia which started operation in January 1, 2008.
2003 20 08
October 31, 2003 Saudi American Bank Samba launches in Dubai and launches moves to full local management. To mark this Samba Bank Limited branches across important milestone, the bank officially Pakistan. Samba also acquires licenses to adopts the name its loyal customers have operate in Qatar and as FII in India. been using.
On 8 April 2006, in accordance with the directive of Capital Market In 2008, Samba Financial Group officially launched Samba Dubai. It On 18 March 2015, the Extraordinary Shareholders’ Meeting Authority, each of the bank’s issued shares was split into five also finalized the majority stake acquisition of Crescent Commercial determined that the share capital of the company be increased shares. As a result, the number of shares the bank has issued has Bank in Pakistan and re-branded it as Samba Bank Limited. In the from SR 12,000,000,000 to SR 20,000,000,000, divided into now increased to 600,000,000 ordinary shares at a nominal value same year, Samba also acquired a license from the Indian 2,000,000,000 of equal nominal value of SR 10 cash shares, all of of SR 10 for each share. authorities to operate as a foreign institutional investor in India. which will be ordinary and as one class in all respects.
On 1 January 2008, Samba Capital and Investment Management In early 2010, Samba acquired a license from Qatar Financial Company (Samba Capital) was incorporated to act as the Center Authority to operate in Qatar. It opened its first branch in investment arm of Samba Financial Group. Samba Capital provides the Qatari capital, Doha, becoming the first Saudi bank to establish services in brokerage, asset management, investment and a presence in the State of Qatar. financial consultation. On 20 March 2014, the Extraordinary Shareholders’ Meeting On 5 March 2008, the Extraordinary Shareholders’ Meeting determined that the share capital of the company be increased determined that the share capital of the company be increased from SR 9,000,000,000 to SR 12,000,000,000, divided into from SR 6,000,000,000 to SR 9,000,000,000, divided into 1,200,000,000 of equal nominal value of SR 10 cash shares, all of 900,000,000 of equal nominal value of SR 10 cash shares, all of which will be ordinary and as one class in all respects. which will be ordinary and as one class in all respects.
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Board Members
Eng. Ammar Alkhudairy Mr. Yazeed Alhumied Chairman Deputy Chairman
Mr. Abdullah Alrowais Mr. Ali Almansour
Mr. Ali Husein Alireza Mr. Eyad Alhusain
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Board M embers
Dr. Ibrahim Almojel Dr. Khalid Alsweilem
Dr. Walid Abanumay Mr. Fahd Almufarrij
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Samba Financial Group Annual Report & Accounts 2019
Chairman’s Statement
It gives me immense pleasure to present you with the annual report of Samba Financial Group for the year ended 31 December 2019.
During 2019, global economies were hindered by a host of negative events, ranging from US-China trade disputes and Brexit- related uncertainties, to weaker emerging markets and fears of low interest rates. Just when we thought we would return to calm towards the close of 2019, the world was taken over by the outbreak of COVID-19, which later turned into a pandemic spreading across all the countries and economies of the world. Since then, global economic activities have been seriously affected by this viral outbreak and it is not yet certain what the extent of this pandemic and its impact on major economies of the world will be. Governments and central banks have quickly moved to remedy the situation, with several support and stimulus packages and other relief measures made available to help shield vulnerable economic sectors. It is now expected that global growth will be negative in 2020 before rising sharply in 2021, although the pattern will depend on the duration of this viral outbreak.
With a weak economic outlook and uncertainty surrounding the extent and duration of COVID 19, loss of economic activity and elevated credit risk continue to pose risks to growth and asset quality for the Saudi banks. Despite these credit pressures, we remain hopeful that moderate growth will be possible for the bank in the coming years, with the support of government relief measures aimed at supporting the sectors worst hit by the economic downturn.
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Chairman’s Statement
Samba has once again delivered a successful financial performance With its modern and forward-looking approach, and willingness to I would like to take this opportunity to express my sincere gratitude for the year 2019. A new board stepped in at the beginning of the recruit the newest technologies, Samba’s management has clearly to the Custodian of the Two Holy Mosques, King Salman bin Abdul year and special emphasis was placed on reviewing and redefining demonstrated its ability to improve efficiency and effectiveness. It Aziz, and the Crown Prince His Royal Highness Prince Mohammed the strategic direction of the bank. With the help of external has also continued to command a deep understanding of the bin Salman bin Abdul Aziz, for their support, guidance, and consultants, an aggressive growth strategy was introduced to banking industry’s changing rules and their impact. Adhering to all initiatives in providing a stable and prudent policy framework for a penetrate new and existing customer and product segments and to laws and regulations in the regions where Samba operates remains healthy and stable economic environment and sustained growth in identify new revenue streams for the bank over the next three to five an ongoing priority for the bank. Our aim is also to achieve our the Kingdom. For all of this, we remain indebted. years. The objective is to deliver superior customer service strategic objectives while fulfilling Samba’s social responsibility. It will excellence, core earnings stability, and achieve strong financial do this by increasing support for social and philanthropic activities in From myself and on behalf of the board of directors, I wish to results, backed by adequate liquidity and capitalization. line with the bank’s approach and the Kingdom’s Vision 2030. extend profound thanks to the bank’s executive management, whose commitment and professionalism continue to define and The bank remains committed to an approach that balances growth Samba’s success and outstanding position as a financial institution determine our success. We trust the executive management team and fiscal stability. A well-diversified business model has helped us to was recognized by international specialized agencies. Through the of Samba Financial Group and believe in their ability to achieve our deliver a strong set of financial results and our resilience has enabled year, Samba won several local, regional and international awards, goals by enhancing the range of value-added products and us to navigate carefully through the economic cycles. It is, therefore, boosting its position as the most internationally awarded financial services to our clients, maximizing shareholder value and attracting a source of pride and honor for me to report that in 2019 the bank institution in the Middle East. the best talents to serve the bank and develop its strategies and has achieved a net income before zakat and taxes of SR 4,620 work practices. I must also thank the group’s employees for their million, with total revenues of SR 8,600 million – growth of 5.4%. Our pursuit of excellence is clearly reflected in our international untiring and wholehearted efforts and express my confidence in The net special commission income of SR 6,377 million for the year credit ratings, which continued to place us at the top during 2019: their ability to enhance the group’s leadership and achievements. showed a 4% increase over last year, while total equity at SR 45.4 Moody’s (A1), S&P (BBB+), Fitch (A-) and Capital Intelligence (A+). billion at the end of the year delivered a strong capital ratio of 21.1%. All these international agencies reaffirmed our stable outlook during 2019. We are honored by these independent endorsements, which Eng. Ammar Alkhudairy Based on our solid financial performance, the board has decided to provide us with a unique and distinctive position within the Saudi Chairman distribute SR 2,832 million in net cash dividends during 2019, banking sector. We are grateful to the partners and stakeholders representing a net dividend of SR 1.72 per share after the that have placed their trust and confidence in our abilities. deduction of zakat for our Saudi shareholders. It is a matter of great pride for me that, despite a challenging business The group recognizes the importance of having a clear and environment, we have kept the interests of our shareholders at the comprehensive methodology and carefully designed programs for fore and provided them with strong cash dividends, distributed on risk management. In line with best international practices, Samba a semi-annual basis. This is our way of expressing gratitude for the is closely focused on the risks that could affect the group business. trust our shareholders have placed in us over the years. The group has developed a general framework for risk governance that is approved by the board and is subject to the supervision of the board’s executive and risk committees. The framework includes risk policies, basis of capital evaluations, ways of identifying and measuring risks, and limits that are commensurate with the group’s acceptable risk management processes. Together these measures ensure that tasks relating to risk management are implemented to the highest standards.
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Chief Executive Officer’s Statement
It is with great pleasure that I share with you the performance highlights of Samba Financial Group for the year 2019.
The group recognizes that consolidating its leading position within the banking industry, both locally and regionally, and its long-term strategic vision of transforming itself into a leading banking model, require an ongoing commitment to provide a full range of high- quality and distinctive banking products and financial services for our customers. We recognize that we must not only meet their aspirations, but also make the group an ideal banking choice.
The group’s primary business is conducted through its head office in Riyadh. The group now has 101 banking service outlets all over the Kingdom in addition to an overseas branch in Dubai. Samba has also a majority shareholding of 84.51% in Samba Bank Limited, a banking company incorporated in Pakistan that conducts commercial banking and related services through its 40 branches. Samba Bank Limited is listed on Pakistan’s stock exchange.
The group supports both conventional and Islamic banking activities. It is committed to developing its business base by upgrading its branch network and alternative banking channels and acquiring state-of-the-art automated teller machines (ATMs) and point of sale (POS) equipment. This commitment enables the bank to remain current with the latest banking industry standards and applications. Among the major steps the bank took in this area was the separation of digital banking activity into a special business group that focuses exclusively on the development of this vital and important sector.
In line with its strategy of geographical expansion and broadening its customer base, the group obtained a license from the Central Bank of the United Arab Emirates (CBUAE) to expand its business in Abu Dhabi. This move is a logical next step following its move to Dubai in 2008. The first Saudi bank to establish a branch in the country, Samba’s services in Dubai include consumer, corporate, and private banking, and investment advice.
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Chief Executive Officer’s Statement
Among the steps taken by Samba to improve performance, the During 2019, Samba participated in the “Furijat” initiative, launched provider in Saudi Arabia”, “best treasury & cash management bank bank has adopted many new human resource initiatives, among during the holy month of Ramadan by the Ministry of Interior in Saudi Arabia”, “best Islamic corporate bank in the world”, “best them talent management and career succession programs. We through the electronic services platform “Absher”. This initiative is Islamic investment bank in the world”, “best investment have also revised many human resources policies and procedures, aimed at helping and releasing detainees and prisoners of financial management services in Saudi Arabia”, “best online cash launched several social activities, enhanced employee medical cases. Samba's participation in this campaign demonstrates management in Saudi Arabia”, “best trade finance services in insurance coverage and employee life insurance coverage, commitment to its national and community duties. The bank’s Saudi Arabia”, “best information security and fraud management in improved the equity-based variable compensation plan, increased contribution to this initiative was the highest among Saudi banks. Saudi Arabia”, “best online treasury services in Saudi Arabia”, “best the limits of the employee housing loan entitlements, enhanced the in social media marketing and services in Saudi Arabia” and “most employee leave policy, and more. Samba’s support to cultural heritage was in line with the group's innovative digital bank in Saudi Arabia”. The Banker awarded belief in the importance of the 2030 Vision of transforming the Samba “Islamic window (Global Winner)”. International Business The group recognizes that it has an important role to play as a partner Kingdom into a global tourist destination. Samba contributed to the Magazine named Samba’s CEO as “Banking CEO of the year in in national and social development, and to help enrich the process of Riyadh season, one of the 11 festivals Saudi Arabia launched in 2019. Saudi Arabia” and awarded Samba “best retail bank in Saudi development and change within the Kingdom. That is why the group Arabia” and “best corporate bank in Saudi Arabia”. International supports a wide and diverse group of community and charitable As part of its health support program, the bank contributed to the Investor named Samba “bank of the year in Saudi Arabia for 2019”, programs and activities, such as the housing support program. This joint community initiative to establish and operate the Center of while Kafala Program granted Samba the “working capital” award. community-based project includes the provision of 500 furnished Excellence for Autism in Riyadh, valued at SAR 286 million, that housing units over the next five years. These homes will go to needy will be collectively financed, established, and operated by Saudi Samba’s efforts in the investment services sector were recognized families in various Kingdom regions. Samba is working in collaboration banks over a period of five years. This participation is part of the globally. Global Finance named Samba Capital, Samba’s with the Ministry of Housing to provide these homes, which have bank's response to community initiatives aimed at improving the investment arm, “best investment bank in Saudi Arabia”. benefited approximately 2600 citizens since the program began. rehabilitation and treatment of those on the autism spectrum and their families. In conclusion, I would like to acknowledge the dedication, Samba’s education support program reflects the bank’s dedication to commitment, and untiring efforts of the staff of the bank and to investing in Saudi Arabia's people and developing their knowledge Samba promotes a program to support small and medium-sized thank each and every member for all their hard work in making and professional capabilities. Samba has developed several enterprises (SMEs). It seeks to increase its contribution to the 2019 another successful year. Thanks to their efforts, we were able programs aimed at attracting young Saudi graduates and preparing Kafala SME financing program by providing financial and to overcome unfavorable conditions and move towards new them to be a new generation of national talent and leadership. The consulting solutions to SMEs owners to help them improve the horizons of excellence and innovation. I cannot help but extend group has established promising partnerships with several academic performance of their enterprises. It also participated in the Ministry appreciation and gratitude to the board of directors, chaired by His and university institutions to support the education sector and of Finance’s Sustainability Support Program. Samba held multiple Excellency Engineer Ammar Alkhudairy, for its support and develop its output. It also participates actively in the career days meetings with the General Authority for Small and Medium expertise, which made overcoming crises very easy. I would also these institutions host, both locally and internationally, including Enterprises, Monshaat, which resulted in an agreement according like to place on record my deepest appreciation for the loyalty, sponsoring career days at education institutions. to which Samba joined the e-finance portal of the authority. In line trust, and confidence our shareholders and customers have placed with economic trends, Samba has formed a high-level committee in us. Their support for our initiatives has enabled us to not only Health care continues to be an important part of Samba's community- to support medium and small-size enterprises and eliminate all preserve the distinguished position that Samba Financial Group based initiatives through the health care program. Samba's obstacles impeding the growth of this sector. has reached, but to surpass it and achieve more brilliance and contributions support the care programs of therapeutic and leadership. May Allah Almighty protect all. rehabilitation institutions, such as the King Salman Center for In recognition of its superior performance on all fronts, Samba won Disability Research, the Disabled Children's Association, the Down several international, regional, and local awards during 2019, Syndrome Charitable Association, the Saudi Cancer Society, the reinforcing its reputation as one of the most highly regarded Ms. Rania Nashar Alzheimer's Charity Association, Sanad Children's Cancer Support financial institutions in the Middle East. Global Finance named Chief Executive Officer Association, the Association for the Blind, the Zahra Breast Cancer Samba “best bank in Saudi Arabia” for the fourteenth year in a Association, the Saudi Charitable Association of Diabetes, and more. row”, “best private bank in Saudi Arabia”, “best trade finance
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Samba Financial Group Annual Report & Accounts 2019
Our Locations
Saudi Arabia
Samba’s primary business is conducted through its head office in Riyadh. The Group also has 73 branches, 7 SpeedCash centers, and 21 centers for ladies’ banking outlets all over the Kingdom, brining the total number of banking service outlets to 101. 101
Service outlets
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Our Locations
Dubai
Samba Dubai Treasury is a fully-fledged treasury with active Asset and Liability Management (ALM) and its own trading desk. It provides structured products and tailor-made solutions to corporate and retail customers.
In 2019, Treasury focused on interest rate risk positioning of banking book against the backdrop of decreasing interest rates and flat yield curve environment, while ensuring bank’s robust and well-structured liquidity position.
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Our Locations
Pakistan
2019 was another successful year for SBL. The bank’s pre-tax profit closed above PKR 1,200m, whereas total assets grew by PKR 7.5bn and closed at PKR 128.9bn. The bank expanded its local outreach by setting up three new branches, bringing the total network to 40 branches.
VIS Credit Rating Company, a premier credit rating agency, has reaffirmed SBL’s medium to long-term credit rating at (AA) and the short-term rating at (A-1). These ratings indicate a high credit quality, moderate risk, a record of timely payments, and excellent liquidity.
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Digital Banking
Our vision is to use technology to drive efficiency, customer service quality, accuracy, and shareholder value. Samba has always been the bank of innovation. We were the first bank in the Kingdom to introduce ATMs and credit cards and many other innovations. We were the first private bank and the first to use derivatives. +10.9% +3.7%
Growth of non- Growth of net special interest income commission income
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Business Review Providing strength and stability
Market penetration
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Corporate Banking Group
Samba caters to all levels of corporate clients, ranging from government and public sector organizations, financial institutions, top-tier private sector companies and global corporations, to mid-sized enterprises. +25%
Growth of loans and advances to SR142 billion
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Business Review Providing strength and stability
Corporate Banking Group While our international footprint continues to expand with Local Corporate Banking The Corporate Banking Group is focused on deepening client increased focus on the UAE and Pakistan, the Corporate Banking One of the key objectives of Local Corporate Banking (LCB) is to relationships across its complete suite of products, despite Group is fully committed to Samba’s vision of developing its brand raise the level of SME contributions to 20% of CBG revenue by operating in a challenging macroeconomic environment. The of global banking services for clients in more and more markets promoting micro, small, and medium-sized enterprises (MSMEs). group works to achieve a delicate balance between meeting client around the world. As part of the Kingdom of Saudi Arabia’s Vision 2030 goal to expectations and managing risk as we strive toward our goal of promote SME growth through reforms, LCB has taken up few building and enhancing positive customer relationships. Public Sector activities like partnership with Monsha’at in their initiatives. These Public Sector (PS) is a specialized unit within Corporate Banking. It initiatives are over and above Kafalah program, which represents a Samba continues to strengthen its corporate banking credentials manages government and quasi-government relationships and model for the advancement of emerging businesses and MSMEs. across multiple product and business segments. The corporate provides coverage over the central, western, and eastern regions. This program provides financing solutions and advisory services to asset portfolio grew strongly in 2019, testimony to CBG’s extensive help entrepreneurs achieve greater growth and competitiveness. market penetration, strong portfolio quality, and efficient risk In addition to offering financing and other services to its clients, Samba has launched the Kafalah Referral Reward Scheme for management and credit processes. CBG deals with over 2,000 Public Sector leverages innovative technology and provides branch managers across the KSA branch network to spur growth corporate clients and has around 90% penetration of the top 100 sophisticated solutions in partnership with product teams. A (including in remote regions) and improve SME resources and Saudi companies. These clients and companies enjoy a full range successful 2019 saw PS participating in multi-billion Riyals productivity through training programs. The bank has achieved of Islamic banking, debt advisory, loans syndications, project syndications and providing project financing for major entities in over 100% against the MSME KPIs that were set for 2019. finance, cash management, trade and electronic banking, and risk the energy, petrochemical, mining, shipping, and management solutions. telecommunications sectors. Structured Finance Division (SFD) The year 2019 was another significant year in which the structured CBG is comprised of customer coverage and product teams, which Financial Institutions finance team helped to lead Samba in several major project finance work in tandem to cater for the wide-ranging business Financial Institutions (FI) manages Samba’s relationship with and syndication deals. SFD was involved in major structured deals requirements of our clientele across multiple geographies and correspondent banks in several areas around the world. Through related to syndication, real estate, project finance and market segments. its network of global banking relationships, FI ensures that Samba’s securitization worth SAR22.9 billion in Saudi Arabia during 2019. customer and proprietary cross-border business flows are handled These deals also include deals that were closed on bilateral basis Corporate customer coverage both efficiently and cost-effectively. FI assesses the credit risk of for large corporate clients. Other structured deals, including Samba caters to all levels of corporate clients, ranging from all financial institution relationships and establishes counterparty securitization deals of about SAR1 billion, were closed under government and public sector organizations, financial institutions, credit and cross border facilities that various business segments of various segments and tranches. The growth in structured lending top-tier private sector companies and global corporations, to mid- Samba use on either a customer or proprietary basis. In the compared to last year can be attributed to the growth in private and sized enterprises. CBG relationship managers provide client domestic market, FI maintains relationships with Saudi domiciled government projects in addition to the ongoing privatization of coverage and product delivery in central, eastern, and western multilateral and non-bank financial institutions (NBFI), covering the state-owned assets. regions to local corporates, public sector entities, and financial insurance, brokerage, and asset management industries. Samba’s institutions. This seamless alignment is achieved by partnering with multiproduct capabilities are used proactively to provide clients product specialists in structured finance, trade, cash management with customized banking and investment solutions. Despite a services, treasury, investment banking, and Islamic finance. slowdown in economic activity in key markets, 2019 was a very successful year for FI. The business demonstrated strong asset CBG covers the entire spectrum of banking services and its and revenue growth through target market diversification and a product repertoire includes project finance, syndicated finance, deepening of relationships across key geographies. FI also played Islamic banking, cash management, trade and electronic banking, a leading role in tapping new and alternate sources of liquidity for and risk management solutions. the bank that enabled Samba Financial Group to diversify its foreign currency funding resources.
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Business Review Providing strength and stability
Corporate Banking Group (continued) understand and provide the best financial solutions tailored to their assets globally, with GCC dominating its core market share. As one Trade Finance requirements. The products team continuously enhances and of the largest banks in the GCC region and with a network that is Trade Finance is a core business for Samba Financial Group and manages the many products we offer, including prepaid payroll expanding within and beyond Saudi, Samba is uniquely positioned offers it a competitive edge. During 2019, Samba has been cards, payments, collections and reconciliation, business-to- to play a significant role in the provision of Islamic finance solutions awarded and named the “Best Trade Finance Bank in Saudi business, SwiftNet, receivables, and liquidity management. to its clientele. Arabia” by Global Finance in 2019. Our commitment to service quality and the ability to adopt new technology and create new Since 2000, Cash Management has played a major role in the Significant corporate finance, project finance, real estate, and debt products is one of the major components of Samba’s trade finance development of e-business and e-commerce in the market. capital market (sukuk) deals continue to be structured in strategy. Our experience in the local market, together with our Through timely and forward-looking investments, the introduction compliance with Shariah to achieve the widest range of distribution ability to provide regional and global solutions with local expertise, of innovative products and the efficient use of infrastructure, and participants. Samba Islamic Banking Division cuts across all enables us to offer a full range of trade finance products. Samba has made it possible for customers – both buyers and major banking products, including consumer, corporate, suppliers – to participate in transactional activity on the web. Lying institutional, treasury, syndicated finance, project finance, and During the year, Samba developed innovations in different areas of behind this strategy and execution practice is enhanced debt capital markets. trade and the supply chain, including forfaiting and invoice productivity across the receivables, payables, liquidity, and factoring solutions for our client base (CBG, PS & SMEs). We are account management modules. We attract customers by allowing During 2019, Samba continued its upward trajectory across currently exploring other applications for open account trade them to access and navigate our banking platforms quickly and multiple segments of Islamic finance through innovative product through a digitized corporate platform. We also leverage our easily and with a sense of trust in our platforms and functionality. launches and taking the lead role in large-scale Islamic financing. regional presence to source both primary and secondary trade Customers see how they can integrate their business processes The bank also consolidated its lead position in structured Islamic transactions. Through our branch in the UAE, we acquired and address their specific needs. For more advanced and high- treasury products by being at the forefront of the KSA industry- transactions for blue chip multi-national companies (MNCs) and volume customers, we provide direct integration with ERP systems wide initiative of developing an Islamic Repo product. During the large local companies that have direct business interests and/or through host-to-host connectivity (B2B) or SwiftNet. Transactions year, innovative launches included the Islamic Thamarat savings involvement in core infrastructural projects that are sponsored by are undertaken via a straight through process (STP), without any account for retail and the Samba Capital sovereign sukuk fund for the Saudi public sector or private sector companies. This activity manual intervention. asset management clientele respectively. A unique Shariah- has enabled us to offer our value-added cash management and compliant (non-recourse) discounting structure for short-term end-to-end trade finance solutions for our corporate clients. We Over the years, we have focused on improving our efficiency and receivable and payable in trade and supply chain financing was actively work with our subsidiary in Pakistan to participate in oil and environmental control processes so that we are constantly also developed. non-oil trade flows between Saudi Arabia and Pakistan. optimizing business operations across all channels. Our goal is to provide innovative and creative solutions that fulfil our customers’ IBD manages Samba’s Shariah board, comprising eminent Shariah Cash Management needs and make us a pioneer in the market. scholars who work to provide cutting edge Islamic finance Samba provides bespoke solutions to make complex banking solutions for our clientele. IBD also undertakes Shariah compliance easy, efficient and low cost. One example is the electronic Islamic Banking Division (IBD) and audit functions that are critical to ensuring our commitment channels we offer customers in all areas of cash management, During the past four decades, Islamic banking has been and adherence to Shariah principles. which emphasise rapid turnaround and precise transactions. transformed from a country-specific industry to a global Samba offers a suite of solutions to manage customers’ cash flow, phenomenon. In its current and broadest form, Islamic finance remove the complexities that come with managing multiple today encompasses a wide range of products comparable to accounts, and provide straightforward and wide-ranging solutions traditional banking products, ranging from retail, private, and to help corporate and institutional clients take control of their cash institutional offerings to high profile investment banking management needs. Cash Management consists of two main transactions. The Middle East, Africa and South Asia (MEASA) functions, cash sales and cash products. Our sales-focused task region is estimated to be an industry worth over US$2.1 trillion force consists of highly professional individuals committed to according to Standard and Poor's (S&P). The Islamic financial developing strong working relationships with customers to services industry is currently estimated to exceed US$2.5 trillion in
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Focused on relationships
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Samba Financial Group Annual Report & Accounts 2019
Consumer Banking Group
Customers are confident in Samba as a reliable partner that will provide the stability and financial solutions to enable them to pursue their dreams and lifestyle goals. Samba’s investments in innovative and accessible financial solutions further strengthened its role as a powerful enabler of customer aspirations. +28%
Growth of investments to SAR85 billion
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Samba Consumer Bank Samba continues to offer an expanding range of innovative Samba Gold and Samba Diamond, our high and ultra-high net Samba has seen a spectacular change in approach, engagement, solutions, unique value-added banking experiences, and enhanced worth segments, continued to provide a strong, stable, and and market positioning during 2019. Its commitment to efficiency service delivery platforms. As a result, the bank continues to fulfil its growing base for our premium consumer products. Branch and success remains as strong as ever, but the bank’s outlook is promise of helping customers 24 hours every day. efficiency remains high in terms of deposits, assets, and number of now firmly focused on a dynamic, forward-looking path for the next high net worth customers per branch. decade. It is an approach that reflects the ever-changing world of Customers technology and service delivery, the evolution of the digital domain, State-of-the-art technology is vital to the world of financial services As Samba invests in its multi-channel service delivery strategy, its the constant growth of customer expectations, and the spirit of a today. Customer and market data, research, and individual profile network of state-of-the-art branches continues to define the bank that wants to be superior in every discipline of its business. management are the bedrock of success. Samba’s sophisticated ultimate in branch banking services in the Kingdom. Samba customer data integration systems and processes help us to branches feature dedicated, luxuriously appointed Samba Gold Our dynamic direction is reflected in Samba’s people, product understand customer needs better and design both Islamic and and Samba Diamond centers, which offer our customers elite, one- excellence, state-of-the-art technology, speed and efficiency, and conventional financial solutions that meet those needs. Serving on-one priority banking services. prudent risk management. The new and refreshed outlook has customers well means staying ahead of customer expectations. contributed significantly to our customers’ trust and appreciation in Samba has continued to do this in 2019 and is resolved to continue Samba also operates a network of dedicated Islamic branches, us. Samba’s continued focus on strong fundamental principles and to meet customer needs for the foreseeable future. which is part of our commitment to bring world-class Islamic operating efficiencies have helped the Consumer Bank deliver a products and services closer to customers. These branches offer a strong performance during the year. Financial solutions that affect the fulfilment of goals, backed by full range of Shariah-approved products, giving our customers business intelligence, enables our front-line staff to deliver on our greater financial convenience with complete peace of mind. Customers are confident in Samba as a reliable partner that will promise of delivery and efficiency. For example, Samba’s provide stability and financial solutions to enable them to pursue innovative credit initiation system has made us the first bank in the Samba debit cards their dreams and lifestyle goals. Samba’s investments in innovative Middle East to allow customers to apply for and get a Samba credit Samba debit cardholders can now shop at millions of shops and and accessible financial solutions further strengthened its role as a card on the spot, or to get Samba personal finance or home locations in the Kingdom and around the world, withdraw cash powerful enabler of customer aspirations. finance approved immediately, at any Samba branch. anywhere, and get special deals that fit their lifestyles. Powered by mada’s enhanced domestic network and MasterCard’s global Samba continues to nurture customer relationships that are among Being there for our customers around the clock is critically payment network, the Samba mada MasterCard debit card has the deepest and most enduring among Saudi banks. The bank important to us. Providing engaging avenues by which customers become a powerful companion for Samba customers everywhere enjoys the highest level of customer recommendations among can interact, provide feedback, and communicate with us is equally they go, enabling them to shop and dine, pay for groceries, fly to Saudi banks and the highest appeal among affluent customers. important. During 2019, Samba continued to demonstrate its their favorite destinations, and gain access to cash anywhere in the From priority banking to credit cards, personal finance, home creative approach with an imaginative and high-profile Saudi world. These advantages are in addition to other global financing, and multi-channel banking, Samba continues to deliver National Day campaign that featured the history, culture, vision, MasterCard privileges, including complimentary access to select on its promise to help customers meet lifestyle and transaction and foresight of the Kingdom and its leadership. airport lounges, global purchases, fraud protection, and many needs anytime, every time, anywhere. other benefits that add value to the customer’s lifestyle. Branch banking During the year, Samba actively contributed and participated in the Branch banking is the strong foundation of Samba’s stable Samba’s “payroll” card for household employees is now an easy festivities of the popular and successful Riyadh season, not just liquidity, which is the solid base for the bank’s overall growth. The way to pay the salaries of domestic staff by depositing funds investing but also adding infrastructure to ease and enhance business continues to provide a diverse and cost-efficient delivery directly into staff payroll accounts via Sambaphone or through any participation. platform for the complete range of Samba products. These branch. Household staff then have access to their salary through products enable Samba to provide a premium banking experience the nearest ATM or POS machine. They can also send money and a full range of acquisitions, cross-selling opportunities, and home quickly and easily through Samba ATMs or on the phone ready access to world-class financial solutions. using Samba’s SpeedCash services.
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Samba Consumer Bank (continued) SambaMobile Samba’s partnership with FC Barcelona, one of the world’s 24-Hour global banking services Completely integrated with SambaOnline, our mobile platform foremost football teams, remained strong. This partnership Constantly available to its customers and able to provide round- makes all SambaOnline functionalities available on any underpins the success and growth of the Samba FC Barcelona the-clock access to financial solutions and services when they smartphone or tablet. Samba customers can bank, send money, credit card, which provides additional rewards for committed FC need it, Samba continued to enhance its SambaOnline, make automated Sadad payments, pay government fees, make Barcelona fans in Saudi Arabia. SambaMobile and SambaPhone channels. Samba customers credit card payments, and perform all their everyday banking enjoy unrivalled access to a full range of financial solutions and can transactions while they are on the move. Samba continues to explore ways to redefine the credit card fulfil all their banking needs anytime, anywhere – with more experience with innovative reward schemes and value-added functionality and ease – on any of their devices. This level of SambaOnline also enables locating-based services, allowing services. Samba Visa customers enjoy preferential hotel discounts service has helped Samba to cement its reputation as the most customers to find the best offers at shops, restaurants and hotels and exciting offers at the world’s top destinations. highly acclaimed 24-hour banking service provider in the Kingdom. anywhere in the world, and locating the nearest Samba ATMs and branches. Personal finance SambaOnline Samba’s world of personal finance business posted another year of Samba’s award-winning online banking platform has established Samba’s superior credit card platform solid results, with healthy business indicators and solid credit the bank as a leader in consumer internet banking in Saudi Arabia. Samba credit cards are the leading credit card suite in the quality despite a challenging underlying market. A full-service menu and straight through processing, combined Kingdom. They dominate key market indicators, including the with robust security features and full integration with Samba share of cards in force and share of spends. Samba credit cards A high quality suite of Islamic personal and home finance solutions Mobile, deliver a secure 24/7 online banking experience for simultaneously helped the bank to expand its customer base and helps Samba customers to fulfil their goals, such as buying a new Samba customers. achieve the highest spend per cardholder. house, paying for a child’s education, getting married, or taking their family on a dream holiday. Samba also bundled personal Samba continued to add more powerful features and Samba’s instant credit card service helped drive customer finance and home finance into complete personal finance functionalities to SambaOnline during 2019, making it more user- acquisition during 2019. Samba continues to be the first and only packages, making it easier for customers to buy a new house and friendly with a revamped look and interface. SambaOnline now lets bank in the Middle East with the ability to issue a credit card instantly. furnish or complete their new property. customers automate utility and other bill payments with a Samba Now, even a non-Samba customer can walk into a Samba branch
Sadad scheduler, while our priority customers can chat online with and apply for and receive a new Samba credit card in just minutes. SAUDI AR • A K B Samba to make inquiries or request assistance, and to view charts N IA A • B that give a snapshot of their financial position and activity. Offering the widest selection and designed to match every lifestyle, 2
T 0
S Samba’s credit cards earn lifestyle reward points with every spend. 1
E 9 All these functions work hand-in-hand with a faster, more intuitive, Together with non-stop usage promotions and year-round B Best Bank in Saudi Arabia 2019 and fully integrated design, giving customers easy access to exclusive offers and discounts at thousands of shops, hotels, and for the fourteenth year in a row Samba services and enabling them to manage their Samba other establishments around the world, the benefits of our credit accounts anywhere in the world. cards have helped Samba to achieve the highest levels of cardholder usage and dominance in the credit card market.
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Stronger with you
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Samba Financial Group Annual Report & Accounts 2019
Private Banking
Samba was the first financial institution to introduce private banking in Saudi Arabia in the early 1970s. Built on a foundation of client trust and confidence, Samba continues to develop bespoke products and services that reflect the culture and tradition of the country. +6%
Growth of deposits to SAR180 billion
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Samba Consumer Bank (continued) Private Banking This year, the LCB division consolidated its position in order to Mortgages Samba was the first financial institution to introduce private have focused & exclusivity approach towards Micro, Small & A wide range of flexible Shariah-compliant Bayt Alkhair home banking in Saudi Arabia in the early 1970s. Built on a foundation of Medium Business (the SME sector). LCB continued to maintain finance products for apartments, villas, plots of land, and self- client trust and confidence, Samba continues to develop bespoke stable revenue and asset growth (SAMBA MSME portfolio reached constructed homes continues to enable Samba to take advantage products and services that reflect the culture and tradition of the SAR 5 Billion in 2019). With its dedicated liabilities unit, LCB is self- of new government initiatives and regulations aimed at raising the country. Its team of professionals is dedicated to finding innovative sufficient in raising funds for its growing asset base. Its expertise level of home ownership in Saudi Arabia. ways to meet the needs of wealthy individuals and families. and experienced staff enabled it to maintain and sustain growth even during economic slowdown. Samba adopted the Real Estate Development Fund platform as an Regarded as one of the best private banks in Saudi Arabia, Samba opportunity to support the Kingdom’s vision. With multiple tiers of Private Bank offers a range of personalized and professional Micro, Small & Medium Business is a priority for Samba and LCB is investments, the fund is part of a strategic partnership with banks private banking and wealth management services. At the forefront the dedicated division for this area of business. The leadership of and financial institutions aimed at reducing the complexity involved of these services are our teams of experienced private bankers and the Kingdom envisages a much larger role for local and young in accessing top quality finance mechanisms for a very real and investment specialists who work in Treasury and Samba Capital entrepreneurs in SMEs. The objective is to expand the base of genuine need. asset management and brokerage. It is the combined skills and such companies and enhance their share in the local market. knowledge of these teams that make Samba uniquely equipped to Samba launched a buy-out campaign, inviting customers to transfer provide the insight, advice, and solutions our clients need to Given the crucial importance of this sector as a contributor to the their home finance from other banks to Samba at no extra cost, and achieve their financial goals. economy, the Samba SME division has been established to help enabling them to take advantage of Samba’s fixed mortgage rates. fulfil Vision 2030 foster the growth of small and medium For our customers, that means no more changing rates and rising 2019 has been a challenging year for Private Banking sector, but it businesses. Samba is a committed partner in the government instalments. Combined with a higher maximum loan-to-value ratio was another profitable one for Samba. Throughout this challenging initiatives and supports this national goal with its Kafala program for home finance plus a new agreement with Saudi Telecom time, our risk asset remained fully secured with zero losses. This and a comprehensive range of financing, consulting, and banking Company STC, this campaign has allowed Bayt AlKhair to post result is a testament to our secure lending program and the skills of solutions that have been designed to meet the needs of the Saudi positive growth in booking and volumes. Samba continues to our experienced relationship managers who work closely with our SME sector. It is a priority for us that the SME business continues concentrate on intelligent lending and strict controls, keeping clients to manage their portfolios. to support individual entrepreneurs and small business owners, performance healthy and stable in a highly competitive market. develop their businesses, and enhance their productivity. The experience and commitment of our staff are woven into every Samba’s socially conscious move of donating fully built homes to one of our products and services. We measure our success by Samba Capital the needy has been welcomed and also acknowledged by the customer satisfaction and loyalty to Samba we inspire. We will Samba Capital remained at the vanguard of innovation in the Saudi government itself. Today, Samba is proud to have completed and continue to strive to create a mutually beneficial experience for all capital markets during 2019. It successfully advised on handed over 400 new homes. our private banking and wealth management clients. groundbreaking IPOs, international sukuk and bond offerings, syndicated project financing, and mergers and acquisitions. It also Remittances Local Corporate and SME Services launched new, first-of-their-kind investment products. Through Despite market and environmental pressures, Samba’s SpeedCash Local Corporate Banking these efforts, Samba Capital contributed significantly to the Vision remittance services continued to perform well. Continuous service The Kingdom’s Vision 2030 sets out that national companies and 2030 goals of enhancing the local equity and debt capital markets enhancements and multi-channel integration transformed the way institutions in all activities and categories are one of the key drivers and attracting foreign investment to the Kingdom. in which our diverse range of customers send money home to their of the national economy with a specific role to promote the growth families. In addition to dedicated SpeedCash remittance centers, and performance of the private sector. In line with this directive, the Samba Capital maintained its position as the investment bank of Samba has integrated SpeedCash services on electronic banking Local Corporate Banking division (LCB) of Samba Financial Group choice in the Saudi equity capital markets, advising on three out of channels, allowing customers to send money home anytime, from attaches great importance to meeting the needs of its corporate four initial public offerings during 2019. As joint financial advisor, joint anywhere, via SambaPhone, SambaOnline, SambaMobile, and at clients through an integrated system of banking and credit services global coordinator, lead manager, joint bookrunner, and lead Samba ATMs. that supports growth and enhances our clients’ vital role. underwriter, Samba Capital’s Corporate Finance and Investment
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Samba Capital (continued) In 2019, Samba Capital’s asset management business was ranked in year trade loan for US$300 million with an international bank. Banking team was instrumental in the successful public offering of the top five in terms of total assets under management. Discretionary These transactions are testimony to Samba’s strong credit profile Saudi Aramco, the largest IPO in the world. Samba Capital was the portfolio management equity strategies outperformed their respective and financial position. single largest contributor during the book-building. It raised benchmarks, while equity funds were calibrated to benefit from approximately SAR30 billion, which represents 51% of the local anticipated market trends. During the year, the asset management In line with vision 2030 and our strategic objectives, we have book and around 39% of the total book (local and international). team launched the first-of-its-kind Sovereign Sukuk Fund with the maintained a strong presence in the primary and secondary Earlier in the year, Samba Capital advised on the IPO of Arabian objective of facilitating private savings in the Kingdom. The Sovereign markets for domestic government securities. Based on our Centers Company, the largest regional mall owner and operator, Sukuk Fund benefited from falling interest rates while money market performance, Samba’s primary dealer contract has been renewed which was the first IPO by a Saudi corporate to be marketed to funds were able to hold their own despite the lower return environment. for another year by the Ministry of Finance’s Debt Management international investors pursuant to Rule 144A in the USA. Samba Office. We have continued in our efforts to develop the primary Capital also acted as financial advisor, lead manager, bookrunner, Samba Capital Brokerage is among the top-ranked brokerage dealer system and provide liquidity in the secondary market by and sole underwriter on the highly successful IPO of Maharah Human houses of the Kingdom in terms of overall traded value. Multiple publishing daily two-way prices on Tadawul, and OTC through Resources Company. During this deal, the IPO price increased by projects were executed during 2019, including upgrades that Reuters and Bloomberg. We are proud to know our markets well 10% during bookbuilding, the first time ever for a Saudi IPO, and focused on the Aramco listing. and to have a good understanding of the drivers of the real attracted massive investor demand (total coverage of 9.3x). economy, knowledge that we can use to help our clients achieve Treasury & Global Markets their ambitions. The team played a leading role in advising both government and We continued to grow our business and expand our range of
the private sector in the successful placement of nearly US$7 services and solutions in 2019. Our objective is to help our clients GEMENT NA • A S billion in international bond and sukuk offerings, including meet their business needs. Our Treasury & Global Markets A M U issuances by the Ministry of Finance and Saudi Telecom. The business capabilities, scale, and performance have attained levels T D N I
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Corporate Finance and Investment Banking team also acted as co- that required us to change our business structure to match our R
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financial advisor for the syndicated project finance facility for the future growth aspirations. We reorganized our Treasury business S
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A Best Investment Management Services
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construction of one of the world’s largest malls in Riyadh by a into two distinct businesses: (1) Sales & Trading and (2) Treasury &
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2 in Saudi Arabia 2019
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consortium of Saudi and regional investors. Investments. The Sales & Trading group focuses primarily on 0 S 1
9 E customer franchises, offering products, solutions and services B Within mergers and acquisitions, Samba Capital advised Ma’arif across all business segments to help the business groups deepen Education and Training on the sale of a 100% stake – the largest private their relationships with clients and provide value-added solutions. sale of its kind ever undertaken in the education sector in the Middle East We continue to upgrade our technologies and invest in our – to a consortium of regional and local investors. Samba Capital also platforms to drive long-term value for our stakeholders. We are advised Hassana Investment Company on a joint-venture formed with making steady progress toward replacing our current treasury NMC Health. The joint-venture created the second largest healthcare system to enhance our business and expand our capabilities. provider in KSA and introduced a best-in-class global player to the market. Treasury & Investment group is focused on maintaining a strong Samba Capital continues to work closely with the structured finance liquidity position, a key source of competitive strength for us. In division in Samba Financial Group and has assisted the bank in 2019, we established the US$5 billion Euro Medium Term Note arranging nearly SAR14 billion in syndicated deal volumes in Saudi (EMTN) program to provide a platform for raising new sources of Arabia. Notable transactions for 2019 include project finance stable long-term foreign currency (FCY) financing. During the year, facilities for independent water and power projects in Shuqaiq and we successfully issued a US$1 billion five-year international bond, Rabigh, and various syndicated debt financing facilities for which was 3.7 times oversubscribed and is the largest transaction companies such as Saudi Electricity, Sahara & Maaden by a Saudi bank. We also successfully closed a syndicated FCY Petrochemical Company, Kingdom Holding, Mobily, and APICORP. facility of US$575 million with a group of Asian banks and a one-
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Vast experience
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Samba Financial Group Annual Report & Accounts 2019
Samba Capital
Samba Capital remained at the vanguard of innovation in the Saudi capital markets during 2019. It successfully advised on groundbreaking IPOs, international sukuk and bond offerings, syndicated project financing, and mergers and acquisitions. +11%
Growth of total assets to SAR256 billion
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Risk Management Human Resources Employee engagement activities Samba has maintained an effective risk management and control Samba Financial Group continued to make consistent efforts to Samba believes in investing in its human capital, which is the key environment during 2019. We invested in human capital and identify, attract, and retain top quality Saudi talent during 2019. To asset for our organization’s success. We strive to engage with our systems during the year and ensured that our policies remain in support this goal, the bank sponsored and participated in several employees and motivate them to express themselves freely while compliance with relevant regulatory requirements. career fairs and events held at educational institutions across the contributing to our achievements. country. Samba’s brand, well-recognized infrastructure and In line with our governance standards, the Risk Management Group management support for professional growth, progressive HR Samba undertakes regular employee surveys and their feedback is works to ensure that Samba’s general level of risk remains within the policies, and superior talent management practices resulted in the analyzed and the suggestions made are taken into consideration. tolerance limits approved by the executive committee. This is made bank hiring and retaining several highly talented Saudi nationals. During 2019, we carried out the following: possible with a robust risk architecture, underpinned by a • Several social activities were launched comprehensive policy framework that covers all identified risks. Key The bank has attained 95.5% Saudization and continues to hold • Communication channels have been expanded risk assessment and monitoring processes support the framework its ranking in the Netakat Platinum category. Samba provides its • Our LinkedIn page is activated under the oversight of a team of experienced risk professionals. employees with development opportunities. It is part of the bank’s core values to encourage and support improvement and Enhancement of monetary and non-monetary benefits Our capital adequacy ratio remains well above the regulated innovation. Our dedicated Samba Academy is available to provide Samba’s compensation philosophy is based on measurable minimum level (including applicable buffers). Supplemented by all employees with an opportunity to expand their knowledge base performance objectives. The evaluation process strives to align the strong liquidity ratios, this ratio enables Samba to sustain its and skills. Employees from all functional areas in the bank attended pre-defined objectives of each employee with the actual measured growth and support customers throughout any periods 16,722 training man-days during the year. This means that 5,545 outcomes. We aim to provide competitive monetary and non- of stress or volatility. course attendees actively participated in professional monetary compensation in line with the local market. With this developmental training courses. Training continues to be a core objective, we conducted a salary adjustment exercise in which The concentration of the portfolio is carefully managed in part of our strategy to develop and retain talent at Samba. fixed and variable compensation was increased and brought into compliance with the recently revised regulations on large line with comparable market benchmarking for similar jobs. exposures. We continue to maintain portfolio loss reserves in Several additional human resources initiatives were undertaken as accordance with IFRS 9 accounting standard. part of our HR strategy, including talent and succession By taking these steps, Samba successfully achieved a lower management programs and the revision and refinement of many turnover rate in 2019, thereby retaining talent, increasing employee Stress testing and scenario analysis are undertaken to assess the policies and procedures. The bank has adhered to and remained satisfaction, and achieving better performance overall. As part of potential impact of exceptional market events. These safety fully compliant with all regulatory requirements related to HR. the employee benefit initiative, we undertook the following: measures enable us to identify potential vulnerabilities at an early • Enhanced employee medical insurance coverage stage and take preemptive actions when needed. As part of our commitment to corporate social responsibility, the • Enhanced employee life insurance coverage bank offered several co-op programs to Saudi students in different • Improved the equity-based variable compensation plan Looking ahead, Samba Risk Management Group will continue to educational institutes in the Kingdom of Saudi Arabia. This • Increased the limits of the employee housing loan entitlements invest in its risk personnel and platforms to ensure compliance with program continues to be a proven channel for recruiting new • Enhanced the employee leave policy the upcoming Basel IV credit, market, and operational risk young Saudi graduates. • Offered employee a temporary “Profit Free” facility to proposals (effective 1 January 2023) as well as critical information subscribe in the IPO of Aramco security initiatives.
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Samba Digital Banking • Prospective customers will now be able to open a new account 2019 was a great year for STG, during which a diversified portfolio We are on the cusp of a new technological era, and Samba is well- instantly, obtain a debit card, and connect seamlessly to digital of projects was delivered to serve the needs of both internal and placed to bring the benefits of digital banking to its customers. channels – all without visiting a branch. This new level of digital external clients. During the year, STG focused on implementing service also enables the bank to serve remote and under- the new core banking system, which is planned to go live in 2020. Much of the national strategy of Vision 2030 is built on the effective banked communities, helping to deliver financial inclusion. At the same time, we were also able to implement a significant harnessing of technology. For Samba, this imperative is no different. • Launched the digital IPO funding and dependent update: number of high priority business requirements. allowing customers to get instant funding for an IPO and Our vision is to use technology to drive efficiency, customer service update their dependents instantly via SambaMobile & A major achievement of 2019 was playing a major role in the quality, accuracy, and shareholder value. Samba has always been SambaOnline. This was the initiative that supported the Aramco IPO, the largest IPO in the world. the bank of innovation. We were the first bank in the Kingdom to landmark Saudi Aramco IPO. Over half (52%) of total retail introduce ATMs and credit cards and many other innovations. We funding for this IPO was carried out digitally. STG also delivered several projects under several portfolios, including: were the first private bank and the first to use derivatives. • Instantly activate debit cards via SambaMobile and • Introducing new financial products to customers, such as SambaOnline. home equity loans, Thamarat savings accounts, and accounts Our heritage of innovation makes us confident that we can • Instantly assign or reset a debit card PIN via SambaMobile, for minors below the age of 18. continue the great work already begun on harnessing the power of SambaOnline, or ATM. • Adding new digital channel capabilities, such as mobile/online digital technology for the benefit of all stakeholders. • Instantly assign or reset a telephone PIN for IVR services via onboarding of customers, mada wallet, Apple Pay wallet, SambaMobile, SambaOnline, or ATM. contactless credit and debit cards and an interactive teller Samba is actively fostering a culture of innovation that is focused • Launched ITM services: Interactive teller machines to serve machine pilot. on enhancing digital literacy and the elevation of the fintech eco- customers around the clock via video conferencing with a • Making improvements to sadad, including the integration with the system within the Kingdom. The bank has sponsored and hosted remote agent. ITM functionality allows customers to withdraw sadad national payments application and the sadad invoice hub. more than 10 digital focus events, activities, and training sessions cash above their daily limits for emergencies, deposit cash and • Improving the Samba Capital investment banking capabilities, throughout 2019. cheques, transfer between Samba accounts, and cash cheques. including daily Murabaha trading, dividend payments through • Launched beneficiary activation using automated call-back in paying agents, and updating the Tadawul platform. 2019 was a particularly strong year in terms of introducing new online and mobile banking: The service simplifies the customer • Improving software systems in line with new regulatory digital solutions for the benefit of our customers. Among the experience of adding and activating a beneficiary, which is a requirements, including integrating with Saudi Post, improving highlights were: pre-requisite for any financial transfer. SMS messages for better customer communication, offering • 91% of bank-wide transactions were executed via digital • Implemented a new IVR platform to enhance system stability, intra-day liquidity management, and implementing the channels, with 43% stemming from SambaMobile. scalability, and flexibility to provide a better customer experience. Tanfeeth/Watheeq SAMA platform. • 99% of core financial transactions were performed digitally, • Implementing a new contact center/IVR for improved with 54% stemming from SambaMobile. The innovation capital that drives these customer-benefitting customer experience. • 51% of Samba customers are registered in digital channels. advances will continue to be nurtured and valued, as Samba moves • Making systems security enhancements across business • 36% of overall cards payments were executed through mobile confidently toward an even more digital future. solutions, including implementing a web application firewall payments and NFC contactless technology in 2019. across all Samba software solutions. • We introduced Apple Pay to Samba customers. Samba Technology Group • Upgrading and improving several software platforms, including • Samba launched Digital Customer Onboarding in online and Samba Technology Group (STG) is a key business enabler for Samba the treasury, campaign management, operational risk mobile banking: This service delivers convenience, helps the Financial Group.The main role of STG is to support other Samba management, anti-money laundering, retail credit origination, bank reach new customers, and brings operational efficiencies. business groups in achieving their goals through sourcing and and corporate credit management platforms. building effective solutions with efficient processes and technologies.
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Innovative solutions
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Samba Financial Group Annual Report & Accounts 2019
Treasury
We reorganized our Treasury business into two distinct businesses: (1) Sales & Trading and (2) Treasury & Investments. The Sales & Trading group focuses primarily on customer franchises, offering products, solutions and services across all business segments to help the business groups deepen their relationships with clients and provide value-added solutions. +7.5%
Growth of total shareholder equity to SAR45.5 billion
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Samba Technology Group (continued) Automation and digital transformation Samba Bank Limited Pakistan (SBL) STG also revised its IT strategy for the next five years. As part of A new trade finance system is being implemented as part of digital 2019 was another successful year for SBL. The bank’s pre-tax its strategy, STG has enhanced its IT governance by adhering to transformation initiatives. The objective is to achieve digitalization profit closed above PKR 1,200m, whereas total assets grew by COBIT 2019 processes. STG will continue to improve its and real-time integration of trade finance processes, products, and PKR 7.5bn and closed at PKR 128.9bn. The bank expanded its governance through further alignment with COBIT 2019. STG also regulations in a dynamic, robust, innovative and reliable fashion. local outreach by setting up three new branches, bringing the total completed its future technology blueprint as part of its enterprise network to 40 branches. architecture journey. During 2019, the foreign exchange and CMS back-office modules were migrated to Kondor Suite. The system is designed to Corporate and Investment Banking Group (CIBG) STG continuously strives to improve its already strong business integrate the entire suite of treasury products into one platform, CIBG performed very well during the year. Despite a challenging and continuity management process to increase the resilience of the introduce margin collateral limits, and improve treasury products a high-interest rate environment, record Net Interest Income (NII) was Samba value chain. In 2019, STG conducted a full disaster pricing capabilities. booked and further overall returns on assets were improved. CIBG recovery test. It ran the complete bank of systems from the disaster deposits also witnessed a healthy growth. New clients and assets recovery center over one full week. The systems were then shifted We also introduced new operational support for new payments and were booked, which helped to diversify the client base and improve back to the primary center with complete success and without any mortgages products, including GCCNET, mada ecommerce, home further spreads. Multiple cross-selling initiatives were launched and loss of data. equity program, and the off-plan sales program. deepened, including adding cash management mandates and strengthening the Samba Access system. These initiatives Samba Operations Group MasterCard dispute processing was successfully migrated, as stimulated growth in deposits and improved the deposit mix. Samba Operations provides banking and treasury operations mandated by MasterCard for chargebacks. support and service quality management to business functions Retail Banking Group (RBG) within Samba, including corporate, consumer, and private banking, The Country Document Center performed a comprehensive call RBG grew its deposit book by 16% and brought in 7300 New-to- treasury business, transaction banking, Islamic banking, and back on customer active accounts physical file for all business Bank (NTB) customers in 2019, compared to 5300 during 2018. financial institutions. The Operations Group consists of both accounts types located at Vault. The consumer assets book continued its remarkable run, closing in regional and centralized operations. Samba operations worked in on an Expected Net Receivables (ENR) of over PKR 2.0bn. This partnership with the bank’s businesses to enhance operational IT governance performance resulted in a year-on-year growth of 30% and 26% capabilities and efficiency and meet client requirements. A framework for IT governance and implementation of IT risk respectively for the business’s interest and non-interest income, management tools was formalized and approved. while overheads increased by only 9% from last year. These are the main highlights of 2019: Business continuity SBL also emerged as one of the largest Hajj and Umrah remittance Service standards Samba was awarded the global ISO 22301:2012 certification for its partner banks in Pakistan. It remitted over SAR550m with a Dedicated service champions have been stationed in the three business continuity management system. We also successfully revenue of over PKR 108m (almost 144% higher than 2018). regional service centers to improve customer experience for cash performed business simulation exercises and surprise drills. management and trade finance products. The NRP portfolio witnessed a growth of over PKR 1.2bn, which is Other achievements further expected to increase in the coming years owing to Samba Operational efficiency All trade finance personnel were trained on the latest update of the Pakistan’s collaboration with Samba KSA and Dubai. Samba Operations continues to gain recognition for its service Wolfsburg, ICC and BAFT trade finance principles. All Saudi delivery in cross-border SWIFT payments. Citibank, JP Morgan, national trade repository swap data from the revamp to SIMAH from Deutsche Bank, and ANZ Bank presented Samba with straight local CCP were reported. Finally, personal finance was merged with through processing awards for its performance in US$, Euro and mortgage data entry/credit analyst functions, including complete Australian$ cross-border payments. training for all staff who were affected by the change.
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Samba Financial Group Annual Report & Accounts 2019
Business Review Providing strength and stability
Samba Bank Limited Pakistan (SBL) (continued) 2019 mandate was successfully implemented together with Through Samba Gold and Samba Diamond, Samba Dubai provides Global Markets (GM) various updates to the core banking system. Samba technology personalized wealth management services to its high net worth Local financial market faced turbulence as the result of economic also successfully achieved PCI DSS compliance for 2019. customers, including execution capabilities across varied global adjustments made prior to the signing-off on an IMF program that asset classes via mutual funds, fixed income securities, sukuks, and led currency to devalue and prompted a rise in interest rates. Credit Rating savings and protection plans. With our latest version (R17) of the Economic stabilization was achieved later in the year, however, VIS Credit Rating Company, a premier credit rating agency, has core banking platform now in place, the customer experience has and GM calibrated its portfolios leading to the NII, total revenue, reaffirmed SBL’s medium to long-term credit rating at (AA) and the been vastly improved by Samba’s state-of-the-art IVR, call center, and pre-tax profit increasing by 72%, 58%, and 54% short-term rating at (A-1). These ratings indicate a high credit quality, CRM system, and revamped website. Samba’s credit cards provide respectively over Plan 2019. Developing a mix of fixed-floater moderate risk, a record of timely payments, and excellent liquidity. customers with a competitive value offering to save on their bonds, increasing equity portfolio investment to capture attractive purchases, from daily spending needs to lifestyle-related or travel stock valuations, and diversifying into new business avenues in Future Outlook purchases. We continue to strengthen the credit cards proposition foreign exchange were among the key initiatives for 2019. SBL will continue to take effective measures to maintain the quality with ongoing merchant offers through top brand partnerships and of its brand and its position in the market. Its objective is to enhance an engaging marketing mobile app that provides 1000+ partner Commercial Banking Group (CMBG) and Small & Medium its service quality to inspire customer confidence and loyalty. discounts and installment plans on purchases. Enterprise Banking (SMEG) CMBG has emerged as one of SBL’s main lending segments. It Samba Dubai Treasury contributed PKR 437m toward net operating income in 2019. This Samba Dubai offers a full range of consumer and corporate banking, Samba Dubai Treasury is a fully-fledged treasury with active Asset achievement is the result of offering customers a wide array of trade finance, and treasury services for individuals and companies. and Liability Management (ALM) and its own trading desk. It products, including working capital and trade-based facilities, provides structured products and tailor-made solutions to receivable financing, and others. Corporate Banking corporate and retail customers. In 2019, Treasury focused on The Corporate Banking division offers a wide array of financing interest rate risk positioning of banking book against the backdrop Launched in 2017 with the objective of catering to the financial solutions for large corporates, covering both the private and public of decreasing interest rates and flat yield curve environment, while needs of small and medium enterprises, the SME department has sectors and a broad range of economic and industry segments. ensuring bank’s robust and well-structured liquidity position. successfully established a foothold in the local market and The strength of our balance sheet, coupled with our structuring capitalized on the great potential in the segment. It is now regarded expertise and customized solutions-based approach, underpins TE BAN RA K O • as a major contributor to the bank’s performance. our ongoing ability to price risk competitively. In 2019, CBG P W R O continued to strengthen its relationships and expand its support to O R C L D
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Information Technology (IT) medium-sized enterprises as well as large corporates. During 2019, B New initiatives were undertaken during the year, including the we continued to expand our customer base and provided clients enhancement of the information security system. Alternate with the highest levels of personalized global transaction services. Delivery Channel (ADC) Switch and cards management systems have been migrated to a new solution. They provide the platform Consumer Banking needed to launch new ADCs and digital banking services. The The Consumer Banking division launched mortgages in 2019. This existing MasterCard portfolio has been migrated to new mandated new offering enables Saudi nationals and UAE residents to apply for debit cards with chip and PIN enhanced security, and enabled financing to purchase residential properties in the UAE. The bank 3DS2 secured e-commerce payments. A new digital solution for now offers customers a complete suite of products, including credit corporate collections was launched and the SWIFT Standards cards, personal finance, and liability and wealth management.
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Samba Financial Group Annual Report & Accounts 2019
Corporate Governance
The board of directors and management of Samba Financial Group The directors do not engage in the day-to-day management of the The board meets regularly, as scheduled by the chairman of the strongly uphold the highest standards of corporate governance and group. This means that they can discharge their duties and board in conjunction with the corporate secretary. Board meetings believe firmly that good corporate governance is vital to the responsibilities effectively and avoid any conflict of interest. The for subsequent financial years are scheduled before the end of the continuous growth of the group. The group remains resolute in directors also provide independent and objective assessments and current financial year to enable the directors to plan for them. ensuring uncompromised integrity and performance, with a good advice in the deliberations of the board and ensure that there are record of delivering long-term sustainability, creating economic value effective checks and balances in its functioning. Board members are given the agenda and relevant documents in for its shareholders, and protecting other stakeholders’ interests. advance of each board meeting so that they can prepare and The Samba board ensures that it is made up of individuals whose request any clarification needed ahead of the meeting date. Urgent The board is responsible for the overall governance of the group by backgrounds reflect the diversity required for the board. Each papers may be presented for tabling at the board meetings under providing strategic guidance, creating succession plans for the director contributes to the board’s overall diversity by providing a the supplemental agenda. At its meetings, the board reviews group, monitoring management goals, and ensuring that the group’s different perspective, professional experience, and background, as management reports on the business performance of Samba and its internal controls, risk management, and reporting procedures are well as other characteristics, such as global and international subsidiaries. It also reviews, inter-alia, the results compared to the firmly in place. The board members exercise due diligence and care business experience. In reviewing and assessing suitable candidates preceding period, year-to-date, and against the industry. As part of in discharging their duties and responsibilities to ensure that high for the board and in performing annual assessments on each the integrated risk management initiatives, the board reviews the ethical standards are upheld through compliance with the relevant director, the board Nomination and Remuneration Committee (NRC) decisions and salient issues deliberated by the various board and rules and regulations, directives and guidelines, and are acted upon is guided by the diversification requirements. During the year, the management committees by receiving their updates and reports. in the best interests of the group and its shareholders. NRC performed annual assessments and independent assessments on all individual directors to ensure that they meet relevant The board members also review and evaluate the feasibility of Members of the board are diligent about applying high ethical regulatory requirements and internal policies. The NRC also annually business propositions and corporate proposals, the principal risks standards to their decision-making process, with regard for the assesses the performance of the board and its members. that would have a significant impact on Samba’s business, and the interests of all stakeholders. measures to mitigate such risks. The directors have a duty to make The chairman leads the board and sets its tone. Eng. Ammar an immediate declaration to the board if they have any interests in The board consists of 10 members, all of whom are non-executive Alkhudairy, chairman of Samba Financial Group, has some 30 transactions to be entered into directly or indirectly with Samba directors. There are five independent directors, which is in line with years’ experience in banking and finance, covering a number of Financial Group. the Capital Market Authority (CMA) corporate governance disciplines, including corporate banking, project finance, corporate regulations. The present composition complies with both SAMA finance, M&A, and asset management. He has previously served in The corporate secretary attends all board meetings and ensures and CMA regulations. In view of the size of Samba Group and its different senior management roles in Saudi financial institutions. that accurate and adequate records of the proceedings of board business complexity, the size of the board is optimum for effective As chairman, he is responsible for the effective organization and meetings and decisions made are properly kept. Minutes of board deliberations and efficient conduct at board meetings. conduct of the board’s affairs. He builds and maintains an effective meetings are circulated to all directors for review prior to their working relationship with the group’s management, encourages all confirmation. The board has direct access to senior management board members to contribute, and represents the bank to and full and unrestricted access to any information relating to shareholders and the wider community. Samba’s operations in the discharge of its duties. The directors are regularly updated on the new statutory and regulatory requirements relating to directors’ duties and responsibilities and the discharge of their duties as directors of Samba.
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Samba Financial Group Annual Report & Accounts 2019
Corporate Governance continued
NT BAN Board committees Together with good corporate governance practices, Samba is ME K T • S W The board has established several board committees, the committed to providing stakeholders with comprehensive, accurate, E O V R N composition and terms of reference of which are in accordance and quality information on a timely basis. It provides clear, I L D
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committees and the authority delegated by the board to these shareholders, publication of relevant group information on the 2
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9 E committees are clearly defined by the board. website and major newspapers, as well as Tadawul. Shareholders are B encouraged to attend the annual general meeting (AGM) and any Samba currently has four board committees: executive, audit, general shareholder meetings, at which they can raise questions or nomination and remuneration, and risk management. All these concerns. These meetings also give shareholders the ability to speak committees operate according to SAMA and CMA guidelines. directly to the board. Samba provides notices of any general meetings of the shareholders and related information to shareholders Executive Committee: Deals with matters referred to it by the board or before the meetings, unless otherwise required by laws. its chairman, within the powers determined for it by the board; in addition, it reviews Samba’s strategy, submitted by senior management, The outcome of the AGM is announced through Tadawul. Samba’s approves it, and oversees its implementation and performance. board, management team, and auditors are present at the AGM to answer shareholder questions or concerns. Audit Committee: Helps the board to monitor the financial reporting and internal control systems, controls the work of the external and The board of directors recognizes the importance of an effective internal auditors, reviews the interim and annual financial corporate governance framework to the sustainable profitability statements, monitors the accounting policy in force, and reviews and strong asset quality of the group, which in turn enhances the compliance with regulations. group’s value to its shareholders.
Nomination and Remuneration Committee: Helps to identify skill requirements for membership of the board and review the board and its structure. It is also responsible for establishing and reviewing Samba’s compensation policies regarding rewards and employee retention incentives.
Risk Management Committee: Oversees the implementation of Samba’s risk management policies and reviews management’s periodic reports on risk management activities.
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Samba Financial Group Annual Report & Accounts 2019
Directors’ Report
The board of directors of Samba Financial Group is pleased to present its annual report for achieved significant growth in its customer base and revenues during the year and currently has 79 the year ended 31 December 2019. staff members at Samba’s head office and regional offices.
1. Principal activities Training and development have long been a core part of the group’s strategy, enabling it to invest in its Since its incorporation as a joint stock company, Samba Financial Group has made it its goal to achieve people as part of its vision of sustainable excellence and quality upgrades. During the year, Samba held high levels of growth and prosperity through providing distinctive banking services that keep pace with training courses and workshops covering 215 training person-days for employees, and 64 training days economic growth in the Kingdom and meet customer aspirations. Today, the group is one of the for its SME clients. Specialized training was provided by Samba Academy, the Financial Academy, and Kingdom’s largest financial institutions, with high international ratings. The group is committed to other local specialized institutes, overseas institutions, universities, and business schools. providing high quality, innovative, and industry-leading banking services so that our customers benefit from the highest levels of convenience and confidence. The group also provides world-class In addition to promoting and supporting the Kafala Program, from which Samba received the Working investment services through its investment arm, SambaCapital, a wholly owned subsidiary that is Capital Award, Samba has increased its reach to new segments & locations in line with Vision 2030 licensed by the Capital Market Authority (CMA) in Saudi Arabia. and also participated in the Ministry of Finance’s Sustainability Support Program. Samba held multiple meetings with the General Authority for Small and Medium Enterprises, Monshaat, which resulted in Underpinned by sound economic principles and supported by experience, expertise, and research, the the conclusion of an agreement according to which Samba joined the e-finance portal of the authority. group has consistently expanded the range of products and services it offers customers. It provides a In line with the economic trends, Samba has formed a high committee to support medium and small- full range of conventional banking products, including loans, trade finance, cash management, personal size enterprises and eliminate all obstacles impeding the growth of this sector. finance, credit cards, and treasury products, to customer segments ranging from individuals and companies, to institutions and government agencies of all sizes. The group also excels in Islamic The details of loans to this sector are as follows. banking. It offers a full suite of Shariah-compliant banking products, which are approved by the Shariah Supervisory Board of the Islamic banking services of Samba, the activities of which are managed SR’000 Micro Small Medium Total independently. The group is also eager to promote its brand, communicate with its customers, and 2018 2019 2018 2019 2018 2019 2018 2019 actively seek out their comments and feedback through electronic channels and social networking sites. Micro, small, and medium enterprises loans - on the balance sheet 81 276,216 1,267,379 1,171,500 3,862,536 5,342,271 5,129,996 6,789,987 Samba is organized into the following four main business segments: Micro, small, and medium enterprises loans - off-balance sheet (nominal value) 12,907 22,363 217,972 308,827 2,325,840 3,193,704 2,556,719 3,524,895 Consumer Banking: offers services to individual customers, including time deposits; current, call, and Micro, small, and medium enterprises loans savings accounts; credit cards; consumer and home mortgage loans; and fast money transfer services - on the balance sheet as a percentage (%) (SpeedCash). of total loans in the balance sheet - 0,2% 1.11% 0,83% 3.40% 3.77% 4.51% 4,80% Micro, small, and medium enterprises loans Corporate Banking: offers services to corporate and institutional customers, including corporate time - on the balance sheet as a percentage (%) deposits; current and call accounts; overdrafts; loans; and other credit facilities. of total loans 0.03% 0.06% 0.54% 0.76% 5.75% 7.90% 6.32% 8.72% Number of loans Treasury: principally manages money market, foreign exchange, commission rate trading, and (both on and off the balance sheet) 16 18 230 331 541 1,667 787 2,016 derivatives for corporate and institutional customers and high net worth individuals. It is also Number of loan customers responsible for funding the group’s operations, maintaining liquidity, and managing the group’s (both on and off the balance sheet) 8 66 123 141 190 324 321 531 statement of financial position. Number of secured loans in the Kafala program (both on and off the balance sheet) 8 2 94 105 31 35 133 142 Investment Banking: Samba Capital & Investment Management Company (Samba Capital): provides Value of secured loans in the Kafala program investment management services and all activities of brokerage, mutual funds, and asset services (both on and off the balance sheet) 734 2,160 47,196 56,902 121,650 106,519 169,580 165,581 related to dealing, managing, arranging, advisory services, and custody businesses. According to the SAMA definition, micro businesses are companies with revenues of up to SR 3 The group’s primary business is conducted through its head office in Riyadh. The group has 73 million, small-sized companies are those with revenues ranging from SR 3 to SR 40 million, and branches, seven SpeedCash centers, and 21 centers for ladies’ banking all over the Kingdom. There medium-sized companies are those with revenues ranging from SR 40 to SR 200 million. are now 101 banking service outlets all over the Kingdom in addition to overseas branches in Dubai and Qatar. Samba has a majority shareholding of 84.51% in Samba Bank Limited, a banking company incorporated in Pakistan that conducts commercial banking and related services through its 40 branches. Samba Bank Limited is listed on Pakistan’s stock exchange.
In line with the Kingdom’s Vision 2030, a main objective of which is to increase the contribution of small and medium-sized enterprises to GDP, the group is interested in supporting this sector. The local corporate banking division caters to SME banking needs in Saudi Arabia and it has developed a special credit program to meet the specific market requirements of all business sectors. This division also
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Directors’ Report continued
2. Financial performance, operations review and financial results Given increasing volatility in the markets, our focus remains on consolidating and protecting the asset The global economy had a tough year 2019. Manufacturing and investment activity were affected by quality on the balance sheet. Both investment and loan portfolios have been closely reviewed and a global trade tensions, mainly arising from the US-China trade dispute, China’s economic slowdown, greater focus placed on the risk management process, resulting in higher credit provisioning this year. and fears of a hard Brexit. The group’s portfolio of loans and advances and investments closed at SR 142 billion and SR 85 billion, registering a growth of 25% and 28% respectively. Deposits amounted to SR 180 billion, a 6% Lately, however, we have seen some positive signs. Global economic activity appears poised to pick growth, resulting in one of the most liquid balance sheets in the Saudi banking sector and positioning up in the coming months. Last year’s federal interest rate cuts are still working their way through the the group to benefit from future growth opportunities. Total assets amounted to SR 256 billion by the economy, and with phase one of US-China trade deal about to be signed, both trade and end of 2019, growing 11% over last year, and total shareholder equity reached SR 45.5 billion, a manufacturing seem set to gather momentum. These positive steps provide hope for global GDP growth of 7.5% over last year. The growth in the balance sheet is complemented by a strong capital growth in 2020. base, with total capital adequacy ratios of 20.5% (Tier I) and 21.1% by the end of 2019. Return on equity stood at 9.1%, the return on assets was 1.64%, and the revenue to expense ratio was 2.95%. Emerging markets look forward to a better performance this year. Low interest rates and the prospect As a result, earnings per share increased to SR 1.99, compared to SR 1.53 last year. of a weaker US dollar are expected to ease financing pressures, and some EM central banks still have scope for monetary easing. Emerging markets should show some acceleration in growth compared to Ratings and recognition: The group maintained its leadership position during 2019 with excellent credit last year, but China’s ongoing structural slowdown may dampen growth. With some of these ratings from the major international rating agencies. It continues to enjoy the distinction of being the challenges dissipating, the prospects for 2020 appear brighter. most highly rated bank in Saudi Arabia. Our long-term ratings have been affirmed by Moody’s (A1), Capital Intelligence (A+), Fitch (A-), and Standard and Poor’s (BBB+), all with a stable outlook. These The moderate pickup in emerging market activity suggests that oil demand will be somewhat stronger major international agencies’ ratings are a testament to the strength of the group’s financial position, in 2020, particularly as OPEC is expected to maintain its production discipline. This is a positive sign outstanding liquidity levels, sustainable profitability, high quality assets, and capital adequacy, despite for GCC countries and allow some pickup in their spending levels, given that most budgets were the challenges the world banking and financial sector has faced. The agencies have also commended formulated when oil prices were slightly lower. Higher oil prices will translate into elevated spending Samba’s resilience and ability to cope with financial crises, thanks to our strong franchise and excellent levels for GCC countries, particularly on their mega transformational capital projects. financial position.
Despite tougher economic conditions and lower interest rates, the group has successfully delivered positive returns for shareholders. A new business strategy is in place that focuses on business growth, cross-selling, expanding the group’s footprint, and the digitization of products and services. The group has raised its performance levels to ensure greater levels of customer service and financial stability. It is continuing to strengthen the balance sheet and improve asset quality, bolstered by a higher level of provisions and low non-performing loans. The group has achieved excellent financial results during the year. Net income after zakat and taxes reached SR 3.99 billion, which is a 5.4% growth in total revenues, or SR 8.6 billion, chiefly from net Special Commission Income growth of 3.7% and non- interest income growth of 10.9%. As part of the new business growth strategy, the board has also agreed to invest in and develop human assets, enhance technological infrastructures; and expand the retail footprint of the bank. The operating expenses, therefore, increased during the year. Financial results for Samba business sectors are summarized below:
SR’MM Consumer Corporate Treasury Investment Total 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 Difference Total revenues 3,132 3,208 3,028 3,037 1,540 1,854 456 501 8,157 8,600 5.40% Total expenses 1,566 1,930 577 556 114 162 194 230 2,451 2,878 17.40% Net income 811 1,125 1,318 1,137 787 1,460 144 268 3,060 3,991 30.40% Total assets 32,316 34,549 96,225 121,232 101,237 99,717 160 106 229,938 255,604 11.20% Total liabilities 93,649 92,322 83,004 95,815 10,871 21,851 105 166 187,632 210,155 12.00%
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The contributions from revenues, expenses, and net income are as follows: 3. Geographical analysis of turnover Samba’s 2019 total revenue of SR 8,600 million is largely the result of its activities in Saudi Arabia, 2019 Business Performance (SR billion) 2018 Business Performance which account for SR 8,190 million. The regional distribution of revenue is as follows: Central region 72%, Western region 14%, and Eastern region 9%. Central region’s revenues include revenues relating to investment and treasury activities that are not connected to a specific geographical region 3,208 3,132 in Saudi Arabia. 3,037 3,028
The revenues from overseas operations are SR 410 million and are distributed as follows: GCC 1854 1,930 577 556 1,566 501 1,540 456 (excluding Saudi Arabia) SR 297 million, Europe SR 6 million, and South Asia SR 107 million. 1,460 1,318 268 230 194 162 1,137 811 144 1,125 114
787 Consumer Corporate Treasury Investment Consumer Corporate Treasury Investment 4. Future plans Revenues Expenses Net income Revenues Expenses Net income The group recognizes that consolidating its leading position within the banking industry, both locally and regionally, and achieving its long-term strategic vision of transforming itself into a leading banking The growth of assets and liabilities with respect to consumer, corporate, and treasury business is as follows: model, require sustainable commitment. Our dedication to achieving this goal has resulted in a full range of high-quality and distinctive banking products and financial services for our customers. Assets (SR billion) Liabilities The group’s sound professional practices and effective development plans enable it to meet growing customer needs and capitalize on the best investment opportunities.
121,232 The group’s strategy is also a strength. It is aimed at deepening stability and enhancing the strength of 99,717 95,815 101,237 96,225 93,649 92,322 its capital base, and positions Samba well for the short and long-term challenges facing the financial 34,549 32,316 83,004
21,851 market. The group’s approach is reflected positively in its performance and has helped to protect it 10,871 from the recent challenges and difficulties the global financial markets have recently experienced. The Consumer Corporate Treasury Consumer Corporate Treasury group’s strategy is largely based on expanding all segments of its customer base, steadily pursuing 2018 2019 2018 2019 added-value products that meet customer aspirations, promoting investment in alternative, future- focused banking channels, expanding its local and regional presence, contributing to local community Previous years’ summary financial results are as follows: development, and deepening its commitment to social responsibility.
SR’ MM 2015 2016 2017 2018 2019 To achieve these strategic goals, the group has gone a long way to nationalize its jobs and Investments, net 69,952 51,393 63,912 66,350 85,013 qualifications. The group has attracted and trained young Saudis, qualifying a generation in national Loans and advances, net 130,001 125,234 117,685 113,709 141,595 banking competencies and developing their skills through training programs that will enable the group Total assets 235,243 231,489 227,611 229,938 255,604 to meet its need for future banking leaders. Customer deposits 171,805 172,076 167,988 170,170 180,166 Total equity 40,360 42,781 44,583 42,213 45,359 To support both conventional and Islamic banking activities, the group has upgraded its branch Total operating income 7,755 7,761 7,892 8,157 8,600 network and alternative banking channels and acquired state-of-the-art automated teller machines Total operating expenses 2,398 2,555 2,580 2,451 2,878 (ATMs) and point of sale (POS) equipment to keep it current with the latest banking industry standards. Net income 5,214 5,006 5,024 5,549 4,619 In line with its strategy of geographical expansion and broadening its customer base, the group obtained Growth of Financial Position a license from The Central Bank of the United Arab Emirates (CBUAE) to expand its business in Abu Balance Sheet Growth SAR Million Dhabi, where it provides a full range of banking services in the UAE. This move is a logical next step following its move to Dubai in 2008. The first Saudi bank to establish a branch in the country, Samba’s 300000 services in Dubai include consumer, corporate, and private banking, and investment advice. The group’s branch in Qatar is still operating, despite the current circumstances. In London, however, the group Total Assets closed its branch in 2019 because its operations were no longer consistent with the business strategy 250000 of the group. The closure has been conducted according to United Kingdom regulations. The group continued to expand its business abroad, with the number of Samba Bank limited operating branches 200000 in Pakistan growing to 40. These branches are distributed across the major cities of the country. Customer Deposits Samba’s expansion is part of Samba’s medium- and longer-term growth strategy. After strengthening 150000 Loans and Advances our position in the domestic market, we moved to expand Samba’s presence internationally. We will continue to monitor growth opportunities in promising markets so that we can continue to diversify geographically and enhance returns to our shareholders, foster profitability, and enhance Samba’s 100000 reputation and position. 2015 2016 2017 2018 2019
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5. Risk management 6. Corporate social responsibility The group recognizes the importance of having a clear and comprehensive methodology and carefully Samba Financial Group continued to deepen its community membership and fulfill its national designed programs for risk management. In line with best international practices, Samba is closely responsibilities by launching more development initiatives. These initiatives highlight the group’s role focused on the risks that could affect the group business. The board of directors has developed and as a leading partner and its keenness to contribute to the development of the community and improve approved a general framework for risk governance, which is subject to the supervision of the board’s the lives of its members. The group has focused on areas that are most relevant to the needs of the executive and risk committees. The framework includes risk policies, basis of capital evaluations, ways community and have the potential to stimulate development and positive change in the Kingdom. The of identifying and measuring risks, and limits that are commensurate with the group’s acceptable risk group allocated more than SAR38 million in 2019 as donations and contributions to social programs. management processes. It also includes guidelines for controlling and monitoring compliance within the approved limits, control methods for risk management in general, internal control guidelines, During the year, the group continued to adopt community programs and initiatives that support information technology, and rules of information security. Senior management committees and sustainable development. These efforts are in line with the principle of social solidarity, which is a key independent regulatory functions within the group oversee the implementation of the tasks relating to value underlying Samba’s humanitarian and community service mission. risk management. These are our main social activities and services for 2019: Listed below are the main risks associated with the business of the group: • Housing support program: Samba launched an initiative to support housing in the Kingdom, which Credit risk has been received positively. This community-based project includes the provision of 500 Credit risk is the risk that a customer, guarantor, or counterparty will fail to discharge its financial obligation furnished housing units over the next five years. These will go to needy families in various Kingdom to the group relating to any financial instrument and will cause the group to incur a financial loss. regions and help to give them a decent and more stable life. Samba is working in collaboration with the Ministry of Housing to provide these homes. The program has benefited approximately 2600 Market risk citizens since it began. Market risk is the risk that the fair value or future cash flows of the financial instruments will fluctuate as the result of changes in market variables, such as special commission rates, foreign exchange rates, • Samba’s education support program: Samba’s attention to education, training, and employment equity prices, and commodity rates. reflects the group’s belief that investing in Saudi Arabia’s people and developing their knowledge and professional capabilities will lead to greater prosperity of the community. Samba has Liquidity risk developed several programs aimed at attracting young Saudi graduates and preparing them to be Liquidity risk is the risk that the group will be unable to meet its net funding requirements. It can be a new generation of national talent and leadership. The group established promising partnerships caused by market disruptions or credit downgrades, which may cause certain sources of funding to be with several academic and university institutions to support the education sector and develop its less readily available. output. It also participated actively in the career days these institutions hosted, both locally and internationally, including sponsoring career days at education institutions. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and • Samba’s program to support needy families: This program includes a wide range of in-kind and technology systems and/or devices. financial assistance to support and develop the humanitarian and social activities of several charities and social institutions. The program reflects Samba’s commitment to community service Notes 30-33 of the accompanying audited consolidated financial statements and quantitative and and its close attention to local community issues and requirements. qualitative disclosures under Pillar 3 of the Basel Committee recommendations, published on the group’s website, include more details on the main risks the group faces, together with the measures to • Health care program: Health care continued to be an important part of Samba’s community-based mitigate those risks. initiatives, and the group strived to improve care standards and overcome health challenges. Awareness efforts were aimed at achieving a healthy society free of the epidemics that threaten Information security risk the safety of community members. Samba’s contributions supported the care programs of Information security risk is the risk of loss resulting from unauthorized access or use, disclosing, therapeutic and rehabilitation institutions, such as the King Salman Center for Disability Research, tampering, viewing, searching, and copying and destroying sensitive information and data. Potential the Disabled Children’s Association, the Down Syndrome Charitable Association, the Saudi Cancer sources of information security risk include identity theft, unauthorized access, data leakage, malicious Society, the Alzheimer’s Charity Association, Sanad Children’s Cancer Support Association, the software, social engineering, denial of service attacks, and phishing. Association for the Blind, the Zahra Breast Cancer Association, the Saudi Charitable Association of Diabetes, and more.
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Education Furijat campaign
Samba has developed several programs Samba participated in the Furijat initiative, aimed at attracting young Saudi graduates launched by the Ministry of Interior through and preparing them to be a new generation the electronic services platform “Absher” to of national talent and leadership. help and release detainees and prisoners of financial cases. Samba’s participation in this campaign aligns with the Bank’s commitment toward its national and community duties.
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SME Program Housing
As a leader in the Saudi banking and financial Samba launched an initiative to support sector, Samba recognizes the importance of housing in the Kingdom, which has been small and medium-size enterprises (SMEs) to received positively. This community-based the health and development of the national project includes the provision of 500 economy. Samba’s contribution to the Kafala furnished housing units over the next five SME financing program helps to support years. These will go to needy families in business start-ups and the owners of SMEs. various Kingdom regions and help to give them a decent and more stable life.
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6. Corporate social responsibility (continued) In accordance with the group’s articles of association, the board of directors is selected by the • SME support program: As a leader in the Saudi banking and financial sector, Samba recognizes shareholders of the group for a three-year term. The term of office of the current board of directors the importance of small and medium-size enterprises (SMEs) to the health and development of the began on 20 January 2019. The board held seven meetings during the year. The following is the record national economy. Samba’s contribution to the Kafala SME financing program helps to support of attendance: business start-ups and the owners of SMEs. Samba is working within the framework of this program, which has state support, to provide the financing and advisory solutions needed to Meeting Date Attendees improve the underlying environment for this sector, stimulate its performance, and expand its 1st meeting 17/03/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, contribution to the landscape and competitiveness of the national economy. Samba has recently Dr. Ibrahim Almojel, Mr. Ali Husein Alireza, Mr. Eyad Alhusain, introduced an integrated credit program that includes all the banking products SMEs need. Dr. Khalid Alsweilem, Mr. Ali Almansour, Mr. Fahd Almufarrij, Mr. Abdullah Alrowais and • Program for families: Samba launched a program for families to raise awareness of the rules of Dr. Walid Abanumay. good financial management. The goal is to teach them about the best ways of controlling 2nd meeting 20/05/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, expenses, managing the family budget, and encouraging saving and investing as an alternative to Dr. Ibrahim Almojel, Mr. Eyad Alhusain, pursuing consumer trends that deplete family savings and incomes. Samba also posts awareness Dr. Khalid Alsweilem, Mr. Ali Almansour, messages on the best ways to save on social media and other communication channels. Mr. Fahd Almufarrij, Mr. Abdullah Alrowais and Dr. Walid Abanumay. • Supporting the Furijat campaign: Samba participated in the Furijat initiative, launched by the 3rd meeting 02/08/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, Ministry of Interior through the electronic services platform Absher to help and release detainees Dr. Ibrahim Almojel, Mr. Ali Husein Alireza, Mr. Eyad Alhusain, and prisoners of financial cases. Samba’s participation in this campaign aligns with the bank’s Dr. Khalid Alsweilem, Mr. Ali Almansour, commitment toward its national and community duties and in support of its responsibilities toward Mr. Fahd Almufarrij, Mr. Abdullah Alrowais and success of charitable initiatives, including the “Furijat” initiative with the principles and noble values Dr. Walid Abanumay. that it holds. 4th meeting 03/11/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, Dr. Ibrahim Almojel, Mr. Ali Husein Alireza, Mr. Eyad Alhusain, • Cultural heritage: In line with the group’s belief in the importance of the 2030 Vision of transforming Dr. Khalid Alsweilem, Mr. Ali Almansour, the Kingdom into a global tourist destination, Samba contributed to the Riyadh season, one of the Mr. Fahd Almufarrij, Mr. Abdullah Alrowais and 11 festivals Saudi Arabia launched in 2019. Dr. Walid Abanumay. 5th meeting 04/11/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, • Center of Excellence for Autism: The bank’s contribution to the joint community initiative to Dr. Ibrahim Almojel, Mr. Ali Husein Alireza, Mr. Eyad Alhusain, establish and operate the Center of Excellence for Autism in Riyadh, valued at SAR286 million, will Dr. Khalid Alsweilem, Mr. Ali Almansour, be collectively financed, established, and operated by Saudi banks over a period of five years. Mr. Fahd Almufarrij, Mr. Abdullah Alrowais and Samba’s participation in this collective and humanitarian effort of Saudi banks falls within the Dr. Walid Abanumay. framework of the bank’s response to the active community initiatives aimed at improving the 6th meeting 15/12/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, rehabilitation and treatment environment for those on the autism spectrum and their families. A Mr. Ali Husein Alireza, Mr. Eyad Alhusain, Dr. Khalid specialized center will be created that will provide a point of reference for all other private autism Alsweilem, centers in the Kingdom. It will also be a unique center for research that will transfer knowledge and Mr. Ali Almansour, Mr. Fahd Almufarrij, practices internationally, attract expertise, and make great progress in the rehabilitation and Mr. Abdullah Alrowais and Dr. Walid Abanumay. community integration for individuals on the autism spectrum. 7th meeting 16/12/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, Dr. Ibrahim Almojel, Mr. Ali Husein Alireza, Mr. Eyad Alhusain, 7. Board of Directors Dr. Khalid Alsweilem, Mr. Ali Almansour, The board of Samba Financial Group is composed of 10 directors, categorized according to the Mr. Fahd Almufarrij, Mr. Abdullah Alrowais and guidelines of Saudi Arabian Corporate Governance Regulations, articles 1 and 20, issued by the Dr. Walid Abanumay. Capital Market Authority. The board is composed as follows: The significant board of directors’ committees, their roles, their current members, and their meetings Members of the board of directors Serves as Member classification are as follows: Eng. Ammar Alkhudairy Chairman Non-executive Mr. Yazeed Alhumied Deputy Chairman Non-executive Executive Committee Dr. Ibrahim Almojel Board Member Non-executive The Executive Committee deals with matters referred to it by the board or its chairman within the Mr. Ali Husein Alireza Board Member Non-executive powers determined for it by the board. This committee comprises five directors: Mr. Eyad Alhusain Board Member Non-executive Dr. Khalid Alsweilem Board Member Independent Members of the Executive Committee Serves as Member classification Mr. Ali Almansour Board Member Independent Eng. Ammar Alkhudairy Chairman Non-executive Mr. Fahd Almufarrij Board Member Independent Mr. Ali Husein Alireza Member Non-executive Mr. Abdullah Alrowais Board Member Independent Dr. Ibrahim Almojel Member Non-executive Dr. Walid Abanumay Board Member Independent Mr. Ali Almansour Member Independent Mr. Robert Acfield Member Independent
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7. Board of Directors (continued) In accordance with the group’s articles of association and regulations, the group has a clear policy of The committee held 10 meetings during the year. The following is the record of attendance: compensation and remuneration that is approved by the general assembly and through which the compensation and remuneration of board members and the group’s executive management have been Meeting Date Attendees determined. The compensation policy is in full compliance with SAMA’s regulatory requirements and 1st meeting* 14/01/2019 Mr. Eisa Al Eisa (Chairman), Mr. Ali Husein Alireza, the international standards of the Financial Stability Forum. In accordance with established policy, the Mr. Khaled Al Abdulkareem, Mr. Fahad AlSedairy and performance and achievements of key employees should be measured, taking into consideration their Mr. Alaa AlHarthi. financial performance and level of risk management. Samba’s variable compensation is linked to risk- 2nd meeting 17/03/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, adjusted net income after calculating the material current or potential risks to ensure adequacy of the Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. bank’s capital and to reduce future potential risks. Variable compensation of eligible primary 3rd meeting 28/04/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, employees is paid in cash and shares in three installments. The percentage of compensation to be paid Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. in cash or in the form of stock is determined by the degree of responsibility, the role, and the work of 4th meeting 20/05/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, each employee commensurate with his or her ability to carry out supervisory activities or activities Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. involving risk. There are also arrangements for the recovery of bonuses paid in the event of future 5th meeting 24/06/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, adverse performance. Samba does not allow for the guarantee of any rewards. In line with these Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. measures, Samba has successfully achieved its objectives by calculating the future negative impact of 6th meeting 01/08/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, decisions made during the current period. Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. 7th meeting 17/09/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, This committee oversees the overall design and supervision of the compensation system for both Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. employees and board members. It ensures that the compensation paid to them is consistent with 8th meeting 08/10/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, applicable laws and regulations. The committee also makes recommendations to the board of directors Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. on the level and components of compensation after considering the financial controller’s views and risk 9th meeting 03/11/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, management. The committee periodically reviews the implementation of the compensation policy and Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. the achievement of the objectives against the directives issued by the supervisory bodies to which 10th meeting 15/12/2019 Eng. Ammar Alkhudairy (Chairman), Mr. Ali Husein Alireza, periodic reports are submitted. The remuneration for 2019 is in line with the group’s remuneration Dr. Ibrahim Almojel, Mr. Ali Almansour and Mr. Robert Acfield. policy. Directors’ annual remuneration for 2019 totaled SR 4,685 thousand for non-executive members * The meeting of the committee ended its session on 20/01/2019. (including independent directors). Allowances for the non-executive members (including independent directors) stood at SR 685 thousand. Remuneration for non-board audit committee members was SR Nominations and Compensations Committee 120 thousand per member. Samba paid SR 10,018 thousand in salaries and related benefits to its top This committee’s responsibilities include identifying the skills required for membership of the board of six executives, including the CEO and the CFO. Samba also paid SR 4,289 thousand in allowances, directors and preparing a description of the capabilities and qualifications for such membership. The SR 26,000 thousand in annual rewards, and SR 5,208 thousand in incentive plans. Expenses, committee conducts annual assessments for the performance of the board and its members using the including travel and lodging costs, incurred by non-executive directors (including independent appropriate assessment forms. The committee is also responsible for establishing and reviewing directors) totaled SR 682 thousand. Samba’s directors and staff compensation policy. The committee comprises three directors, two independent and one non-executive, headed by an independent director: Audit Committee: The Audit Committee helps the board of directors meet its responsibility to monitor Samba’s financial reporting and internal control systems, oversee the work of the external and internal Members of the Nomination auditors, review the interim and annual financial statements, review the accounting policy in force, and and Remuneration Committee Serves as Member classification ensure compliance with regulations. The internal audit and risk group assesses and reports on the Dr. Walid Abanumay Chairman Independent effectiveness of internal control structures across the whole of SFG, and this information is included in Mr. Yazeed Alhumied Member Non-executive internal audit department reports, reflecting a risk-based approach. Risk assessment of business units Mr. Fahd Almufarrij Member Independent determines the timeframe for audits during the development of the annual audit plan. While the Audit Committee adopts the audit plan, it also receives all audit reports and reviews quarterly the updates relating The committee held three meetings during the year. The following is the record of attendance: to the implementation of the audits, notes resulting from the audits, and corrective actions taken by the relevant business units. Following the successful completion of the 2016 audit plan, the audit committee Meeting Date Attendees confirms that SFG’s system of internal control is sound, adequately implemented, and operating effectively. 1st meeting 14/03/2019 Dr. Walid Abanumay, Mr. Yazeed Alhumied, No material or systemic breakdown of the control environment occurred during the year 2019. Mr. Fahd Almufarrij 2nd meeting 31/07/2019 Dr. Walid Abanumay, Mr. Yazeed Alhumied, The Audit Committee comprises five members: Mr. Fahd Almufarrij 3rd meeting 15/12/2019 Dr. Walid Abanumay, Mr. Yazeed Alhumied, Members of the Audit Committee Serves as Member classification Mr. Fahd Almufarrij Mr. Abdullah Alrowais Chairman Independent Mr. Eyad Alhusain Member Non-executive Mr. Abdulaziz AlAtiqi * Member Independent Mr. Ibrahim Alsadah * Member Independent Mr. Ali AlAyed * Member Independent
*members from outside the board.
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7. Board of Directors (continued) Board of Directors Remunerations
Member Fixed remunerations Variable remunerations Remuneration for the chairman of the board, Attending Technical, managing Attending board administrative, director or Granted board sessions and consulting secretary, Short-term Long-term shares A certain sessions allowance In-kind work if heis a Share Periodic incentive incentive (value amount allowance total benefits remuneration member Total of profits remunerations plans plans entered) Total Independent members Ali Almansour 400 35 65 ------500 Abdullah Alrowais 400 35 50 ------485 Khalid Alsweilem 400 35 20 ------455 Walid Abanumay 400 35 15 ------450 Fahd Almufarrij 400 35 15 ------450 Total 2000 175 165 ------2340
Non-executive members Ammar Alkhudairy 400 35 45 ------480 Ibrahim Al Mojel 400 30 45 ------475 Ali Husein Alireza 400 30 45 ------475 Yazeed Alhumied 400 35 15 ------450 Eyad Alhusain 400 35 30 ------465 Total 2000 165 180 ------2345
There were seven meetings of the Audit Committee during the year: Risk Committee: The Risk Committee helps the board oversee the group-wide risk management framework by following up on various risk management operations, including those relating to credit Meeting Date Members present and information security. It ensures that the established internal control framework is in line with the 1st meeting * 10/01/2019 Mr. Fahd Almufarrij, Mr. Ibrahim Alsadah, strategy and objectives of risk management and in the presence of the head of risk management Mr. Bader Al-Swailem (secretary of the committee). The committee comprises three directors: 2nd meeting 14/03/2019 Mr. Abdullah Alrowais, Chairman, Mr. Eyad Alhusain, Mr. Abdulaziz AlAtiqi, Mr. Ibrahim Alsadah, Mr. Ali AlAyed Members of the Risk Committee Serves as Member classification 3rd meeting 22/04/2019 Mr. Abdullah Alrowais, Chairman, Mr. Eyad Alhusain, Mr. Ali Almansour Chairman Independent Mr. Abdulaziz AlAtiqi, Mr. Ibrahim Alsadah, Mr. Ali AlAyed Mr. Abdullah Alrowais Member Independent 4th meeting 15/05/2019 Mr. Abdullah Alrowais, Chairman, Mr. Eyad Alhusain, Mr. Khalid Alsweilem Member Independent Mr. Abdulaziz AlAtiqi, Mr. Ibrahim Alsadah, Mr. Ali AlAyed 5th meeting 22/07/2019 Mr. Abdullah Alrowais, Chairman, Mr. Eyad Alhusain, The committee held four meetings during the year. The following is the record of attendance: Mr. Abdulaziz AlAtiqi, Mr. Ibrahim Alsadah, Mr. Ali AlAyed 6th meeting 22/10/2019 Mr. Abdullah Alrowais, Chairman, Mr. Eyad Alhusain, Meeting Date Present members Mr. Abdulaziz AlAtiqi, Mr. Ibrahim Alsadah, Mr. Ali AlAyed 1st meeting 16/05/2019 Mr. Ali Almansour, Mr. Abdullah Alrowais, 7th meeting 29/12/2019 Mr. Abdullah Alrowais, Chairman, Mr. Eyad Alhusain, Mr. Khalid Alsweilem Mr. Abdulaziz AlAtiqi, Mr. Ibrahim Alsadah, Mr. Ali AlAyed 2nd meeting 31/07/2019 Mr. Ali Almansour, Mr. Abdullah Alrowais, Mr. Khalid Alsweilem * The meeting of the committee ending its session on 20/01/2019. 3rd meeting 29/10/2019 Mr. Ali Almansour, Mr. Abdullah Alrowais, Mr. Khalid Alsweilem 4th meeting 18/12/2019 Mr. Ali Almansour, Mr. Abdullah Alrowais, Mr. Khalid Alsweilem
All companies in which the group’s board members are members of their current and former boards of directors or their managers or have direct or indirect ownership or managerial powers and authorities, whether listed or not listed in the financial market, and whether inside or outside the Kingdom as at 31 December 2019 are as follows:
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7. Board of Directors (continued)
Director Current Companies Previous Companies Ammar Alkhudairy Almarai Company (in the Kingdom) Goldman Sachs Saudi Arabia, LLC (in the Kingdom) Saudi Pharmaceutical Industries & Medical Appliances Corporation (SPIMACO) (in the Kingdom) Morgan Stanley Saudi Arabia, LLC (in the Kingdom) Amwal Alkhaleej Commercial Investment Company (in the Kingdom) Savola Group, listed company (in the Kingdom) First Amwal Alkhaleej Company (Limited Liability Company) (in the Kingdom) Kingdom Holdings, listed company (in the Kingdom) Second Amwal Alkhaleej Company (Limited Liability Company) (in the Kingdom) Herfy Food Services Co., listed company (in the Kingdom) Amwal Alkhaleej Company (Limited Liability Company) (in the Kingdom) Al Tayyar Travel Group, listed company (in the Kingdom) Real Estate Development Fund (in the Kingdom) Allianz Saudi Fransi Cooperative Insurance Company (Allianz SF), listed company (in the Kingdom) Banque Saudi Fransi, listed company (in the Kingdom) Economic Cities Authority (in the Kingdom) Dubai Contracting Company (DCC) (outside the Kingdom) Arab Cotton (in the Kingdom) Amwal Capital Partners (outside the Kingdom) MIS Company (outside the Kingdom) SPIMACO Egypt, representing SPIMACO Saudi Arabia (outside the Kingdom) Beltone Capital (outside the Kingdom) DAMAS Co. (outside the Kingdom)
Yazeed Alhumied Saudi Stock Exchange (Tadawul) (in the Kingdom) None (outside the Kingdom) National Security Services Company (in the Kingdom) Flyadeal, Closed JSC (in the Kingdom) Civil Aviation Holding Company LLC (in the Kingdom) Saudi Arabian Airlines Public Corporation, public corporation (in the Kingdom) Richard Attias & Associates (in the Kingdom)
Ali Husein Alireza Haj Hussein Alireza & Partners Co. (LLC in the Kingdom) Chairman of the Car Agents Committee of the Jeddah Chamber of Commerce and Industry (in the Kingdom) National Computer Systems Company (Natcom), (LLC in the Kingdom) Member of the Commercial Committee and the National Committee of the Jeddah Chamber of Commerce and Industry (in the Kingdom) Al Wasila Rent A Car Company LLC (in the Kingdom) Member of the National Committee for Cars at the Saudi Chamber of Commerce and Industry (in the Kingdom) The Arabian Petroleum Supply Company (APSCO) (Non-listed JSC, in the Kingdom) Board member of Makkah region (in the Kingdom) Ford Middle East (in the Kingdom) Alalamiya Cooperative Insurance Company (JSC in the Kingdom) None (outside the Kingdom) Gulf One Bank (non-listed JSC, outside the Kingdom)
Ibrahim Almojel AlRaedah Investment Company (LLC in the Kingdom) Saudi Aramco Investment Department (in the Kingdom) Awqaf Investment Company (LLC in the Kingdom) Arab Mining Company (JSC in the Kingdom) Taibah Valley (LLC in the Kingdom) ASAS for Developing & Operating lndustrial Cities (in the Kingdom)
Eyad Alhusain National Petrochemical Company – Petrochem (listed JSC in the Kingdom) Alawwal Bank (listed JSC in the Kingdom) Saudi Polymers Company (LLC in the Kingdom) National Medical Care Company (closed JSC in the Kingdom)
Abdullah Alrowais Mobily (listed JSC in the Kingdom) Manafea Holding Company (closed JSC in the Kingdom) Bawan Group (listed JSC in the Kingdom) ACWA Power (private company in the Kingdom)
Fahad I. Al-Mufarrij Saudi Printing and Packaging Company (listed JSC in the Kingdom) Saudi Post (in the Kingdom) FALCOM Financial Services (closed JSC in the Kingdom) Social Development Bank (in the Kingdom) ASMA Invest (in the Kingdom)
Khalid Alsweilem Ashmore Investment Saudi Arabia (LLC in the Kingdom) Saudi Arabian Monetary Agency (in the Kingdom) Agricultural Development Fund (in the Kingdom) Arab Gulf Programme for Development (in the Kingdom) Fajr Capital (outside the Kingdom) None (outside the Kingdom) GII Islamic REIT (outside the Kingdom)
Ali Almansour Al Rajhi Takaful (listed JSC in the Kingdom) None (outside the Kingdom)
Walid Abanumay Abanumay Industrial Corporation (closed JSC in the Kingdom) Inmaia Real Estate & Tourism Development Company (JSC in the Kingdom) Arabian Waterproofing Industries Company (closed JSC in the Kingdom) Raya Saudi Company (closed JSC in the Kingdom) Rawafd AlJoud Company (closed JSC in the Kingdom) Saudi Arabian Fertilizer Company (SAFCO) (LLC in the Kingdom) Ibn Al-Baytar Company (LLC in the Kingdom) Saudi Industrial Investment Group (JSC in the Kingdom) Saudi Arabian Refineries Company (JSC in the Kingdom). Solidere International (public company outside the Kingdom) Beltone Financial Holding (outside the Kingdom) SODIC (JSC outside the Kingdom) Swicorp Joussour Company (closed JSC outside the Kingdom) B Investment (LLC outside the Kingdom) Madinet Nasr Housing & Development (outside the Kingdom) Raya Holding (outside the Kingdom)
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7. Board of Directors (continued) Dr. Ibrahim Almojel The following is a summary of the board directors and committee members and their (Representative of the Public Investment Fund) qualifications and experience: Dr. Ibrahim AlMojel is a board member and a member of the Executive Committee of Samba Financial Group. He is also the CEO of the Saudi Industrial Development Fund, a development institution with a Eng.Ammar Alkhudairy capital of SAR105 billion that provides financial support to the industrial sector, logistical services, Ammar Alkhudairy is the chairman of Samba Financial Group, a role he has held since January 2019. mining, and energy. He is a member of several boards of directors, including Al Ra’idah Investment Prior to Samba, he played key leadership roles in various Saudi financial institutions, including Riyad Company, Awqaf Investment Company, and the Arab Mining Company. Dr. Ibrahim previously worked Bank, United Saudi Bank, and Banque Saudi Fransi. Mr. Alkhudairy was also a board member from for Saudi Aramco in several sectors, including strategic planning and Saudi Aramco Energy Ventures. 2015 to 2018, chairman of the Audit Committee from 2015 to 2018, and served as the interim In his most recent role prior to Samba, he served as CEO of Wisayah Investment Company, a subsidiary managing director/CEO at Banque Saudi Fransi from October 2017 to March 2018. of Saudi Aramco. Dr. Ibrahim AlMojel holds a bachelor’s degree in electrical engineering from Vanderbilt University, and a master’s degree in electrical engineering and a PhD in management Mr. Alkhudairy has over 30 years’ experience in the financial sector, with special focus on the areas of science and engineering from Stanford University. corporate banking, project finance, corporate finance, M&A, and asset management. He has also served as a member on various public and private boards, including: chairman of Goldman Sachs Saudi Arabia, Mr. Eyad Alhusain chairman of Morgan Stanley Saudi Arabia, SAVOLA, Kingdom Holdings, Herfy, Al Tayyar, chairman of (Representative of the General Organization for Social Insurance) Allianz Saudi Arabia, deputy chairman of SPIMACO, and board member of Almarai. He founded and Mr. Al-Husain is a board member of Samba Financial Group and a member of the Audit Committee. He chairs Amwal AlKhaleej and Amwal Capital Partners, an alternative asset management business based is currently the assistant governor for financial and administrative affairs in the General Organization in Riyadh, and in DIFC. He also served as a board member with government-related entities, including the for Social Insurance, a role he has held since 2014. He also worked as general manager for financial Real Estate Development Fund and the Economic Cities Authority. Mr. Alkhudairy earned an MSc in affairs at the General Organization for Social Insurance from 2009 to 2013. Prior to that, he held the engineering administration and a BSc in civil engineering from George Washington University. position of general manager of financial supervision at the General Organization for Social Insurance for two years and was a financial controller at the General Organization for Social Insurance from 2000 Mr. Yazeed Alhumaid until 2007. Mr. Al-Husain holds a master of commerce in applied finance from the University of Adelaide (Representative of the Public Investment Fund) in Australia and a bachelor’s degree in accounting from King Saud University. He is a board member of Mr. Yazeed is the deputy chairman of Samba Financial Group and a member of the Risk Management the National Petrochemical Company (Petrochem), (a listed joint stock company) and serving on its and Nomination and Remuneration Committees. He is also a board member of Flyadeal Company, the audit committee since January 2018, and a board member of the Saudi Polymers Company (limited Civil Aviation Holding Company, and the Saudi Arabian Airlines Public Corporation. liability company) since April 2019. He was a member of Alawwal Bank (a listed joint stock company) from 2008 to 2018 and chairman of National Medical Care Company from 2015 to 2019. He has over 15 years of experience in the financial and administrative sectors at PwC and the House of National Consulting from 2004 until 2008, then at the Capital Market Authority (CMA) until 2015, Mr. Abdullah Alrowais where he took over the management of the mergers and acquisitions service. He worked as a Mr. Al-Rowais has been a board member of Samba Financial Group since 2016. He is the chairman of consultant to His Excellency the chairman of CMA. He was also appointed to work in international the Audit Committee and a member of the Risk Committee. He is the head of Mobily’s internal audit financial organizations, such as the Securities Commission of Malaysia and the Regulatory Body for function. Mr. Al-Rowais is also a board member of ACWA Power and Bawan Company. He previously Mergers and Acquisitions in the United Kingdom. In 2015, he joined the Public Investment Fund as an worked at Saudi Arabian Monetary Agency and Saudi Aramco and served as a board member of adviser to His Excellency the governor and contributed to the fund’s development, restructuring and Manafea Holding Company. He holds a bachelor’s degree in accounting from King Saud University and preparation of its strategy after its association with the Council of Economic and Development Affairs an MBA in computer and information systems from the University of Detroit, USA. Mr. Al-Rowais has came to an end. In 2016, he was appointed chief of administration for the fund, in addition to his work over 25 years of experience in the fields of governance, internal audit, and internal control practices. as a consultant to His Excellency. Mr. Yazeed obtained a bachelor’s degree with honors in accounting from King Saud University. He pursued further studies through executive business programs from Mr. Fahad Almufarrej Harvard University and London Business School. Mr. Al-Mufarrej has been a board member of Samba Financial Group since 2013. He is a member of the Nomination and Remuneration Committees and the managing director of the Saudi Printing and Mr. Ali Hussein Alireza Packaging Company. He is also a member of the board of directors for a number of companies and (Representative of the Public Pension Agency) committees. Mr. Al-Mufarrej previously held several positions at the Saudi Arabian Monetary Agency Mr. Ali has been a board member of Samba Financial Group since 2003. He is the managing director (SAMA), where he worked for more than 25 years, and last served as manager of the banking of Al Haj Hussein Alireza & Partners Co. Ltd., chairman of the board of directors of the National supervision department. He was a representative of SAMA at the meetings of the Basel Committee Computer Systems Company (Natcom) and Al Wasila Rent A Car Company Limited, and a board and Supervision and Control Committee of the GCC and the Banking Supervision Committee of Arab member of Arabian Petroleum Supply Company (APSCO). Mr. Ali previously held several positions, states. He was a member of the Banking Supervision Committee, Saudi Riyal Committee, the Supreme including chairman of the Car Agents Committee in Jeddah and the Chamber of Commerce and Mutual Committee of SAMA and CMA. He was also a board member of the Saudi Post, Social Industry for the 15th session, member of the Commercial and National Committees of the Jeddah Development Bank and ASMA Invest. He holds a bachelor’s degree in business administration from Chamber of Commerce and Industry, member of the National Committee for Cars at the Saudi King Abdulaziz University and has taken many training courses from Harvard University, the Irish Chamber of Commerce and Industry, board member of Makkah region, and chairman of the board of Management Institute and other institutions. directors of Ford Middle East, the Alalamiya Cooperative Insurance Company, and Gulf One Bank in Bahrain. He holds an MBA degree from the University of Southern California.
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7. Board of Directors (continued) Mr. Ali Sulaiman AlAyed Dr. Khalid Alsweilem Member of the audit committee of Samba Financial Group. Mr. AlAyed is a board member at Alinma Dr. Al-Swailem is a board member of Samba Financial Group and member of the Risk Management Tokio Marine Company and a member of the audit committee at Tabuk Cement Company. He was also and Nomination and Remuneration Committees. He is the senior advisor and former general manager the general manager of control on insurance companies at SAMA from 2013 until 2017, and CEO and of investment at the Saudi Arabian Monetary Agency. During the period 2013-2015 he was a member member of investment committee of Malath Cooperative Insurance & Reinsurance Company from of Harvard Kennedy School’s Center for International Development. He was subsequently appointed 2008 until 2013. He was the deputy CEO and CFO at the Saudi Electricity Company from 2006 until in 2016 as a visiting scholar at the Stanford University Global Projects Center. His studies and research 2008. Mr. AlAyed holds a bachelor’s degree in accounting from King Saud University. in both universities were related to investment and the role of sovereign funds in achieving financial stability and sustainable development. He holds a bachelor’s degree in industrial engineering from the The following is a summary of the senior executives and their qualifications and experience: University of Arizona, USA, a master’s in economics from Boston University, a PhD in economics from the University of Colorado Boulder, USA, and a post-doctoral fellowship in economics and finance from Rania Mahmoud Nashar Harvard University. Dr. Al-Swailem is the chairman of Ashmore Investment Saudi Arabia and an Ms. Nashar has been the CEO of Samba Financial Group since February 2017. During her 22 years independent board member of Fajr Capital in the UAE, in which several sovereign funds participate. He with the group, she has held several positions, most recently as the general manager of the Internal is also a member of other investment committees, including the Agricultural Development Fund and Audit and Risk Group. In addition to her position as CEO, Ms. Nashar serves as deputy chairman of the Arab Gulf Programme for Development. Samba Capital. She is a board member of Samba Bank Limited in Pakistan, Samba Global Markets Limited, and the Institute of International Finance (IIF). She is also a member of the advisory committee Mr. Ali Almansour for the Capital Market Authority (CMA). Ms. Nashar was chosen to chair the action council for Women Mr. AlMansour is a board member of Samba Financial Group, a member of the Executive Committee, in Business, which is one of the main initiatives emanating from the business group of the G20 Summit. and chairman of the Group’s Risk Committee. He has worked at the Al Ra’idah Investment Company She is also on the board of directors of the Saudi Space Commission. She holds a bachelor’s degree since 2017, and was at Jadwa Investment from 2015 to 2017. Prior to that, he worked in Saudi Aramco in computer science and information technology from King Saud University and she completed a from 2013 to 2015 and worked at the KAUST Investment Management Company in Washington DC, leadership development program at the Darden School of Business at the University of Virginia. She is USA, from 2009 to 2012. He is now an independent member of Al Rajhi Takaful Company. Mr. also a certified anti-money laundering specialist of the American Anti-Money Laundering Association. AlMansour holds a bachelor’s degree in finance from the University of North Carolina, USA, and an MBA from King Fahd University of Petroleum and Minerals. He is also an accredited member of the Mohammed A. Al-Shaikh American Institute of Financial Analysts. Mr. Al-Shaikh has been deputy CEO and chief of staff since February 2019. Prior to that, he was the general manager of the retail banking group. Mr. Al-Shaikh has held several positions in the group, Dr. Walid Abanumay where he has worked for over 27 years. He has worked in many departments and units, including Dr. Abanumay is a board member of Samba Financial Group and chairman of the Nomination and corporate banking, the branch network, operations, and internal audit. He holds a bachelor’s degree in Remuneration Committee. He holds a PhD in financial business administration from the University of administrative and financial sciences from King Saud University and completed a leadership Southern Illinois, a master’s degree in information systems management from the University of Illinois, development program at Citibank in New York. and a bachelor’s degree in computer science from the University of Southern Illinois, USA. Dr. Abanumay is currently the managing director at Al Mareefa Al Saudia Company, chairman of Shajaat Nadim Abanumay Industrial Corporation, chairman of the Arabian Waterproofing Industries Company, Dr. Nadeem was appointed deputy CEO for businesses in February 2019. Prior to that, he was the chairman of Rawafd AlJoud Company, and the board member of several limited liability companies. He general manager of treasury for 15 years. He is also the chairman of Samba Bank Limited in Pakistan has previously been on the boards of several local and regional companies and served as a manager and Samba Global Markets Limited. Mr. Nadeem held several positions at Citibank in the treasury and in the general treasury and corporate management in Samba Financial Group from 1990 to 1994. investment departments in America, Europe, the Middle East, and North Africa, where he worked for more than 10 years before moving to Samba. He holds a PhD in science from the Massachusetts Members of the Audit Committee from outside the board: Institute of Technology in the United States.
Mr. Abdulaziz AlAtiqi Beji T. Tak-tak Member of the audit committee in Samba Financial Group. He is a member of the audit committee in Mr. Tak-tak is the general manager of risks and credit and a board member of Samba Capital. His most the Filling & Packing Materials Manufacturing Company (FIPCO), Malath Cooperative Company and recent positions were as regional manager of credit, and risk manager for Islamic structured and Saudi Electricity Company. He also worked in the Capital Market Authority from 2009 until 2015 and banking products. He has held several positions at Citibank in the risk, corporate, investment, and in the Saudi Basic Industries Corporation (SABIC) from 1991 until 2009. He holds a bachelor’s degree financial departments, where he worked for more than 23 years before moving to Samba. He has also in legal accounting from King Saud University. worked in several countries in Europe, Africa, and the Middle East. He holds a BA in political science from the Institute of Political Studies in Paris, France, and a bachelor’s degree in business Mr. Ibrahim Abdullah Alsadah administration from the Senior School of Business Studies in Paris, France. Member of the audit committee at Samba Financial Group. Mr. Ibrahim is a board member of the Dharma Electricity Company and a member of the audit committee of Al Murjan Electricity Company. Saleh M. Al-Qathami He is CEO of the accounting and reporting division of the Saudi Electricity Company. He holds a Mr. Al-Qathami has been general manager of the private banking group since 2014. He joined private bachelor’s degree in accounting from Imam Muhammad bin Saud University. banking services at Saudi United Commercial Bank in 1994, which later merged with Samba Financial Group. Mr. Al-Qathami previously worked for the Saudi British Bank. He studied business administration at King Saud University.
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7. Board of Directors (continued) Naif Al-Saif Khalid Fagih Mr. Al-Saif was appointed treasurer in February 2019. Prior to that, he was the head of fixed income. Mr. Fagih has been general manager of corporate banking group since February 2019. Prior to that, he Mr. Al-Saif has more than 16 years of experience and holds a bachelor’s degree in finance and was the CBG regional manager in the western region. He has over 25 years of banking experience and economy from King Fahad University for Petroleum and Minerals. holds a bachelor’s degree in statistics and computer science from King Abdulaziz University. Sakhar Al-Rubyan Abdul Haleem Sheikh Mr. Al-Rubyan was appointed general manager of human resource group in February 2019. Prior to Mr. Sheikh joined Samba Financial Group in 2001 as part of the financial control and planning group. that, he was responsible for the management and administration of Samba recruitment division and He is currently the group’s chief financial officer, a position he has held since 2008. Prior to joining many other special projects in the human resources group. He has more than 18 years of experience Samba, Mr. Sheikh worked with PricewaterhouseCoopers and Deloitte for over 12 years. He is the past in the human resources and has been with Samba since 2005. He holds a bachelor’s degree in chairman of the CFOs’ committee, organized under the auspices of SAMA. Mr. Sheikh has over 30 business administration. years of experience in strategic financial planning, financial management, public accounting, financial audits, and investment management. As a member of several supervisory committees, he has worked Faisal Al-Ammar with supervisory authorities to develop strategies for the Saudi financial sector. He is accredited by the Mr. Al-Ammar has served as corporate secretary since September 2019. Prior to that, he was the senior Institute of Chartered Accountants and the Institute of Cost & Management Accountants of Pakistan office manager of the executive managers. Mr. Al-Ammar has more than 22 years of work experience and has a bachelor of commerce degree from Karachi University. in the banking sector.
Aiman Gusti 8. Shareholder Relations Mr. Gusti has been general manager of the internal audit group since 2017. Prior to that, he was The board of directors has taken the necessary action to inform all its members of the shareholders’ manager of the internal audit program for the treasury, investment, and financial markets. Mr. Gusti suggestions and observations regarding the group. The general secretariat of the board receives the has over 27 years of banking experience, during which he held several positions at treasury shareholders’ suggestions and observations and informs the board of them. The members attend the departments of the National Commercial Bank, Alinma Bank, and Saudi American Bank. He holds a meetings of the general assembly to hear shareholders’ comments and respond directly to their master’s degree in mathematics from King Fahd University of Petroleum and Minerals. queries. The group also discloses its activities in financial reports that are published periodically on Tadawul website. Disclosures are also posted on the group’s website and social media, which contain Manpir Singh Dillon additional information and news about the group. Mr. Dillon has been general manager of the Samba branch in Dubai since 2012. He was previously the head of banking services of the branch. Mr. Dillon has more than 18 years of experience in banking. In accordance with the group’s articles of association, the general assembly meets at least once a year Prior to joining the group, he worked for Citibank in project management, branches, and wealth during the six months following the end of the fiscal year. The assembly held two meetings during management in Egypt, India, and the United Arab Emirates. He holds a master’s degree in 2019. The following is the record of attendance at those meetings: administration sciences. Meeting Members present Abdulaziz Ibrahim Al-Musained 20/01/2019 Mr. Eisa M. Al Eisa, Mr. Fahad I. Al-Mufarrej, Mr. Fahad H. AlSedairy, Mr. Al-Musained has been general manager of the legal department since 2018. He has 16 years of Mr. Hamad S. AlQasoumi, Mr. Ahmed M. Al-Omran, Mr. Alaa Mohammed experience in the fields of legal, compliance, and banking, and holds a bachelor’s degree in law from AlHarthi, Mr. Abdullah A. AlRowais, Mr. Khalid Abdulrahman Al-Abdulkareem, and King Saud University. Mr. Ali H. Alireza. 25/03/2019 Eng. Ammar Alkhudairy, Mr. Yazeed Alhumied, Dr. Ibrahim Almojel, Fahad Al-Ghannam Dr. Khalid Alsweilem, Mr. Ali Almansour, Mr. Fahd Almufarrij, He has been appointed as the head of compliance in July 2019. He has more than 21 years of Mr. Abdullah Alrowais and Dr. Walid Abanumay experience in the fields of control, operations areas, internal audit, and in compliance leading multiple functions. He holds a bachelor’s degree in business from King Abdulaziz University. The group has made 11 demands for shareholders’ registers in 2019, as follows:
Ali Al-Hawas Date Reason of demand Mr. Al-Hawas was appointed head of sales and trading in February 2019. He is responsible for the sales 20/03/2019 Periodic demand to identify changes in ownership of shares and distribution of treasury products across all customer categories, including corporate banking, 24/03/2019 Periodic demand to identify changes in ownership of shares consumer banking, private banking, and proprietary trading portfolios. Mr. Hawas is a member of the 25/03/2019 Periodic demand to identify changes in ownership of shares bank’s asset liability management committee and he is operationally responsible for managing the 26/03/2019 Dividends distribution of profits for the second half of 2018 Samba Global Markets Ltd business. He joined Samba in 2008 and has over 20 years of treasury 31/03/2019 Periodic demand to identify changes in ownership of shares business experience. 12/05/2019 Periodic demand to identify changes in ownership of shares 01/08/2019 Dividends distribution of profits for the first half of 2019 Maan Al-Kahmous 08/09/2019 Periodic demand to identify changes in ownership of shares Mr. Al-Kahmous was appointed head of the consumer banking group in February 2019. Previously, he was 08/10/2019 Periodic demand to identify changes in ownership of shares head of branch banking. Mr. Al-Kahmous has more than 18 years of experience and holds a bachelor’s degree in industrial engineering and management systems from the University of Central Florida.
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9. Corporate Governance 12. Subsidiaries The group is in overall compliance with the Corporate Governance Regulations issued by the Capital The principal subsidiaries included in the consolidated financial statements of the group are as follows: Market Authority. Samba Capital and Investment Management Company (Samba Capital): A wholly owned subsidiary of 10. Notification of Significant Shareholding and Interest in Shares or Debt Instruments Samba Financial Group, with capital of SR 500 million. Samba Capital is incorporated in Saudi Arabia The group has not received notification from any person (other than board members, senior and licensed by the Capital Market Authority (CMA) to undertake dealing, arranging, managing, executives, and their spouses and children) relating to changes in his/her ownership of the group advising, and custody businesses. Samba Capital began operations on 19 January 2008. shares, as required by article 68 of the rules of the offer of securities and continuing obligations issued by the CMA. The numbers of shares held by the major shareholders, together with shares held by the In July 2017, Samba Capital established a wholly owned subsidiary, Samba Real Estate Investment group’s directors, senior executives, and their spouses and minor children as of 31 December 2019, are Company, which was incorporated in Saudi Arabia. The company manages real estate projects on given below: behalf of a mutual fund that Samba Capital oversees.
Number of Number of Samba Bank Limited, Pakistan (SBL): Samba Bank Limited is a majority-owned subsidiary of Samba shares held at shares held Percentage Financial Group. The ownership of the group stood at 84.51% of SBL capital, comprising 852,040,531 the beginning at the end Net change of holding shares of PKR 10 each. SBL is incorporated as a banking company in Pakistan and is engaged in of the year of the year* during the year at year end commercial banking and related services. SBL is listed on the Pakistan Stock Exchange. The total Public Investment Fund 458,269,500 458,269,500 - 22.91% issued shares of SBL had as 31 December 2019 were 1,008,238,648 shares of PKR 10 each, with total Public Pension Agency 603,546,052 230,858,532 75,687,520 11.54% paid-up capital of PKR 10.082 billion. GOSI 235,363,820 141,963,820 93,400,000 7.10% Ammar Alkhudairy 1,000 1,000 - 0.00005% Samba Real Estate Company: It is a wholly-owned subsidiary of Samba Financial Group with capital of Ali Husein Alireza 295,000 295,000 - 0.014% SR 500,000. It was incorporated in Saudi Arabia on 24 June 2007. The company conducts its Fahd Almufarrij 32,633 32,633 - 0.0016% business in Saudi Arabia. It was formed to manage real estate properties that are transferred to the Ibrahim Almojel 848 848 - 0.000042% group as a security. Abdullah Alrowais 5,000 5,000 - 0.00025% Khalid Alsweilem - 2,000 2,000 0.0001% Co-Invest Offshore Capital Limited (COCL): It is a wholly-owned company of Samba Financial Group with Ali Almansour 1,000 1,000 - 0.00005% capital of US$50,000, incorporated under the laws of the Cayman Islands for the purpose of managing Walid Abanumay 829,081 560,017 269,064 0.028% certain overseas investments through Investment Capital (Cayman) Limited (ICCL), which is fully owned Rania Nashar 18,697 23,981 5,284 0.0011% COCL entity. ICCL has invested in approximately 41.2% of the share capital of Access Co-Invest Mohammed Al-Shaikh 8,260 8,801 541 0.00044% Limited, also a Cayman Island limited liability company, which manages these overseas investments. Beji Tak-tak 48,813 48,813 - 0.0024% Abdul Haleem Sheikh 68,497 75,879 7382 0.0037% Samba Global Markets Limited: This is a wholly-owned company of Samba Financial Group with capital Shajaat Nadim - 10,770 10,770 0.0037% of US$50,000, which is incorporated under the laws of Cayman Islands, with the objective of managing Aiman Gusti 302 874 572 0.00053% certain treasury-related transactions. The company conducts its operations in the Cayman Islands. Saleh Al Qathami 14,615 19,030 4,514 0.00095% Fahad Al-Ghannam - 165 165 0.000008% Samba Finance Limited: A wholly-owned subsidiary of Samba Financial Group with capital of Abdulaziz A-Musained 165 528 363 0.000026% US$50,000, incorporated under the laws of the Cayman Islands for the purpose of generating liquidity Sakhar Al-Rubyan - 440 440 0.000022% for the bank through the issuance of debt instruments. The company was incorporated in June 2019. Naif Al-Saif 1,806 3,271 1,465 0.00016% Maan Al-Kahmous - 3,089 3,089 0.00015% Ali Al-Hawas 660 2,629 1,969 0.00013% Faisal Al Ammar 380 1,179 799 0.000058%
11. Departure From Accounting Standards Mandated by the Saudi Organization for Certified Public Accountants The board is pleased to confirm that Samba Financial Group is fully compliant with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as approved in the Kingdom of Saudi Arabia and other standards and statements issued by the Saudi Organization for Certified Public Accountants. The consolidated financial statements for Samba are prepared as per the IAS/IFRS and the accounting guidance provided by the Saudi Arabian Monetary Authority (SAMA). It also prepares its consolidated financial statements in accordance with both the Banking Control Law and the Companies Regulations in the Kingdom of Saudi Arabia. No departure from any of these accounting standards was noted during 2019.
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13. Dividends 14. Borrowings & Debt Instruments Samba Financial Group’s dividend policy conforms to the Banking Control Law and is calculated as follows: The bank entered into a syndicated unsecured floating rate loan arrangement on July 17, 2019, amounting to US$575 million with a tenor of three years for general corporate purposes. The term loan 1. The calculation of sums required for the payment of Zakat due on Saudi shareholders and tax due bears commission at market-based variable rates. on non-Saudi shareholders as prescribed by the laws in force in Saudi Arabia. The company pays such amounts to the competent authority. Zakat paid by Saudi shareholders shall be deducted Using a special purpose vehicle, the bank has also completed the issuance of its US$1 billion from their share of the net profit, and the tax paid by non-Saudi shareholders shall also be denominated notes under a US$5 billion Euro Medium Term Note program. The notes are unsecured deducted from their share of the net profit. and have been issued under this program for a period of five years, beginning from the drawdown date 2. A sum of at least 25% of the remainder of the net profit after the deduction of Zakat and tax, as of October 2, 2019, and may be subject to early redemption at the option of the bank, subject to the indicated in point 1 above, shall be allocated to the statutory reserve until this reserve equals at terms and conditions of the issue. The notes are listed on the Irish Stock Exchange plc. least the paid-up share capital. 3. Out of the remainder of (1) and (2) above, an amount not less than 5% of the paid-up capital shall In the ordinary course of its business, the group borrows and lends money in the interbank market and be allocated to Saudi and non-Saudi shareholders. This amount will be distributed in proportion to with SAMA. These transactions, which are usually short-term and carry a special commission rate, are the paid-up part of the shares, as recommended by the board of directors and approved by the reflected in the group’s consolidated financial statements. The group did not issue shares or debt General Meeting. The General Meeting shall declare no larger dividend than is recommended by instruments to any of its subsidiaries in 2019. the board of directors. 4. The remaining amount out of (1) (2) and (3) above shall be used in accordance with the 15. Material Contracts recommendations of the board of directors and approved by the General Meeting. The group did not execute any material contracts during the year in which any of its directors, the chief 5. The respective percentage of the shareholdings of each of the Saudi and non-Saudi shareholders executive officer, the chief financial officer, or any associate had any interest, apart from what is shall be observed when calculating the sums to be allocated as statutory reserves and other mentioned in note 35 of the 2019 audited consolidated financial statements. reserves out of the net profit, after deducting Zakat and tax. 16. Waiver of Interest by a Director, Senior Executive, or Shareholder of the Group The board of directors is pleased to recommend to the general assembly a dividend of SR 0.70 per The group is not aware of any arrangement or agreement whereby a director, senior executive, or a share, net of Zakat, for the second half of 2019, totaling SAR1.394 billion, representing 7% of the shareholder of the group has waived any interest or rights to the dividends or remuneration. share nominal value, in addition to the dividends of SR 0.72 per share, net of Zakat, for the first half of 2019, totaling SAR1.438 billion, representing 7.2% of the share nominal value. A total of SR 2.832 17. Transactions with Related Parties billion will, therefore, be distributed to Saudi shareholders for the year ended 31 December 2019. During its normal course of business, the group deals with related parties. Transactions with related Dividends shall be available for distribution after shareholder approval at the Annual General Meeting, parties are subject to the ratios stipulated in the Banking Control Law and the instructions issued by the timing of which will be announced later. the central banks. The year-end balances resulting from such transactions are shown in the consolidated financial statements as follows:
2019 2018 SAR’000 SAR’000 Members of the board of directors, other major shareholders, and their affiliates: Loans and advances 5,932,186 685,478 Customer deposits 27,821,961 8,564,747 Contingent liabilities 43,614 1,112,520 Samba Investment Funds Customer deposits 101,617 106,496
Other major shareholders are those who own more than 5% of the issued and paid up share capital of the bank and what is listed on Tadawul.
Transactions with related parties include a set of business and contracts that are made for the bank’s account and in which the members of the board of dbirectors have a direct or indirect interest in it as follows:
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17. Transactions with Related Parties (continued)
Contract type Name of related party Owner End of contract Annual contract price (SAR) Lease contract for an ATM location at the Deputy chairman Mr. Yazeed Alhumied Saudi Arabian Airlines One-year contract that 12,000 Saudi Arabian Airlines Corporation in Dhahran. is a member of the board of directors of the Corporation renews automatically Saudi Arabian Airlines Corporation Lease contract for an ATM location (free) at the Deputy chairman Mr. Yazeed Alhumied The General Authority 28/02/2024 Free General Authority of Civil Aviation in AlUla is a member of the board of directors of the of Civil Aviation General Authority of Civil Aviation Lease contract for an ATM location at Deputy chairman Mr. Yazeed Alhumied King Abdulaziz Airport in One-year contract that 421,500 King Abdulaziz Airport in Jeddah is a member of the board of directors of the Jeddah, affiliated to the renews annually General Authority of Civil Aviation General Authority of Civil Aviation Lease contract for an ATM location at Deputy chairman Mr. Yazeed Alhumied Dammam Airports Company, One-year contract that 141,750 Dammam Airports Company is a member of the board of directors of the a subsidiary of the renews automatically General Authority of Civil Aviation General Authority of Civil Aviation Lease contract of a branch of the group Board member Eyad Alhusain works with General Organization for 31/08/2020 866,180 at the Granada Center in Riyadh the General Organization for Social Insurance Social Insurance and represents the organization on the Samba board of directors Lease contract for six ATM sites and two Board member Eyad Alhusain works with General Organization for 31/08/2020 756,300 warehouses at the Granada Center in Riyadh the General Organization for Social Insurance Social Insurance and represents the organization on the Samba board of directors Lease contract for two ATM sites at the Board member Eyad Alhusain works with General Organization for 28/01/2020 10,000 National Hospital (National Medical Care Company) the General Organization for Social Insurance Social Insurance in Riyadh and represents the organization on the Samba board of directors A contract that provides business communication Board member Abdullah Alrowais works with Mobily One-year contract that Based on the services services, internet, bulk SMS and advanced Mobily (head of Internal Audit Department) renews automatically provided by Mobily, information and communication technology which amounted to solutions to the group SAR7,290,000 in 2019
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17. Transactions with Related Parties (continued) 19. Human Resources The following is an analysis of the income and expenses relating to transactions with related parties The group has attached great importance to recruiting promising Saudi youth. It has also consistently included in the consolidated financial statements: sought to support its various business sectors with Saudi competencies, contributing to a steady growth in its job nationalization rates, which reached 95.5% of its total workforce. With its long-term 2019 2018 vision of people as the true capital of the group, Samba creates an attractive working environment that SAR’000 SAR’000 stimulates human and professional capabilities. Comprehensive programs help to develop functional Special commission income 182,908 10,557 skills and raise the quality of staff performance, while a commitment to equal opportunity and career Special commission expenses 413,057 301,222 progression helps to promote staff loyalty. The group has continued to develop qualified banking Fees and commission income, net 106,907 131,099 leaders of both genders to prepare them to assume the highest executive positions, who can then Directors’ remuneration 4,987 5,125 advance the group to greater success and leadership in financial services.
The following is an analysis of the total remuneration paid to senior management officers during the year: Samba launched several initiatives and job nationalization programs in partnership with academic institutions in the Kingdom and was involved in career and graduate days for young Saudi graduates, 2019 2018 both locally and further afield. The group continues to sponsor many events for new graduates, such SAR’000 SAR’000 as career and graduate days at the Institute of Public Administration in Riyadh, Jeddah, and Dammam, Short-term employee benefits 80,055 63,368 King Fahd University of Petroleum and Minerals, Al-Faisal University, and King Saud University. The Post-employment benefits, employee end-of-service benefits, group also consistently sponsors and participates in career days for the graduates of the Custodian of and equity-based incentive 9,540 7,437 the Two Holy Mosques program for foreign scholarships in the United Kingdom, USA, and Canada. Samba regards career and graduate days as an effective channel of communication between business sectors and new graduates. The aim is to form an integral link between national institutions with groups Senior management officers shall mean those persons, including the chief executive officer, who have of young Saudi graduates that will enrich the nationalization programs these institutions adopt. the authority and responsibility to carry out the planning, direction, and supervision activities of the bank, directly or indirectly. The group declares that there are no acts or contracts to which it is a party or in Several initiatives were launched to support Samba’s human resources strategy, including talent which there is an interest of a board member, senior executive, or any person related to any of them. programs and career replacement management. The group is committed to the new risk-based compensation requirements of the Saudi Arabian Monetary Agency. Community social responsibility 18. Statutory Payments is also an area in which we are making strides, as demonstrated by the cooperative (co-op) training Zakat accrued in respect of Saudi shareholders this year stood at SR 577 million for 2019 and income programs we have offered Saudi students at different educational institutions in the Kingdom. tax accrued in respect of foreign shareholders stood at SR 12 million. The group expects to make these payments to government entities when they become due (details can be found in the group’s The group is committed to paying benefits and compensation to its employees, according to Saudi consolidated financial statements for 2019). GOSI payments for 2019 totaled SR 124.6 million. labor law, and the requirements of statutory payments due in foreign bank branches and subsidiaries. The total reserves for end-of-service indemnities as at 31 December 2019 amounted to SR 720 million. In addition, Samba continues to provide its staff with an equity-settled, share-based incentive plan that offers eligible employees the opportunity to own Samba shares at a pre-determined benchmark price for a fixed time, subject to certain conditions.
Training and development have long been a core part of the group’s strategy, enabling it to invest in human capital as part of its vision of sustainable excellence and quality upgrades. A total of 5,545 employees were trained during 2019, representing 16,722 training man-days. This included specialized training that Samba Academy provided, as well as the financial academy, other local specialized institutes, and selective leading overseas institutions, universities, and business schools.
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Directors’ Report continued
20. Treasury Shares The bank has the following incentive programs for share and year-end payments: The bank provides its eligible staff with incentive plans calculated on the basis of shares (the plan) and approved by the Saudi Arabian Monetary Agency (SAMA). Under the terms of this plan, the bank Number of outstanding plans 5 grants its eligible staff stock options at predetermined purchase prices for a specified period. Upon Date of grants From August 2015 to January 2019 maturity of the plan, the bank delivers the respective allocated shares when the relevant staff members Due date (maturity) From April 2020 to January 2024 exercise the options in accordance with the terms and conditions of the plan. The costs of such plans The number of shares granted on the are measured at fair value at the date of grant of options or equity. The fair value of the long-term grant date, adjusted for free shares issued 2,120,770 bonus plan is determined by referring to the market value of the shares at the beginning of the plan The purchase price/indicative price per using the discounted cash flow method. share on the date of the grant, after being adjusted for free shares issued Between SR 20.90 and SR 37.70 The cost of the plan is recognized over the period during which the service condition is satisfied. This Maturity period 5 years period expires at the date on which the employees concerned are entitled to the equity (maturity date). Conditions of entitlement Retain participating staff Cumulative expenses - calculated under this plan at the date of preparation of all financial statements Method of payment Stocks until maturity - show the extent to which the maturity period has expired and the bank’s best estimate Evaluation method used Discounted cash flows of the number of shares to be granted at the end. The amount charged or credited to the consolidated Fair value of the shares on the grant date, statement of income for a period represents the movement in cumulative expenses recognized at the adjusted for the free shares issued Between SR 17.50 to SR 32.50 beginning and end of that period. The fair value of shares granted during the year amounted to SR 17.8 million. The inputs used to The bank, having obtained the approval of the Saudi Arabian Monetary Agency (SAMA), entered into calculate the fair value of shares granted during the year are market price at the grant date, duration an agreement with a neutral third party to purchase the relevant shares, only to manage the price risks of the program, expected dividend, and the annual risk-free rate of return. Shares are granted on the related to those shares under these programs. Under the terms of such an agreement, the bank shall condition that the staff member shall remain on the job without considering the prevailing market at no time be the legal owner of the shares in question. conditions. The total expenses included in the consolidated financial statements for share-based payment programs for 2019 amounted to SR 7.4 million.
21. Books of Accounts, System of Internal Control, and Financial Statements We confirm that: • Proper books of account have been maintained. • The system of internal control is sound in design and has been effectively implemented. • There are no significant doubts concerning the group’s ability to continue as a going concern.
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22. Penalties Samba Financial Group did not face any significant penalties or fines during the 2019 financial year. Most of the minor fines incurred were operational and they were addressed in a timely manner. These fines are as follows:
2018
Violation category No. Amounts SR’000 Imposition agency Causes of violation Measures taken Violating SAMA instructions 0 0 - - - relating to due diligence Violating SAMA Customer 1 10 SAMA Violation of SAMA Customer protection instructions Internal measures have been taken to ensure protection instructions staff compliance with instructions Violating SAMA instructions 12 1,064 SAMA SAMA instructions regarding the performance level Measures have been taken to comply with the SLA regarding the performance level of ATMs and POS devices of ATMs and POS machines Violating SAMA supervisory 10 53,310 SAMA Instructions to request data, requirements for Measures taken to avoid their recurrence included instructions appointment of leadership positions, technical updating internal procedures, establishing regulatory failure, instructions for the detection and seizure procedures, awareness measures for staff, of balances and accounts, examination instructions, and other measures other measures Violating SAMA instructions 2 230 SAMA Instructions on opening and operating bank Measures taken to avoid their recurrence include regarding due diligence in accounts and AML/CFT regulations updating internal procedures, establishing regulatory combating money laundering procedures, awareness measures for staff, and terrorism financing and other measures Others - 739 Ministry of Municipal Fines on the group’s branches and ATMs - and Rural Affairs
2019
Violation category No. Amounts SR’000 Imposition agency Causes of violation Measures taken Violating SAMA instructions 0 0 - - - relating to due diligence Violating SAMA Customer 1 270 SAMA Violation of SAMA Customer protection instructions Internal measures have been taken to ensure protection instructions staff compliance with instructions Violating SAMA instructions 0 0 - - - regarding the performance level of ATMs and POS machines Violating SAMA supervisory 15 1,361 SAMA Instructions to request data, requirements for Measures taken to avoid their recurrence included instructions appointment of leadership positions, technical updating internal procedures, establishing regulatory failure, instructions for the detection and seizure procedures, awareness measures for staff, of balances and accounts, examination instructions, and other measures other measures Violating SAMA instructions 0 0 - - - regarding due diligence in combating money laundering and terrorism financing Others - 779 Ministry of Municipal Fines on the group’s branches and ATMs - and Rural Affairs
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GEMENT 23. Appropriation of Income NA • A S M A The board of directors recommends that net income for the year be appropriated/distributed as follows: U H D S I A A C SR’MM R
E A
B N
I
Shareholders’ net income for the year 3,984 I
L
A Best Online Cash Management
N
•
Interim dividend (1,438) O
2 in Saudi Arabia 2019
T 0
S 1
9 Final dividend (1,394) E
Total dividend (2,832) B Transfer to statutory reserve (1,155) Transfer to general reserve - Transfer to retained earnings (3)
24. Auditors At the Annual Ordinary General Meeting of Samba’s shareholders, held on 25 March 2019, Messrs. Ernst & Young and PricewaterhouseCoopers were appointed as joint auditors for the fiscal year ending 31 December 2019. There is no conflict between the recommendations of the audit committee and the decisions of the board of directors on the appointment of auditors, the determination of their fees, the evaluation of their performance, or the appointment of the internal auditor. The forthcoming Annual Ordinary General Meeting of shareholders will consider the reappointment of the existing auditors or appoint other auditors and determine their remuneration for the audit of the group for the year ending 31 December 2020.
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International Recognition
A1 A+ BBB+ A-
A Stable Outlook
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ROVIDER ERVICES AL BANK P • S • IT • E S E S G S A A IF A C U C U N D U N D D A A D I I E N I N A V I A I I A
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Best Trade Finance Provider Best Trade Finance Services N Most Innovative Digital Bank
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Independent Auditors’ Report
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Independent Auditors’ Report
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Independent Auditors’ Report continued
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Financial Statements
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Statements of Consolidated Financial Position As at December 31, 2019 and 2018
(Restated) 2019 2018 Notes SAR’000 SAR’000 Assets Cash and balances with Central Banks 3 18,138,081 25,419,604 Due from banks and other financial institutions, net 4 3,628,391 17,622,026 Investments, net 5 85,013,253 66,350,254 Derivatives 9 3,092,221 3,445,772 Loans and advances, net 6, 35 141,595,245 113,708,562 Property and equipment, net 7 3,066,858 2,693,443 Other assets 8 1,069,752 698,639 Total Assets 255,603,801 229,938,300
Liabilities and Equity Liabilities Due to banks and other financial institutions 10 15,646,808 7,871,574 Customer deposits 11, 35 180,165,680 170,170,046 Term loan 12 2,168,095 - Debt securities in issue 13 3,746,454 - Derivatives 9 1,192,186 2,457,423 Other liabilities 14 7,235,746 7,133,322 Total Liabilities 210,154,969 187,632,365
Equity Equity attributable to equity holders of the Bank Share capital 16 20,000,000 20,000,000 Statutory reserve 17 18,348,111 17,193,239 General reserve 17 130,000 130,000 Fair value and other reserves 2,752,040 217,992 Retained earnings 3,696,851 3,669,995 Proposed dividend 27 1,393,898 1,998,000 Treasury stocks (962,080) (996,093) Total equity attributable to equity holders of the Bank 45,358,820 42,213,133 Non-controlling interest 90,012 92,802 Total Equity 45,448,832 42,305,935 Total Liabilities and Equity 255,603,801 229,938,300
The accompanying notes 1 to 39 form an integral part of these consolidated financial statements
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Statements of Consolidated Income For the years ended December 31, 2019 and 2018
(Restated) 2019 2018 Notes SAR’000 SAR’000 Special commission income 20 8,426,784 7,538,190 Special commission expense 20 2,050,136 1,386,298 Special commission income, net 6,376,648 6,151,892
Fees and commission income, net 21 1,268,406 1,363,351 Exchange income, net 307,022 288,508 Income from investments held at FVIS, net 203,740 102,035 Trading income net 22 170,204 60,932 Gains on FVOCI debt, net 23 77,668 9,601 Other operating income, net 24 196,663 180,201 Total operating income 8,600,351 8,156,520
Salaries and employee related expenses 25 1,487,485 1,245,347 Rent and premises related expenses 334,279 357,667 Depreciation 7 204,299 112,426 Other general and administrative expenses 851,765 735,974 Total operating expenses before credit impairment provision 2,877,828 2,451,414 Provision for credit impairment, net of recoveries 6 1,103,036 155,518
Total operating expenses 3,980,864 2,606,932
Net income for the years before zakat and taxation 4,619,487 5,549,588
Zakat for the year 27 576,867 2,436,059 Current and deferred tax for the year 27 51,940 53,809 Net income for the years after zakat and taxation 3,990,680 3,059,720
Attributable to: Equity holders of the Bank 3,984,295 3,051,090 Non-controlling interest 6,385 8,630 Basic earnings per share for the years (SAR) 26 2.04 1.56 Diluted earnings per share for the years (SAR) 26 1.99 1.53
The accompanying notes 1 to 39 form an integral part of these consolidated financial statements
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Statements of Consolidated Comprehensive Income For the years ended December 31, 2019 and 2018
(Restated) 2019 2018 Notes SAR’000 SAR’000 Net income for the years after zakat and taxation 3,990,680 3,059,720 Other comprehensive income for the years – items that will not be reclassified subsequently to the statements of consolidated income:
FVOCI financial assets - equities: - Change in fair values 562,034 454,287 - Loss on sale of FVOCI equity investments (17,869) -
Changes due to remeasurements of employee benefit obligation 15 (115,314) -
Other comprehensive income for the years - items that will be reclassified subsequently to the statements of consolidated income: Exchange differences on translation of foreign operations (47,594) (79,153)
FVOCI debt financial assets: - Net change in fair values 2,115,341 (190,102) - Transfers to statements of consolidated income (77,668) (9,601)
Cash flow hedges: - Net change in fair values 121,576 (18,997) - Transfers to statements of consolidated income (33,502) (51,974) Other comprehensive income for the years 2,507,004 104,460 Total comprehensive income for the years 6,497,684 3,164,180
Attributable to: Equity holders of the Bank 6,500,474 3,170,862 Non-controlling interest (2,790) (6,682) Total 6,497,684 3,164,180
The accompanying notes 1 to 39 form an integral part of these consolidated financial statements
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Statements of Consolidated Changes in Equity For the years ended December 31, 2019 and 2018
Attributable to equity holders of the Bank Fair value and other reserves Exchange FVOCI Employee Non- Share Statutory General translation financial Cash flow benefit plan Retained Proposed Treasury controlling Total capital reserve reserve reserve assets hedges reserve earnings dividends stocks Total interest equity 2019 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 Balance at the beginning of the year as restated 20,000,000 17,193,239 130,000 (275,102) 592,891 (99,797) - 3,669,995 1,998,000 (996,093) 42,213,133 92,802 42,305,935 Net changes in treasury stocks ------46,700 - 34,013 80,713 - 80,713 Transfer to statutory reserve 17 - 1,154,872 - - - - - (1,154,872) - - - - - 2019 final dividend proposed 27------(1,393,898) 1,393,898 - - - - 2019 Interim dividend paid 27------(1,437,500) - - (1,437,500) - (1,437,500) 2018 final dividend paid 27------(1,998,000) - (1,998,000) - (1,998,000) Subtotal 20,000,000 18,348,111 130,000 (275,102) 592,891 (99,797) - (269,575) 1,393,898 (962,080)38,858,346 92,802 38,951,148 Net Income for the year after zakat and taxation ------3,984,295 - - 3,984,295 6,385 3,990,680 Other Comprehensive income for the year 18---(31,919) 2,593,207 88,074 (115,314) (17,869) - - 2,516,179 (9,175) 2,507,004 Total comprehensive income for the year - - - (31,919) 2,593,207 88,074 (115,314) 3,966,426 - - 6,500,474 (2,790) 6,497,684 Balance at end of the year 20,000,000 18,348,111 130,000 (307,021) 3,186,098 (11,723) (115,314) 3,696,851 1,393,898 (962,080)45,358,820 90,012 45,448,832
2018 Balance at the beginning of the year 20,000,000 15,811,044 130,000 (191,160) 318,206 (28,826) - 7,043,322 - (1,021,743)42,060,843 99,484 42,160,327 Effect of change in accounting treatment 2.2------(2,596) - - (2,596) - (2,596) Balance at the beginning of the year as restated 20,000,000 15,811,044 130,000 (191,160) 318,206 (28,826) - 7,040,726 - (1,021,743)42,058,247 99,484 42,157,731 Transfer to statutory reserve 17 - 1,382,195 - - - - - (1,382,195) - - - - - Net changes in treasury stocks ------46,722 - 25,650 72,372 - 72,372 Dividend paid for 2018 (interim) and 2017 (final) 27------(5,086,348) 1,998,000 - (3,088,348) - (3,088,348) Subtotal 20,000,000 17,193,239 130,000 (191,160) 318,206 (28,826) - 618,905 1,998,000 (996,093)39,042,271 99,484 39,141,755 Net income for the year after zakat and taxation ------3,051,090 - - 3,051,090 8,630 3,059,720 Other comprehensive (loss)/income for the year 18---(83,942) 274,685 (70,971) - - - - 119,772 (15,312) 104,460 Total comprehensive income for the year - - - (83,942) 274,685 (70,971) - 3,051,090 - - 3,170,862 (6,682) 3,164,180 Balance at end of the year as restated 20,000,000 17,193,239 130,000 (275,102) 592,891 (99,797) - 3,669,995 1,998,000 (996,093) 42,213,133 92,802 42,305,935
The accompanying notes 1 to 39 form an integral part of these consolidated financial statements
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Statements of Consolidated Cash Flows For the years ended December 31, 2019 and 2018
(Restated) 2019 2018 Notes SAR’000 SAR’000 Operating activities Net income for the years before zakat and taxation 4,619,487 5,549,588
Adjustments to reconcile net income to net cash from operating activities: Amortization of premium and accretion of discount on non-trading investments, net (28,602) (28,792) Income from investments held at FVIS, net (203,740) (102,035) Gain on FVOCI debt, net 23 (77,668) (9,601) Depreciation 7 204,299 112,426 Gain on disposal of property and equipment, net 24 (1,816) (300) Provision for credit impairment, net of recoveries / reversals 6 1,103,036 155,518 Interest on term loan and debt securities in issue, net of discount 54,747 - Net (increase) / decrease in operating assets: Statutory deposits with Central Banks (416,712) 414,937 Due from banks and other financial institutions maturing after ninety days 9,343,492 (4,303,299) Investments held at FVIS 203,055 2,296,234 Derivatives 353,551 3,068,936 Loans and advances (28,992,090) 2,986,177 Other assets (371,113) (129,754) Net increase / (decrease) in operating liabilities: Due to banks and other financial institutions 7,775,234 1,320,110 Customer deposits 9,995,634 2,247,392 Derivatives (1,265,237) (1,621,198) Other liabilities 196,737 (448,200) 2,492,294 11,508,139 Zakat and income tax paid (832,190) (990,648) Net cash from operating activities 1,660,104 10,517,491
Investing activities Proceeds from sale of and matured non-trading investments 8,267,484 14,058,883 Purchase of non-trading investments (24,249,047) (18,412,750) Purchase of property and equipment, net of exchange adjustments (579,683) (167,897) Proceeds from sale of property and equipment 3,785 1,212 Net cash used in investing activities (16,557,461) (4,520,552)
Financing activities Dividends paid (3,404,418) (3,126,090) Term loan 2,156,250 - Debt securities 3,703,552 - Treasury stocks, net 80,713 72,372 Net cash from / (used in) financing activities 2,536,097 (3,053,718) (Decrease) / increase in cash and cash equivalents (12,361,260) 2,943,221 Cash and cash equivalents at the beginning of the year 28 23,916,469 20,973,248 Cash and cash equivalents at the end of the year 28 11,555,209 23,916,469 Special commission received during the year 8,194,220 7,460,463 Special commission paid during the year (1,891,405) (1,488,901)
Supplemental non-cash information: Net changes in fair value and transfers to Statements of Consolidated Income 2,669,912 183,613 Right of use assets 438,148 -
The accompanying notes 1 to 39 form an integral part of these consolidated financial statements
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
1. General Samba Financial Group (the Bank), a joint stock company incorporated in the Kingdom of Saudi Arabia, was formed pursuant to Royal Decree No. M/3 dated 26 Rabie Al-Awal 1400H (February 12, 1980). The Bank commenced business on 29 Shaa’ban 1400H (July 12, 1980) when it took over the operations of Citibank in the Kingdom of Saudi Arabia. The Bank operates under commercial registration no. 1010035319 dated 6 Safar 1401H (December 13, 1980) through its 73 branches (2018: 72 branches) in the Kingdom of Saudi Arabia and two overseas branches (2018: three branches). The Bank including its overseas branches employed 3,614 full time direct staff at the year-end (2018: 3,290). The Bank is listed on the Saudi Arabian stock exchange and its head office is located at King Abdul Aziz Road, P.O. Box 833, Riyadh 11421, Kingdom of Saudi Arabia.
The objective of the Bank is to provide a full range of banking and related services. The Bank also provides Shariah approved Islamic banking products to its customers.
The consolidated financial statements include financial statements of the Bank and its following subsidiaries, hereinafter collectively referred to as “the Group”.
Samba Capital and Investment Management Company (Samba Capital) In accordance with the securities business regulations issued by the Capital Market Authority (CMA), the Bank has established a wholly owned subsidiary, Samba Capital and Investment Management Company under commercial registration number 1010237159 issued in Riyadh dated 6 Shaa’ban 1428H (August 19, 2007), to manage the Bank’s investment services and asset management activities related to dealing, arranging, managing, advising and custody businesses. The company is licensed by the CMA and has commenced its business effective January 19, 2008. Samba Capital was converted from a limited liability company to a closed joint stock company on 28 Rajab 1438H (April 25, 2017), which is the date of commercial registration of the closed joint stock company.
During 2017, Samba Capital has formed a wholly owned subsidiary “Samba Investment Real Estate Company” which is incorporated in the Kingdom of Saudi Arabia under commercial registration number 1010715022 issued in Riyadh dated 23 Shawaal 1438H (July 17, 2017). The company has been formed as a limited liability company (sole ownership) and is engaged in managing real estate projects for and on behalf of a mutual fund managed by Samba Capital.
Samba Bank Limited, Pakistan (SBL) An 84.51% owned subsidiary incorporated as a banking company in Pakistan and engaged in commercial banking and related services, and listed on Pakistan Stock Exchange.
Co-Invest Offshore Capital Limited (COCL) A wholly owned company incorporated under the laws of Cayman Islands for the purpose of managing certain overseas investments through an entity; Investment Capital (Cayman) Limited (ICCL) which is fully owned by COCL. ICCL has invested in approximately 41.2% of the share capital of Access Co-Invest Limited, also a Cayman Island limited liability company, which manages these overseas investments.
Samba Real Estate Company A wholly owned subsidiary incorporated in Saudi Arabia under commercial registration no. 1010234757 issued in Riyadh dated 9 Jumada II, 1428H (June 24, 2007). The company has been formed as a limited liability company with the approval of Saudi Arabian Monetary Authority (SAMA) and is engaged in managing real estate projects on behalf of the Bank.
Samba Global Markets Limited A wholly owned company incorporated as a limited liability company under the laws of Cayman Islands on February 1, 2016, with the objective of managing certain treasury related transactions. The company started its commercial operations during the fourth quarter of 2016.
Samba Funding Limited A 99% owned subsidiary incorporated as a limited liability company under the laws of Cayman Islands on June 19, 2019, with the main objective of generating liquidity for the Bank through issuance of debt securities. The company started its commercial operations during the third quarter of 2019.
2. Summary of significant accounting policies The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below.
2.1 Statement of compliance The consolidated financial statements of the Group as at and for the year ended December 31, 2019 have been prepared in accordance with • International Financial Reporting Standards (IFRS) as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by the Saudi Organization for Certified Public Accountants (SOCPA); and • in compliance with the provisions of Banking Control Law, the Regulations for Companies in the Kingdom of Saudi Arabia and Articles of Association of the Bank.
2.2 Basis of preparation and presentation The consolidated financial statements of the Group as at and for the year ended December 31, 2018, were prepared in compliance with International Financial Reporting Standards (“IFRS”) respectively, as modified by SAMA for the accounting of zakat and income tax (relating to the application of IAS 12 – “Income Taxes” and IFRIC 21 – “Levies” so far as these relate to zakat and income tax) and the Banking Control Law and the Regulations for Companies in the Kingdom of Saudi Arabia.
On July 17, 2019, SAMA instructed the banks in the Kingdom of Saudi Arabia to account for the zakat and income taxes in the statement of consolidated income. This aligns with the IFRS and its interpretations as issued by the International Accounting Standards Board (“IASB”) as endorsed in the Kingdom of Saudi Arabia and with the other standards and pronouncements that are issued by SOCPA (collectively referred to as “IFRS as endorsed in KSA”).
Accordingly, the Group changed its accounting treatment for zakat and income tax by retrospectively adjusting the impact in line with International Accounting Standard 8 Accounting Policies, Changes in Accounting Estimates and Errors and the effects of this change are disclosed in note 40 to these consolidated financial statements.
The consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of derivatives, FVOCI, FVIS financial assets and liabilities and employee benefits which are stated at present value of their obligation. In addition, as explained fully in the related notes, financial assets and liabilities that are hedged under a fair value hedging relationship are adjusted to record changes in fair value attributable to the risks that are being hedged.
Under article 37 of the Bank’s Articles of Association, the Gregorian calendar is observed for reporting the consolidated financial statements. These consolidated financial statements are expressed in Saudi Arabian Riyals (SR) and are rounded off to the nearest thousands. Notes to the Consolidated Financial Statements 67 Samba_19_Eng_Accounts_AW.qxp_Samba_19_Eng_Acc 15/09/2020 09:09 Page 68
Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.3 Consolidation These consolidated financial statements include the financial position and results of Samba Financial Group and its subsidiary companies. The financial statements of subsidiaries are prepared for the same reporting period as that of the Bank, using consistent accounting policies except for Co-Invest Offshore Capital Limited (COCL) whose financial statements are made up to the previous quarter end for consolidation purposes to meet the group reporting timetable. However, any material changes during the interim period are adjusted for the purposes of consolidation. In addition, wherever necessary, adjustments have been made to the financial statements of the subsidiaries to align with the Bank’s consolidated financial statements.
Significant intragroup balances and transactions are eliminated upon consolidation.
Subsidiaries are the entities that are controlled by the Group. The Group controls an entity when it is exposed, or has a right, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over that entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which the control is transferred from the Group. The results of subsidiaries acquired or disposed-off during the year are included in the statement of consolidated income from the date of acquisition or up to the date of disposal, as appropriate.
Non-controlling interest represents the portion of net income or loss and net assets not owned, directly or indirectly, by the Group in subsidiaries and are presented in the statements of consolidated income and within equity in the statements of consolidated financial position separately from the equity holders of the Bank.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Bank. The cost of acquisition is measured at the fair value of the consideration given at the date of exchange. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair value at the date of acquisition. The excess of the cost of acquisition over the fair value of the Bank’s share of identifiable net assets acquired is recorded as intangible asset – goodwill.
In addition to the subsidiaries stated above under note 1, the Bank is also party to special purpose entities namely Ras As Zawar Asset Leasing Company and Saudi Kayan Asset Leasing Company having 50% share in each entity. These are formed with the approval of SAMA solely to facilitate certain Shariah complaint financing arrangements. The Bank has concluded that these entities cannot be consolidated as it does not control these entities. However, the exposures to these entities are included in the Bank’s loans and advances portfolio.
2.4 Impact of changes in accounting policies due to adoption of new standards The accounting policies adopted are consistent with those of the previous financial year except for the changes described in the following paragraph.
The Group has adopted a new accounting standard issued by the International Accounting Standards Board (IASB) and the impact of the adoption of this standard is explained below:
IFRS 16 Leases Effective January 1, 2019 , the Group has adopted IFRS 16 “Leases” issued in January 2016 International Accounting Standards Board (IASB).This standard replaces the existing guidance on leases, including IAS 17 ‘Leases”, IFRIC 4 ‘Determining whether an Arrangement contains a Lease”, SIC 15 “Operating Leases – Incentives” and SIC 27 “Evaluating the Substance of Transactions in the Legal Form of a Lease”.
IFRS 16 stipulates that all leases and the associated contractual rights and obligations should generally be recognized in the Group’s statement of consolidated financial position, unless the term of lease is 12 months or less or the lease is for low value asset. Thus, the classification required under IAS 17 “Leases” into operating or finance leases is eliminated for Lessees. For each lease, the lessee recognizes a liability for the lease obligations to be incurred in the future. Correspondingly, a right to use the leased asset is capitalized, which is generally equivalent to the present value of the future lease payments plus directly attributable costs and which is amortized over the useful life.
The Group has opted for the modified retrospective application permitted by IFRS 16 upon adoption of the new standard. During the first time application of IFRS 16 to operating leases, the right to use the leased assets was generally measured at the amount of present value of the lease liability, using the interest rate at the time of first time application. As a practical expedient, the Group has opted to apply a single discount rate to a portfolio of leases with similar remaining lease term.
On adoption of IFRS 16, the Group has recognized lease liabilities recorded under other liabilities amounting to SR 374 million and associated right-of-use assets amounting to SR 394 million recorded under property and equipment in relation to contracts that have been concluded as leases under the principles of IFRS 16. The liabilities have been measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as of January 1, 2019. The associated rights-of-use assets have been measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the consolidated statement of financial position as at December 31,2019.
2.5 Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest. The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price or dealer price quotations. For all other financial instruments not traded in an active market, the fair value is determined by using valuation techniques deemed to be appropriate in the circumstances. Valuation techniques include the market approach (i.e. using recent arm’s length market transactions adjusted as necessary and with reference to the current market value of another instrument that is substantially the same) and the income approach (i.e. discounted cash flow analysis and option pricing models making as much use of available and supportable market data in a reasonably possible manner). A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between the levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.6 Critical accounting judgments and estimates The preparation of consolidated financial statements in conformity with IFRS as endorsed in KSA requires the use of certain critical accounting estimates, assumptions and judgements that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Such estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including obtaining professional advice and expectations of future events that are believed to be reasonable under the circumstances. Significant areas where management has used estimates, assumptions or exercised judgements are as follows:
(a) Credit Impairment losses on financial instruments held at amortised cost and FVOCI debt The Group reviews its financial assets portfolios to assess impairment on a quarterly basis. The Group’s ECL calculations are outputs of complex models with several underlying assumptions regarding the choice of variable inputs and their interdependencies. Refer to Note 30 (b) for additional information.
(b) Fair value of unquoted financial instruments The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques including models are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
2.7 Settlement date accounting All regular way purchases and sales of financial instruments are recognized and derecognized on the settlement date. Regular way purchases or sales are purchases or sales of financial instruments that require delivery of assets within the time frame generally established by regulation or convention in the market place. For financial instruments held at fair value, the Group accounts for any change in fair values between the trade date and the reporting date.
2.8 Derivative financial instruments and hedge accounting Derivative financial instruments are measured at fair value. Fair values are generally obtained by reference to quoted market prices, discounted cash flow models and other pricing models, as appropriate.
Derivative financial instruments are designated as held for trading unless they are part of an effective hedging relationship. Any changes in the fair values of derivatives that are held for trading purposes are taken directly to the statements of consolidated income.
Derivatives may be embedded in another contractual arrangement (a host contract). Under IFRS 9, derivatives embedded in contracts where the host is a financial asset within the scope of the standard are never separated. Instead the hybrid financial instrument as a whole is assessed for classification.
Hedge accounting Hedges are classified into two categories: (a) fair value hedges which hedge the exposure to changes in the fair value of a recognized asset or liability; and (b) cash flow hedges which hedge exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability.
In order to qualify for hedge accounting, the hedge is required to be highly effective at inception i.e. the changes in the fair value or the cash flows of the hedging instrument should effectively offset corresponding changes in the hedged item, and should be reliably measurable. At the inception of the hedge, the risk management objective and strategy are documented including the identification of the hedging instrument, the related hedged item, the nature of the risk being hedged, and how the Group will assess the effectiveness of the hedging relationship. Subsequently, the hedge is required to be assessed and determined to be an effective hedge on an ongoing basis. Hedge accounting is discontinued when the designation is revoked, the hedging instrument is expired or sold, terminated or exercised, or no longer qualifies for hedge accounting.
In relation to fair value hedges that meet the criteria for hedge accounting, any gain or loss from re-measuring the hedging instruments to change in fair value is recognized immediately in the statements of consolidated income. The corresponding change in fair value of the hedged item is adjusted against the carrying amount and is recognized in the statements of consolidated income. Where the fair value hedge of a special commission bearing financial instrument ceases to meet the criteria for hedge accounting, the adjustment to the carrying value resulting from fair value changes is amortized to the statements of consolidated income over the remaining life of the hedged item.
In relation to cash flow hedges that meet the criteria for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized initially in other reserves under equity and the ineffective portion, if any, is recognized in the statements of consolidated income. A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated were offset by the hedging instrument in a range of 80% to 125% and were expected to achieve such offset in future periods. Hedge ineffectiveness is recognized in the statements of consolidated income in Net trading income. Gains or losses recognized initially in other reserves are transferred to the statements of consolidated income in the period in which the hedged item impacts the statements of consolidated income.
2.9 Foreign currencies The consolidated financial statements are denominated and presented in Saudi Arabian Riyals, which is also the functional currency of the Bank. Transactions in foreign currencies are translated into Saudi Arabian Riyals at exchange rates prevailing at transaction dates. Monetary assets and liabilities denominated in foreign currencies at the end of the year (other than monetary items that form part of the net investments in a foreign operation) are translated into Saudi Arabian Riyals at the exchange rates prevailing at the reporting date. Non-monetary items measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value is determined. Translation gains or losses on non-monetary items carried at fair value are included as part of the fair value adjustment either in the consolidated statement of income or in equity, depending on the underlying financial asset. Non- monetary assets and liabilities denominated in a foreign currency that are measured in terms of historical cost are translated using the spot exchange rates as at the date of the initial transaction.
Realized and unrealized gains or losses on exchange are credited or charged to the statements of consolidated income.
The assets and liabilities of overseas branches and subsidiaries are translated at the rate of exchange prevailing at the reporting date. The statements of income of overseas branches and subsidiaries are translated at the average exchange rates for the year. On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to equity through the statement of consolidated comprehensive income.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.10 Offsetting Financial assets and liabilities are offset and reported net in the statements of consolidated financial position when there is a legally enforceable right to offset the recognized amounts and the Group intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
2.11 Revenue recognition The Group follows a single comprehensive model of accounting for revenue arising from contracts with customers.
Special commission income and expense including the fees which are considered an integral part of the effective yield of a financial instrument, are recognized in the statements of consolidated income using the effective yield method, and include premiums amortized and discounts accreted during the year. Special commission income on loans and advances which is received but not earned is netted off against the related assets.
Fee from banking services are recognized on an accrual basis when the service has been provided. Commitment fees for loans that are likely to be drawn down are deferred and, together with the related direct cost, are recognized as an adjustment to the effective yield on the loan when it is drawn down. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, usually on a time-proportionate basis. Fee received on asset management, wealth management, financial planning, custody services and other similar services that are provided over an extended period of time, are recognized rateably over the period when the service is being provided. Dividend income is recognized when declared and right to receive is established. Any fee income received but not earned is classified as “other liability”.
The calculation of the effective commission rate includes all fees and points paid or received, transaction costs, and discounts or premiums that are an integral part of the effective commission rate. Transaction costs are incremental costs that are directly attributable to the acquisition or the issue of financial asset or liability.
Exchange income is recognized as and when it arises. For presentation purposes, “Exchange income, net” includes exchange related gains and losses from derivative financial instruments and translated foreign currency assets and liabilities.
2.12 Sale and repurchase agreements Securities sold with a commitment to repurchase at a specified future date (repos), continue to be recognized in the statements of consolidated financial position and are measured in accordance with related accounting policies for trading, FVIS, FVOCI and amortized cost. The counterparty liability for amounts received under these agreements is included in due to banks and other financial institutions or customer deposits, as appropriate. The difference between the sale and the repurchase price is treated as special commission expense and is recognized over the life of the repo agreement on an effective yield basis.
Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos), are not recognized in the statements of consolidated financial position, as the Group does not obtain control over the assets. Amounts paid under these agreements are included in cash and balances with Central Banks, due from banks and other financial institutions or loans and advances, as appropriate. The difference between the purchase and the resale price is treated as special commission income and is recognized over the life of the reverse repo agreement on an effective yield basis.
2.13 Classification of financial assets On initial recognition, a financial asset is classified as measured at amortized cost, FVOCI or FVIS.
Financial Assets at amortised cost A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVIS: • the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial Assets at FVOCI A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as FVIS: • the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
FVOCI debt instruments are subsequently measured at fair value with gains and losses arising due to changes in fair value recognised in OCI. Interest income and foreign exchange gains or losses are recognised in statement of consolidated income.
Equity Instruments On initial recognition, for an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.
Financial Assets at FVIS All other financial assets are classified as measured at FVIS. This may include equity held for trading and debt securities not classified neither as AC or FVOCI.
In addition, on initial recognition, the Group may also irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVIS if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.13 Classification of financial assets (continued) Business model assessment The Group assesses the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: • the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realizing cash flows through the sale of the assets; • how the performance of the portfolio is evaluated and reported to the Group's management; • the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; • how managers of the business are compensated. For example, whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and • the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated objective for managing the financial assets is achieved and how cash flows are realized.
The business model assessment is based on reasonably expected scenarios without taking “worst case” or “stress case” scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Group's original expectations, the Group does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.
Financial assets that are held for trading and whose performance is evaluated on a fair value basis are measured at FVIS because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
Assessments whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, 'principal' is the fair value of the financial asset on initial recognition. 'Interest' is the consideration for the time value of money, the credit and other basic lending risks associated with the principal amount outstanding during a particular period and other basic lending costs (e.g. liquidity risk and administrative costs), along with a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers: • contingent events that would change the amount and timing of cash flows; • leverage features; • prepayment and extension terms; • terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements); and • features that modify consideration of the time value of money (e.g. periodic reset of interest rates).
2.14 Investments Investments are classified as follows: • debt investment securities measured at amortised cost; these are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective yield method; • debt and equity investment securities mandatorily measured at FVIS or designated as at FVIS; these are at fair value with changes recognised immediately in statement of consolidated income; • debt securities measured at FVOCI; and • equity investment securities designated as at FVOCI.
For debt securities measured at FVOCI, gains and losses are recognised in OCI, except for the following, which are recognised in statement of consolidated income in the same manner as for financial assets measured at amortised cost: • special commission income using the effective yield method; • ECL and reversals; and • foreign exchange gains and losses.
When debt security measured at FVOCI is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from statement of consolidated changes in equity to statement of consolidated income.
The Group elects to present in OCI changes in the fair value of certain investments in equity instruments that are not held for trading. The election is made on an instrument-by-instrument basis on initial recognition and is irrevocable. Gains and losses on such equity instruments are never reclassified to statement of consolidated income and no impairment is recognised in statement of consolidated income. Dividends are recognised in statement of consolidated income unless they clearly represent a recovery of part of the cost of the investment, in which case they are recognised in OCI. Cumulative gains and losses recognised in OCI are transferred to retained earnings on disposal of such investment.
2.15 Loans and advances Loans and advances are measured at amortised cost; they are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective yield method.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.16 Impairment of financial assets The Group recognises loss allowances for ECL on the following financial instruments that are not measured at FVIS: • financial assets that are debt instruments; • credit related commitments and contingencies; • loans and advances; and • due from banks and other financial institutions.
The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, for which loss allowances are measured as 12-month ECL: • debt investment securities that are determined to have low credit risk at the reporting date; and • other financial instruments (other than lease receivables) on which credit risk has not increased significantly since their initial recognition.
Measurement of ECL ECL is a probability-weighted estimate of credit impairment. It is measured as follows: • financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive); • financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows; • undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and • financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to recover.
Restructured financial assets If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and ECL are measured as follows: • If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset; and • If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset.
Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data: • significant financial difficulty of the borrower or issuer; • a breach of contract such as a default or past due event; • the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; • it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or • the disappearance of an active market for a security because of financial difficulties.
A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of impairment. In addition, a retail loan that is overdue for 90 days or more is considered impaired.
In assessing whether an investment in sovereign debt is credit-impaired, the Group considers the following factors: • The market’s assessment of creditworthiness. • The rating agencies’ assessments of creditworthiness. • The country’s ability to access the capital markets for new debt issuance. • The probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt forgiveness. • The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to fulfil the required criteria.
Presentation of allowance for ECL in the statement of consolidated financial position Loss allowance for ECL are presented in the statement of consolidated financial position as follows: • financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets; • loan commitments and financial guarantee contracts: generally, as a provision, classified under ìother liabilitiesî; • debt instruments measured at FVOCI: no loss allowance is recognised in the statement of consolidated financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.
Write off Loans and debt securities are written off (either partially or in full) when there is no realistic prospect of recovery. This is generally the case when the Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.17 Other real estate owned The Group, in the ordinary course of business, acquires certain real estate against settlement of loans and advances. Such real estate are considered as assets held for sale and are initially recorded at the lower of the net realizable value of related loans and advances or the current fair value of the related real estate, less any cost to sell.
Subsequent to the initial recognition, these other real estate owned are periodically revalued and are carried at lower of their carrying values or the related net realizable value. Rental income, realized gains or losses on disposal and unrealized losses on revaluation are credited or charged to the statements of consolidated income.
2.18 Property and equipment Property and equipment are stated at historical cost net of accumulated depreciation. Freehold land is not depreciated. The cost of other property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets as follows:
Buildings 33 years Leasehold improvements Over the lease period or economic life (10 years), whichever is shorter Furniture, equipment and vehicles Up to 7 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposals of property and equipment are included in the statements of consolidated income.
2.19 Lease Accounting On initial recognition, at inception of the contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is identified if most of the benefits are flowing to the Group and the Group can direct the usage of such assets.
Right of Use (ROU) Assets The Group applies cost model, and measures the ROU asset at cost; • less any accumulated depreciation and any accumulated impairment losses; and • adjusted for any re-measurement of the lease liability for lease modifications.
Generally ROU asset would be equal to the lease liability. However, any additional costs such as site preparation, non-refundable deposits, application money, other expenses related to transaction etc. These need to be added to the ROU asset value.
Lease Liability On initial recognition, the lease liability is computed as the present value of all remaining payments to the lessor. After the commencement date, the Group measures the lease liability by: • Increasing the carrying amount to reflect special commission expense on the lease liability. • Reducing the carrying amount to reflect the lease payments made; and, • Re-measuring the carrying amount to reflect any re-assessment or lease modification.
2.20 Intangible assets - goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the Bank’s share of identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of acquisition. Goodwill is stated at cost less any accumulated impairment losses, which are charged to the statements of consolidated income. An impairment test for goodwill is carried out annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment loss recorded against goodwill cannot be reversed.
2.21 Financial liabilities The Group initially recognises financial liabilities on the date on which they are originated. All other financial instruments including regular-way purchases and sales of financial assets are recognised on the trade date which is the date on which the Group becomes party to the contractual provisions of the instrument.
A financial asset or financial liability is measured initially at fair value plus, for an item not at FVIS, transaction costs that are directly attributable to its acquisition or issue. The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost or FVIS. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
2.22 Loan commitments and financial guarantee contracts In the ordinary course of business, the Group extends credit related commitments consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognized in the consolidated financial statements at fair value in other liabilities, being the value of the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the unamortized premium and the best estimate of expenditure required to settle any financial obligation arising as a result of guarantees. The premium received is recognized in the statements of consolidated income over the life of the guarantee.
2.23 Provisions Provisions are recognized when a reliable estimate can be made for a present legal or constructive obligation as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation.
2.24 Cash and cash equivalents For the purpose of the statements of consolidated cash flows, cash and cash equivalents comprise cash, balances with Central Banks and reverse repos (excluding statutory deposit) and due from banks and other financial institutions having an original maturity of three months or less.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.25 De-recognition of financial instruments A financial asset is derecognized, when the contractual rights to the cash flows from the financial asset expire or the asset is transferred and the transfer qualifies for de-recognition. In instances where the Group is assessed to have transferred a financial asset, the asset is derecognized if the Group has transferred substantially all the risks and rewards of ownership. Where the Group has neither transferred nor retained substantially all the risks and rewards of ownership, the financial asset is derecognized only if the Group has not retained control of the financial asset. The Group recognizes separately as assets or liabilities any rights and obligations created or retained in the process.
On derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in statement of consolidated income.
Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in statement of consolidated income on derecognition of such securities. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability.
A financial liability is derecognized only when it is extinguished, that is when the obligation specified in the contract is either discharged, cancelled or expires.
2.26 Equity-based payments The Bank offers its eligible employees an equity-settled share-based payment plan (the “Plan”) as approved by SAMA.
Under the terms of the Equity Based Long Term Bonus Plan, eligible employees of the Bank are offered shares at a predetermined benchmark price for a fixed period of time. At the vesting dates determined under the terms of the plan, the Bank delivers the underlying allotted shares to the employees, subject to the satisfactory completion of the vesting conditions.
The cost of these plans is measured by reference to the fair value at the date on which the shares are granted. The fair value of the plan is determined with reference to the market value of the shares at the inception of the plan using the discounted cash flow model.
The cost of the plans is recognized over the period in which the service condition is fulfilled, ending on the date on which the relevant employees become fully entitled the shares (“the vesting date”). The cumulative expense recognized for these plans at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the Bank’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statements of consolidated income for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.
The Bank, with the approval from SAMA, has entered into an agreement with an independent third-party to acquire a beneficial interest in the underlying shares solely to manage the price risks associated with the above plans. Under the provisions of such agreement, the Bank, at no point, becomes the legal owner of the underlying shares.
2.27 Employee benefit obligations The Bank operates an end of service benefit plan for its employees. The provision under this plan is made based on an actuarial valuation of the Bank’s liability under the Saudi Arabian Labour Law and in accordance with the local statutory requirements of the foreign branches and subsidiaries.
The present value of the employee benefit obligations is determined by discounting the estimated future cash outflows using interest rates of high-quality government bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. Net special commission expense and other expenses related to defined benefit obligation are recognised in statement of consolidated income.
Remeasurement gains and losses arising from changes in actuarial assumptions are recognised in other comprehensive income and are included in retained earnings in the statement of consolidated changes in equity and in the statement of consolidated financial position.
2.28 Treasury stock Treasury stocks are recorded at cost and presented as a deduction from the equity as adjusted for any transaction costs, dividends and gains or losses on sale of such stocks. Subsequent to their acquisition, these stocks are carried at the amount equal to the consideration paid.
These stocks are acquired by the Bank with the approval of SAMA, primarily for discharging its obligation under its equity-based payment plans and also include stocks acquired in settlement of customer debt.
2.29 Zakat and income taxes Accounting for zakat and income tax: As mentioned in note 2.2, the basis of preparation has been changed for the year ended December 31, 2019 based on the latest instructions from SAMA dated July 17, 2019. Previously, zakat and income tax were recognized in the statement of consolidated changes in equity as per the SAMA circular no 381000074519 dated April 11, 2017. As per SAMA instructions dated July 17, 2019, the zakat and income tax shall be recognized in the statement of consolidated income. The Group has accounted for this change in the accounting for zakat and income tax retrospectively. The effects of the above change are disclosed in note 40 to the consolidated financial statements. The change has resulted in reduction of reported net income of the Group for the year ended December 31, 2018 by SR 2,469 million. The change has had no impact on the statement of consolidated cash flows for the year ended December 31, 2018.
Current zakat and income taxes Zakat is computed on the Saudi shareholders’ share of equity or net income before zakat and taxation using the basis defined under the Zakat regulations. Income taxes are computed on the foreign shareholders’ share of net income for the year. The Bank accrues liabilities for Zakat and income tax on a quarterly basis.
Zakat and income taxes are charged to the Bank’s statements of consolidated income. Overseas branches and subsidiaries are subject to income tax as per rules and regulations of the country in which they reside. The Group applies significant judgement in identifying uncertainties over income tax treatments. The nature and the basis for calculation of Zakat is different from that of the income taxes and therefore provision for deferred tax is not applicable for Zakat calculations.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
2. Summary of significant accounting policies (continued) 2.29 Zakat and income taxes (continued) Deferred tax Deferred tax is recognized using the liability method on all major temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and amounts used for taxation purposes. Deferred tax is calculated using the rates that are expected to apply on the shareholders subject to tax, to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
The carrying amount of the deferred tax asset is reviewed at each statement of consolidated financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Bank has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in statements of consolidated income, except to the extent that it relates to items recognised in statement of consolidated comprehensive income or directly in statement of consolidated changes in equity. In this case, the tax is also recognised in statement of consolidated comprehensive income or directly in statement of consolidated changes in equity.
2.30 Investment management services The Bank offers certain investment management and advisory services to its customers through its subsidiary. These services include portfolio management on discretionary and non-discretionary basis and management of investment funds in consultation with professional investment advisors. The Bank’s investment in these funds is included in the FVIS or FVOCI investments and fees earned are disclosed under related party transactions.
Determining whether the Bank controls such an investment fund usually depends on the assessment of the aggregate economic interests of the Bank in the fund and the investors’ right to remove the fund manager. Based on the assessment carried out by the Bank, it has concluded that it acts as an agent for the investors in all the cases and therefore it has not consolidated these funds in these financial statements.
In addition, the assets held in a trust or fiduciary capacity are not treated as assets of the Bank or that of its subsidiary and accordingly are not included in the Group’s statements of consolidated financial position.
2.31 Shariah approved banking products In addition to conventional banking, the Bank offers its customers certain Shariah compliant banking products, which are approved by its Shariah Board.
All Shariah compliant banking products are accounted for using IFRS as endorsed in KSA and are in conformity with the accounting policies described in these consolidated financial statements.
3. Cash and balances with Central Banks 2019 2018 SAR’000 SAR’000 Cash in hand 1,225,927 1,269,215 Statutory deposit 9,243,954 8,827,242 Current account 525,547 158,200 Money market placements 7,142,653 15,164,947 Total 18,138,081 25,419,604
In accordance with the Banking Control Law and regulations issued by SAMA, the Group is required to maintain a statutory deposit with SAMA and other Central Banks at stipulated percentages of its demand, savings, time and other deposits, as calculated based on monthly average. The statutory deposit with SAMA is not available to finance the Bank’s day to day operations. Money market placements represent securities purchased under an agreement to re-sell (reverse repos) with SAMA.
4. Due from banks and other financial institutions, net 2019 2018 SAR’000 SAR’000 Current accounts 2,609,176 3,321,067 Money market placements 1,022,832 14,317,458 3,632,008 17,638,525 Credit impairment provision (3,617) (16,499) Total 3,628,391 17,622,026
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
5. Investments, net a) Investment securities are classified as follows: i) Held at fair value through income statement (FVIS) Domestic International Total 2019 2018 2019 2018 2019 2018 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 Fixed rate securities 2,353,134 1,905,609 143,381 316,236 2,496,515 2,221,845 Structured credits - - 178,856 194,167 178,856 194,167 Hedge funds - - 1,963,836 1,655,271 1,963,836 1,655,271 Private equities - - 1,078,155 794,716 1,078,155 794,716 Equities 375,418 450,190 7,332 2,447 382,750 452,637 Total Held at FVIS 2,728,552 2,355,799 3,371,560 2,962,837 6,100,112 5,318,636
ii) Held at fair value through other comprehensive income (FVOCI) Domestic International Total 2019 2018 2019 2018 2019 2018 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 Fixed rate securities 29,540,005 14,075,219 4,247,912 4,307,320 33,787,917 18,382,539 Floating rate notes 18,732,626 19,273,818 8,687,561 9,450,995 27,420,187 28,724,813 Equities 3,752,178 3,176,732 331,749 16,716 4,083,927 3,193,448 Total Held at FVOCI 52,024,809 36,525,769 13,267,222 13,775,031 65,292,031 50,300,800
iii) Held at amortized cost, net Domestic International Total 2019 2018 2019 2018 2019 2018 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 Fixed rate securities 13,517,272 10,598,725 107,785 135,183 13,625,057 10,733,908 Credit impairment provision (3,947) (3,090) - - (3,947) (3,090) Total held at amortized cost 13,513,325 10,595,635 107,785 135,183 13,621,110 10,730,818 Total investments, net 68,266,686 49,477,203 16,746,567 16,873,051 85,013,253 66,350,254
b) The composition of investments is as follows: 2019 SAR’000 2018 SAR’000 Quoted Unquoted Total Quoted Unquoted Total Fixed rate securities 13,361,578 36,543,964 49,905,542 8,087,104 23,248,098 31,335,202 Floating rate notes 12,067,555 15,352,632 27,420,187 13,112,595 15,612,218 28,724,813 Equities 4,466,678 1,078,154 5,544,832 3,643,370 797,431 4,440,801 Others 217,287 1,925,405 2,142,692 - 1,849,438 1,849,438 Total 30,113,098 54,900,155 85,013,253 24,843,069 41,507,185 66,350,254
Unquoted securities principally comprise Saudi government development bonds, Saudi floating rate notes, sukuks, treasury bills, hedge funds and private equities. In view of the nature of the market for such securities, carrying values are determined either by using an appropriate pricing model or net asset values, as provided by independent third parties. Included in fixed rate securities above are securities pledged under repurchase agreements with other banks and customers whose carrying value at December 31, 2019 was SR 8,056 million (2018: SR 1,197 million). Also see note 19(d).
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
5. Investments, net (continued) c) The analysis of unrecognized gains and losses and fair values of investments held at amortized cost are as follows:
2019 SAR’000 2018 SAR’000 Gross Gross Gross Gross unrecognized unrecognized unrecognized unrecognized Carrying value gain loss Fair value Carrying value gain loss Fair value Fixed rate securities 13,621,110 323,806 (18,138) 13,926,778 10,730,818 - (361,880) 10,368,938 Grand total 13,621,110 323,806 (18,138) 13,926,778 10,730,818 - (361,880) 10,368,938
d) The investments by counter-party, net are as follows: 2019 2018 SAR’000 SAR’000 Government and quasi government 62,737,078 45,670,022 Banks and other financial institutions 11,262,654 8,899,924 Corporate 7,271,807 9,919,142 Hedge funds 1,963,836 1,663,806 Others 1,777,878 197,360 Total 85,013,253 66,350,254
e) Shariah approved investments The analysis of Shariah approved investments including sukuks and sukufs is as follows: Fixed rate Floating rate Total 2019 2018 209 2018 209 2018 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 FVIS 2,496,515 2,221,845 - - 2,496,515 2,221,845 FVOCI 22,475,329 12,624,773 3,397,626 3,675,738 25,872,955 16,300,511 Held at amortized cost 2,900,859 - - - 2,900,859 - Total 27,872,703 14,846,618 3,397,626 3,675,738 31,270,329 18,522,356
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
6. Loans and advances, net a) Loans and advances are classified as amortised cost and detailed as follows: Commercial loans and 2019 SAR’000 Credit cards Consumer loans advances Others Total Performing loans and advances 1,429,127 17,117,939 123,831,533 392,066 142,770,665 Non-performing loans and advances - 36,139 1,882,584 5,485 1,924,208 Total 1,429,127 17,154,078 125,714,117 397,551 144,694,873 Credit impairment provision (104,902) (285,758) (2,704,018) (4,950) (3,099,628) Loans & advances, net 1,324,225 16,868,320 123,010,099 392,601 141,595,245
Commercial loans and 2018 SAR’000 Credit cards Consumer loans advances Others Total Performing loans and advances 1,417,523 16,165,086 97,117,394 129,134 114,829,137 Non-performing loans and advances - 10,617 1,472,649 6,141 1,489,407 Total 1,417,523 16,175,703 98,590,043 135,275 116,318,544 Credit impairment provision (120,624) (316,978) (2,166,952) (5,428) (2,609,982) Loans & advances, net 1,296,899 15,858,725 96,423,091 129,847 113,708,562
b) Movement in provision for credit impairment are as follows: Commercial loans and 2019 SAR’000 Credit cards Consumer loans advances Others Total Balance at the beginning of the year 120,624 316,978 2,166,952 5,428 2,609,982 Provided during the year, net (15,722) (29,703) 1,114,835 - 1,069,410 Bad debts written off - - (568,695) - (568,695) Recoveries of amounts previously provided - (377) (4,749) - (5,126) Exchange adjustment - (1,140) (4,325) (478) (5,943) Balance at the end of the year 104,902 285,758 2,704,018 4,950 3,099,628
Commercial loans and 2018 SAR’000 Credit cards Consumer loans advances Others Total Balance at the beginning of the year 105,326 320,800 2,420,285 9,402 2,855,813 Provided during the year, net 28,458 (750) 106,346 (1,965) 132,089 Bad debts written off - (125) (249,939) - (250,064) Recoveries of amounts previously provided (19,855) (1,037) (101,052) (7,457) (129,401) Exchange adjustment 6,695 (1,910) (8,688) 5,448 1,545 Balance at the end of the year 120,624 316,978 2,166,952 5,428 2,609,982
During the year, the Group has charged an amount of SR 1,103 million (2018: SR 155.5 million) to the statements of consolidated income on account of provision for credit impairment which is net of recoveries of amounts previously provided and net direct write-offs.
c) Credit quality of loans and advances i) Ageing of loans and advances past due but not impaired Commercial loans and 2019 SAR’000 Credit cards Consumer loans advances Total Less than 90 days 86,284 1,154,902 2,462,571 3,703,757 90 days and more 23,721 56,044 179,960 259,725 Total 110,005 1,210,946 2,642,531 3,963,482
Commercial loans and 2018 SAR’000 Credit cards Consumer loans advances Total Less than 90 days 102,463 814,249 2,643,278 3,559,990 90 days and more 31,429 75,123 135,954 242,506 Total 133,892 889,372 2,779,232 3,802,496
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
6. Loans and advances, net (continued) c) Credit quality of loans and advances (continued) ii) Economic sector risk concentration for the loans and advances and the related credit impairment provision as follows: Credit impairment Loans & 2019 SAR’000 Performing Non-performing provision advances, net Government and quasi government 935,021 - 520 934,501 Banks and other financial institutions 9,651,984 - 16,888 9,635,096 Agriculture and fishing 4,582,222 3,260 22,880 4,562,602 Manufacturing 14,180,219 152,581 442,319 13,890,481 Mining and quarrying 3,590,350 414 8,319 3,582,445 Electricity, water, gas and health services 13,563,027 14,311 55,677 13,521,661 Building and construction 14,209,377 1,171,653 1,055,300 14,325,730 Commerce 18,249,540 469,363 621,585 18,097,318 Transportation and communication 11,503,652 1,402 54,229 11,450,825 Services 4,436,397 21,279 54,742 4,402,934 Consumer loans and credit cards 18,547,066 36,139 390,660 18,192,545 Other 29,321,810 53,806 376,509 28,999,107 Total 142,770,665 1,924,208 3,099,628 141,595,245
Credit impairment Loans & 2018 SAR’000 Performing Non-performing provision advances, net Government and quasi government 653,482 - 136 653,346 Banks and other financial institutions 4,767,314 - 6,541 4,760,773 Agriculture and fishing 4,144,348 440 20,417 4,124,371 Manufacturing 17,913,187 162,616 282,664 17,793,139 Mining and quarrying 2,000,074 - 9,248 1,990,826 Electricity, water, gas and health services 13,371,104 15,849 45,232 13,341,721 Building and construction 15,101,316 969,997 1,135,186 14,936,127 Commerce 17,499,430 298,521 412,782 17,385,169 Transportation and communication 8,022,809 1,402 43,538 7,980,673 Services 2,656,436 941 37,282 2,620,095 Consumer loans and credit cards 18,106,874 23,054 447,159 17,682,769 Other 10,592,763 16,587 169,797 10,439,553 Total 114,829,137 1,489,407 2,609,982 113,708,562
d) Collateral Fair value of collateral held by Bank against loans and advances by each category are as follows: 2019 2018 SAR’000 SAR’000 Neither past due nor impaired 75,724,960 48,547,435 Past due but not impaired 11,661,949 3,698,194 Impaired 391,871 222,403 Total 87,778,780 52,468,032
The collateral consists of deposits, financial guarantees, marketable securities and real estate. Those collaterals which are not readily convertible into cash (i.e. real estate) are accepted by the Bank with the intent for them to be disposed of in case of default by the customer. The Group’s policies regarding obtaining collaterals have not significantly changed during the year and there has been no significant change in the overall quality of the collaterals held by the Group since the prior year.
e) Shariah approved loans and advances The analysis of Shariah approved loans and advances is as follows: 2019 2018 SAR’000 SAR’000 Murabaha / Tawarruq 74,095,438 62,056,272 Ijara 7,269,400 6,689,156 Total 81,364,838 68,745,428
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
7. Property and equipment, net Furniture, Land and Right of Leasehold equipment 2019 2018 buildings Use Asset improvements and vehicles Total Total SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 Cost Balance at the beginning of the year 920,448 - 689,018 1,450,074 3,059,540 3,005,596 Additions 1,200,418 438,148 382,974 64,345 2,085,885 60,877 Disposals (72) - (4,429) (180,786) (185,287) (1,806) Exchange adjustment - - - (6,650) (6,650) (5,127) Balance at the end of the year 2,120,794 438,148 1,067,563 1,326,983 4,953,488 3,059,540
Accumulated depreciation Balance at the beginning of the year 597,060 - 601,297 1,355,490 2,553,847 2,437,786 Charge for the year 23,415 78,546 38,839 63,499 204,299 112,426 Disposals - - (4,393) (179,567) (183,960) (894) Exchange adjustment - - - 3,232 3,232 4,529 Balance at the end of the year 620,475 78,546 635,743 1,242,654 2,577,418 2,553,847 Net book value as at December 31, 2019 1,500,319 359,602 431,820 84,329 2,376,070 Net book value as at December 31, 2018 323,388 - 87,721 94,584 505,693 Capital work in progress 690,788 2,187,750 Total 3,066,858 2,693,443
8. Other assets 2019 2018 SAR’000 SAR’000 Accounts receivable 373,490 207,379 Other real estate, net 4,345 5,447 Goodwill 15,279 16,921 Other 676,638 468,892 Total 1,069,752 698,639
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
9. Derivatives In the ordinary course of business, the Group utilizes the following derivative financial instruments for both trading and hedging purposes:
Swaps are contractual agreements to exchange one set of cash flows for another. For commission rate swaps, counterparties generally exchange fixed and floating rate commission payments in a single currency without exchanging principal. For currency swaps, fixed commission payments and principal are exchanged in different currencies. For cross currency commission rate swaps, principal, fixed and floating commission payments are exchanged in different currencies.
Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or financial instrument at a specified price and date in the future. Forwards are customized contracts transacted in the over the counter market. Foreign currency and commission rate futures are transacted in standardized amounts on regulated exchanges.
Forward commission rate agreements are individually negotiated commission rate futures that call for a cash settlement for the difference between a contracted commission rate and the market rate on a specified future date, based on a notional principal for an agreed period of time.
Options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, to either buy or sell at a fixed future date or at any time during a stipulated period, a specified amount of a currency, commodity, equity or financial instrument at a pre-determined price.
Swaptions are options on swaps and entail an option on the fixed rate component of a swap. An option on a swap provides the purchaser or holder of the option the right, but not the obligation to enter into a swap where it pays fixed rates against receipt of a floating rate index at a future date.
Derivatives held for trading purposes Most of the Group’s derivative trading activities relate to sales, positioning and arbitrage. Sales activities involve offering products to customers in order to, inter alia, enable them to transfer, modify or reduce current and future risks. Positioning involves managing market risk positions with the expectation of profiting from favourable movements in prices, rates or indices. Arbitrage involves identifying, with the expectation of profiting from, price differentials between markets or products.
Derivatives held for hedging purposes As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to adjust its own exposure to currency and commission rate risks. This is generally achieved by hedging specific transactions as well as by strategic hedging against overall statements of financial position exposures. Strategic hedging does not qualify for special hedge accounting and the related derivatives are accounted for as held for trading.
The Group uses forward foreign exchange contracts and currency swaps to hedge against specifically identified currency risks. In addition, the Group uses commission rate swaps and commission rate futures to hedge against the commission rate risk arising from specifically identified fixed commission rate exposures. The Group also uses commission rate swaps to hedge against the cash flow risk arising on certain floating rate exposures. In all such cases, the hedging relationship and objective, including the details of the hedged items and hedging instrument are formally documented and the transactions are accounted for as fair value or cash flow hedges.
The table below shows the positive and negative fair values of derivative financial instruments, together with the notional amounts analyzed by the term to maturity. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the year-end, do not necessarily reflect the amounts of future cash flows involved. These notional amounts, therefore, are neither indicative of the Group’s exposure to credit risk, which is generally limited to the positive fair value of the derivatives, nor to market risk.
All derivatives are reported at fair value on the statements of consolidated financial position. In addition, where applicable, all such contracts covered by master netting agreements are reported net. Gross positive or negative fair values are netted with the cash collateral received from or paid to a given counterparty pursuant to a valid master netting agreement.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
9. Derivatives (continued) The analysis of derivative financial instruments and the related fair values together with the notional amounts classified by the term to maturity is as follows:
Notional amounts by term to maturity Positive Negative Notional Within 3 3-12 1-5 Over 5 fair value fair value amount Months Months Years Years 2019 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 Held for trading Commission rate swaps 4,479,096 2,897,942 154,532,880 1,827,998 26,859,937 89,333,984 36,510,961 Commission rate futures and options 77,300 65,930 17,920,740 414,466 1,401,750 15,994,070 110,454 Forward foreign exchange contracts 46,339 92,914 26,396,971 11,868,037 9,950,346 4,578,588 - Currency options 10,965 8,654 1,322,825 955,474 367,351 - - Swaptions 3,539 7,427 468,750 - 468,750 - - Equity and commodity options 65,787 36,084 2,384,568 - 2,384,568 - - Held as fair value hedges: ---- Commission rate futures and options ------Commission rate swaps ------Held as cash flow hedges ---- Commission rate swaps 7,583 131,419 6,600,000 - - - 6,600,000 Sub-total 4,690,609 3,240,370 209,626,734 15,065,975 41,432,702 109,906,642 43,221,415 Cash collateral received / paid (1,598,388) (2,048,184) Total 3,092,221 1,192,186
Notional amounts by term to maturity Positive Negative Notional Within 3 3-12 1-5 Over 5 fair value fair value amount Months Months Years Years 2018 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 SAR’000 Held for trading Commission rate swaps 3,296,534 2,676,006 137,105,216 7,006,806 13,539,282 93,983,860 22,575,268 Commission rate futures and options 66,970 95,052 10,455,028 2,247,063 345,000 7,736,145 126,820 Forward foreign exchange contracts 57,572 65,825 14,389,936 5,736,950 2,174,922 6,478,064 - Currency options 53,146 52,654 1,556,786 1,057,299 499,487 - - Swaptions ------Equity and commodity options 159,529 178,622 2,704,346 15,000 2,689,346 - - Held as fair value hedges: Commission rate futures and options - 17,731 1,842,375 1,842,375 - - - Commission rate swaps 61,253 117,694 3,562,500 - - 375,000 3,187,500 Held as cash flow hedges Commission rate swaps 19,943 59,898 4,532,500 170,000 120,000 662,500 3,580,000 Sub-total 3,714,947 3,263,482 176,148,687 18,075,493 19,368,037 109,235,569 29,469,588 Cash collateral received / paid (269,175) (806,059) Total 3,445,772 2,457,423
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
9. Derivatives (continued) Included above are Shariah approved Islamic profit rate swaps which comprise of the following: Positive Negative Notional fair value fair value amount 2019 SAR’000 SAR’000 SAR’000 Held for trading Islamic profit rate swaps 25,672 22,418 2,706,752 Islamic commission rate agreement 258 7,739 1,157,412 Total 25,930 30,157 3,864,164
Positive Negative Notional fair value fair value amount 2018 SAR’000 SAR’000 SAR’000 Held for trading Islamic profit rate swaps 27,582 10,279 1,819,107 Islamic commission rate agreement 817 233 1,165,207 Total 28,399 10,512 2,984,314
The tables below show a summary of hedged items, the nature of the risk being hedged, the hedging instrument and their fair values:
Nature Hedging Positive Negative Description of hedged items Fair value of hedge instrument fair value fair value 2019 SAR’000 Floating rate notes 3,600,000 Cash flow Commission rate swaps 7,583 131,419
2018 SAR’000 Floating rate notes 4,541,222 Cash flow Commission rate swaps 19,943 59,898 Fixed rate notes 998,573 Fair Value Commission rate futures & options - 17,731 Fixed rate futures 3,327,632 Fair Value Commission rate swaps 61,253 117,694
Cash flow hedges The Group is exposed to variability in future cash flows on non-trading assets and liabilities which bear special commission at a variable rate. The Group generally uses special commission rate swaps as hedging instruments to hedge against these special commission rate risks. Also, as a result of firm commitments in foreign currencies, the Group is exposed to foreign exchange and special commission rate risks which are hedged with cross currency special commission rate swaps.
Below is the schedule indicating as at 31 December, the periods when the cash flows arising from the hedged item are expected to occur and when they are expected to affect statements of consolidated income:
2019 SAR’000 Within 3 months 3-12 months 1-5 Years Over 5 years Total Cash inflows 48,103 123,413 690,424 266,794 1,128,734
2018 SAR’000 Within 3 months 3-12 months 1-5 Years Over 5 years Total Cash inflows 57,931 165,954 581,620 283,301 1,088,806
Approximately 42% (2018: 33%) of the positive fair value of the Group’s derivatives are entered into with financial institutions and less than 18% (2018: 13%) of the positive fair value contracts are with any single counter-party at the reporting date.
10. Due to banks and other financial institutions 2019 2018 SAR’000 SAR’000 Current accounts 620,929 1,953,097 Money market deposits 15,025,879 5,918,477 Total 15,646,808 7,871,574
Money market deposits include deposits against the sale of fixed rate securities of SAR 7,023 million (2018: SR 545 million) with an agreement to repurchase the same at fixed future dates.
Included above are Shariah approved money market deposits (Murabaha) amounting to SR 45 million (2018: SR 1,056 million)
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
11. Customer deposits Customer deposits comprise of the following: 2019 2018 SAR’000 SAR’000 Demand 93,714,867 93,880,243 Savings 7,563,306 7,700,822 Time 73,668,526 62,680,597 Other 5,218,981 5,908,384 Total 180,165,680 170,170,046
Time deposits include deposits accepted under Shariah approved banking product contracts of SR 28,056 million (2018: SR 33,999 million).
Time deposits include deposits against sale of fixed rate securities of SR 15 million (2018: SR 393 million) with agreements to repurchase the same at fixed future dates.
Included in time deposits are market linked customer deposits amounting to SR 700 million (2018: SR 951 million), which are designated FVIS liabilities. The deposits are so designated when they include one or more embedded derivatives or are being evaluated on a fair value basis in accordance with the documented risk management strategy of the Group. There were no significant gains or losses attributable to changes in the credit risk on these deposits in 2019 and 2018.
Other customer deposits include SR 1,432 million (2018: SR 1,158 million) of margins held against facilities extended to customers.
Included above are Shariah approved customer deposits which comprise of the following: 2019 2018 SAR’000 SAR’000 Current accounts 7,745,000 7,838,000 Mudaraba savings deposits 30,351 - Murabaha time deposits 27,407,388 31,863,030 Total 35,182,739 39,701,030
The above include foreign currency deposits as follows: 2019 2018 SAR’000 SAR’000 Demand 6,981,406 4,344,981 Savings 646,522 1,082,667 Time 19,669,565 21,862,428 Other 393,624 240,242 Total 27,691,117 27,530,318
12. Term loan The Bank has entered into a syndicated unsecured floating rate loan arrangement on July 17, 2019 amounting to USD 575 million with a tenor of 3 years for general corporate purposes and is classified as held at amortised cost. The term loan bears commission at market based variable rates.
13. Debt securities in issue The Bank, through a special purpose vehicle, has completed the issuance of its USD 1 billion denominated notes under a USD 5 billion Euro Medium Term Note program. The notes are unsecured and have been issued under this program for a period of five years beginning from the drawdown date of October 2, 2019 and may be subject to early redemption at the option of the Bank subject to the terms and conditions of the issue. The notes are listed on the Irish Stock Exchange plc and is classified as held at amortised cost.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
14. Other liabilities (Restated) 2019 2018 SAR’000 SAR’000 Accounts payable 860,076 828,336 Employee benefit obligations (note 15) 720,032 517,500 Unearned fee income 259,322 247,779 Customer initial public offering deposits 126,997 7,414 Payable to GAZT under Settlement Agreement (note 27 c) 1,482,280 1,852,850 Credit Impairment provision against loan commitments and financial guarantee contracts (note 30 c) 489,150 1,635,951 Present value of lease liability (see note below for maturity analysis) 370,048 - Accruals and provision for zakat and taxation 1,117,344 994,166 Dividend payable 576,749 545,675 Other (see note below) 1,233,748 503,651 Total 7,235,746 7,133,322
The maturity analysis of contractual undiscounted cash flows of lease liabilities is as follows: 2019 2018 SAR’000 SAR’000 Less than one year 15,362 - One to 5 years 89,522 - More than 5 years 387,342 - Total 492,226 -
Included in other liabilities is an amount representing employee incentive savings plan of SR 103.3 million (2018: 95.5 millon). An amount of SR 7.5 million (2018: 6.5 million) has been charged to the statement of consolidated income in respect of this plan.
15. Employee benefit obligations The Bank operates an End of Service benefit plan for its employees based on the Saudi Arabian Labor Laws. Accruals are made in accordance with the actuarial valuation under projected unit credit method while the benefit payments obligation is discharged as and when it falls due. The amounts recognized in the statement of consolidated financial position and movement in the obligation during the year based on its present value are as follows:
2019 2018 SAR’000 SAR’000 Balance at the beginning of the year 512,880 428,526 Current service cost 44,643 102,985 Special commission expense 21,166 16,446 Benefits paid (91,867) (35,077) Loss on actuarial valuation 115,314 - Balance at the end of the year 602,136 512,880
An independent actuarial valuation is carried out during fourth quarter every year for evaluation of adequacy of provision held. Provision held against actuarial valuation as of the end of year is SR 720 million (2018: SR 517.5 million). There are various assumptions used in determination of present value of defined benefit obligation of which discount rate and salary increase level are principal which are assumed to be at 3.75% (2018: 4.5%) and 2% (2018: 2%) respectively.
The actuarial liability would be increased to SR 639 million (2018: SR 542 million) had the discount rate used in the assumption been lower by 1% and the liability would be decreased to SR 569 million (2018: SR 487 million) had the discount rate used in the assumption been higher by 1%. Similarly, the actuarial liability would be increased to SR 639 million (2018: SR 542 million) had the salary increase rate used in the assumption been higher by 1% and the liability would be decreased to SR 569 million (2018: SR 487 million) had the salary increase rate used in the assumption been lower by 1%. The weighted average duration of the defined benefit obligation is approximately 10 years.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
16. Share capital The authorized, issued and fully paid share capital of the Bank consists of 2,000 million shares (2018: 2,000 million shares) of SR 10 each.
17. Statutory and general reserves In accordance with the Banking Control Law of the Kingdom of Saudi Arabia and the Articles of Association of the Bank, a minimum of 25% of the net income for the year before zakat and taxation is required to be transferred to a statutory reserve until this reserve equals the paid up share capital of the Bank. The statutory reserve is currently not available for distribution. During the year, the bank transferred SR 1,154 million (2018: SR 1,382 million) to the statutory reserve from the retained earnings.
In addition, as and when considered appropriate, the Bank makes an appropriation to general reserve for general banking risks.
18. Fair value and other reserves The movement in fair value and other reserves during the year attributable to the equity shareholders of the Group is set out below: Employee Cash flow FVOCI financial benefits 2019 SAR’000 hedges assets plan reseve Total Balance at beginning of the year as reported (99,797) 592,891 - 493,094 Effect of change in accounting policy ---- Change in fair value during the year 121,576 2,688,744 (115,314) 2,695,006 Loss on sale of FVOCI equity investments - (17,869) - (17,869) Transfer to statements of consolidated income (33,502) (77,668) - (111,170) Balance at end of the year (11,723) 3,186,098 (115,314) 3,059,061
Employee Cash flow FVOCI financial benefits 2018 SAR’000 hedges assets plan reseve Total Balance at beginning of the year as reported (28,826) 318,500 - 289,674 Effect of change in accounting policy - (294) - (294) Change in fair value during the year (18,997) 284,286 - 265,289 Transfer to statements of consolidated income (51,974) (9,601) - (61,575) Balance at end of the year (99,797) 592,891 - 493,094
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
19. Commitments and contingencies a) Legal proceedings No provision has been made in relation to legal proceedings existing as at December 31, 2019 and 2018 as no material costs are expected to be incurred.
b) Capital commitments The Group’s capital commitments as at December 31, 2019 amounted to SR 527 million (2018: SR 362 million). These commitments represent contractual obligations in respect of building, construction and equipment purchases.
c) Credit related commitments and contingencies Credit related commitments and contingencies mainly comprise letters of credit, guarantees, acceptances and irrevocable commitments to extend credit. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans and advances. Documentary letters of credit which are written undertakings by the Group on behalf of a customer authorizing a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are generally collateralized by the underlying shipments of goods to which they relate, and therefore have less risk. Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be presented before being reimbursed by the customers. Cash requirements under these instruments are considerably less than the amount of the related commitment because the Group generally expects the customers to fulfill their primary obligation.
Commitments to extend credit represent the unused portion of approved facilities to extend credit, principally in the form of loans and advances, guarantees and letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to a loss in an amount equal to the total unused commitments. However, the likely amount of loss, which cannot readily be quantified, is expected to be less than the total unused commitment as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The total outstanding commitments to extend credit do not necessarily represent future cash requirements as many of these commitments may expire or terminate without being funded.
i) The contractual maturity structure for the Group’s credit related commitments and contingencies are as follows:
2019 SAR’000 Within 3months 3-12months 1-5years Over 5years Total Letters of credit 1,999,515 1,991,279 717,966 - 4,708,760 Letters of guarantee 7,898,499 14,010,403 8,254,669 - 30,163,571 Acceptances 555,940 366,021 189,825 - 1,111,786 Irrevocable commitments to extend credit 671,582 520,561 1,952,618 377,678 3,522,439 Other - 7,994 49,255 871,470 928,719 Total 11,125,536 16,896,258 11,164,333 1,249,148 40,435,275
2018 SAR’000 Within 3months 3-12months 1-5years Over 5years Total Letters of credit 2,967,783 1,511,518 482,580 - 4,961,881 Letters of guarantee 8,166,435 13,849,475 9,352,013 1,517 31,369,440 Acceptances 1,179,731 324,544 1,088 9,322 1,514,685 Irrevocable commitments to extend credit 142,145 42,560 2,429,571 - 2,614,276 Other - 8,020 59,893 762,205 830,118 Total 12,456,094 15,736,117 12,325,145 773,044 41,290,400
The unused portion of commitments outstanding as at December 31, 2019 which can be revoked unilaterally at any time by the Group amounts to SR 115,309 million (2018: SR 98,210 million).
ii) The analysis of credit related commitments and contingencies by counter-party are as follows: 2019 2018 SAR’000 SAR’000 Corporate 34,745,530 35,955,390 Banks and other financial institutions 5,670,390 5,013,370 Other 19,355 321,640 Total 40,435,275 41,290,400
d) Assets pledged Assets pledged as collateral with other financial institutions and others as security against borrowings are as follows: 2019 SAR’000 2018 SAR’000 Related Related Assets liabilities Assets liabilities Investments classified as FVOCI and FVIS 8,05\6,166 7,889,750 1,196,612 1,165,521
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
20. Special commission income and expense 2019 2018 Special commission income on: SAR’000 SAR’000 Investments: FVOCI 871,498 617,339 Amortised Cost 1,448,100 1,072,812 2,319,598 1,690,151 Due from banks and other financial institutions 349,553 450,874 Loans and advances 5,757,633 5,397,165 Total 8,426,784 7,538,190
Special commission expense on: Due to banks and other financial institutions 366,277 188,420 Customer deposits 1,630,521 1,197,878 Term loan and debt securities in issue 53,338 - Total 2,050,136 1,386,298
Included in the above are special commission income and expenses related to Shariah approved products. 2019 2018 SAR’000 SAR’000 Investments 896,401 503,364 Loans and advances 3,085,937 2,941,508 3,982,338 3,444,872 Customer deposits 662,282 620,792
21. Fee and commission income, net 2019 2018 Fee and commission income on: SAR’000 SAR’000 Share trading and fund management 271,458 280,737 Trade finance 272,412 327,582 Corporate finance and advisory 150,925 107,812 Other banking services 783,489 848,611 Total 1,478,284 1,564,742
Fee and commission expense on: Cards (140,632) (130,078) Other banking services (69,246) (71,313) Total (209,878) (201,391) Fee and commission income, net 1,268,406 1,363,351
22. Trading income, net 2019 2018 SAR’000 SAR’000 Debt securities 189,718 71,239 Derivatives and others (19,514) (10,307) Total 170,204 60,932
23. Gains on FVOCI debt, net 2019 2018 SAR’000 SAR’000 FVOCI debt 77,668 9,601 Total 77,668 9,601
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
24. Other operating income, net 2019 2018 SAR’000 SAR’000 Gain on disposal of property and equipment 1,816 300 Dividend income 187,827 171,215 Other income 7,020 8,686 Total 196,663 180,201
25. Salaries and employee related expenses The Bank’s compensation policy complies with the regulatory requirements of SAMA and international standards of Financial Stability Forum with respect to compensation. This policy is applicable to all businesses across the Group in the Kingdom of Saudi Arabia as well as its overseas branches and subsidiaries as far as it is consistent with the legal and regulatory requirements of respective host countries where the Group operates.
The policy defines the levels and categories of key employees whose goals setting, performance measurement and appraisal processes are based on a scorecard approach that links the financial performance evaluation with associated risks, at the overall Bank level. Key employees consist of senior executives (officers who are in senior and leadership roles whose appointment is subject to the no objection by SAMA), Key Risk Takers (officers who may or may not be in senior roles but are directly or indirectly engaged in risk taking roles on behalf of the Group) and Key Risk Controllers (officers who may or may not be in senior roles but are directly or indirectly engaged in risk controlling roles on behalf of the Group.)
Compensation structure at the Group consists of (a) fixed components viz., base salary, allowances and benefits; as well as (b) variable components viz., performance bonus and equity based scheme. These components are designed to reflect the level of responsibility and role of the employee, as well as the business area in which the employee works.
The Group’s overall variable compensation pool is derived from the Risk Adjusted Net Income of the Group which takes into account significant existing and potential risks in order to protect Group’s capital adequacy and to mitigate risk of potential future losses. A process of distributing variable compensation payments over three annual instalments is in place for key employees. The proportion of deferred payments is determined based on the level and seniority and/or responsibility of the key employee. A portion of deferred variable compensation is also awarded in the form of equity based “long term bonus scheme”. Remuneration of employees working in control functions such as Risk Management, Credit, Compliance, Internal Audit, Financial Control, Legal etc. are determined independently from the business units monitored by them. Further, claw-back arrangements are included to address adverse future performance. No guaranteed bonuses are allowed. Through these mechanisms, the Group has successfully achieved the policy objectives of ensuring that the overall variable compensation takes into account risks associated with financial performance and adjustments to deferred compensation are considered pursuant to any negative future impact arising out of decisions made during the current period.
Variable compensation is awarded to eligible employees in the form of cash, equities or a combination of both. The proportion of variable compensation to be paid in either form is determined based on the level of responsibility and role of the individual employee, as well as the business area in which the employee works and commensurate to the performance delivery, risk taking or controlling ability of the employee.
In accordance with regulatory requirements on corporate governance, the Bank’s Board of Directors has established a Nomination and Remuneration Committee (NRC) which comprises of three non-executive directors and chaired by an independent board member. The NRC is responsible for the overall architecture, oversight and monitoring of the compensation system. The committee reviews the compensation policy periodically to ensure its adequacy and effectiveness. Accordingly, the policy was last revised in September 2018 and reflects the amended organization structure and approval hierarchy. The NRC makes its recommendations to the Board on the level and composition of remuneration after taking into account the Risk Management Group’s input. NRC also periodically reviews the progress of the compensation policy implementation and ensures that its stated objectives are achieved in line with the guidelines
The following is a breakup of the compensation paid to the Group’s employees for the years 2019 and 2018:
Number of Employees Fixed Compensation SAR’000 Variable Compensation Paid – SAR’000 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Category Cash Shares Total Senior executives* 26 20 33,313 29,733 33,748 31,945 8,343 6,263 42,091 38,208 Employees engaged in risk taking activities 946 880 338,271 317,064 66,327 68,575 12,196 8,193 78,523 76,768 Employees engaged in control functions 908 780 218,816 190,875 25,051 20,101 5,358 2,773 30,409 22,874 Other employees 1,734 1,610 217,225 193,131 5,721 5,067 154 125 5,875 5,192 Other outsourced employees 377 207 31,531 20,366 491 420 - - 491 420 Total 3,991 3,497 839,156 751,169 131,338 126,108 26,051 17,354 157,389 143,462
Variable compensation and other employee related cost accrued or paid during the year** 648,329 494,178 Total salaries & employee related expenses 1,487,485 1,245,347
* Senior executives are employees whose appointment requires approval from SAMA. ** Other employee related costs include insurance premium paid, GOSI contribution, relocation charges, recruitment expenses, training and development cost, employee related costs for SBL and certain other non-recurring employee related costs.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
26. Basic and Diluted Earnings per Share Basic earnings per share are calculated by dividing the net income after zakat and taxation for the year attributable to the equity holders of the Bank by the weighted average number of shares outstanding during the year. Diluted earnings per share are calculated by dividing the net income after zakat and taxation for the years attributable to the equity holders of the Bank by 2,000 million shares.
Details of Basic and Diluted earnings per share are as follows: Basic EPS Diluted EPS (Restated) (Restated) 2019 2018 2019 2018 Weighted average number of shares outstanding (in thousands) 1,957,207 1,956,973 2,000,000 2,000,000 Earnings per share ( in SAR) 2.04 1.56 1.99 1.53
27. Dividend, Zakat and taxation a) Dividend The Board of Directors has proposed a final net dividend of SR 1,394 million for 2019 (2018: SR 1,998 million). The final dividend will yield a net payment of SR 0.7 per share to the Saudi shareholders of the Bank (2018: SR 1.0). The total net dividend for the year to Saudi shareholders is SR 1.42 per share (2018: SR 1.8 per share) of which SR 0.72 (2018: SR 0.8) was paid as interim dividend earlier during the year. The total interim net dividend during 2019 amounted to SR 1,438 million (2018: SR 1,593 million) making full year total net dividends of SR 2,832 million (2018: SR 3,591 million).
The proposed final dividend is included within equity until approved by the shareholders’ annual general assembly.
b) Current Zakat and Taxation On 14 March 2019, Saudi Arabia’s General Authority of Zakat and Tax (the “GAZT”) has published rules for computation of Zakat for companies engaged in financing activities (the “Rules”) and licensed by SAMA. The Rules are issued pursuant to the Zakat Implementing Regulations and are applicable for the periods from 1 January 2019. In addition to providing a new basis for calculating the Zakat base, the Rules have also introduced a minimum floor at 4 times the net income and a maximum cap at 8 times the net income when determining the Zakat base.
The Zakat liability for the Saudi shareholders for the current year is calculated on an approximate shareholding of 98.78% (2018: 97.7%). The income tax liability for the foreign shareholders on their current year’s share of income is calculated on an approximate shareholding of 1.22% (2018: 2.3%).
The breakup of Zakat expense for the years is as under: (Restated) 2019 2018 Zakat SAR’000 SAR’000 • Zakat - current 576,867 620,000 • Zakat – prior period adjustment (see note c below) - 1,816,059 Total 576,867 2,436,059
The breakup of current and deferred tax expense, net for the years is as under: (Restated) 2019 2018 Taxation SAR’000 SAR’000 • Domestic - current 12,133 33,000 • Overseas 47,880 25,271 • Deferred (8,073) (4,462) Total 51,940 53,809
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
27. Dividend, Zakat and taxation (continued) The movement in the deferred tax asset and liability for the years is as follows: Recognised As at Recognised in other As at 1 January in the income comprehensive 31 December 2019 SAR’000 2019 statement income 2019 Deductible temporary differences 36,047 8,165 (8,288) 35,924 Taxable temporary differences 2,596 92 - 2,688
Recognised As at Recognised in other As at 1 January in the income comprehensive 31 December 2018 SAR’000 2018 statement income 2018 Deductible temporary differences 24,905 4,462 6,680 36,047 Taxable temporary differences 2,596 - - 2,596
c) Prior Year Zakat Assessments Settlement During 2018, the Bank reached a Settlement Agreement (the “Agreement”) with the GAZT to comply with the directives provided by Royal Decree No. M/26 dated 20/3/1440H (November 28, 2018) and the Ministerial Resolution No. 1260 dated 05/04/1440H (December 12, 2018), in order to settle outstanding Zakat liabilities for the years from 2006 to 2017 against a full and final payment of SR 2,316 million, payable in 6 instalments over a period of 5 years ending December 1, 2023. The Bank has already paid two instalments of SR 833 million upto December 2019. The remaining amount payable to GAZT have been reclassified under “Other Liabilities” in the consolidated financial statements. Under the Agreement, the Bank and GAZT also agreed to settle Zakat for the year 2018 in accordance with the settlement framework provided by the Royal Decree and the Ministerial Resolution. As a result of the Agreement, all Zakat related disputes between the Bank and the GAZT pertaining to the years 2006 to 2017 stand resolved.
d) Status of Zakat and Income Tax Assessments The Bank is contesting its appeals before the Appellate Committee of Tax Disputes and Violations for the years 2004-2005 with respect to Zakat and for the income taxes for the years 2004-2009. The Bank is confident of a favourable outcome from the appeal process.
The Bank has filed its Zakat and Income Tax returns with the GAZT and paid Zakat and Income Taxes for the years up to and including the year 2018 except for the amounts agreed as a liability under Note 27 (c) above
28. Cash and cash equivalents Cash and cash equivalents for the purpose of the statements of consolidated cash flows comprise the following: 2019 2018 SAR’000 SAR’000 Cash and balances with Central Banks excluding statutory deposit (note 3) 8,894,127 16,592,362 Due from banks and other financial institutions 2,661,082 7,324,107 Total 11,555,209 23,916,469
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
29. Operating segments The Group is organized into the following main operating segments:
Consumer banking – comprises individual customer time deposits, current, call and savings accounts, as well as credit cards, retail investment products, individual and consumer loans.
Corporate banking – comprises corporate time deposits, current and call accounts, overdrafts, loans and other credit facilities as well the Group’s customer derivative portfolios and its corporate advisory business.
Treasury – principally manages money market, foreign exchange, commission rate trading and derivatives for corporate and institutional customers as well as for the Group’s own account. It is also responsible for funding the Group’s operations, maintaining liquidity and managing the Group’s investment portfolio and statement of financial position.
Investment banking – engaged in investment management services and asset management activities related to dealing, managing, arranging, advising and custody businesses. The investment banking business is housed under a separate legal entity Samba Capital and Investment Management Company.
The Group’s primary business is conducted in the Kingdom of Saudi Arabia with two overseas branches and four overseas subsidiaries. However, the results of the overseas operations are not material to the Group’s overall consolidated financial statements.
Transactions between the business segments are on normal commercial terms. Funds are ordinarily reallocated between segments, resulting in funding cost transfers. Special commission charged for these funds is based on market based inter-bank rates. There are no other material items of income or expense or other internal revenues between the operating segments.
a) The Group’s total assets and liabilities as at December 31, 2019 and 2018, together with special commission income net, total operating income, total operating expenses, provision for credit impairment, net income after zakat and taxation, capital expenditure and depreciation expenses for the years then ended, by operating segment, are as follows:
Consumer Corporate Investment 2019 SAR’000 banking banking Treasury banking Total Total assets 34,548,665 121,232,449 99,716,659 106,028 255,603,801 Total liabilities 92,321,955 95,815,353 21,851,452 166,209 210,154,969 Special commission income, net 2,575,016 2,374,898 1,363,340 63,394 6,376,648 Total operating income 3,207,982 3,037,178 1,854,488 500,703 8,600,351 Total operating expenses, of which: 1,981,972 1,606,392 162,530 229,970 3,980,864 - Depreciation 42,230 153,881 1,847 6,341 204,299 - Credit impairment provision 52,203 1,049,976 857 - 1,103,036 Net income for the year after zakat and taxation 1,125,306 1,137,461 1,459,723 268,190 3,990,680 Capital expenditure 106,381 456,909 11,839 4,554 579,683
Consumer Corporate Investment 2018 SAR’000 banking banking Treasury banking Total Total assets 32,315,651 96,225,480 101,236,772 160,397 229,938,300 Total liabilities 93,649,480 83,003,800 10,873,714 105,371 187,632,365 Special commission income, net 2,439,505 2,293,588 1,366,274 52,525 6,151,892 Total operating income 3,132,188 3,028,009 1,540,181 456,142 8,156,520 Total operating expenses, of which: 1,654,038 641,731 116,916 194,247 2,606,932 - Depreciation 44,159 61,850 909 5,508 112,426 - Credit impairment provision 87,362 65,066 3,090 - 155,518 Net income for the year after zakat and taxation 810,726 1,317,772 787,143 144,079 3,059,720 Capital expenditure 82,737 75,626 9,198 336 167,897
b) The Group’s credit exposure by operating segment is as follows: Investment 2019 SAR’000 Consumer Corporate Treasury Banking Total Balance sheet risk assets 27,709,774 110,695,831 87,702,606 35,490 226,143,701 Commitments and contingencies 237,062 23,424,612 1,050,411 - 24,712,085 Derivatives 1,282,537 1,309,881 8,256,056 - 10,848,474
Investment 2018 SAR’000 Consumer Corporate Treasury Banking Total Balance sheet risk assets 25,667,349 88,199,401 79,514,400 66,270 193,447,420 Commitments and contingencies 275,818 24,584,511 965,803 - 25,826,132 Derivatives 608,934 1,156,489 4,973,678 - 6,739,101
Balance sheet risk assets comprise of the carrying value of the assets at the reporting date, excluding cash and balances with central banks, derivatives, property and equipment and other assets. Credit exposures relating to commitments, contingencies and derivatives are stated at their credit equivalent amounts as prescribed by central banks.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
30. Financial Risk Management a) Credit Risk Credit risk is the risk that a customer will fail to discharge its financial obligation to the Group and will cause the Group to incur a financial loss.
The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. The Board has appointed the Board Risk Committee which monitors the overall risk process within the bank and has the overall responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits.
The Group seeks to manage its credit risk exposure by ensuring that its customers meet the minimum credit standards defined by the Group’s management and through diversification of lending activities to ensure that there is no undue concentration of risks with individuals, or within groups of customers in specific locations or businesses. The Group continually assesses and monitors credit exposures to ensure timely identification of potential problem credits.
In addition to monitoring credit limits, the Group manages the credit exposure relating to its trading activities by entering into master netting agreements and collateral arrangements with counterparties in appropriate circumstances, and by limiting the duration of exposure. In certain cases, the Group may also close out transactions and settle on a net present value basis.
Concentrations of credit risk 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 of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographical location. The Group limits the impact of concentration risk in exposure by setting progressively lower limits for longer tenors and taking security, where considered appropriate, to mitigate such risks.
The Group uses its internal ratings to rate the credit quality of its portfolio. The following categories provides guidance about the credit quality of financial assets measured at amortized cost and debt investments classified as FVOCI.
Low to fair risk: Performing assets which have none or negligible deterioration in credit quality since inception.
Watch list: Assets which have shown some initial signs of deterioration in credit quality in the recent past and are subject to increasing levels of credit risk.
Substandard: Assets which exhibit substantially higher level of credit risk and are considered to be vulnerable to default.
Doubtful: These assets are typically in default (impaired) but still show some prospect of partial recovery in principal in the future.
Loss: Impaired assets which are generally fully provided and have low expectations of further recovery.
The following table sets out information about the credit quality of financial assets measured at amortized cost and debt investments classified as FVOCI. Unless specifically indicated, for financial assets the amounts in the table represent gross carrying amounts.
Due from banks and other financial institutions at amortised cost December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Low to fair risk 3,632,008 - - 3,632,008 17,638,525 Watch list ----- Substandard ----- Doubtful ----- Loss ----- 3,632,008 --3,632,008 17,638,525 Less: Credit impairment provision 3,617 --3,617 16,499 Total 3,628,391 --3,628,391 17,622,026
Debt instruments at amortised cost December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Low to fair risk 13,625,057 - - 13,625,057 10,733,908 Watch list ----- Substandard ----- Doubtful ----- Loss ----- 13,625,057 --13,625,057 10,733,908 Less: Credit impairment provision 3,947 --3,947 3,090 Total 13,621,110 -- 13,621,110 10,730,818
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
30. Financial Risk Management (continued) a) Credit Risk (continued)
Debt instruments at FVOCI December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Low to fair risk 61,208,104 - - 61,208,104 47,107,352 Watch list ----- Substandard ----- Doubtful ----- Loss ----- Total 61,208,104 --61,208,104 47,107,352
Loans and advances at amortised cost December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Low to fair risk 134,776,281 - - 134,776,281 109,598,111 Watch list - 2,458,327 - 2,458,327 977,265 Substandard - 4,154,443 1,383,483 5,537,926 4,253,582 Doubtful - - 1,572,855 1,572,855 1,130,948 Loss - - 349,484 349,484 358,638 134,776,281 6,612,770 3,305,822 144,694,873 116,318,544 Less: Credit impairment provision 634,047 542,889 1,922,692 3,099,628 2,609,982 Total 134,142,234 6,069,881 1,383,130 141,595,245 113,708,562
b) Amounts arising from ECL – Significant increase in credit risk (SICR) When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available “without undue cost or effort”. This includes both quantitative criteria such as risk grading and delinquency, and qualitative information and analysis used in the assessment of the classification assigned to the obligor. These are based on the Group’s historical experience and expert credit assessment and includes the forward-looking information.
Credit risk grades The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default while also applying experienced credit judgment. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default. These factors vary depending on the nature of the exposure and the type of borrower.
Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3.
Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being subsequently moved to a different credit risk grade. The monitoring typically involves use of the following data.
Corporate exposures Retail exposures All exposures • Information obtained during periodic review of customer files e.g. • Internally collected data and customer behaviour e.g. utilization of • Payment record – this includes overdue status as well as a range of audited financial statements, management accounts, budgets and credit card facilities. variables about payment ratios. projections. Examples of areas of particular focus are: gross profit • Affordability metrics. • Utilization of the granted limit. margins, financial leverage ratios, debt service coverage, compliance • External data from credit reference agencies. • Requests for and granting of forbearance. with covenants, quality of management, and senior management • Existing and forecast changes in business, financial and economic changes/succession planning. conditions. • Data from credit reference agencies, press articles, changes in external credit ratings. • Actual and expected significant changes in the political, regulatory and technological environment of the borrower or in its business activities.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
30. Financial Risk Management (continued) b) Amounts arising from ECL – Significant increase in credit risk (SICR) (continued) Generating the term structure of probability of default The 12 month Probabilities of Default (PD) derived from approved internal rating models are a primary input into the determination of the PD term structure for exposures. For some portfolios, information sourced from external credit reference agencies is also used.
The Group extrapolates these PDs into a term structure by using macro-economic factors and transition matrices to generate both estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time.
This analysis includes the identification and calibration of relationships between changes in default rates and macro-economic factors as well as in-depth analysis of the impact of certain other factors (e.g. forbearance experience) on the risk of default. For most exposures, the key macro-economic indicators include the estimation for GDP growth, inflation rates and oil price.
Based on advice from the Group’s team of economists, and consideration of a variety of external actual and forecast information, the Group formulates “base case”, “upside” and “downside” views of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios (see discussion below on incorporation of forward-looking information). The Group then uses these forecasts to adjust its estimates of PDs.
Determining whether credit risk has increased significantly The criteria for determining whether credit risk has increased significantly varies by portfolio and include quantitative factors expressed in the form of a classification and/or changes in probability of default occurring since initial recognition as determined under the Group's staging criteria, as well as a qualitative assessment based on delinquency. On an ongoing basis, the management reviews the criteria used and appropriate changes are made to the probability of defaults. The changes made during the year did not result in any significant impact on the consolidated financial statements.
Using its expert credit judgment and, where possible, relevant historical experience, the Group may determine that an exposure has undergone a significant increase in credit risk based on particular qualitative indicators that it considers are indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis. These typically include expectations of forbearance occurring, high risk events (such as breach of covenants etc.), cross obligor defaults and designation on risk watch-lists.
As a backstop, the Group considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower.
The performance of borrowers is monitored on a regular basis against the pre-defined classification/delinquency triggers to ensure the effectiveness and relevance thereof and to confirm that: • the criteria are capable of identifying significant increases in credit risk before an exposure is in default; • the criteria are no more liberal than the point in time when an asset becomes 30 days past due; and • there is stability in the loss allowance arising from transfers between 12-month PD (stage 1) and lifetime PD (stage 2).
Modified financial assets The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose terms have been modified may be derecognized and the renegotiated loan recognized as a new loan at fair value in accordance with the accounting policy.
The Group may renegotiate loans to customers in financial difficulties (referred to as “forbearance activities”) to maximize collection opportunities and minimize the risk of default. Under the Group's forbearance policy, loan forbearance is granted on a selective basis if the debtor is currently in default on its debt or if there is a high risk of default, there is evidence that the debtor made all reasonable efforts to pay under the original contractual terms and the debtor is expected to be able to meet the revised terms.
The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants and a detailed forbearance policy has implemented by the Group.
For financial assets modified as part of the Group's forbearance policy, the estimate of PD reflects whether the modification has improved or restored the Group's ability to collect interest and principal and the Group's previous experience of similar forbearance action. As part of this process, the Group evaluates the borrower's payment performance against the modified contractual terms and considers various behavioural indicators.
Generally, forbearance is a qualitative indicator of a significant increase in credit risk and an expectation of forbearance may constitute evidence that an exposure is credit-impaired or in-default. Consequently all such exposures continue to be measured using the lifetime ECL and a customer needs to demonstrate consistently good payment behaviour over a period of time before the exposure is no longer considered to be credit-impaired or in-default, or the PD is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12-month ECL.
Definition of ‘Default’ “Default” is defined as either non-payment of a material financial obligation persisting for 90 days or the occurrence of events that would lead the Group to consider that the obligor is unlikely to service its credit obligations to the Group. In assessing whether a borrower is in default, the Group considers indicators that are: • qualitative e.g. breaches of covenant; • quantitative e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and • based on data developed internally and obtained from external sources.
The definition of default used by the Group for IFRS 9 purposes aligns with that applied by the Group for regulatory capital purposes.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
30. Financial Risk Management (continued) b) Amounts arising from ECL – Significant increase in credit risk (SICR) (continued) Incorporation of forward-looking information The Group incorporates forward-looking information into its measurement of ECL. Based on advice from the team of Economists and consideration of a variety of external actual and forecast information, the Group formulates a ‘base case' view of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. This process involves developing two additional economic scenarios (“upside” and “downside”) and considering the relative probabilities of each outcome. External information includes economic data and forecasts published by governmental bodies and monetary authorities in the Kingdom and selected private- sector and academic forecasters.
The base case represents a most-likely outcome and is aligned with information used by the Group for other purposes such as strategic planning and budgeting. The other scenarios represent more optimistic and more pessimistic outcomes. Periodically, the Group carries out stress testing of more extreme shocks to calibrate its determination of these other representative scenarios.
The Group has identified and documented key drivers of credit risk and credit impairment for each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit impairment. The economic scenarios used as at December 31, 2019 included the ranges of key indicators such as the GDP growth rate, oil price, rate of inflation and data on fiscal spending etc.
Predicted relationships between the key macro-economic indicators, default and loss rates on various portfolios of financial assets have been developed based on analysing historical data over the past 25 years.
Measurement of ECL The key inputs into the measurement of ECL are the following variables: • probability of default (PD); • loss given default (LGD); and • exposure at default (EAD).
These parameters are generally derived from internally developed statistical models and other historical data. They are adjusted to reflect forward-looking information as described above. These models are validated on an annual basis to ensure the quality of the outputs generated.
PD estimates are estimates at a certain date which are calculated based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled data comprising both quantitative and qualitative factors. Where it is available, market data may also be used to derive the PD for large corporate counterparties. If a counterparty or exposure migrates between ratings classes, then this will lead to a change in the estimate of the associated PD.
LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure of the claim and recovery costs of any collateral that is integral to the financial asset.
EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract including amortization. The EAD of a financial asset is its gross carrying amount. For loan commitments and financial guarantees, the EAD includes the amount drawn, as well as potential future amounts that may be drawn under the contract, which are estimated based on regulatory defined credit conversion factors for non-retail customers and historical observations for the retail portfolio.
As described above, and using a 12-month PD for financial assets for which credit risk has not significantly increased, the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower's extension options) over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a longer period. The maximum contractual period extends to the date at which the Group has the right to require repayment of an advance or terminate a loan commitment or guarantee.
For retail overdrafts and credit card facilities that include both a loan and an undrawn commitment component, the Group measures ECL over a period of 12 months. These facilities do not have a fixed term or repayment structure and are managed on a collective basis. The Group can cancel them with immediate effect but this contractual right is not enforced in the normal day-to-day management but only when the Group becomes aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Group expects to take and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or turning the outstanding balance into a loan with fixed repayment terms.
Where modelling of a parameter is carried out on a collective basis, the financial instruments are ranked on the basis of shared risk characteristics that include: • instrument type; • payment behaviour; • external credit bureau characteristics; • date of initial recognition; • remaining term to maturity; and • customer demographics.
The ranking is subject to regular review to ensure that exposures within a particular pool remain appropriately homogeneous.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
30. Financial Risk Management (continued) c) The following tables shows reconciliations from the opening to the closing balance of the credit impairment provisions by class of financial instruments.
Due from Banks and Other Financial Institutions at Amortised Cost December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Balance as at January 1, 2019 16,499 - - 16,499 23,534 Net measurement of loss allowance (7,372) - - (7,372) (20,726) New financial assets originated or purchased or renewed 15,425 - - 15,425 48,344 Financial asset that have been derecognised (20,935) - - (20,935) (34,653) Balance as at December 31, 2019 3,617 - - 3,617 16,499
Debt instruments at Amortised Cost December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Balance as at January 1, 2019 3,090 - - 3,090 13,686 Net measurement of loss allowance (37) - - (37) 241 New financial assets originated or purchased or renewed 4,148 - - 4,148 7,108 Financial asset that have been derecognised (3,254) - - (3,254) (17,945) Balance as at December 31, 2019 3,947 - - 3,947 3,090
Debt instruments at FVOCI December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Balance as at January 1, 2019 25,524 - - 25,524 28,915 Transfer to 12 months ECL ----- Net measurement of loss allowance 1,068 - - 1,068 (8,358) New financial assets originated or purchased or renewed 43,841 - - 43,841 10,704 Financial asset that have been derecognised (37,564) - - (37,564) (5,737) Balance as at December 31, 2019 32,869 - - 32,869 25,524
Loans and advances at Amortised Cost December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Balance as at January 1, 2019 (Restated) 684,567 483,960 1,441,455 2,609,982 2,855,813 Transfer to 12 months ECL 172,668 (162,595) (10,073) -- Transfer to life time ECL not credit impaired (101,323) 120,094 (18,771) -- Transfer to life time ECL credit impaired (2,408) (289,483) 291,891 -- Net measurement of loss allowance (207,009) 391,949 546,690 731,630 (46,449) New financial assets originated or purchased or renewed 707,619 406,218 730,521 1,844,358 1,393,067 Financial asset that have been derecognised (620,067) (407,254) (490,326) (1,517,647) (1,342,385) Write offs - - (568,695) (568,695) (250,064) Balance as at December 31, 2019 634,047 542,889 1,922,692 3,099,628 2,609,982
Loan commitments and financial guarantee contracts December 31, 2019 SAR’000 Life time Life time December 31, 12 Months ECL not credit ECL credit 2018 ECL impaired impaired Total SAR’000 Balance as at January 1, 2019 74,759 119,917 1,441,275 1,635,951 1,571,841 Transfer to 12 months ECL 22,765 (22,765) - -- Transfer to life time ECL not credit impaired (12,173) 15,712 (3,539) -- Transfer to life time ECL credit impaired (339) (11,911) 12,250 -- Net measurement of loss allowance (2,320) 3,132 (211,136) (210,324) 95,464 New loan commitents and financial guarantees originated or renewed 67,871 9,530 101,868 179,269 83,360 Loan commitents and financial guarantees that have been derecognised (69,556) (24,600) 134,865 40,709 (114,714) Write offs - - (1,156,455) (1,156,455) - Balance as at December 31, 2019 81,007 89,015 319,128 489,150 1,635,951
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
30. Financial Risk Management (continued) d) Maximum exposure to credit risk without taking into account any collateral and other credit enhancements is as follows: 2019 2018 SAR’000 SAR’000 Assets Due from banks and other financial institutions, net 3,628,391 17,622,026 Investments, net 80,546,575 61,909,453 Loans and advances, net 141,595,245 113,708,562 Other assets exposed to credit risk 373,490 207,379 Total 226,143,701 193,447,420 Contingent liabilities and commitments 24,712,085 25,826,132 Derivatives 10,848,474 6,739,101 Total 261,704,260 226,012,653
31. Geographical concentration a) The distribution by geographical region for major categories of assets, liabilities, credit exposures in relation to commitments and contingencies and derivatives are as follows:
Kingdom of Other GCC 2019 SAR’000 Saudi Arabia & Middle East Europe North America Latin America South East Asia Other countries Total Assets Cash and balances with Central Banks 17,554,106 450,106 ----133,869 18,138,081 Due from banks and other financial institutions, net 1,002,137 173,244 389,978 1,926,612 - 3,396 133,024 3,628,391 Investments, net 69,717,131 1,956,564 5,321,891 6,074,535 63,040 163,524 1,716,568 85,013,253 Derivatives - 2,036,576 234,537 793,216 - - 27,892 3,092,221 Loans and advances, net 121,433,040 14,003,921 137,082 2,682,586 - - 3,338,616 141,595,245 Total 209,706,414 18,620,411 6,083,488 11,476,949 63,040 166,920 5,349,969 251,467,191
Liabilities Due to banks and other financial institutions 246,078 8,151,393 714,665 5,576,624 - 3,494 954,554 15,646,808 Customer deposits 177,023,348 932,149 40,809 419,056 419 699 1,749,200 180,165,680 Term Loan -----2,168,095 - 2,168,095 Debt securities issued - - 3,746,454 ----3,746,454 Derivatives 299,200 73,554 - 819,432 - - - 1,192,186 Total 177,568,626 9,157,096 4,501,928 6,815,112 419 2,172,288 2,703,754 202,919,223
Credit exposure (stated at credit equivalents) Commitments and contingencies 17,955,915 3,161,048 1,317,331 588,143 14,541 946,530 728,577 24,712,085 Derivatives - 7,072,370 814,472 2,754,583 - - 207,049 10,848,474 Total 17,955,915 10,233,418 2,131,803 3,342,726 14,541 946,530 935,626 35,560,559
Kingdom of Other GCC 2018 SAR’000 Saudi Arabia & Middle East Europe North America Latin America South East Asia Other countries Total Assets Cash and balances with Central Banks 25,060,588 220,117 991---137,908 25,419,604 Due from banks and other financial institutions, net 10,966,805 3,172,128 1,887,688 1,206,596 - 6,264 382,545 17,622,026 Investments, net 51,099,133 2,430,857 5,364,953 6,853,035 61,472 186,680 354,124 66,350,254 Derivatives 3,020,824 128,024 - 273,923 - - 23,001 3,445,772 Loans and advances, net 103,444,604 8,151,882 344,344---1,767,732 113,708,562 Total 193,591,954 14,103,008 7,597,976 8,333,554 61,472 192,944 2,665,310 226,546,218
Liabilities Due to banks and other financial institutions 1,296,811 4,641,463 96,012 632,114 - 8,996 1,196,178 7,871,574 Customer deposits 167,510,224 617,013 24,629 325,881 804 6,781 1,684,714 170,170,046 Derivatives 2,454,427 2,996-----2,457,423 Total 171,261,462 5,261,472 120,641 957,995 804 15,777 2,880,892 180,499,043
Credit exposure (stated at credit equivalents) Commitments and contingencies 19,193,261 3,139,471 1,088,103 649,396 31,564 1,015,163 709,174 25,826,132 Derivatives 2,609,921 157,573 3,459,549 502,456 - - 9,602 6,739,101 Total 21,803,182 3,297,044 4,547,652 1,151,852 31,564 1,015,163 718,776 32,565,233
Credit exposures are stated at their credit equivalent amounts as prescribed by SAMA.
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Samba Financial Group Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
31. Geographical concentration (continued) b) The distribution by geographical concentration of non-performing loans and advances and credit impairment provision are as follows: Non-performing Credit impairment loans and advances provision SAR’000 2019 2018 2019 2018 Kingdom of Saudi Arabia 1,696,632 1,300,159 2,941,323 2,439,393 Other GCC and Middle East 162,897 125,135 95,887 108,961 Other countries 64,679 64,113 62,418 61,628 Total 1,924,208 1,489,407 3,099,628 2,609,982
32. Market Risk Market risk is the risk that the fair value or future cash flows of the financial instruments will fluctuate due to changes in market variables such as special commission rates, foreign exchange rates, and equity prices. The Group classifies exposures to market risk into either trading or non-trading / banking-book.
a) Market Risk -Trading Book The Group has set limits for the acceptable level of risks in managing the trading book. In order to manage the market risk in trading book, the Group periodically applies a Value at Risk (VAR) methodology to assess the market risk positions held and also to estimate the potential economic loss based on a set of assumptions and changes in market conditions.
A VAR methodology estimates the potential negative change in market value of a portfolio at a given confidence level and over a specified time horizon. The Group uses simulation models to assess the possible changes in the market value of the trading book based on historical data. VAR models are usually designed to measure the market risk in a normal market environment and therefore the use of VAR has limitations because it is based on historical correlations and volatilities in market prices and assumes that the future movements will follow a statistical normal distribution.
The VAR that the Group measures is an estimate, using a confidence level of 99% of the potential loss that is not expected to be exceeded if the current market positions were to be held unchanged for one day. The use of 99% confidence level depicts that within a one-day horizon, losses exceeding VAR figure should occur, on average, not more than once every hundred days.
The VAR represents the risk of portfolios at the close of a business day, and it does not account for any losses that may occur beyond the defined confidence interval. The actual trading results however, may differ from the VAR calculations and, in particular, the calculation does not provide a meaningful indication of profits and losses in stressed market conditions. To overcome the VAR limitations mentioned above, the Group also carries out stress tests of its portfolio to simulate conditions outside normal confidence intervals. The potential losses occurring under stress test conditions are reported regularly to the Group’s Asset and Liability Committee (ALCO) for its review.
The Group’s VAR related information for the year ended December 31, 2019 and 2018 is as shown below. Foreign Special exchange commission 2019 SAR’000 risk risk Total VAR as at December 31 17,007 32,547 49,554 Average VAR for the year 15,423 29,928 45,351
Foreign Special exchange commission 2018 SAR’000 risk risk Total VAR as at December 31 13,931 20,067 33,998 Average VAR for the year 10,691 14,474 25,165
b) Market Risk – Non-Trading or Banking Book Market risk on non-trading or banking book positions mainly arises from the special commission rate, foreign currency exposures and equity price changes.
i) Special Commission Rate Risk Special commission rate risk arises from the possibility that the changes in special commission rates will affect either the fair values or the future cash flows of the financial instruments. The Group has established special commission rate gap limits for stipulated periods. The Group monitors daily positions and uses hedging strategies to ensure maintenance of positions within the established gap limits.
The following table depicts the sensitivity to a reasonably possible change in special commission rates, with other variables held constant, on the Group’s statements of consolidated income or equity. The sensitivity of the income is the effect of the assumed changes in special commission rates on the net special commission income for one year, based on non-trading financial assets and financial liabilities held as at December 31, including the effect of hedging instruments. The sensitivity of equity is calculated by revaluing the fixed rate FVOCI financial assets, including the effect of any associated hedges as at December 31, for the effect of assumed changes in special commission rates. The sensitivity of equity is analyzed by maturity of the asset or swap.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
32. Market Risk (continued) b) Market Risk – Non-Trading or Banking Book (continued) i) Special Commission Rate Risk (continued) All the banking book exposures are monitored and analyzed in currency concentrations and relevant sensitivities are presented below:
Sensitivity of special Sensitivity of equity Increase/ commission 2019 decrease income 6 months Total Currency in basis point SAR’000 or less 6 to 12 months 1-5 years Over 5 years SAR’000 SAR +1 bps (35,002) (1,351) (1,171) (8,019) (11,942) (22,483) -1 bps 35,002 1,351 1,171 8,019 11,942 22,483 US Dollar +1 bps (5,529) (522) (466) (3,385) (2,734) (7,107) -1 bps 5,529 522 466 3,385 2,734 7,107 Euro +1 bps (471) (31) (31) (235) (102) (399) -1 bps 471 31 31 235 102 399
Sensitivity of special Sensitivity of equity Increase/ commission 2018 decrease income 6 months Total Currency in basis point SAR’000 or less 6 to 12 months 1-5 years Over 5 years SAR’000 SAR +1 bps (20,462) (737) (613) (4,069) (1,555) (6,974) -1 bps 20,462 737 613 4,069 1,555 6,974 US Dollar +1 bps (29) (304) (218) (1,519) (1,049) (3,090) -1 bps 29 304 218 1,519 1,049 3,090 Euro +1 bps (81) 7 14 (87) (8) (74) -1 bps 81 (7) (14) 87 8 74
The Group is exposed to various risks associated with the effect of fluctuations in the prevailing levels of market commission rates on its financial position and cash flows. The table below summarizes the Group’s exposure to commission rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates. The Group is exposed to special commission rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off-balance sheet instruments that mature or re-price in a given period. The Group manages this risk by matching the re-pricing of assets and liabilities through risk management strategies. Non- commission 2019 SAR’000 Within 3 months 3-12 months 1-5 years Over 5 years bearing Total Assets Cash and balances with Central Banks 7,142,653 - - - 10,995,428 18,138,081 Due from banks and other financial institutions, net 919,215 100,000 - - 2,609,176 3,628,391 Investments, net 26,697,328 6,969,696 5,411,235 38,432,156 7,502,838 85,013,253 Derivatives 3,092,221 ----3,092,221 Loans and advances, net 84,980,271 31,606,799 14,514,402 10,492,595 1,178 141,595,245 Property and equipment, net ----3,066,858 3,066,858 Other assets ----1,069,752 1,069,752 Total Assets 122,831,688 38,676,495 19,925,637 48,924,751 25,245,230 255,603,801
Liabilities and equity Due to banks and other financial institutions 13,426,859 1,540,900 20,983 37,137 620,929 15,646,808 Customer deposits 58,074,169 16,168,183 6,848,120 141,724 98,933,484 180,165,680 Term loan 2,168,095 ----2,168,095 Debt securities in issue - - 3,746,454 - - 3,746,454 Derivatives 1,192,186 ----1,192,186 Other liabilities - 11,549 67,301 291,198 6,865,698 7,235,746 Total equity ----45,448,832 45,448,832 Total liabilities and equity 74,861,309 17,720,632 10,682,858 470,059 151,868,943 255,603,801 On balance sheet gap 47,970,379 20,955,863 9,242,779 48,454,692 (126,623,713) Off balance sheet gap (692,135) 592,135 100,000 - - Total commission rate sensitivity gap 47,278,244 21,547,998 9,342,779 48,454,692 (126,623,713) Cumulative commission rate sensitivity gap 47,278,244 68,826,242 78,169,021 126,623,713
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
32. Market Risk (continued) b) Market Risk – Non-Trading or Banking Book (continued) i) Special Commission Rate Risk (continued) Non- commission 2018 SAR’000 Within 3 months 3-12 months 1-5 years Over 5 years bearing Total Assets Cash and balances with Central Banks 15,164,947 - - - 10,254,657 25,419,604 Due from banks and other financial institutions, net 3,821,499 10,495,959 - - 3,304,568 17,622,026 Investments, net 27,560,201 3,251,457 9,685,485 19,757,039 6,096,072 66,350,254 Derivatives 3,445,772 ----3,445,772 Loans and advances, net 61,244,550 32,010,653 11,540,496 8,911,740 1,123 113,708,562 Property and equipment, net ----2,693,443 2,693,443 Other assets ----698,639 698,639 Total Assets 111,236,969 45,758,069 21,225,981 28,668,779 23,048,502 229,938,300
Liabilities and equity Due to banks and other financial institutions 5,293,118 595,565 3,161 26,633 1,953,097 7,871,574 Customer deposits 59,252,798 11,026,620 10,036 91,965 99,788,627 170,170,046 Derivatives 2,457,423 ----2,457,423 Other liabilities ----7,133,322 7,133,322 Total equity ----42,305,935 42,305,935 Total liabilities and equity 67,003,339 11,622,185 13,197 118,598 151,180,981 229,938,300 On balance sheet gap 44,233,630 34,135,884 21,212,784 28,550,181 (128,132,479) Off balance sheet gap (8,033,479) (1,483,894) 9,517,373 - - Total commission rate sensitivity gap 36,200,151 32,651,990 30,730,157 28,550,181 (128,132,479) Cumulative commission rate sensitivity gap 36,200,151 68,852,141 99,582,298 128,132,479
The off balance sheet gap represents the net notional amounts of off-balance sheet financial instruments, which are used to manage the commission rate risk.
ii) Currency risk Currency risk represents the risk of change in the value of financial instruments due to changes in foreign exchange rates. The Group manages exposure to the effects of fluctuations in prevailing foreign currency exchange rates on its financial position and cash flows. Management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions and hedging strategies, which are monitored daily. At the end of the year, the Group had the following significant net currency exposures: 2019 2018 SAR’000 SAR’000 Long/(Short) Long/(Short) United States Dollar 9,293,963 4,936,895 United Arab Emirates Dirham 179,810 40,636 United Kingdom Pound Sterling (98,988) (18,704) Pakistan Rupee 651,592 755,420 Euro (275,002) (97,530)
The table below shows the currencies to which the Group has a significant exposure as at December 31, 2019 and 2018 on its non-trading monetary assets and liabilities and forecasted cash flows. The analysis calculates the effect of reasonable possible movement of the currency rate against Saudi Riyal, with all other variables held constant, on the statements of consolidated income (due to the fair value of the currency sensitive non-trading monetary assets and liabilities) and equity (due to change in fair value of currency swaps and forward foreign exchange contracts used as cash flow hedges). A positive effect shows a potential increase in statements of consolidated income or equity; whereas a negative effect shows a potential net reduction in statements of consolidated income or equity. 2019 SAR’000 2018 SAR’000 Change in Effect on Effect Change in Effect on Effect currency rate net income on equity currency rate net income on equity US Dollar 1% 13,088 5,025 1% 16,883 (1,631) Euro 1% (2,457) 214 1% 3,424 (43)
iii) Equity Price Risk Equity price risk refers to the risk of decrease in fair values of equities in the Group’s FVOCI investment portfolio as a result of reasonable possible changes in levels of equity indices and the value of individual stocks. Assuming all other variables are held constant, a 1% increase or decrease in the value of Group’s FVOCI equity investments at December 31, 2019 would have a corresponding increase or decrease in equity by SR 40.8 million (2018: SR 31.9 million).
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
33. Liquidity risk Liquidity risk is the risk that the Group will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of funding to be less readily available. To mitigate this risk, management has diversified funding sources and manages its assets with liquidity in mind, maintaining an appropriate balance of cash, cash equivalents and readily marketable securities.
In accordance with Banking Control Law and the regulations issued by SAMA, the Bank maintains a statutory deposit with SAMA equal to 7% of total demand deposits and 4% of savings and time deposits (2018: 7% and 4% respectively).
In addition to the statutory deposit, the Bank also maintains liquid reserves of no less than 20% (2018: 20%) of its deposit liabilities, in the form of cash, gold, Saudi Government securities or assets that can be converted into cash within a period not exceeding 30 days.
The Bank has the ability to raise additional funds through repo facilities with SAMA against Saudi Government securities up to 100% (2018: 100%) of the nominal value of securities held.
i) Maturity profile of Group’s assets, liabilities and equity The management regularly monitors the maturity profile to ensure that adequate liquidity is maintained. The tables below summarize the maturity profile of the Group’s assets, liabilities and equity based on the contractual maturities as at the reporting date. For presentation purposes, the demand, saving and other deposits amounting to SR 106,844 million (2018: SR 107,709 million) with no contractual maturity are included under “No fixed maturity” category to correctly depict the maturity profile of such deposit liabilities. No fixed 2019 SAR’000 Within 3 Months 3-12 months 1-5 years Over 5 years maturity Total Assets Cash and balances with Central Banks 7,142,653 - - - 10,995,428 18,138,081 Due from banks and other financial institutions, net 919,215 100,000 - - 2,609,176 3,628,391 Investments, net 3,518,379 2,413,992 17,029,254 54,548,790 7,502,838 85,013,253 Derivatives 99,860 836,096 804,985 1,351,280 - 3,092,221 Loans and advances, net 44,753,360 30,583,783 35,546,097 30,131,709 580,296 141,595,245 Property and equipment, net ----3,066,858 3,066,858 Other assets ----1,069,752 1,069,752 Total Assets 56,433,467 33,933,871 53,380,336 86,031,779 25,824,348 255,603,801
Liabilities and Equity Due to banks and other financial institutions 13,426,859 1,540,900 20,983 37,137 620,929 15,646,808 Customer deposits 50,510,499 16,168,183 6,848,120 141,724 106,497,154 180,165,680 Term loan 11,845 - 2,156,250 - - 2,168,095 Debt securities in issue 25,495 - 3,720,959 - - 3,746,454 Derivatives 58,932 394,220 364,877 374,157 - 1,192,186 Other liabilities - 382,120 1,179,010 291,198 5,383,418 7,235,746 Total equity ----45,448,832 45,448,832 Total Liabilities and Equity 64,033,630 18,485,423 14,290,199 844,216 157,950,333 255,603,801
No fixed 2018 SAR’000 Within 3 Months 3-12 months 1-5 years Over 5 years maturity Total Assets Cash and balances with Central Banks 15,164,947 - - - 10,254,657 25,419,604 Due from banks and other financial institutions, net 3,821,499 10,495,959 - - 3,304,568 17,622,026 Investments, net 1,513,742 1,021,532 15,839,131 41,879,777 6,096,072 66,350,254 Derivatives 285,942 1,345,477 877,513 936,840 - 3,445,772 Loans and advances, net 26,387,198 29,028,200 33,226,058 24,549,753 517,353 113,708,562 Property and equipment, net ----2,693,443 2,693,443 Other assets ----698,639 698,639 Total Assets 47,173,328 41,891,168 49,942,702 67,366,370 23,564,732 229,938,300
Liabilities and Equity Due to banks and other financial institutions 5,088,583 790,355 4,195 35,344 1,953,097 7,871,574 Customer deposits 51,551,976 11,026,620 10,036 91,965 107,489,449 170,170,046 Derivatives 217,219 941,383 504,045 794,776 - 2,457,423 Other liabilities - 370,570 1,482,280 - 5,280,472 7,133,322 Total equity ----42,305,935 42,305,935 Total Liabilities and Equity 56,857,778 13,128,928 2,000,556 922,085 157,028,953 229,938,300
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
33. Liquidity risk (continued) ii) Analysis of undiscounted financial liabilities by remaining contractual maturities The table below summarizes the maturity profile of Group’s financial liabilities at December 31 based on contractual undiscounted repayment obligations. The totals in this table do not match with the statements of consolidated financial position as special commission payments with contractual maturities are included in the table on an undiscounted basis. The contractual maturities of financial liabilities have been determined on the basis of the remaining period at the reporting date to the contractual maturity date. The table below does not reflect the expected cash flows indicated by the deposit retention history of the Group. Contractual maturity of the financial guarantees is shown under note 18(c).
2019 SAR’000 Within 3 Months 3-12 months 1-5 years Over 5 years On demand Total Due to banks and other financial institutions 13,431,043 1,543,533 27,799 37,137 620,929 15,660,441 Customer deposits 51,553,914 16,437,198 7,073,110 141,724 106,497,154 181,703,100 Term loan 25,872 42,081 2,352,629 - - 2,420,582 Debt securities in issue 38,386 38,672 4,159,527 - - 4,236,585 Derivatives 60,742 409,212 430,371 603,661 - 1,503,986 Other liabilities - 385,933 1,201,231 387,342 5,381,990 7,356,496 Total 65,109,957 18,856,629 15,244,667 1,169,864 112,500,073 212,881,190
2018 SAR’000 Within 3 Months 3-12 months 1-5 years Over 5 years On demand Total Due to banks and other financial institutions 3,839,226 595,575 3,161 26,633 3,411,759 7,876,354 Customer deposits 51,754,298 11,236,081 10,067 91,965 107,489,449 170,581,860 Derivatives 232,380 1,020,940 582,188 978,507 - 2,814,015 Other liabilities - 370,570 1,852,850 - 5,009,629 7,233,049 Total 55,825,904 13,223,166 2,448,266 1,097,105 115,910,837 188,505,278
34. Fair values of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments:
Level 1 - Quoted prices in active markets for the same instrument (i.e. without modification or repacking); Level 2 - Quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data; and Level 3 - Valuation techniques for which any significant input is not based on observable market data.
The fair values of the financial assets, financial liabilities and the derivative financial instruments classified under the appropriate valuation hierarchy, are given below:
2019 SAR’000 Level 1 Level 2 Level 3 Total Financial Assets: Investments held at FVIS 669,664 4,352,293 1,078,155 6,100,112 Investments held at FVOCI 20,627,170 44,659,204 5,657 65,292,031 Investments held at amortized cost - 13,926,778 - 13,926,778 Derivatives 8,035 3,084,186 3,092,221
Financial Liabilities: Financial liabilities designated at FVIS - 700,344 - 700,344 Debt securities in issue 3,725,888 - - 3,725,888 Derivatives 2,869 1,189,317 - 1,192,186
2018 SAR’000 Level 1 Level 2 Level 3 Total Financial Assets: Investments held at FVIS 680,971 3,842,648 795,017 5,318,636 Investments held at FVOCI 15,503,339 34,797,461 - 50,300,800 Investments held at amortized cost - 10,368,938 - 10,368,938 Derivatives 8,752 3,437,020 - 3,445,772
Financial Liabilities: Financial liabilities designated at FVIS - 950,707 - 950,707 Derivatives 37,274 2,420,449 - 2,457,723
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
34. Fair values of financial instruments (continued) During the year, there has been no transfer within levels of the fair value hierarchy. The following table shows a reconciliation from the beginning balances to the ending balances for the fair value measurements in Level 3 of the fair value hierarchy in respect of financial assets held at FVIS and FVOCI: 2019 2018 SAR’000 SAR’000 Balance at the beginning of the year 795,017 636,105 Total realized and unrealized losses in statement of consolidated income and statement of consolidated comprehensive income (8,911) (42,210) Purchases 379,792 250,155 Settlements (82,086) (49,033) Balance at the end of the year 1,083,812 795,017
The fair values of other on-balance sheet financial instruments, except for investments held at amortized cost and loans & advances which are carried at amortized cost, are not significantly different from the carrying values included in the consolidated financial statements. The Group’s portfolio of loans and advances to customers is well diversified by industry. More than three quarters of the portfolio reprices within less than a year and accordingly the fair value of this portfolio approximates the carrying value, subject to any significant movement in credit spreads. The fair value of the remaining portfolio is not significantly different from its carrying values. The estimated fair values of the Group’s loans and advances portfolio as at December 31, 2019 was SR 142.07 billion (2018: SR 113.8 billion). The fair values of special commission bearing customers’ deposits, due from and due to banks and other financial institutions which are carried at amortized cost, are not significantly different from the carrying values included in the consolidated financial statements, since the current market special commission rates for similar financial instruments are not significantly different from the contracted rates, and for the short duration of these instruments.
The estimated fair values of investments held at amortized cost are based on quoted market prices when available or pricing models when used in the case of certain fixed rate bonds respectively. The fair values of these investments are also disclosed in note 5(c).
The value obtained from the relevant valuation model may differ, with the transaction price of a financial instrument. The difference between the transaction price and the model value is commonly referred to as “day-one profit or loss”. It is either amortized over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable data, or realized through disposal. Subsequent changes in fair value are recognized immediately in the statements of consolidated income without reversal of deferred day-one profits or losses.
The valuation of each publicly traded investment is based upon the closing market price of that stock as of the valuation date, less a discount if the security is restricted.
Investments classified as Level 2 are fair valued using discounted cash flow techniques that generally use observable market data inputs for yield curves, credit spreads and reported net asset values of the funds. Derivatives classified as Level 2 are fair-valued using the Bank’s proprietary valuation models that are based on discounted cash flow techniques. The data inputs to these models are based on observable market parameters in which they are traded and are sourced from independent brokers.
Fair values of private equity investments classified in Level 3 are determined based on the investees’ latest reported net assets values as at the reporting date. The movement in Level 3 financial instruments during the year relates to fair value movement only.
35. Related party transactions In the ordinary course of its activities, the Bank transacts business with related parties. The related party transactions are governed by limits set by the Banking Control Law and regulations issued by Central Banks. The year-end balances resulting from such transactions included in the consolidated financial statements are as follows: 2019 2018 SAR’000 SAR’000 Directors, other major shareholders, key management personnel and their affiliates: Loans and advances 5,932,186 685,478 Customer deposits 27,821,961 8,564,747 Commitments and contingencies 43,614 1,112,520
Mutual funds: Customer deposits 101,617 106,496
The Bank also carries out expected credit loss calculation as per credit risk policy as referred in note 30 for the credit portfolio pertaining to related party balances. Other major shareholders represent shareholdings of more than 5% of the Bank’s issued and paid up share capital, as listed on Tadawul. Income and expenses pertaining to transactions with related parties included in the consolidated financial statements are as follows:
2019 2018 SAR’000 SAR’000 Special commission income 182,908 10,557 Special commission expense 413,057 301,222 Fee and commission income, net 106,907 131,099 Directors’ remuneration 4,987 5,125
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
35. Related party transactions (continued) The total amount of compensation paid to key management personnel during the year is as follows: 2019 2018 SAR’000 SAR’000 Short-term employee benefits 80,055 63,368 Post-employment, termination and share-based payments 9,540 7,437
Key management personnel are those persons, including the Chief Executive Officer, having authority and responsibility for planning, directing, and controlling the activities of the Bank, directly or indirectly.
36. Capital Adequacy The Group monitors the adequacy of its capital using the methodology and ratios established by the Basel Committee on Banking Supervision and as adopted by SAMA with a view to maintain a sound capital base to support its business development and meet regulatory capital requirement as defined by SAMA. These ratios measure capital adequacy by comparing the Group’s eligible capital with its statements of financial position assets, commitments and contingencies, notional amount of derivatives at a weighted amount to reflect their relative credit risk, market risk and operational risk. During the year, the Group has fully complied with such regulatory capital requirements.
The management reviews on a periodical basis capital base and level of risk weighted assets to ensure that capital is adequate for risks inherent in it current business activities and future growth plans. In making such assessment, the management also considers the Group’s business plan along with economic conditions which directly and indirectly affect the business environment. The overseas subsidiary manages its own capital as prescribed by local regulatory requirements.
SAMA has issued the framework and guidance regarding implementation of the capital reforms under Basel III and the related disclosures which are effective from January 1, 2013. Accordingly, calculated under the Basel III framework, the Group’s consolidated Risk Weighted Assets (RWA), total capital and related ratios on a consolidated group basis and on a standalone basis for its significant banking subsidiary calculated for the credit, operational and market risks, at December 31 are as follows: 2019 2018 SAR’000 SAR’000 Samba Financial Group (consolidated) Credit risk RWA 197,079,973 174,970,249 Operational risk RWA 14,220,800 13,719,047 Market risk RWA 16,998,454 11,996,356 Total RWA 228,299,227 200,685,652
Tier I capital 46,907,163 44,271,381 Tier II capital 1,341,038 1,255,554 Total tier I & II capital 48,248,201 45,526,935
Capital adequacy ratio % Tier I ratio 20.5% 22.1% Tier I + II ratio 21.1% 22.7%
Capital adequacy ratios for Samba Bank Limited, Pakistan are as follows: Tier I ratio 18.0% 18.6% Tier I + II ratio 18.5% 18.7%
Tier I capital comprises the share capital, statutory, general and other reserves, qualifying non-controlling interest and retained earnings less any intangible assets of the Bank as at the year-end. Tier II capital comprises of a prescribed amount of eligible provisions.
SAMA through its circular number 391000029731 dated 15/03/1439AH, which relates to the interim approach and transitional arrangements for the accounting allocations under IFRS 9, has directed banks that the initial impact on the capital adequacy ratio as a result of applying IFRS 9 can be transitioned over 5 years, which has been availed by the Bank effective January 2018.
37. Investment management services The investment management services are provided by Samba Capital and Investment Management Company, a 100% owned subsidiary of the Bank. The assets under management outstanding at end of the year including mutual funds and discretionary portfolios amounted to SR 23,648 million (2018: SR 29,117 million). This includes funds managed under Shariah-approved portfolios amounting to SR 12,930 million (2018: SR 11,174 million). The assets under custody services at the end of the year amounted to SR 4,111 million (2018: SR Nil)
Assets held in trust or in a fiduciary capacity are not treated as assets of the Bank or that of its subsidiary and, accordingly, are not included in the Group’s consolidated financial statements.
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Notes to the Consolidated Financial Statements For the years ended December 31, 2019 and 2018
38. Equity-based payments The Bank has the following equity-based long term bonus plans outstanding at the end of the year. Significant features of these plans are as follows:
Number of outstanding plans 5 Grant date Between Aug 2015 to Jan 2019 Maturity date Between Aug 2020 to Jan 2024 Number of shares granted on the grant date 2,120,770 Benchmark price per share at grant date Between SAR 20.9 to 37.7 Vesting period 5 years Vesting conditions Participating employees to remain in service Method of settlement Equity Valuation model Discounted Cash Flow Fair value per share on grant date Between SAR 17.5 to 32.7
The fair value of shares granted during the year was SR 17.8 million (2018: SR 9.7 million). The inputs used to calculate fair value of the shares granted during the year were the market price at the grant date, life of the plan, expected dividends and annual risk free rate of return.
The shares are granted only under a service condition with no market condition associated with them. The total amount of expense recognized in these consolidated financial statements in respect of the above equity-based payment plans for the year 2019 is SR 7.4 million (2018: SR 5.7 million) and the related reserve is recorded in equity under treasury stocks.
39. Accounting Standards issued but not yet effective The accounting standards, amendments and revisions which have been published and are mandatory for compliance for the Group’s accounting year beginning January 1 ,2020 are listed below. The Group has opted not to early adopt these pronouncements and they do not have a significant impact on the consolidated financial statements.
IFRS 17 – “Insurance contracts”, applicable for the period beginning on or after January 1, 2022.
40. Prior year reclassifications Certain prior year balances have been reclassified to conform to the current year presentation. The effect of these reclassifications was not material to the consolidated financial statements.
The change in the accounting treatment for Zakat and income tax (as explained in notes 2.27 and note 27) has the following impacts on the line items of statements of consolidated financial position and statement of consolidated income.
As at December 31, 2018 Balance as Effect of Effect of Balance previously reported reclassification restatement as restated Liabilities and Equity SAR’000 SAR’000 SAR’000 SAR’000 Derivatives 2,355,100 102,323 - 2,457,423 Other liabilities 7,233,049 (102,323) 2,596 7,133,322 Retained earnings 3,672,591 - (2,596) 3,669,995
2018 SAR’000 Net income for the year as originally reported 5,528,779 Effect of change in accounting treatment 2,469,059 Net income after zakat and taxation (Restated) 3,059,720
41. Event subsequent to statement of consolidated financial position date Subsequent to the year end, the Bank, through a special purpose vehicle, has completed the issuance of its second tranche amounting to USD 500 million denominated notes under a USD 5 billion Euro Medium Term Note program. The notes are unsecured and have been issued under this program for a period of five years beginning from the drawdown date of January 29, 2020 and may be subject to early redemption at the option of the Bank subject to the terms and conditions of the issue. The notes are listed on the Irish Stock Exchange plc.
42. Board of Directors' approval The consolidated financial statements were approved by the Board of Directors’ on February 2, 2020 (8 Jumada II 1441 H).
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Branches SpeedCash Centres
Central Region 11. North Ring Road Branch 26. Ministry of Finance 8. Sari Branch Taif Dhahran Central Region: Tel: (011) 453 0764 Tel: (011) 406 8957 Tel: (012) 682 2266 22. Taif Branch 7. Doha Branch Riyadh Fax: (011) 455 2077 Fax: (012) 683 8433 Tel: (012) 742 7555 Tel: (013) 891 3938 1. Rawdah Center Regional Office Ladies Unit 27. Olaya Ladies Branch Fax: (012) 748 5494 Fax: (013) 891 0400 Abdulrehman Al-Ghafekieh Street, P.O.Box 833, Riyadh 11421 Tel: (011) 453 0095 Tel: (011) 215 8666 9. King Abdulaziz University Riyadh Tel: (011) 477 4770 Fax: (011) 453 0488 Fax: (011) 544 3220 Branch Najran 8. Dhahran Branch Tel: (011) 493 0359 Fax: (011) 479 9057 Tel: (012) 629 8866 23. Najran Branch Tel: (013) 876 6266 Fax: (011) 493 3984 12. Takhassusi Branch Al-Kharj Fax: (012) 629 8866 Ext. 236 Tel: (017) 522 2535 Fax: (013) 330 1419 1. Head Office Branch Tel: (011) 465 6052 28. Al Kharj Branch Fax: (017) 522 2722 2. Malaz Center Tel: (011) 477 4770 Fax: (011) 465 3399 Tel: (011) 544 4040 10. King Abdulaziz University Hofuf Al-Arbaeen Street, Riyadh Fax: (011) 477 4770 Ext. 4336 Ladies Unit Fax: (011) 544 3220 Ladies Branch Jizan 9. Hofuf Branch Tel: (011) 477 5571 / 477 2033 / Tel: (011) 463 1113 Tel: (012) 672 2620 24. Jizan Branch Tel: (013) 586 0717 477 0428 2. Al-Badia Branch Fax: (011) 465 3080 Onaizah Fax: (012) 676 5583 Tel: (017) 323 8333 Fax: (013) 586 3320 Fax: (011) 476 3635 Tel: (011) 435 7707 29. Onaizah Branch Fax: (017) 322 4533 Fax: (011) 435 9401 13. Kingdom Center Branch Tel: (016) 364 8019 11. Al-Khalidiya Branch 10. Khaldiah Branch Western Region: Tel: (011) 211 7070 Fax: (016) 364 8251 Tel: (012) 692 8081 Thuwal Tel: (013) 588 3344 3. Naseem Branch Fax: (011) 211 2138 Fax: (012) 692 8081 Ext. 130 25. King Abdullah University of Fax: (013) 588 5376 1. Sammariah Center Tel: (011) 239 1662 Buraidah Ladies Unit Science and Technology Branch Ladies Unit Sammariah Commercial Center, Fax: (011) 235 9656 14. Rawdah Branch 30. Al Safra Branch Tel: (012) 692 8082 Tel: (012) 802 4041 Tel: (013) 588 5691 behind Jeddah International Market, Tel: (011) 493 3250 Tel: (016) 325 1940 Fax: (012) 692 8082 Ext. 330 Fax: (012) 802 4058 Fax: (013) 588 5147 Madinah Road, Jeddah 4. Dahrat Al-Badiah Branch Fax: (011) 493 3512 Fax: (016) 325 1943 Tel: (012) 667 2797 / 667 2858 Tel: (011) 425 9218 Ladies Unit 12. Samaria Center Branch Thuwal Mubarraz Fax: (012) 667 2973 Fax: (011) 425 9953 Tel: (011) 491 9472 Hail Tel: (012) 667 2797 26. Jeddah University Branch 11. Mubarraz Branch Ladies Unit Fax: (011) 491 4873 31. Hail Branch Fax: (012) 284 2194 Tel: (012) 290 0702 Tel: (013) 536 7777 2. Al-Fayha Center Tel: (011) 428 4704 Tel: (016) 533 0704 Fax: (012) 290 0682 Fax: (013) 531 6951 Sitten Street, Beside Samba Bank, Fax: (011) 428 4693 15. Batha Branch Fax: (016) 543 1351 13. Prince Sultan Street Branch Al-Fayha, Jeddah Tel: (011) 405 0661 Tel: (012) 215 3333 Eastern Region Jubail Tel: (012) 669 9111 Ext. 29156 / 5. Shefa Branch Fax: (011) 405 3604 Tabuk Fax: (012) 622 8204 12. Jubail Industrial City Branch 29157 Tel: (011) 425 0017 32. Tabuk Branch Ladies Unit Al Khobar Tel: (013) 341 0435 Fax: (012) 669 9165 Fax: (011) 423 9846 16. King Saud University Branch Tel: (014) 421 6864 Tel: (012) 215 3222 Regional Office Fax: (013) 341 0437 Ladies Unit Tel: (011) 468 4480 Fax: (014) 421 7769 Fax: (012) 215 3222 Ext. 142 P.O.Box 842, Al Khobar 31952 Eastern Region: Tel: (011) 422 9168 Fax: (011) 467 5676 Tel: (013) 865 8000 Qatif Fax: (011) 422 9168 Ext. 288 Western Region Madinah Al Munawarah Fax: (013) 865 8122 13. Qatif Branch 1. Al-Khobar Center 17. King Saud University Ladies 14. Madinah Sultana Branch Tel: (013) 855 0888 Mansour Street, Al-Khobar 6. Malaz Branch Branch Jeddah Tel: (014) 827 8888 1. Regional Office Branch Fax: (013) 855 2015 Tel: (013) 899 3206 / 899 2715 Tel: (011) 476 8948 Tel: (011) 805 4300 Regional Office Fax: (014) 828 9450 Tel: (013) 865 8000 Ladies Unit Fax: (013) 898 3024 Fax: (011) 476 7731 Fax: (011) 805 4311 Andalus Street, P.O.Box 490, Fax: (013) 865 8122 Tel: (013) 854 9304 Ladies Unit Jeddah 21411 15. Madinah Qurban Branch Ladies Unit Fax: (013) 854 9305 2. Dammam 2 Center Tel: (011) 477 3739 18. Olaishah Ladies Branch Tel: (012) 653 3555 Tel: (014) 823 1400 Tel: (013) 865 8140 King Saud St, Dammam Fax: (011) 477 9821 Tel: (011) 435 2564 Fax: (012) 651 3093 Fax: (014) 826 6521 Fax: (013) 865 8144 Ras Tanourah Tel: (013) 830 4155 / 830 6531 Fax: (011) 434 0659 14. Ras Tanourah Branch Fax: (013) 830 6531 7. Olaya Branch 1. Andalus Branch Makkah Al Mukarramah 2. Al Hada Branch Tel: (013) 667 7183 Tel: (011) 215 8777 19. Diplomatic Quarter Branch Tel: (012) 653 3555 16. Makkah Azizia Branch Tel: (013) 835 2737 Fax: (013) 667 7186 3. Shaybah Fax: (011) 215 8778 Tel: (011) 488 0271 Fax: (012) 653 3555 Ext. 2393 Tel: (012) 558 1010 Fax: (013) 835 1742 Shaybah Field, Aramco Fax: (011) 488 0079 Fax: (012) 558 0486 Ladies Unit Saihat Tel: (013) 578 8556 / 578 8557 8. King Abdullah Road Branch 2. Sitteen Street Branch Tel: (013) 835 5092 15. Saihat Branch Fax: (013) 578 8555 Tel: (011) 454 9150 20. MODA Branch Tel: (012) 682 5905 17. Makkah Sitteen Branch Fax: (013) 835 1742 Tel: (013) 837 2424 Fax: (011) 456 2817 Tel: (011) 479 3539 Fax: (012) 682 5811 Ext. 235 Tel: (012) 548 1010 Fax: (013) 837 7643 Ladies Unit Fax: (011) 478 9000 Ext. 3177 Fax: (012) 548 6134 Dammam Tel: (011) 470 4715 3. Makkah Road Branch Ladies Unit 3. Dammam Branch International Fax: (011) 470 2631 21. King Fahad Road Branch Tel: (012) 680 9222 Tel: (012) 548 2020 Tel: (013) 835 2888 Tel: (011) 462 0547 Fax: (012) 688 0491 Fax: (012) 548 6259 Fax: (013) 835 3555 Pakistan 9. Al Rayyan Branch Fax: (011) 465 7154 Ladies Unit Fountain Branch Saddar Tel: (011) 493 0452 4. Al-Faiha Branch Yanbu Tel: (013) 835 2888 270 / 1 / A Maulana Deen Fax: (011) 493 0368 22. Nakheel Branch Tel: (012) 669 9199 18. Yanbu Branch Fax: (013) 835 5381 Muhammad Ladies Unit Tel: (011) 205 2460 Fax: (012) 669 9114 Tel: (014) 393 2222 Wafai Road, Saddar, Karachi Tel: (011) 208 4193 Fax: (011) 205 2470 Fax: (014) 392 2673 4. Prince Naif Bin A.Aziz Road Tel: + 92-21-5685194 / 5688767 / Fax: (011) 208 1534 Ladies Unit 5. King Abdulaziz Street Branch Branch 5689322 Tel: (011) 205 2468 Tel: (012) 644 1831 Abha Tel: (013) 841 0868 Fax: + 92-21-5689113 10. Al Hamra Branch Fax: (011) 205 2469 Fax: (012) 644 6096 19. Abha Branch Fax: (013) 842 3462 Tel: (011) 278 9885 Tel: (017) 229 5050 United Arab Emirates Fax: (011) 278 9880 23. Gornata Branch 6. Tahlia Branch Fax: (017) 229 5959 5. King Saud Street Branch Dubai Branch Ladies Unit Tel: (011) 253 4912 Tel: (012) 660 7700 Tel: (013) 833 0515 Jumeirah Beach Road, Tel: (011) 277 1334 Fax: (011) 253 4907 Fax: (012) 660 7700 Ext. 124 Khamis Mushayt Fax: (013) 833 2882 Umm Sequim 2, Dubai Fax: (011) 278 9880 Ladies Unit 20. Khamis Mushayt Branch Tel: + 9714 709 1111 24. Sulaimania Branch Tel: (012) 667 4272 Tel: (017) 237 8855 6. King A.Aziz Port Branch Fax: + 9714 709 1122 Tel: (011) 464 2360 Fax: (012) 667 4272 Ext. 195 Fax: (017) 223 5959 Tel: (013) 847 0384 Fax: (011) 464 9873 Fax: (013) 847 0389 Qatar 7. Tareeq Al Malik Branch Al Baha Doha Branch 25. West Ring Road Tel: (012) 654 9598 21. Baha Branch Tornado Tower, Suite B, Al Funduq Tel: (011) 431 4128 Fax: (012) 655 2868 Tel: (017) 725 4111 Street, West Bay, Doha Fax: (011) 279 0853 Ladies Unit Fax: (017) 725 2315 Tel: +974 4483 7172 Ladies Unit Tel: (012) 605 4411 Fax: +974 4483 7176 Tel: (011) 430 2028 Fax: (012) 655 2252 Ext. 137 Fax: (011) 430 1964
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