Registered Address Arab Banking Corporation Group ABC Tower, Diplomatic Area PO Box 5698, Manama Kingdom of Bahrain
(Commercial Registration Number 10299) www.arabbanking.com Arab Banking Corporation Group
Annual Report 2005 Our mission is to:
• Consistently generate increasing value for our shareholders
• Specialise in Arab-related activities across the world
• Invest in international financial institutions that diversify and enhance shareholder value
• Attract and retain high quality employees by providing rewarding careers
Our key objectives are to create and maintain:
• A strong presence in the Arab world, and internationally, to complement and achieve optimal diversification of our earning stream
• A strong risk management process
• An effectively managed expense base focused on generating increasing shareholder value
• A strong and liquid financial institution with emphasis on asset quality
Contents FINANCIAL STATEMENTS 2 The Board of Directors 29 Auditors’ Report 4 Directors’ Report 30 Consolidated Balance Sheet 8 Global Network 31 Consolidated Statement of Income 9 Financial Highlights 32 Consolidated Statement of Cash Flows 10 The President & Chief Executive’s Review of Operations 33 Consolidated Statement of Changes in Equity 23 Corporate Governance 34 Notes to the Consolidated 26 Group Financial Review Financial Statements 51 Head Office Directory 52 International Directory FABR 173 1
ABC’s Project Finance team with a United Stainless Steel Company (USCO) official at the construction site for USCO’s new stainless steel mill in Bahrain.
extensive local presence
“Our vision is to be the premier and most innovative international Arab financial group. The way ahead remains challenging, but we are confident that the Group is well on the way to achieving its strategic aims.” Mr. Mohammed H. Layas, Chairman
Annual Report 2005 ABC Group The Board of Directors 2 The Board of Directors y been aDirector of ABC since 2001andhasover 15 G EC AB sectors. Chairman o Aformer Deputy U.K. ABC International plc, Bank Go Libya; University, Garyounis Economics, in B.A. Director international banking. in 2001withover 35years’ experience in Cairo, Mr. Egypt. Layas joinedtheBoard of ABC Arabe, Paris, France andArab International Bank, Intercontinentale Banque London, U.K, Bank, and former Director of BritishArab Commercial Chairman, Libyan DeputyChairman Foreign Bank. University Management, Business and Accounting B.A. C Masters Degree in Money, Banking and Finance, Finance, and Banking Money, in Degree Masters of D hairman C Sheffield University, U.K. University, Sheffield e evelopment, Washington, U.S.A. U.S.A. Washington, evelopment, ars’ e C Member o vernor, Central of Libya; Bank andChairmanof Benghazi, Libya; Diploma of the Institute of Economic of Institute the of Diploma Libya; Benghazi, Member of theCorporate Governance Committee Group xperienc Annual R f f W the E ahda Bank, Libya, Mr.ahda Bank, Ekdara has e x in bankingando ec eport 2005 utiv ...... e CGCNC EC Ekdara Mr. FarhatOmar E Layas Husain Mr. Mohammed C C * ommit R C * t ee ther business Libyan Libyan R AC C Member of theRiskCommittee Member o Dir C C Member o In e Boar F Director,Chairman andManaging Commercial Beirut. of University American M.S. Director directorships invarious publiccorporations. banker aswell asholdinganumberof has over 25years’ experience asaninvestment HehasbeenaDirectorU.K. of ABC since 1992and is alsoaDirector of ABC International plc, Bank and aDirector of AbuDhabiAviation. Mr. Al-Kindi U.S.A. Authority, of Chairman,National AbuDhabi Bank University, Director,Deputy Managing AbuDhabiInvestment Michigan East Economics, in B.Sc. D orpor ommer acilities Company, Kuwait andMemberof the xperienc eputy Chairman v ect estment Authority. Mr. isalso a AlHumaidhi d f or o a the AuditC and theExecutive Committee of Kuwait tion –E c e f e f AB & in thebankingand the Boar Indus C gyp sinc ommit t try andDir e (S.A.E.). Hehasbeena (S.A.E.). d 2001 andhasover 20years’ t ee of Kuwait Chamberof ...... EC Al-Kindi Mohammed Mr. Khalifa CGCNC EC Al Humaidhi Mr. Saud Abdallah GC ector of Arab Banking * * v e stment sectors. U.A.E. citizen U.A.E. * NC Kuwaiti Chairman Member o f the Nomina He hasbeenaDir o 35 years of commercial andfinancialindustry Na In e a Hehasbeen U.K. of ABC International plc, Bank Clearing Company. Mr. Al-Mutairi isalsoaDirector of Kuwait Investment Company andof Kuwait of Trade andIndustry of Kuwait; General Manager Investment Authority. Past offices includeMinister Egypt. Commerce &Industry. Director of Kuwait University, Second Vice Chairman,Kuwait Chamberof Alexandria Economics, in B.Sc. D o C Authority andDir E Boston, of University Northeastern Economics, in B.Sc. Director U.S.A. f xecutive Director of AbuDhabiInvestment ompan xperience. v eputy Chairman Deputy Chairman t Director of ABC since 2001andhasmore than Ar er 20y ernational Petroleum Investment Company and tional B ab B y anking C tion andC e For Distribution (ADNOC-FOD), ank o ars in f ector of AbuDhabiNational Oil Abu Dhabi.AlsoVic orpor ect ompens vestment banking. or o ation - Egypt (S.A.E.). ation -Egypt (S.A.E.)...... E Al-Mutairi Mr. HilalMishari CAC EC SuwaidiAl Mr. EissaMohammed f a C AB tion C C * sinc ommit e 1995, with e t U.A.E. citizen U.A.E. ee Chairman Kuwaiti ...... Dr. Saleh Helwan ...... Dr. Anwar Ali ...... Mr. Mubarak Rashid ...... Al Humaidan ...... Al-Mudhaf ...... Al-Mansouri ...... NC ...... AC RC ...... NC RC ......
Director Saudi Director Kuwaiti Director U.A.E. citizen Ph.D. in Agricultural Economics, Oklahoma State M.B.A. and Ph.D. in Finance, Peter F. Drucker Graduate B.Sc. in Finance, M.B.A. University of West Florida, U.S.A. University, U.S.A. School of Management, Claremont Graduate University, California, U.S.A. Director General, Abu Dhabi Retirement Pensions General Manager, Arab Investment Company, and Benefits Fund, Abu Dhabi; Director of Riyadh; Member of the Boards of Saudi Dr. Al-Mudhaf is currently the Chairman & CEO of Arab International Bank, Egypt; also Director International Petrochemical Company, Jubail and Al-Razzi Holding Company; the General Manager of Arab Banking Corporation (Jordan). Saudi Investment Fund, London, U.K.; Chairman, of Kuwait Health Insurance Company; Chairman of Mr. Al-Mansouri has been a Director of ABC since Saudi Moroccan Development Investment Banco ABC Brasil; a Director of Credit One 1997 and has more than 15 years’ experience in Company, Casablanca. Dr. Humaidan is also the Company Kuwait for Commerce & Programmes; investment and commercial banking. Deputy Chairman of Arab Banking Corporation a Director of the Board of Governors in the Oxford (Jordan). He has over 25 years of experience in Institute for Energy Studies; a Director of the the economic and investment fields gained Kuwait Public Institute for Social Security. He is also through his work at the Saudi Arabian Ministry of a lecturer in corporate finance; investment man- Planning, the Saudi Development Fund, and the agement and financial institutions at Kuwait Arab Investment Company. Dr. Humaidan joined University. Dr. Al-Mudhaf has formerly served as ABC as a Director in 2001. an advisor to the Finance and Economic Affairs Committee at Kuwait’s Parliament. Dr. Al-Mudhaf joined ABC's Board in December 1999 and has over 15 years’ experience in banking and finance.
...... Mr. Yousef Abdelmaula ...... Dr. Saleh Lamin ...... Mr. Hassan Ali Juma ...... EC GC ...... El-Arbah ...... AC RC ...... AC ......
Director Libyan Director Libyan Director Bahraini M.B.A. Hartford University, U.S.A. B.A. in Economics, University of Benghazi, Libya; M.B.A. Fellow of the Chartered Institute of Management University of Hartford, U.S.A.; Ph.D. in Economics, Accountants (FCIMA), U.K. Mr. Abdelmaula is the Executive Director of the Academy of Science, Hungary. Libyan Foreign Investment Board. He serves also as Managing Director of National Bank of Bahrain; Director on the boards of Libyan Foreign Bank and Director of Accounting at the Central Bank of Libya; Chairman of Bahrain Telecommunications Arab Banking Corporation (Jordan). Mr Abdelmaula former Undersecretary of the Ministry of Planning, Company. Also Director of ABC International Bank has more than 20 years of banking and Economy and Commerce, Libya. Also a Director of plc, U.K. Mr. Juma has been a Director of ABC since investment experience. Arab Banking Corporation - Tunisie. Dr. El-Arbah 1994. He has more than 25 years’ experience as has been a Director of ABC since 1996 and has a commercial banker. over 30 years’ experience in central government...... Dr. El-Arbah previously held a chair in ...... Macroeconomics from the University of Gharian ...... Dr. Khaled S. Kawan ...... (Libya)...... 3 ...... s ...... r ...... o ...... t c e r i
Secretary to the Board & Legal Counsel Libyan D f
Ph.D. (Doctorat D'Etat) in Banking Laws, University of Paris o d
(Sorbonne), France. r a o B
Secretary to ABC's Board of Directors since July e h
1992, Dr. Kawan joined ABC in June 1991, having T previously spent some time with a prime French Law firm in Paris. He was made Legal Counsel and Head of Legal & Compliance in March 2004. Dr. Kawan also represents ABC as a Director on the boards of Arab Banking Corporation – Egypt (S.A.E.) and Arab Banking Corporation (Jordan).
Annual Report 2005 ABC Group Directors’ Report
Last year we said that 2004 marked a turning point for ABC, at the time it shed its largest non-core subsidiaries and embarked on a major organisational restructuring.
Mr. Mohammed H. Layas, Chairman
(All figures stated in US dollars)
The first action freed up substantial resources from two highly performance-related staff expenses - the Group realised a pre-tax profitable disposals, providing a considerable boost to ABC’s capital profit of $155 million, 34% up on 2004. base and laying down the necessary conditions for it to embark on In addition to the successful bedding in of the product-based future expansion. The second shifted the Group’s orientation away from matrix structure, 2005 also witnessed the implementation of a a mainly geographical configuration towards a strictly product-based corporate matrix structure, building on the product matrix paradigm, structure, designed to encourage and stimulate the latent synergies covering the key support areas of risk management, information available from re-focusing Group units on a set of common goals. technology and audit. This additional layering of the matrix structure 2005, the first full year under the new structure, did not disap- now reinforces the relationship between Group headquarters and point. As the units settled into the new modus operandi it quickly business units, to an extent never seen before. The change represents became apparent that the product-based matrix template worked not simply a move towards a more centralised institution adminis- exceedingly well. The business units, from the branches and market- tratively but, vitally, a more synergistic Group where all units, through ing offices of ABC International Bank plc – the Group’s European their various departmental connections with other Group members arm – to the Arab world wholesale and retail banking units, to the and Group headquarters, are made aware of the work and initiatives New York and Singapore offices, committed themselves to the new of others, of their own contribution to the Group commonwealth marketing regime, resulting in deal after deal being arranged jointly and of the benefits available to them from this lattice-work of inter- between offices often an ocean apart, or introduced by banking locking relationships. subsidiaries in the Arab World to mainstream specialist departments, As these groundbreaking events were unfolding, another quiet or passed to other subsidiaries in the Group better able to assist the revolution was taking place in risk management in ABC Group – client. the creation of an infrastructure designed both to emphasise and The published result, an 18% increase in net profit to $129 institutionalise the more conservative credit culture now consciously million is highly commendable given that the disposals in 2004 adopted by the Group and to capture the synergistic potentialities effectively reduced the Group’s total assets by 50% (and total loans available from a multi-layered matrix-based organisation structure. and advances by over 60%), significantly impacting its historical 2004 had seen the creation of the Board Risk Committee at the apex 4 earning capability. Combined with the increase in its capital base the of the credit decision process, charged with determining the Group's Group was left quite under-leveraged (at year-end 2004 its risk asset risk strategy and policy, ensuring the continuous evaluation of the ratio - RAR - stood at 23.9%). Total assets grew in 2005 by 18%, risks to which the Group is exposed and designing and implementing t r
o and total loans and advances by 14% (an increase of $821 million) appropriate internal controls to minimise those risks. This was p e resulting in RAR of 19.9% at the year-end. It is a tribute to the new followed in 2005 by two further significant initiatives: the establish- R ’ s
r product groups that the lost revenues from the erstwhile Spanish and ment by each subsidiary of its own Board Risk Committee with o t
c Hong Kong subsidiaries have been entirely replaced – and more – by analogous responsibilities, guided by Head Office Risk Department, e r i healthy, new-shoot growth in the Group’s core businesses. Naturally, and the commencement of a two-year technology project to imple- D it will take time to build our assets to the optimal level - especially ment a new credit risk management infrastructure. The technology as we are determined not to sacrifice asset quality in the name upgrade is now more than halfway complete and should not of growth - but the year’s performance amply demonstrates, in our only provide the Group with full Basel II compliance capability but view, the wisdom of our charted course. should moreover significantly enhance analytical standards and Through steady and cautious asset expansion and judicious risk assessment competencies. fee-earning product acquisition, combined with good impaired asset One further building block was laid down over the last two years recovery management, the Group was therefore able to increase its – the introduction of new job evaluation and performance assess- net operating income by 16% to $366 million. After deduction of ment systems, initially at ABC Head Office but destined for imple- operating expenses of $211 million, representing a growth rate mentation at all subsidiaries, branches and representative offices. over 2004 of only 6% - and that largely accountable by higher The job evaluation system grades all jobs from top management
ABC Group Annual Report 2005 Total Assets ($ million) ...... 20,000 ...... Shareholders’ Funds ...... ($ million) 15,000 ...... 2,000 ...... 10,000 ...... 1,500 ...... 5,000 ...... 1,000 ...... 0 ...... 2004 2005 500 ...... Deposits ...... 14,922 17,588 ...... ($ million) 0 ...... 15,000 ...... 2004 2005 ...... 1,852 1,926 ...... Short and Long Term Loans 10,000 ...... ($ million) ...... 4,000 ...... 5,000 ...... 3,000 ...... Assets Breakdown ...... Percentage ...... 0 ...... 2,000 ...... 2004 2005 ...... 1,000 ...... 10,587 13,418 ...... 0 ...... 2004 2005 ...... Short term Long term ...... Loans Loans ...... 2004 3,366 2,646 ...... 2004 2005 2005 3,723 3,110 ......
2004 37% 27% 4% 22% 6% 4% 2005 34% 20% 5% 30% 6% 5% Arab Western Asia North Latin Others World Europe America America 5 t r o p e R ’ s r o t c e r i D the pre-eminent financial institution
2005, the first full year under the new structure, did not disappoint. As the units settled into the new modus operandi it quickly became apparent that the product-based matrix template worked exceedingly well.
Annual Report 2005 ABC Group Directors’ Report
down, while under the ‘Balanced Scorecard’ system the perform- Meanwhile, we remain on track with our plans for gradual ance of each individual is assessed in a transparent manner against extension of our representation throughout the MENA region. At our set objectives. Compensation is then determined by reference domestic banking subsidiaries, we continue to expand our branch, to that individual’s contribution to team results, within the context ATM and cash deposit machine networks and to complete the of overall Group performance. implementation of Internet and SMS technologies in those units not This combination of factors – the opportunity to build the yet offering these services, in our efforts to widen our customer Group’s balance sheet selectively and judiciously, adhering to new, base. The year will also mark the completion of the deployment of strong credit assessment and judgmental techniques set in a the global technological upgrade programme for all the wholesale conservative credit and supportive Groupwide organisational banking units, together with the major part of the implementation culture, with a shared and strong value system and supported by of the new retail banking standardisation programme to unify all a management by objective approach – will, we are confident, be the domestic subsidiaries. a major contributor to the Group’s ability to achieve consistent, In the wholesale banking arena, the new Iraq branch, estab- continually improving, shareholder returns In the future. lished in late 2005 and already providing trade finance services In our quest for reliable medium term funding, 2005 saw the to several Iraqi government agencies and multinationals, will successful launch of ABC’s $2.5 billion Euro Medium Term Deposit gradually widen its product and customer base. As negotiations Note (EMTDN) programme, listed on the London Stock Exchange progress with the Libyan Central bank in regard to our outstanding and designed to give ABC multi-currency medium term funding operating licence application there, the Group has now opened flexibility. ABC’s successful benchmark debut issue under the similar discussions with the Central bank of Syria. A representative programme, a $400 million 5-year floating rate deposit note issue, office was meanwhile inaugurated in Lebanon in early 2006. rated BBB by Standard & Poor’s and Fitch Ratings, provided hard In closing, as our Group looks forward with confidence to evidence of the recognition accorded the Group’s strength and steady and cautious growth, the Board would like to record its recent performance by both rating agencies and the international appreciation for the continuing dedication and professionalism of investment market. the Group’s management and staff, in particular this year for Looking ahead, the Group, in recognition of the sea change their enthusiastic response to the need to adjust to new ways of witnessed in recent years in the economic performance across the working and collaborating with their colleagues. We would also Arab world – which we are convinced is not wholly the result like to express our thanks to all the regulatory authorities over- of higher hydrocarbon prices – and the increasing sophistication seeing our operations throughout the world for their guidance, in of regional investors who seek experienced international fund particular to the Bahrain Monetary Agency for its unstinting support. managers and alternative and cheaper finance and capital- raising sources, has decided on the creation of a new key product group, Investment Banking. The new group was formally launched in January 2006 with the addition to ABC’s senior management team of an Investment Banking head, soon to be joined by a selected team of specialists in corporate finance, capital and equity Mohammed Layas markets, and fund management. Chairman
Note: In compliance with the Bahrain Monetary Agency Circular No. BMA/751/93, EDBC/782/93 and ODG/407/03 set out below are the interests of 6 Directors and Senior Managers in the shares of Arab Banking Corporation (B.S.C.) and the distribution of shareholding for the year ended 31 December 2005. t r
o 1/1/2005 31/12/2005 p e R Directors’ Shares 9,670 9,670 ’ s r Senior Managers’ Shares 16,923 532 o t c e
r Total 26,593 10,202 i D Directors’ remuneration, allowances and expenses for attendance at Board meetings for 2005 amounted to US$1,524,000 (2004: US$ 1,282,000). 2005 2004 No. of % of total No. of % of total No. of shares shareholders outstanding shares No. of shares shareholders outstanding shares % of shares held Less than 1% 8,407,479 1,328 8.41 8,407,479 1,343 8.41 1% up to less than 5% 10,021,134 5 10.02 10,021,134 5 10.02 5% up to less than 10% ------10% up to less than 20% ------20% up to less than 50% 81,571,387 3 81.57 81,571,387 3 81.57 50% and above ------Total 100,000,000 1,336 100.00 100,000,000 1,351 100.00
ABC Group Annual Report 2005 7 t r o p e R ’ s r o t c e r i D embarking on future expansion
We remain on track with our plans for gradual extension of our representation throughout the MENA region.
Annual Report 2005 ABC Group Global Network 2005 Highlights
...... THE ABC GROUP ARAB WORLD DIVISION OTHER SUBSIDIARIES ......
...... Arab Banking Corporation – Algeria ABC International Bank plc ...... ABC Parent (ABC BSC) ...... US$ millions ...... US$ millions US$ millions ...... Total Assets 341 Total Assets 3,399 ...... Total Assets 12,941 Total Loans and Advances 83 Total Loans and Advances 1,352 ...... Total Deposits 272 Total Deposits 2,582 ...... Total Loans and Advances 3,371 ...... Shareholders’ Funds 46 Shareholders’ Funds 444 ...... Total Deposits 9,381 Number of Branches 4 ...... Number of Branches 4 ...... Shareholders’ Funds 1,926 ...... ABC Islamic Bank (E.C.) Banco ABC Brasil S.A...... US$ millions ...... US$ millions ...... Total Assets 610 Total Assets 1,094 ...... ABC Group Total Loans and Advances 374 Total Loans and Advances 835 ...... Total Deposits 549 Total Deposits 862 ...... US$ millions Shareholders’ Funds 56 Shareholders’ Funds 136 ...... Number of Branches - Number of Branches 4 ...... Total Assets 17,588 ...... Arab Banking Corporation (Jordan) ...... Total Loans and Advances 6,833 ...... US$ millions ...... Total Deposits 13,491 ...... Total Assets 581 ...... Shareholders’ Funds 1,926 Total Loans and Advances 261 ...... Total Deposits 422 ...... Shareholders’ Funds 75 ...... Number of Branches 13 ...... Arab Banking Corporation – Egypt (S.A.E.) ...... US$ millions ...... 8 ...... Total Assets 409 ...... Total Loans and Advances 179 ...... k ...... r ...... Total Deposits 296 o ...... w ...... Shareholders’ Funds 96 t ...... e ...... N ...... Number of Branches 12 l ...... a ...... b ...... o .. l ...... Arab Banking Corporation – Tunisie, S.A. G ...... US$ millions ...... Total Assets 217 ...... Total Loans and Advances 45 ...... Total Deposits 203 ...... Shareholders’ Funds 10 ...... Number of Branches 1 ......
ABC Group Annual Report 2005 Financial Highlights
2005 2004 2003 2002 2001 Restated * Restated **
...... Earnings Net interest income ...... 193 ...... 152 158 464 469 ...... (US$ million) Other operating income ...... 159 ...... 153 259 257 293 ...... Total operating income ...... 352 ...... 305 417 721 762 ...... Profit before provisions, tax and minority interests ...... 141 ...... 106 203 230 288 ...... Writeback/(Provisions for credit losses) ...... 14 ...... 10 (74) (204) (128) ...... Profit before tax and minority interests ...... 155 ...... 116 87 26 160 ...... Net profit (loss) for the year from continuing operations ...... 129 ...... 109 71 (41) 102 ...... Net profit for the year from discontinued operations ...... - ...... 470 49 - - ...... Financial Total assets ...... 17,588 ...... 14,922 30,068 28,915 26,545 ...... Position Loans and advances ...... 6,833 ...... 6,012 15,921 14,981 14,225 ...... (US$ million) Placements with banks and other financial institutions ...... 3,264 ...... 4,305 6,651 6,802 6,444 ...... Trading securities ...... 593 ...... 184 86 373 341 ...... Non Trading securities ...... 6,003 ...... 3,617 5,204 4,632 3,616 ...... Shareholders’ funds ...... 1,926 ...... 1,852 1,585 1,371 1,872 ...... Ratios (%) Profitability ...... Cost: Income ratio (costs as % of gross operating income) ...... 60 ...... 65 51 68 62 ...... Net profit (loss) as % of average shareholders’ funds ...... 6.8 ...... 30.1 7.9 (2.8) 5.4 ...... Net profit (loss) as % of average assets ...... 0.81 ...... 4.07 0.83 (0.15) 0.38 ...... Dividend cover (times) ...... 1.84 ...... 1.93 1.81 - 1.54 ...... Capital ...... Risk weighted assets (US$ million) ...... 10,476 ...... 8,249 18,051 19,015 17,891 ...... Capital base (US$ million) ...... 2,089 ...... 1,974 2,661 2,495 2,373 ...... Risk asset ratio - Tier 1 ...... 17.6 ...... 15.7 12.0 11.5 11.8 ...... Risk asset ratio - Total ...... 19.9 ...... 23.9 14.7 13.1 13.3 ...... Average shareholders’ funds as % of average total assets ...... 11.9 ...... 13.5 10.5 5.2 7.2 ...... Loans and advances as a multiple of shareholders’ funds (times) ...... 3.5 ...... 3.2 10.0 10.9 7.6 ...... Total debt as a multiple of shareholders’ funds (times) ...... 8.1 ...... 7.0 17.6 19.8 12.9 ...... Term financing as multiple of shareholders' funds (times) ...... 0.82 ...... 0.99 1.17 1.59 0.97 ...... Assets ...... Loans and advances as % of total assets ...... 38.9 ...... 40.3 52.9 51.8 53.6 9 ...... Securities as % of total assets ...... 37.5 ...... 25.5 17.6 17.3 14.9 ...... Non-accrual loans as % of gross loans ...... 3.6 ...... 5.1 4.5 4.9 4.5 s ...... t ...... h
...... Loans loss provisions as % of non-accrual loans ...... 154.6 ...... 141.4 102.0 94.7 94.8 g
...... i ...... l ...... Loan loss provisions as % of gross loans ...... 5.6 ...... 7.2 4.6 4.6 4.3 h
...... g
...... i ...... H ...... Liquidity ...... l ...... a ...... i
...... c ...... Liquid assets ratio ...... 57.8 ...... 56.4 42.1 43.1 40.9 ...... n ...... a ...... n ...... Deposits to loans cover (times) ...... 2.0 ...... 1.8 1.6 1.5 1.5 i
...... F ...... Share Basic Earnings per share - Profit for the year ...... $1.29 ...... $5.79 $1.20 ($0.41) $1.02 ...... Information - Profit from continuing operations ...... $1.29 ...... $1.09 $0.71 $0.00 $0.00 ...... Dividends per share - Cash ...... $0.70 ...... $2.90 $0.70 $0.00 $0.70 ...... - Stock ...... 0.062...... shares ...... Net asset value per share ...... $19.26 ...... $18.52 $16.84 $14.57 $19.89 ...... Capitalisation Authorised ...... 1,500 ...... 1,500 1,500 1,500 1,500 ...... (US$ million) Issued, Subscribed and fully paid-up ...... 1,000 ...... 1,000 1,000 1,000 1,000 ......
* Figures for 2003 restated to exclude amounts relating to the discontinued operations where required. ** Figures for 2002 restated following revisions to International Accounting Standard 39.
Principal shareholders Registered address Kuwait Investment Authority (Kuwait) Arab Banking Corporation (B.S.C.) Central Bank of Libya (Libya) ABC Tower, Diplomatic Area Abu Dhabi Investment Authority (Abu Dhabi) P.O. Box 5698, Manama, Kingdom of Bahrain Individual and Institutional Investors Publicly quoted company listed on Bahrain Stock Exchange. (Commercial Registration Number 10299)
Annual Report 2005 ABC Group The President & Chief Executive’s Review of Operations
Although world economic growth fell short of 2004’s record 5%, the 4.7% p.a. average growth over the last 2 years amply demonstrates the pace of expansion exhibited by the strongest economies.
Ghazi M. Abdul-Jawad, President & Chief Executive
(All figures stated in US dollars unless otherwise indicated)
In the OECD, South Korea led the way with an estimated 4.1% GDP growth, followed by the United States with 3.5%. Japan managed an encouraging 2.5%. Although the euro zone’s overall growth was muted (several countries managing only 1% or so), some countries I mentioned last year that the Group had identified six key performed well – Spain for example turning in a remarkable 3.3%. product areas on which to focus its development efforts in the Britain recorded 1.7% growth. China’s growth was, at an estimated future – Treasury, Trade Finance, Project & Structured Finance, Retail 9.3%, again the highest among Asian economies, although India’s Banking, Islamic Banking and Syndications. The progress of these booming economy is fast closing the gap. product groups is outlined in the following pages, together with The Arab world, too, saw robust economic expansion. While oil that of individual retail banking subsidiaries, ABC International Bank and gas producers reaped the benefits of higher energy prices, plc – responsible for assisting and financing European-MENA trade the non-energy producers also benefited, as continued economic flows on behalf of the Group - ABC Brasil S.A. and our key head growth in the industrialised economies helped to sustain demand office departments. for their agricultural and merchandise export products and tourism To these products we have, however, decided to add a seventh services. Population-driven imperatives also led to many infrastruc- – Investment Banking. The decision to create a new product group, ture project start-ups such as those in the water, power, telecoms based in Bahrain, is the result of our conviction that the MENA and transportation sectors. Liquidity in the region continued to rise, region’s recent strong growth represents not just a temporary surge flowing into regional stock markets and property as well as infra- in investment activity fuelled by increased oil and gas revenues structure and tourism developments. but is, rather, indicative of a fundamental shift in the region’s The Group was in turn able to benefit from these favourable economic landscape. Indeed, the energy-producing countries conditions, by taking full advantage of its lead position in the region continue to base their annual budgets on highly conservative as a provider of speciality financial products - project, structured, assumptions, such that even if oil prices were to fall below, say, $50 trade and Islamic financing, forfaiting, tailored treasury products a barrel, this would not affect the projects and other expenditure 10 and advisory services - as much as through the extension of tradi- planned for the medium term – particularly by the GCC countries. tional trade finance and retail banking services. Thus, despite the We believe that scheduled infrastructure expenditure by both the oil pressure on margins caused by high market liquidity, we were able producing and non-producing states is now largely driven by those s n
o to maintain our interest revenues from our loan portfolio through states’ need to satisfy the demands of their growing populations i t a
r portfolio growth of nearly 14%. While the Group rebuilds its lever- for employment and higher living standards. Moreover, these e p age following the major disposals in 2004, excess equity is invest- governmental initiatives are rapidly being followed by new private- O f
o ed in low-risk instruments and earnings from this source therefore enterprise investment from within the region and abroad. We are
w increased significantly. These factors contributed to a 27% rise in convinced that the region is now ready for the development e i v
e our net interest income. Although our non-interest income of regional capital markets and stock exchanges and for intermedi- R s
’ increased by only 4%, this was better than had been expected con- ation services which channel the resources of private savers e v i sidering the lead time applicable to the many medium-term project and investors into new forms of funding for investors seeking t u
c and other structured financings currently in course of completion. to leverage on their equity stakes in new projects and enterprises. e x
E Our total income, excluding loan loss provision write-backs, was The task of our new product group will be to provide the conduit f e i therefore $47 million, or 15%, above that for 2004. By keeping the for these initiatives, by way of corporate finance and advisory h C rise in our operating expenses down to 6%, we were able to services, public and private equity issues, private placements and, &
t for the investor, first class fund management services. We shall
n achieve a net operating income (including provision write-backs of e d
i $14 million) of $155 million, more than 33% higher than 2004’s be actively building the stage for this venture over 2006 and I hope s e
r $116 million, a most satisfactory result. to report satisfactory progress next year. P e h T
ABC Group Annual Report 2005 11 s n o i t a r e p O f o w e i v e R s ’ e v i t u c
robust economic expansion e x E f e i h C & t n e d i s e r P e h T
The Group had identified six key product areas on which to focus its development efforts in the future – Treasury, Trade Finance, Project & Structured Finance, Retail Banking, Islamic Banking and Syndications.
Annual Report 2005 ABC Group The President & Chief Executive’s Review of Operations
As our product groups develop new business relationships through- Project & Structured Finance out the MENA region and in those countries that form the region’s ABC has the largest dedicated project and structured finance team natural trading partners, while the Arab World Division builds on our based in the Arab world, providing advisory, structuring and arrang- existing platforms through network and service expansion and the ing services to a growing regional and international client base. establishment of promising new regional outlets, we believe we are In addition to its Bahrain headquarters, the Project & Structured now well on the road to achieving consistent double-digit growth. Finance group, which was expanded in 2005 to meet the demands of an exceptionally strong market, maintains specialist teams in ...... London and Paris, allowing it to cover the entire MENA region more ...... Product Groups effectively...... The launch of the $3.6 billion Qatargas II financing in the Group Treasury summer of 2004 marked the beginning of a surge in Middle East Group Treasury’s role as central coordinator of ABC Group’s project financings that has yet to abate. The GCC in particular funding and liquidity management remains the most important accounted for a significant part of the $30 billion raised in 2005 of its strategic objectives of liquidity, profitability and customer for Middle East projects, including a number of high profile loan relationships. ABC’s liquidity is monitored daily to ensure that arrangements in which ABC was a mandated lead arranger. ABC Group is prepared and able to meet any contingency arising Successful deals include $1.5 billion for Qatar Chemical Company (II) worldwide. ABC Group’s medium-term requirements are met and $760 million raised for the related Qatofin project; $4.6 billion through a combination of certificates of deposit, note issues, private for Ras Laffan Liquefied Gas Company; $1.011 billion for Bahrain placements and other borrowings by ABC or ABCIB, managed or Petroleum Company’s low sulphur production project and $770 coordinated by Group Treasury. million raised for Aromatics Oman LLC. In 2005, Group Treasury successfully launched a $2.5 billion One of the main factors responsible for the recent tremendous EMTDN (Euro Medium Term Deposit Note) Programme, mandated increase in project activity is the availability of low-cost hydro- to Citibank and HSBC and listed on the London Stock Exchange. carbons, which has enabled regional oil and gas-rich states to push The Programme was structured to enable deposit notes to be issued, ahead with petrochemical and industrial development projects in order that investors would rank pari passu with all other large benefiting, respectively, from low cost feedstock and low electricity depositors under Bahrain Law. Both the Programme itself, and ABC’s prices. debut issue of 5-year floating rate deposit notes, were given long Non-hydrocarbon producing countries, too, have initiated term ratings of BBB by S&P and Fitch Ratings and, due to over- infrastructure and privatisation programmes, designed to broaden subscription, the benchmark issue was successfully closed at $400 their economic base. Several such projects are now either in the million. The issue also introduced the Group to a whole new set advanced planning stage - for example in Tunisia, Morocco and of investors, mainly from European and Far Eastern markets. Jordan - or indeed have already been completed, as with Turkey’s The Programme’s flexibility will enable ABC to enter into bilateral recent port, telecom and steel privatisations. Population growth is transactions and private placements in any currency, or over any also driving infrastructure development in the region - as demand period, in addition to launching further general issues. for power and potable water grows exponentially, new plants or Under Group Treasury’s direction, the core Bahrain and London major expansions are being planned throughout the region. Here, Hubs have also continued to focus on diversification of ABC Group’s ABC was able to expand the scope of its advisory services in 2005 funding and revenue streams. Both these hubs, through aggressive with a joint P&SF Bahrain/London team supporting one of the calling and regular interaction at all levels, have been building a bidders for the acquisition and expansion of a power and water plant diversified funding base, widening and deepening relationships in Bahrain. Building on its experience in regional telecoms, P&SF 12 with corporate and financial institutional customers, central banks also achieved notable success as a mandated lead arranger for and government entities, as well as developing Islamic and other the $490 million financing for Algeria’s third GSM licence on behalf s
n products designed to encourage new funding sources and fee of Wataniya Telecom Algeria. o i t
a income business. Current growth trends look set to continue, with over $75 billion r e
p Group Treasury also made great strides in its role as a major of projects in the pipeline. However, the financing arena is very com- O
f revenue generator and contributor to ABC Group’s overall profit- petitive. Several international banks with significant underwriting o
w ability. Treasury’s FX and Derivatives trading and proprietary appetite have recently entered the local project finance market e i
v portfolio activities have helped in diversifying ABC Group’s revenue and this together with the strong regional liquidity has put pressure e R mix and its performance was recently recognised externally on lending margins. P&SF has therefore concentrated on seeking s ’ e
v when ABC received the accolade ‘Best Treasury Bank in the Middle lead arranging mandates where yields can be enhanced through i t u
c East’ under Euromoney magazine’s 2005 Awards for Excellence. subsequent sell-down. Furthermore, as growth trends extend across e x E f e i h
C The Group was in turn able to benefit from these &
t favourable conditions, by taking full advantage n e d i of its lead position in the region as a provider of s e r
P speciality financial products. e h T
ABC Group Annual Report 2005 North Africa and the Levant, advisory and arranging opportunities There were some notable achievements in product develop- are being pursued where ABC is well positioned through its branch ment during the year, many of them innovative and groundbreaking networks and representative offices to play a leading role. in the Islamic banking market. ABC Islamic Bank launched a highly The outlook for P&SF therefore remains highly positive. The successful sukuk issue – the first of its kind - on behalf of a leading expanded team will focus on developing the advisory franchise and Kuwaiti consumer finance and investment company. It also unveiled generating more non-loan related fee income, while continuing to two new Shari’a-compliant hedging instruments, both of which were build on ABC’s successful underwriter and lead arranger reputation, well received by investors in the marketplace. Meanwhile, ABCIB consolidating ABC’s premier position in the MENA region. announced the first buy-to-let, self-certification and discounted rate Islamic mortgage products aimed at British resident Muslims - hailed Trade Finance by Muslim community leaders and commentators for achieving real Global Trade Finance activities are centred on the Group’s two hubs, equivalence with conventional mortgage products, these offerings at ABCIB’s European headquarters in London and the head office in were an immediate success and business volumes have grown Bahrain. quickly. The London team also rolled out a Shari’a-compliant inter- During 2005 the London Hub’s Trade Finance unit enjoyed a modal container leasing contract and, in the commercial real estate further increase in turnover, especially in receivables financing, field, introduced a Parallel Phased Istisna’a contract, an innovative forfaiting and other forms of bespoke trade finance, which product which enables Islamic finance to compete on equal terms complement its more traditional products such as documentary with conventional commercial development finance. Finally, ABCIB letters of credit, guarantees, bonding and commodity finance. launched the world’s first Shari’a-compliant mezzanine financing of a As ABCIB Trade Finance has begun to reap the twin benefits of the single shipping asset (a VLCC vessel) - structured as a sukuk, the inter-Group synergies emerging out of the product matrix structure issue was then distributed out of Bahrain by ABC Islamic Bank, an and the closer integration of ABCIB’s European branches and new excellent example of the enhanced benefits now accruing from the marketing offices, its contribution to the Group has increased product matrix organisation structure. significantly. Total volumes for on and off balance sheet items in The Bahrain and London teams have been expanded through 2005 thus exceeded US$5.5 billion, the result of the financing of recruitment of additional high calibre staff, and IFS is well placed to trade flows to and from 19 Arab world countries. meet the growing worldwide demand for Islamic banking products. The Bahrain Hub’s Trade Finance unit, meanwhile, continued to grow its origination and distribution capabilities, firmly establishing Retail Banking & SME itself as an integral part of the product group’s activity. The Bahrain For the Retail Banking product group, 2005 saw a continuation of unit’s Trade Finance product range is equally diverse, although business growth momentum, as distribution channels were expand- its key growth area is in its forfaiting activity. With the Singapore ed throughout the Group’s retail banking subsidiaries. representative office now focusing its efforts on trade finance and In Algeria, retail banking supporting infrastructure was installed forfaiting under the direction of the Bahrain unit, Bahrain Trade as the unit prepared for a 2006 product launch, commencing with Finance hopes to develop opportunities to finance more Far East- the opening of 3 new branches. The strategic objective also calls for MENA trade flows. new consumer lending products to be developed and distributed In 2005 the product group’s efforts and performance were through both existing and new channels, particularly in Algiers. duly recognised through the award of ‘Best Regional Bank in the Meanwhile, the Egyptian and Jordanian subsidiaries successfully Middle East and North Africa’ by Trade Finance magazine and launched their own marketing campaigns, innovatively involving the ‘Best Trade Bank in the Middle East’ by Trade & Forfaiting magazine. participation of some leading consumer brands. Under the business For 2006, its increased profile and marketing activities look to model developed in Head Office a direct sales approach was also continue, as it seeks to leverage on its expanding client base introduced in these subsidiaries with the purpose of widening the 13 to increase opportunities for intermediating in the increasing distribution reach and developing alternative sales channels aimed s international trade flows with the MENA region. at increasing both the customer acquisition rate and the banks’ n o i t
market share. a r e
Islamic Financial Services As part of the ongoing cost-minimisation initiative, an option p O
In 2005, the Islamic Financial Services product group underwent for outsourcing credit and debit card management to Arab Financial f o
rapid development in terms of product range offered, skill base Services, ABC’s affiliate company based in Bahrain, and card trans- w e i employed, asset growth and profitability. ABC Group’s Islamic finance action processing on the ATM network to Euronet, was launched v e activities now stretch across wholesale, corporate, treasury and retail in coordination with Head Office Global Information Technology. R s ’ e areas, benefiting from access to the Group’s geographically diverse In the area of risk management, the Group consumer credit policy v i t u
network, with its availability to both the Arab world and western was re-emphasised in all units and a portfolio review and evaluation c e x
markets, and from the synergistic advantages available from process initiated, with the aim of strengthening consumer credit risk E f e
harnessing the skills of its teams of specialists in project finance, management and assisting the identification of early warning i h trade finance, syndications, treasury and capital markets. Equally, trends. C & the Shari’a-compliant structuring expertise of ABC Islamic Bank in Retail workshops have been organised to ensure the migration t n e
Bahrain and ABCIB’s Islamic Asset Management unit in London is a of best practices throughout the retail delivery units and to improve d i s central resource available to other ABC product groups and banking skill levels through effective intra-unit communication, shared e r units. experience and collective learning exchange programmes. P e h T
Annual Report 2005 ABC Group The President & Chief Executive’s Review of Operations
...... Syndications ...... Banking Group ...... This was another record year for the Syndications group, both in ...... terms of deals closed and underwriting income generated. Working Arab Banking Corporation - Egypt (S.A.E.) with the ABC Group business units, the team successfully closed 11 Following several years of economic recession, the Egyptian syndicated transactions, 4 of which were under sole mandates. economy began a new economic cycle in 2004. Growth continued in Successes included sole mandates for a $240 million amortising 2005, with Egyptian GDP rising 4.9% in the fiscal year to June 2005 term loan facility for an Iranian bank, and a secured amortising and the current account also registering a surplus, of 3.3% of GDP. medium term loan for a major Kuwaiti finance company, launched Business sentiment improved in tandem, sucking in more imports but at $100 million but increased following oversubscription to $150 also increasing inward investment. The Central Bank’s more coherent million. Both syndications were successfully placed among a wide monetary management policy, focused on inflation as the bedrock of group of regional and international lenders. The team also worked monetary policy, led in the first half of the year to steadily increasing closely with ABC Islamic Bank in negotiating and winning the sole interest rates and a significant real appreciation of the Egyptian pound mandate to arrange and syndicate a $50 million Musharaka Sukuk against the Dollar. The rate of inflation consequently gradually for The Investment Dar Company, Kuwait, again a highly successful subsided (from a high of 11.3% in 2004), enabling the Central Bank and oversubscribed debut financing, where the issue size was even- to manage interest rates down in the second half. tually doubled. In the project finance field, Syndications acted as ABC’s investment in ABC Egypt was increased in June 2005 joint bookrunner for the successful BAPCO financing. through a rights issue that raised an additional $50 million capital While the Syndications group admirably reinforced ABC’s leading for the bank. role in the MENA region in 2005 the team, already grown in ABC Egypt enjoyed growth in all business sectors. As its response to market demand, expects to expand further in 2006 to Corporate Banking Division has developed closer associations with meet the many new opportunities anticipated in the near future. the leading syndication banks and larger corporations, its portfolio The demand for infrastructure investment in North Africa and the has both grown and achieved greater diversity. The Correspondent Levant, for instance, appears to be reaching the stage where it Banking Division has likewise expanded its trade finance relations cannot be satisfied solely from local sources, and Syndications there- with local and international banks, enabling it to deliver comprehen- fore plans to build an early lead in the origination and distribution sive, value-added trade finance products to a growing clientele. market there, in a repeat of its highly successful strategy in the The Retail Banking Group has also enlarged its liability and loan Tunisian syndicated market over 2001-2004 where it gained a product range, unveiling both its new credit card, offered through dominant position. The GCC syndicated market, where total demand ABC’s Bahrain-based specialist affiliate Arab Financial Services, and for finance reached an unprecedented $41 billion in 2005 (four a Bancassurance initiative in conjunction with Allianz Egypt times the norm), also presents an abundance of opportunities of which enables customers to avail themselves of a variety of savings interest to ABC Group, particularly in project related finance – where and insurance schemes. These new products, together with the demand hit $21 billion – and the burgeoning corporate market, expanded delivery channels - a new branch was opened at El Haram which reached $15 billion in 2005 driven by corporate expansion and the ATM network expanded to 33 machines – helped to achieve and mergers and acquisition activity and which shows no signs of a tangible improvement in Retail Banking’s asset portfolio. abating. ABC Egypt’s net interest margin rose by 25% to $10.3 million, partly as a result of its capital increase in June, as well as increased Government & Financial Institutions interest rates. Other income grew by 37% to $4.5 million to give The Government & Financial Institutions (G&FI) unit enjoyed a 40% a total operating income of $14.8 million, 28% up on 2004. With increase in gross income over 2004, as new relationships were operating expenses remaining stable, net operating income was a 14 forged and new products developed for the benefit of its clients. creditable $3.4 million compared with only $0.3 million in 2004. Among the unit’s achievements in the year were the structuring After accounting for credit recoveries, provisions and taxation, net s
n and successful launching of a subordinated loan issue for a Kuwaiti profit was more than double that of 2004, at $4.5 million. o i t
a prime bank and a major syndicated loan facility for a Kuwaiti finance
r ABC Egypt is confident that the structural reform process e
p company arranged in conjunction with Syndications group. It also will accelerate in 2006 and impact positively on the local business O
f won sole mandates from two Iranian banks for substantial trade environment, supporting the bank’s loan portfolio expansion o
w finance facilities and a highly successful debut borrowing for a strategy. At the same time it intends to continue its efforts to e i
v Tunisian bank. improve the quality of its assets, building on its recent achievement e R
s of an internal portfolio risk rating matching that of Egyptian ’ e v
i sovereign risk. Delivery channels will be further expanded with t u c While the Syndications group admirably reinforced the opening of a new branch in Heliopolis in early 2006, while e x
E more new asset and liability products are to be added to the bank’s
f ABC’s leading role in the MENA region in 2005 e
i ever-increasing repertoire.
h the team, already grown in response to market C
& demand, expects to expand further in 2006 to t n
e meet the many new opportunities anticipated in d i s e
r the near future. P e h T
ABC Group Annual Report 2005 15 s
From left: Sh. Rashed Al Khalifa, Corporate & Institutional Banking, n o i t a
Mr. Amr El-Ashmawi, Trade Finance & Forfaiting and Mr. John McWall, Syndications r e p O f o w e i v e R s ’ e v i t u c
building relationships e x E f e i h C & t n e d i s e r P e h T
While the Arab World Division builds on our existing platforms through network and service expansion and the establishment of promising new regional outlets, we believe we are now well on the road to achieving consistent double-digit growth.
Annual Report 2005 ABC Group 16 The President & Chief Executive’s Review of Operations loan los w was 42%higherthan2004.Withoperating $19.0million, expenses market andmarketable securities earnings. Total operating income a non-interest income, onthebackof a37%loanportfolio expansion, $8.3 mil sector banks, putfurtherpressure onmargins. with thegrowing competition between private thelocaland industry, was theresultant strong market liquiditywhich,combined with increasing foreign investment. Thedownside, for thebanking perf to theabove-20% returns onequityseeninearlier years. a do to pushingtheexternalfurther $10billion $50billion, debt ratio as GDPgr The Algerianec Arab Corporation Banking -Algeria exchange machines. ATM to addnew whichitwill cashdepositand network, team alsocontinue Itwill andbranch theexpansion network. of its Bancassurance andbacked by anexpanding product base, sales focusing onhigh-profit especially products like credit cards and record high at JD0.344. Consequently,higher at $16.7million. earnings pershare hitanew of operating expense, provisions andtaxation, net profit was 68% Jordan, total revenues rose by 33%to After $38.5million. deduction 4% effective follow upprocedures resulted inNPLsfalling to less than 2006. Successful efforts to reduce non-performing loansthrough and preparations completed for theopeningof anew branch inearly The ATM network was expanded, selected branches renovated n also witnessed thelaunchof several new non-lendingproducts, no exception asthetotal loanportfolio grew by aquarter. The year expanding sectors of theeconomy for many years, and2005was deficit to widenconsiderably. were, however, exceeded by merchandise imports, causingthetrade little higherthanforperiodof 2004.Increased thesame exports growth reached 7.5%p.a. inthefirstof three-quarters 2005, just a e Iraq (for whichJordan isthemainhub)andpartlyby thestrength- experienced in2004, driven partlyby thereconstruction efforts in In 2005Jordan’s economy continued thestrong rate of growth Arab Corporation Banking (Jordan) activitie repositioned itselfto concentrate ontrade finance andretail banking The President &Chief Executive’s Review of Operations AB ning manufacturing, transportning manufacturing, andcommunications sectors. GDP otably prepaid debitcards, MasterCard issuance andSMSbanking. substantial increase intrade finance turnover andincreased money ell contained,ell together withsomerecovery of previously incurred 63% improvement over theprevious year andawelcome return C wn t Group of total loans, 120%covered by specificloanloss provisions. ormance were thehighoilandgasrevenues combined ABC Algeriahadanexcellent year, withincreases of 39%to A F In 2006ABC Jordan intends to intensify itsmarketing efforts, ABC Jordan hasbeenproviding financialservices to the ol s lo o s. Itsne yet another outstanding performance was recorded at ABC s lion initsne wing astrategic reorganisation in 2004ABC Algeriahas Annual R pr a e o w he visions alth b onom w y eport 2005 r y 6.5% andf e , tail divisionaimsto expand thebranch network 20%. Themainc the bankr t y in again achie t erest income and37%to in $10.7million or e eign exchange reserves rose by a turned ane v ed remarkable progress in2005 on tribut t pr ors to theimproving ofit of $8.1million, AB and corporate financings, complete thesuite of services offered by o servic quality personalloansto corporate clients’ employees andother T Besides itsexisting corporate andcommercial bankingactivity, ABC ABC Tunisiebehind it, believes that itiswell ontheway to recovery. million. capital), was transformed into anet loss for theyear of $15.1 with itsown specificprovisions following anincrease initspaidup relating to earlier years (asthebankreplaced ABC guarantees expenses andloanloss of $4.9million provisions of $13.3million by 42%to which,however, $3.1million after deductionof operating income remained stable total at $0.7million, operating income rose b assets -nevertheless, thebank’s net interest margin increased reduction intheloanportfolio, producing anoverall drop intotal and profitability. At ABC Tunisie, aconservative strategy ledto a management whilst seekingnew anddiversified sources of revenue which itw underwritten by level, at ABC the$50million IslamicBank following a Tunisian workers abroad, resulting inastronger balance of payments the growth inforeign investments andremittance transfers from mainly to therecovering tourism industry, increased exports and manageda4.2%GDPgrowthstill rate in2005.Thiswas due Multi-Fibre Agreement andthequota system, theTunisian economy encountered by thetextile sector following thedismantling of the Despite thesharpriseincrudeoilprices in2005, andthechallenges Arab Corporation Banking -Tunisia quality products to anexpanding corporate andretail customer base. implemented, ABC Algeriaisconfident of beingableto deliver branches in2006.WithitsITsystems upgrade now successfully over timeby 11more outlets, commencing with3new Algiers The bankalsomanagedahighlysuc interest rate swaps. Both were well received by GCC investors. Muwa’amah suc w shift towards earnings. fee-based Moreover, thegrowth infootings a increased by 186%.Thisexcellent performance was theresult of bonus accruals andincreased premises expenses,net income mil Totalperformance for ABC IslamicBank. income doubledto $8.0 successful transitional year, 2005witnessed aquantum shift in under asingleproduct group andthe completion of alargely Following thereorganisation in2004of ABC Group’s Islamicfranchise (E.C.) ABC IslamicBank included thelaunchof two Shari’a-compliant hedgingproducts, company. This behalf of TheInvestment DarCompany, thefirst for aKuwaiti finance unisie seeks to diversify itsrevenue streams by extending good nd a subdued inflation rate.nd asubduedinflation f y as fundedthrough externally generated liabilities, reflecting the combination of 50%balance sheet growth andadeliberate C AB c lion and,a two-thirds net commission to As $2.5million. andother e Now that thetroubled periodof poorloanperformance is ABC’s Tunisian unitsconcentrated onenhancingcredit risk Initiatives aimedat broadening thebank’s product base Gr s e C’ s oup inT s s o t f o T unis br a as 100%o select c onc and f unisia. t Sukuk Al Musharika Al Sukuk er increased operating expenses reflecting mainly ed mediumto high worth individuals.Theactivities ert anch, whichconcentrates onlarger trade finance Tabdeel ed liabilitymarketing campaign. v ersubscribed. Thebankw , equa ting t was structured, arranged and c o e s c sful debut onventional currency and as alsomanda sukuk is sue on t ed lead arranger for the $330 million Islamic finance tranche of the The MENA region’s fiscal surpluses led to strong demand for $1 billion Bahrain Petroleum Company (BAPCO) facility. all kinds of trade finance and intermediation services. ABCIB’s Rationalisation of the bank’s Islamic fund platform resulted in Trade Finance Unit consequently enjoyed a surge in demand for its the dissolution of ABC Islamic Fund in view of an element of product specialist and general services, particularly receivables financing and duplication with its other liquidity management fund, ABC Clearing forfaiting facilities. Despite intensified competition in the market, Company. The latter’s operating base was accordingly expanded the unit, which aims to offer exporters a comprehensive range to accommodate the 99% of ABC Islamic Fund investors who of products and services, from traditional products to structured, elected to transfer their investment rather than be repaid outright. customised solutions developed specifically for its clients, achieved The Islamic credit card initiative was also suspended, earmarked for turnover and profitability levels significantly in excess of 2004 levels. later re-launch directly into the retail market. Further rationalisation High liquidity levels in the MENA region, however, led to many led to an additional $20 million capital injection from the parent and transactions being financed at local level – often in local currency – an intake of new specialist staff, increasing headcount from 9 to 15, and several countries’ foreign debt being refinanced at lower cost or both in anticipation of planned future growth. retired altogether. While this somewhat restricted the opportunities ABC Islamic Bank’s performance in 2005 marks a further step for ABCIB’s project team and subdued its returns, the team never- on the road to achieving its ambitious long-term aim - to be the theless achieved some notable successes, including being mandated premier innovative and service-oriented Islamic bank in the region. lead arranger for the $490 million financing for Wataniya Telecom While the bank continues to focus on achieving a greater share of the Algeria, in respect of the third Algerian GSM licence, and achieving regional corporate market, given the steady shift towards Islamic widespread recognition for its $76 million ship finance for the banking in the region (where industry growth is currently projected Pacific Star Group, which innovatively combined a conventional at 15-20% per annum), its long-term plans now include a major senior debt tranche with a single asset Islamic sukuk. push into the growing Islamic capital market arena and careful The Islamic Asset Management team continued its theme of planning towards eventual entry into the retail market. innovative product development. Following its success with the first Shari’a-compliant mezzanine financing of a single shipping asset to ABC International Bank plc be brought to the market – the Al Safeena sukuk issue – it arranged 2005 witnessed two distinct patterns of economic behaviour in the lease of 1,500 containers to a major European shipping line ABCIB’s areas of operations. On the one hand, those European under a specially written Shari’a-compliant intermodal container countries where ABCIB is physically represented exhibited a lack- leasing contract. In a buoyant UK real estate market, it arranged the lustre performance, with many large euro zone economies partial finance, under its new Parallel Phased Istisna’a contract, of a remaining weak. On the other, economic growth in ABCIB’s key £30 million residential development project in the north of England. target markets in the MENA region provided more than sufficient Its Al Bait UK Real Estate Fund, launched with Global Securities House business opportunities, both in infrastructure development and of Kuwait in 2004, meanwhile continued to benefit from a growing import financing. Whereas the substantial increase in foreign sector allocation. exchange reserves of the region’s hydrocarbon exporting countries – ABCIB’s Islamic retail finance arm, which offers financial particularly in the GCC countries - underpinned the continuing products to British resident Muslims under the ‘alburaq’ brand, development of their energy and other infrastructure, the wider introduced a much expanded, and market leading, Islamic North Africa and Levant areas also experienced a surge in invest- mortgage product range, now being distributed through Bristol ment activity, as greater emphasis was placed on infrastructure and & West Building Society and selected branches of Lloyds TSB. The privatisation programmes designed to broaden their economic base. number of applications is anticipated to rise rapidly in 2006. The Group’s product-led matrix management structure Recognising the premier nature of the offering, Islamic Banking introduced in 2004 was meanwhile firmly integrated in ABCIB & Finance magazine named alburaq the ‘Best Islamic Mortgage 17 in 2005 and, in the generally favourable environment in the Provider’ in its global awards section. The alburaq programme s
MENA region, the bank’s freshly focused approach to marketing was also a finalist in Mortgage Finance Gazette’s ‘Most Innovative n o i t
and product delivery was rewarded by notable improvements in UK Mortgage Product’ category, competing with a market place of a r e
performance across all ABCIB’s operating areas. 8,000 UK mortgage products. p O f o w e i v e R s ’ e v i t u c e x E f e i h C & t n e d i s e r P e h T Arab Banking Corporation closes Project Finance magazine US$150 million syndicated Medium Winner of Deal of the Year award Term Loan facility for Commercial Facilities Company (S.A.K.) EMEA Petrochemicals Qatofin/Q-Chem II
EMEA Oil & Gas RasGas 2+3
Annual Report 2005 ABC Group 18 s n o i t a r e p O f o w e i v e R s ’ e v i t u c
e increased market profile x E f e i h C & t n e d i s e r P e h T
At our domestic banking subsidiaries, we continue to expand our branch, ATM and cash deposit machine networks and to complete the implementation of Internet and SMS technologies in those units not yet offering these services, in our efforts to widen our customer base.
ABC Group Annual Report 2005 The President & Chief Executive’s Review of Operations
ABC International Bank plc (continued) ABC Brasil foresees a favourable economic scenario for 2006, Organisationally, ABCIB made significant progress in crystallising the although not without some negative influences as a weakened benefits of integration of the European branches, as the Frankfurt government goes to the polls. It expects significant growth in both and Milan support operations were restructured and a number of asset volumes and spreads, anticipating further appreciation of administrative, payment and reporting responsibilities transferred to the Real against the Dollar, with the growing SME and retail loan London. The centralisation of the regional Treasury offices in Europe businesses contributing more to the bottom line as they reach in the London Hub resulted in significant cost savings as well as more economically viable levels. efficient execution capabilities. ABCIB Treasury meanwhile addressed its two main priorities for the year - to lengthen the maturity of the Credit & Risk Group bank’s liabilities and to broaden the deposit base - by, respectively, Implementing the recommendations of the Mercer Oliver Wyman creating an investment platform to facilitate investment grade (MOW) report following its 2004 feasibility study, various changes floating rate bond issues and initiating an aggressive programme in the organisation and processes were made in 2005. As mentioned to cross-sell treasury products to the bank’s commercial customer under Corporate Governance, Subsidiary Board Risk Committees base. Significant growth in both areas is anticipated for 2006. (SBRCs) were formed at each of the major subsidiaries, along In 2005 ABCIB’s operating income rose by 16% to £45.7 million. with committees analogous to the HOCC and ALCO in Head Office Interest margin grew by 10%, to £26.2 million, mainly on account where they did not already exist. In addition the following were of higher return on equity funds. Improved trade finance margin implemented: was offset by project finance run-offs. Non-interest income also improved, and was up 24% at £19.5 million, as trade finance Processes activity surged and Islamic banking fees and sell down profits made Each business unit has now formulated and put in place its medium a significant contribution. Operating expenses were reduced by 7% term and one-year Risk Strategy. Its Risk Profile – viewed from the to £30.6 million as a result of a number of cost saving initiatives. perspective of Ratings, Industry, Country and Tenor – then undergoes ABCIB therefore reported an increase in net profit to £15.6 million, regular quarterly review by its respective SBRC. A process has more than double 2004’s £6.6 million. been put in place related to budgeting and business planning, whereunder the Risk Profile of each business unit’s Business Plan Banco ABC Brasil S.A. is consolidated and reviewed for acceptability within the approved For Brazil, the year started with an overheated economy and Risk Strategy. A consolidated Group Risk Profile for the coming inflationary pressures, forcing the monetary authorities to increase year is then reviewed by the Board Risk Committee (BRC). interest rates, which in turn led to appreciation of the Brazilian Real. An exercise was conducted to establish prudential consolidated As it became clear that the foreign trade balance and internal debt and individual ABC unit threshold approval levels in relation to situation would not be negatively impacted by this cycle, the market credit exposure to corporate and financial institution customers. This adjusted to the new economic perspective with less price expansion was based on the combined impact of restrictions linked to each and a downward inflationary trend. Inflation thus averaged around lending unit’s capital, profitability and legal lending limit, as well as 5.7% for 2005 against a target of 5.1%. GDP growth for the year, to the customer’s risk rating and Probability of Default index. The forecast at 2.2%, although somewhat restrained was sufficient to results were used to set lending authorities for each unit’s SBRC (and confirm the validity of the economic policies being followed. Exports the HOCC on a consolidated basis). In line with the BRC’s delegation rose to $118 billion while imports expanded to $74 billion, the of day-to-day management, additional credit approval authorities resultant resources flow permitting a reduction in external debt and were then further delegated down the line to HOCC and unit Credit increasing foreign appetite for Brazilian investments. Committees where appropriate. This has speeded up the credit Partly as a result of appreciation of the Real and partly in approval process for a significant number of cases. 19 reflection of growth of the corporate and inter-bank (documentary s credit and payroll lending related) credit portfolios, ABC Brasil’s total Risk Systems Enhancement n o i t loans expanded in 2005 by 30% to $835 million. The bank also ABC’s technology project plan, launched in 2004, aims at the creation a r e significantly increased its holdings of marketable securities. Lower of a new credit risk management infrastructure incorporating the p O average corporate spreads however meant that - even with close to key blocks recommended by MOW. Certain key elements were f o
zero default rates - the bank’s net interest margin, at $34.9 million, completed in 2005, namely the implementation of a new credit w e i was 6% lower than 2004. Nevertheless, other income including application processing system, limits and exposures management v e treasury income improved to $9.3 million compared with 2004’s system, the associated data warehousing capability and Moody’s R s ’ e negative $2.2 million (which had reflected mainly treasury losses KMV suite of products, which will enhance analytical/underwriting v i t u
that year). Net operating income consequently rose 25% to $19.1 standards as well as provide proxies for default estimates. Upon c e x
million however, due to significantly higher taxation provision, successful completion of the project plan, Basel II requirements E f e
2005’s net profit at $9.2 million was only 3% above that for the will be met for ABC, who will simultaneously be provided with an i h previous year. effective economic capital allocation tool. C & t n e d i s e r P e h T
Annual Report 2005 ABC Group 20 The President & Chief Executive’s Review of Operations r 2006. Meanwhile, theGroup’s global Jordan, withABC Egypt andABC Algeriascheduledfor early Group’s Arab world retail bankingunits, was completed at ABC implemen outsourcing theATM drivinganddebitcard management and c internal ratings analyticaltools. global credit exposure monitoring/reporting, includingadvanced in-house developed, credit approval/limits system -its risk management capabilities, GITalsoimplemented ABC’s new, installation in2006. both of whichare scheduledfor version at ABC IslamicBank, implemented at ABC’s new Iraq branch, alongwithacustomised bankingunits.Thecorewholesale system onlyremains to be technology upgrade andstandardisation programme for the 2 Global Information Technology a P trading andinvestment limitsandrevised Asset LiabilityMandate in 2005, (MRM)’s Market RiskManagement proposed new Group Following itsreview ABC of subsidiaries’ all treasury activities Risk Systems Enhancement through aBahrain-based on theplatform already inuseat ABC thesystem Egypt, operate will operational efficiency andreduce costs across theretail units.Based the implementation of capabilities andnew solutionsavailable resulting inthemarket, in go liv for separate ITcentres ineach retail subsidiary. ABC Tunis/Tunisie will an enhanced duefor framework, testing capitalallocation in2006. initiated aninternal methodology capitalallocation anddeveloped T retail bankingunits. ABC Tunisie beprogressively andwill rolled outto theremaining operational bankingunits, wholesale was inall implemented at The President &Chief Executive’s Review of Operations AB and Position System Position and Credit Risk Management System Management Risk Credit Systems Standardisation Programme Standardisation Systems e ommenc reasury team’s investment portfolio monitoring capability. MRMalso olicy were approved by ALCO MRMalsoconducted andtheBRC. 005 marked thecompletion by GITof theGroup’s originalglobal tail units.R strategic risksystems review to evaluate theexisting systems C Group Deployment underthe Pr Under theGroup’s strategic planto update andenhance its e ogr with thene Annual R ed withAB e ting Euro (EMV) Master &Visa Compliance for the all s s ollout of theGroup’sollout standard w as main eport 2005 w C Jor system inearly 2006, followed by theother to Arab all world domestic bankingunits FOFIX (a Riskdata product Riskdata (a FOFIX tained onthe dan; AB Retail Processing Hub, Processing Retail EMV Compliance EMV (continued) C - E significantly improving real-time gypt follow will in2006. Trade Finance System Finance Trade , Arab World Retail Core Retail World Arab intended to increase Treasury Dealing Desk initiative, whichentails Front Office Dealing Dealing Office Front obviating theneed ), enhancingthe Enterprise , already wholesale bankingunits. wholesale account officer performance against goals, was at installed all Group’s products major andassess operating unitsandindividual enables seniormanagement to view income streams from the all g will continuewill in2006. compliant withinternational regulatory requirements. Deployment and customer static data against blacklist databases andisfully ABCIB andABC New York branch. Thesystem scanspayment traffic at theBahrain headquarters in2004, was rolled outin2005to plementing existing regulatory compliance andprocedures, installed Groupwide. account details viapocket PCs-was alsosuccessfully deployed mobile ABC executives easy access to customer information and international Arab financialgroup. goals andmove nearer to realising ourVision-to bethepremier ther product range andourdelivery channels.We looktowards 2006, be ourspringboard, from whichwe expand will both ourkey busine c structure, coupled withenhanced have credit management, of ourtwo non-core major subsidiaries. Ournew product-based a consideringespecially that theyear openedwiththeGroup facing In conclusion, we view 2005’s performance withsomesatisfaction, C credit systems, default estimation andportfolio management. agement capabilities, asregards especially thenewly implemented readiness, inadditionto ongoingenhancement of ABC’s riskman- on-line, was successfully introduced at ABC Jordan. manage theirglobaltrade portfolios andissue documentary credits jus replacement of therevenues lost from in oursubsidiarydisposals On-line e-Trade Finance e-Trade On-line on onclusion eneration of the much reduced asset volume andlow leverage following thesale t tributed to thesubstantially improved volume of goodquality efore, withrenewed confidence inourabilityto meet ourkey one y N Among For 2006, akey objective for GITistheachievement of T he ew ew s s tha C A e orporate Performance Management Performance orporate ar nti-Money Laundering nti-Money e-Business Initiatives e-Business t . The as we have managedto putonourbooks andthe E IS On-line IS se voted by Euromoney magazine Best Treasury East intheMiddle Bank t and organisational basethuscreated will system, whichallows ABC customers to E xecutive Information System, offering in progress, the web-based s oftware, enhancingand com- EIS s ystem, which II - the latest Basel II Basel ABC 21 s n o i t a r e p O f o w e i v e R s ’ e v i t u c
renewed confidence e x E f e i h C & t n e d i s e r P e h T
Renewed confidence in our ability to meet our key goals and move nearer to realising our Vision - to be the premier international Arab financial group.
Annual Report 2005 ABC Group From left: Mr. Jehangir Jawanmardi, Audit Group Head, Mr. Riyad Al Dughaither, Chief Credit & Risk Officer Mr. Sael Al Waary, Support Group Head, Mr. Abdulmagid Breish, Deputy Chief Executive & Chief Banking Officer 22 Mr. Essam El Wakil, Group Treasurer, Mr. Nour Nahawi, Arab World Division Head Mr. Asaf Mohyuddin, Planning & Financial Control Head e c n a n r e v o G e t a r o p r o C capital management
ABC’s capital management is aimed at maintaining an optimum level of capital to enable it to pursue strategies that build long-term shareholder value.
ABC Group Annual Report 2005 Corporate Governance
...... Board of Directors half-yearly meeting with the Head Office Credit Committee to discuss ...... major risk policy and planning issues. The Board of Directors is responsible for the overall direction, The Nomination and Compensation Committee is responsible supervision and control of the Group. It meets regularly (usually for the formulation of the Group’s executive remuneration policy six times a year) to consider key aspects of the Group's affairs, and senior management appointments and remuneration. The strategy and operations. The shareholders appoint the Board for a Committee has formal terms of reference approved by the Board and specific term of three years. There are currently 12 Directors on the meets at least twice during the year. Board, all non-executive, with varied backgrounds and experience, ...... who individually and collectively exercise independent and ...... objective judgement. As a rule Directors do not have, and in 2005 ...... Compliance ...... no Director had at any time during the year, any direct or indirect material interest in any contract of significance with ABC or any of its In accordance with the rules of the Bahrain Monetary Agency (BMA), subsidiaries. ABC has appointed a Compliance Officer and a Money Laundering Specific responsibilities have been delegated to the following Reporting Officer (MLRO). Board Committees: The role of the Compliance Officer is to act as central coordinator The Group Audit Committee is responsible to the Board for for the Group in respect of all matters relating to BMA regulatory ensuring that the Group maintains an effective system of financial, reporting and other requirements. This responsibility currently lies accounting and risk management controls. The Committee also ...... with the Senior Vice President, Financial Control. The compliance ...... monitors compliance with the requirements of the regulatory ...... function covers areas such as corporate governance, adherence ...... authorities in the various countries in which the Group operates...... to best practices, codes of conduct and conflict of interest. Each It normally meets at least four times a year, regularly reviewing operating entity in the Group, to the extent required by applicable law matters with both the external and Group Audit as well as selected and regulation, has appointed a local compliance officer to ensure members of management invited to discuss relevant issues. The adherence to local requirements and regulatory issues. Committee also makes recommendations to the Board regarding the The BMA’s laws and regulations with respect of Anti-Money appointment of external auditors. Group Audit Department reports Laundering (AML) apply to all ABC branches and subsidiaries. The directly to the Committee. Group is committed to ensuring adherence to these regulations The primary purpose of the Corporate Governance Committee is and to the recommendations of the Basel Committee and Financial to assist the Board in shaping and monitoring the Corporate Action Task Force which they incorporate, which are in turn reflected Governance policies and practices of the Group and to evaluate in ABC’s own Group AML Manual which has been approved by the compliance with policies and procedures. The Corporate Governance Board of Directors. The Group has strict Know Your Customer policies Committee has a formal charter approved and reviewed by and units are precluded from establishing a new business relationship the Board and currently consists of four members, all of whom until all relevant parties to the relationship have been identified, are non-executive directors of ABC. Amongst its other duties, the the nature of the business they expect to conduct has been Committee reviews and assesses the adequacy of the Group’s established and satisfactory evidence of identity obtained. ABC’s AML 23 policies and practices on corporate governance, all matters related policies are available on its website. e to Board Committees and their membership, including the selection The MLRO appointed in each unit is responsible for supervising c n a
for service on ABC's subsidiaries’ boards of directors, Board and the unit’s AML activities and for maintaining appropriate and effective n r e
Board Committee compensation, related issues and management systems, controls and records to ensure compliance with local v o
succession plans, making recommendations to the Board as AML regulations and the provisions of the Group AML Manual. The G e t
MLRO is also responsible for reviewing and reporting any suspicions a
appropriate. r o
concerning a customer or an account to that unit’s regulator and p
The Board Risk Committee comprises four members and acts on r o
behalf of the Main Board on all risk issues. It is responsible for the senior management. C continual review and approval of the Group’s Risk Policies and The responsibilities of the Group’s MLRO – currently the Head of Medium Term and Annual Risk Strategy/Appetite, within which Operations, Bahrain – include formulating, issuing and implementing business strategy, objectives and targets are formulated. The the Group’s AML strategies and policies on an ongoing basis, over- Committee continuously reviews the Group’s Risk Profile to ensure seeing appropriate AML training to all relevant staff, supervising that it is within the Risk Policies and Appetite parameters, meeting and coordinating the activities of the unit MLROs and reporting to quarterly and reporting key developments at each Board meeting. the President & Chief Executive and the Board of Directors on The Committee delegates authority to senior management to critical money laundering issues which require the attention of senior conduct day-to-day business within the prescribed policy and management. The Group MLRO reports directly to the President strategy parameters, ensuring that processes and controls are & Chief Executive, in addition to having a direct and independent adequate to manage Risk Policies and Strategy. It also holds a formal reporting line to the BMA.
Annual Report 2005 ABC Group Corporate Governance
...... avoiding undue concentrations or aggregations of risk. ABC's banking ...... Risk Management ...... subsidiaries are governed by specific credit policies that, whilst In conducting its business and operations the Group encounters a closely following and subject to the Group Credit Policy, may be variety of risks falling under the general categories of credit, market, adapted to suit local practices and regulatory requirements as well as liquidity, operational and legal risks. The Group seeks to manage individual units' product and sectoral needs. The Credit Risk section these risks strategically to assist it in building shareholder value. of the CRG’s Risk Management Department (RMD) coordinates all The following describes the way in which it does this and the technology development related to credit risk management and organisational structure it employs in doing so. provides senior management with consolidated information on At the apex of risk management is the Board Risk Committee Group exposures to counterparties, countries and industries. (BRC). Once the BRC sets the Group's Risk Strategy/Appetite The first level of protection against undue credit risk is through and Policy guidelines, it entrusts responsibility to senior management Group country, industry and other risk threshold limits, together for implementation, including identifying and evaluating, on a with customer and customer group credit limits, set by the BRC and continuous basis, significant risks to the business of the Group the HOCC and allocated between ABC and its banking subsidiaries. and designing and implementing appropriate internal controls to Credit exposure to individual customers or customer groups is minimise them. This is done through the senior management controlled through a tiered hierarchy of delegated approval committees and the Credit & Risk Group in Head Office whose authorities based on the risk rating of the customer. Where unsecured head, ABC’s Chief Credit & Risk Officer, has a ’dotted’ functional facilities sought are considered to be beyond prudential limits, reporting line to the BRC in addition to reporting directly to the Group policies require collateral in the form of cash, securities, legal President & Chief Executive. charges over the customer's assets or third-party guarantees to The Head Office Credit Committee (HOCC) is responsible for mitigate the credit risk. The Group also increasingly employs RAROC credit decisions at the higher levels of ABC’s lending portfolio, setting as a measure to evaluate the risk and reward relationship at country limits, dealing with impaired assets and general credit policy the transaction approval stage. 2005 saw further enhancements to matters. It normally meets weekly and comprises relevant members this process. of senior management, chaired by the President & Chief Executive. Day-to-day management of existing credit exposure is the The chief responsibility of the Asset and Liability Committee responsibility of the business unit officers who, in turn, must adhere (ALCO) is to define long-term strategic plans and short-term tactical to the detailed requirements for regular review of the customers initiatives to direct asset and liability allocation prudently for and analysis of their financial and economic condition, under the the achievement of the Group’s strategic goals. ALCO additionally oversight of the CRG’s Head Office Credit Department in the case monitors the Group’s liquidity and market risks, economic develop- of customers with limits exceeding the relevant business unit’s ments, market fluctuations and the Group’s risk profile to ensure authority. Significant aggregated credit exposures are regularly ongoing activities are compatible with the risk/reward guidelines reviewed by senior management, as are industry/sectoral exposures approved by the BRC. ALCO generally meets monthly, is chaired periodically. Business unit portfolios are subject to detailed semi- by the President & Chief Executive and draws its membership from annual Head Office reviews involving assessment of business focus relevant senior management. and return as well as credit issues. A review of all risk ratings is The Board has recently mandated the creation of an Operational conducted at the other quarter ends. Group Audit carries out separate Risk Management Committee which, supported by a new Risk Asset Reviews of business units to assess and provide an Operational Risk Management Unit, will oversee the independent independent opinion on the quality of their credit exposures and Operational Risk Management function. Each ABC subsidiary is adherence to credit policies and procedures. responsible for managing its own risks. Each subsidiary has its own In assessing its credit exposure, ABC applies an internally 24 Subsidiary Board Risk Committee, Credit Committee and ALCO (in the developed risk rating scale, under which credits with ratings 1-7 (with case of major subsidiaries), or equivalent, with responsibilities +ve and –ve modifiers) rank as satisfactory and non-performing or e
c generally analogous to the Group committees. impaired credits are categorised into ratings 8-11 under four separate n a The Credit & Risk Group (CRG) has overall responsibility for adverse risk ratings. Subject to minimum loan loss provision n r
e levels mandated under the Group Credit Policy, specific provisions in
v centralised credit policy and procedure formulation, country risk o
G and credit exposure reporting, control and risk-related regulatory respect of impaired assets are based on estimated potential loss. e t Non-specific provisions are also maintained to cover unidentified a compliance, remedial loans management and the provision of r o possible future losses. Credit exposures found to rank below satisfac- p analytical resources to senior management. It is also responsible r o
C for identifying market risks arising from the Group's activities, tory grade are segregated and more actively supervised as impaired recommending to the relevant central committees appropriate assets under the guidance or supervision of the CRG’s Remedial policies and procedures for managing exposure to such risks and Loans Unit (RLU). The RLU provides business units with advice, establishing the systems necessary to implement effective controls. assistance and training in relation to managing impaired assets, including development of realistic exit strategies and maximisation Credit Risk of credit recoveries. Impaired assets are reviewed regularly by ABC Group’s portfolio and credit exposures are managed in the respective business units, with progress reports at least quarterly accordance with the Group Credit Policy, which applies Groupwide to the RLU, who in turn reports their progress to senior management qualitative and quantitative guidelines, with particular emphasis on and regulators.
ABC Group Annual Report 2005 Market Risk or retained as open positions and managed for a profit. The Group's The Group has established risk management policies and limits trading activities are largely managed in Bahrain, within appropriate within which exposure to market risk is monitored, measured and limits and stop loss parameters. For all trading options products, controlled by the RMD with strategic oversight exercised by ALCO. The RMD conducts a two-factor stress analysis. All volatility parameters RMD’s Market Risk Management (MRM) unit is responsible for devel- are calculated by RMD. The Option stress adds another independent oping and implementing market risk policy and risk measuring/mon- measurement of risk. itoring methodology and for reviewing all new trading products and trading products and limits prior to ALCO approval. MRM’s core respon- Operational Risk sibility is to measure and report market risk against limits throughout Group policy dictates that the operational functions of booking, the Group. recording and monitoring of transactions are carried out by staff Foreign Exchange Rate Risk - The Group is exposed to foreign that are independent of the individuals initiating the transactions. exchange rate risk through both its trading portfolios and its structur- Business units have primary responsibility for identifying and manag- al positions. Foreign exchange rate risk is managed by appropriate ing their own operational risks. As mentioned above, an independent limits and stop loss parameters determined by each subsidiary's local Operational Risk Management Unit is being formed within the ALCO and approved by its Board. ABC's structural balance sheet posi- RMD, which will create the framework for best practice Operational tions, which relate to its net investment in its foreign subsidiaries, are Risk measurement under Basel II stipulations. reviewed regularly by ALCO in accordance with the Group's strategic The Group’s information technology arm is continually develop- plans and managed on a dynamic basis by Group Treasury, hedging ing and refining the Group’s security software to ensure that its such exposures as appropriate. systems can reliably identify and intercept unauthorised access. Interest Rate Risk - In managing the interest rate risk resulting The Group pays close attention to disaster recovery. All essential from the Group’s trading and banking activities, the effect of interest operational data required for business continuity are backed up on rate movements is assessed using sensitivity analyses and other separate computers both within the Head Office and elsewhere in modelling techniques. There are established limits on individual busi- Bahrain, in addition to being downloaded hourly to the Group’s ness units' aggregate maximum exposures to interest rate risk and on servers in London. an overall basis for the core banking units. Board approved trading limits are monitored by RMD and any exceptions brought to the Legal Risk attention of ALCO. Inadequate documentation, legal and regulatory incapacity or Equity, Debt Securities and Commodity Risk - As a normal part insufficient authority of a counterparty, contract invalidity or unen- of its treasury trading activities, the Group is exposed to the risk of an forceability, are all examples of legal risk. Management of this risk is adverse impact on its earnings due to movements in the prices of the responsibility of the Head Office Legal & Compliance Department individual securities or commodities, or generally in the value of their (LCD) and is carried out through effective consultation with internal respective markets or their related derivatives. Management of these and external legal counsels, together with close monitoring of the risks is similar to that in relation to foreign exchange risk. litigation cases involving the Group. All major Group subsidiaries have their own in-house legal departments, acting under the Liquidity Risk guidance of the LCD. ABC maintains liquid assets at prudential levels to ensure that cash ...... can quickly be made available to honour all its obligations, even ...... under adverse conditions. The Group is generally in a position of ...... Capital Management ...... excess liquidity, its principal sources of liquidity being its deposit base, ...... liquidity derived from its operations and inter-bank borrowings. It has The BMA is the lead regulator for ABC and sets and monitors its 25 specific policies regarding liquid assets coverage of short-term whole- capital requirements on both a consolidated and an unconsolidated e
sale deposits and in particular the potential risk impact of with- basis. Individual banking subsidiaries are regulated directly by c n drawals by large single depositors, ensuring that there is no reliance their local banking supervisors, who set and monitor their capital a n r on any one customer or small group of customers. Maturity mismatch adequacy requirements. The BMA requires each Bahrain-based e v o is also managed within internal policy limits. The maturity profile of bank or banking group to maintain a minimum ratio of total capital G e the Group’s assets, liabilities and off-balance sheet items is given in to risk-weighted assets of 12%, taking into account both on and t a r Note 15 to the Financial Statements. off balance sheet transactions. ABC Group’s capital management o p r o
is aimed at maintaining an optimum level of capital to enable it to C Derivatives pursue strategies that build long-term shareholder value, whilst In the normal course of business, the Group enters into many kinds of always meeting minimum regulatory ratio requirements. Details of derivative activities in both its trading and banking books. ABC may risk weighted assets, capital base and the risk asset ratio are on occasion use derivatives to manage its own structural positions. provided in Note 27 of the consolidated financial statements. In the trading book, the Group assists customers and counterparties (typically financial and governmental institutions and major corp- orations) to alter their risk profile in a particular area of risk by structuring deals to suit individual needs. The positions accumulated from such activity are either passed on to others in the market
Annual Report 2005 ABC Group 26 Group Financial Review ...... million), termmillion), notes, bondsandother term financingsof $1,575 other financial institutions totalling $8,108 (2004:$5,506 million $5,310 (2004:$5,081 depositsfrom million million), banks and year was of $129million 18%higherthanthat for 2004. thenetsubsidiaries profit (2004:$4million), of $6million for the andminorityinterestsBahrain (2004:$3million) of $20million in 34% on2004’s After $116million. taxation onoperations outside continuing operations was therefore anincrease $155million, of Profit$199 million). before taxation andminorityinterests on was 16%higherthan2004($315 million). c provisions for impaired assets write (2004:$10million back) net write A$14million (2004:$153million). backof million whilenon-interest(2004: $152million), income grew by 4%to $159 sec 30.9%) of total assets. Total liquidassets, includingnon-trading represented (2004:$303million), $309 million 20.3%(2004: der o madeup theremain-standing (2004:$501million), at $586million r (2004: $6,012 whileinvestments million) inassociates, interest mil and liquidfundstr money market placements at $3,264 (2004:$4,305 million million) sale’ securities) stood at $6,003 (2004:$3,617 million million), Non-tradingmillion). securities (almost entirely ‘available for placements andliquidfunds, totalled $10,169 (2004:$8,409 million Liquid assets, comprising trading andnon-trading securities, Sources andUses of Funds $ In 2005, theGroup’s (after tax) net profit for theyear increased to Income Statement ( Group FinancialReview AB All figuresAll stated inUSdollars) ec ontributed to ahighernet operating income, whichat $366million 129 million from in2004. 129 million $109million C eiv lion). Theloansandadv uritie Group Operating expenses increased by 6%to (2004: $211million Net interest income was 27%higherthan2004, at $193million These assets were fundedby depositsfrom customers of f able the total assets. Placements, together withliquidfundsof s, represented 57.8% (2004:56.4%)of total assets. Annual R , premises andequipment andother assets, inaggregate eport 2005 ading securities (2004:$487 at $902million ances portfolio stood at $6,833 million ...... taken duringtheyear. (2004:$197million). $287 million o for proprietary trading purposes. market The risk-weighted equivalent of hedging andservicingcustomer-related requirements, aswell as $12,302 million). excluding shareholders' equity, amounted to $14,109 (2004: million 12% to $15,904 (2004:$14,228 whileaverage million) liabilities, $ $1,575 (2004:$1,828 million million). relating toandrepurchase sale agreements. Term fundingtotalled aggregate. Depositsincluded$1,260 (2004:$179million) million l Interest (2004:$94million). million payable, taxation andother (2004:$1,828 andcertificatesmillion million) of deposit$73 liabilities to theArab world decreased from 77%to 71%. 9% to 12%while thosetoremained Asia at 4%.Theproportion of 5%. Theproportion of liabilities to Western Europe increased from in NorthAmericaincr its assets inWestern Europe fell from 27%to 20%.TheGroup’s assets mil undertaken duringtheyear was $7,884 (2004:$6,180 million The total volume of documentary credits, acceptances andguarantees items andderivatives was $1,402 (2004:$1,383 million million). risk-weighted asset equivalent of commitments andcontingent stood at $12,105 (2004:$12,790 Thetotal million million). credit At theendof 2005, ABC Group's consolidated off-balance sheet items Credit Commitments, Contingent Items andDerivatives although thepr In 2005, ABC Group's total assets intheArab world increased, Geographical Distribution andMaturity of theBalance Sheet iabilities amounted in to (2004:$521million) $549million f 17,588 (2004:$14,922 Average million million). assets were up the exposures underthese categories at theendof 2005was lion), 62%(2004:53%)o No significan The Group uses arange of derivative products for thepurposes Total assets of theGroup increased 18%by 2005year-end to oportion o t cr e edit deriv ased t f its as f o which r 30% fr ative trading activities were under- sets there fell from 37%to 34%as ela om 22% and Asia fromom 22%andAsia 4%to t ed t o the Ar ab w orld. Assets Liabilities & An analysis of the maturity profile of earning assets shows that, at Equity the end of 2005, 48% (2004: 60%) did not exceed one year’s (%) 2005 2004 2005 2004 maturity. Loans and advances maturing within one year amounted to 56% (2004: 56%) of all loans and advances. The proportion of Arab world 34 37 71 77 liabilities maturing within one year was 76% (2004: 75%) of all Western Europe 20 27 12 9 liabilities and equity. Asia 5 4 4 4 North America 30 22 5 2 Earning Liabilities & Latin America 6 6 5 4 Assets Equity Others 5 4 3 4 (%) 2005 2004 2005 2004 100 100 100 100 Within 1 month 25 28 53 44 1 - 3 months 9 12 17 17 3 - 6 months 5 10 4 10 Earning Loans & 6 -12 months 9 10 2 4 Assets Advances Over 1 year 49 38 10 9 (%) 2005 2004 2005 2004 Undated 3 2 14 16 Arab world 35 37 69 64 100 100 100 100 Western Europe 20 27 7 14 Asia 7 4 8 2 North America 30 23 1 3 Latin America 6 6 12 12 Others 2 3 3 5 100 100 100 100 ...... Distribution of Credit Exposure ...... ABC Group’s credit exposure (defined as the gross credit risk to which the Group is potentially exposed) as at 31 December 2005 is given below.
($ millions) Funded Exposure Credit Commitments & Contingent Items Derivatives* 2005 2004** 2005 2004** 2005 2004** Customer type Banks 7,183 5,577 1,109 1,180 97 45 Non-banks 5,350 4,094 2,029 1,518 23 72 Sovereign 4,446 4,733 1,057 1,782 1 1 16,979 14,404 4,195 4,480 121 118 27 Risk rating
1 = Exceptional 4,914 3,699 104 50 3 4 w e i
2 = Excellent 1,646 2,303 154 798 53 33 v e
3 = Superior 3,020 1,709 767 533 38 12 R l a i
4 = Good 2,545 2,318 854 863 24 28 c n 5 = Satisfactory 2,113 1,740 1,591 674 2 38 a n i 6 = Adequate 2,450 2,069 469 1,379 1 2 F p u
7 = Watchlist 171 333 223 134 - 1 o r 8 = Special Mention 50 96 11 11 - - G 9 = Substandard 15 10 - 33 - - 10 = Doubtful 27 33 22 4 - - 11 = Loss 28 94 - 1 - - 16,979 14,404 4,195 4,480 121 118
* Derivative exposures are computed as the cost of replacing derivative contracts represented by mark-to-market values where they are positive, and an estimate for the potential change in market values reflecting the volatilities that affect them. ** 2004 data has been restated to reflect the change effected in 2005 to the master scale supporting ABC's risk rating system, which has been refined to become more conservative and risk sensitive.
Annual Report 2005 ABC Group Group Financial Review
...... are minimum 2:1 revenue to expense and a 15% risk-adjusted ...... Classified Loans and Provisions ...... return on capital (RAROC). Based on its evaluation of the following Non-performing loans and off-balance sheet credits are formally factors, management remains optimistic that the Group can meet defined as those in default on contractual repayments of these targets over time: principal or payment of interest in excess of 90 days. In practice, however, all credits that give rise to reasonable doubt as to timely Political stability – On the whole, management believes that the collection, whether or not they are in such default, are treated as Group's activities and assets are sufficiently widely diversified to non-performing. Such credits are immediately placed on non- provide a cushion against major losses from isolated cases of accrual status, with all past due interest being reversed and accumu- political instability. The Group has in place rigorous, regularly tested, lated unpaid interest thereafter excluded from income. disaster recovery procedures to face eventualities arising from The total of all loans on non-accrual status as at the end of 2005 political or other disruptions. The Group has no significant risk was $262 million (2004: $331 million). Aggregate provisions at exposures outside of the Arab world, the USA and Europe. the end of 2005 stood at $405 million (2004: $468 million) and constituted 155% (2004: 141%) of all non-performing loans and Energy prices – Global hydrocarbon prices have a direct impact on the 5.6% (2004: 7.2%) of gross loans and advances. annual budgets and infrastructure improvements of many of the An ageing analysis is given below in respect of all loans and countries in the Arab world. This in turn affects both the Group’s advances on non-accrual, together with their related provisions: OECD-based exporting and contracting customers and its importer customers in the MENA region. When hydrocarbon prices are high, producing countries benefit, increasing their demand for capital ($ millions) Principal Provisions Net Book equipment and construction services for infrastructure-building and Value development projects, in addition to consumer goods. Lower energy Less than 3 months 1 - 1 prices benefit residents of developed countries who in turn increase 3 months to 1 year 7 1 6 their appetite for tourism services and developing countries’ goods - 1 to 3 years 115 87 28 ...... which enhances the revenues of the agricultural producers and ...... Over 3 years 139 133 6 ...... tourism-dependent countries. The Group’s revenues can benefit from ...... either of these scenarios. The prognosis is for a steady increase in 262 221 41 hydrocarbon prices over the medium term, after some anticipated downward adjustment to current highs...... Group Capital Structure and Capital Adequacy Ratios ...... Foreign currency values – Where ABC’s subsidiaries are capitalised with currencies other than the US dollar, it is exposed to fluctuations The Group’s capital base of $2,089 million comes substantially from in the values of those currencies. ABC takes all appropriate steps the shareholders’ funds of $1,926 million, as was also the case in to hedge against such fluctuations where this is practicable or 2004 when shareholders’ funds of $1,852 million formed the greater desirable. part of the capital base of $1,974 million. The consolidated capital adequacy ratio as at 31 December 2005 was 19.9% (2004: 23.9%), Volatility of currency markets - Foreign exchange rate volatility can significantly above the regulatory minimum of 12% and the 8% affect the Group’s foreign exchange trading revenues. The Group guideline under the Basel Accord for international banks. believes that it benefits overall from currency volatility, in view of All ABC Group subsidiaries meet the capital adequacy require- the opportunities for profitable proprietary trading thus generated. 28 ments of their respective regulatory authorities. Interest rates – Although the Group’s net interest revenue can be ...... w ...... negatively affected by interest rate changes, the impact is mainly on e ...... i ...... Factors Affecting Historical or Future Performance v ...... income from equity funds since its lending and marketable securities e R
l holdings are based predominantly on floating or short-term interest a
i ABC Group seeks greater diversification in its revenue base primarily c rates and therefore largely insulated from interest rate swings. n
a through regional expansion and the facilitation of Arab world n i
F business investment and trade flows. Its activities include the p
u financing of trade, investment and infrastructure development, often o r
G through innovative and tailored structures and through a wide array of available facilities, including Islamic banking, project and structured financing and treasury services and products. The Group's primary financial goal is consistent generation of value for its shareholders, including sustainable growth in earnings and assets per share. Having achieved its target of a maintainable capital adequacy ratio of at least 15%, its chief long-term goals
ABC Group Annual Report 2005 Auditors’ Report to the Shareholders of Arab Banking Corporation (B.S.C.)
We have audited the accompanying consolidated balance sheet of Arab Banking Corporation (B.S.C.) [the Bank] and its subsidiaries [the Group] as of 31 December 2005, and the related consolidated statements of income, cash flows and the changes in equity for the year then ended. These consolidated financial statements are the responsibility of the Bank’s Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2005 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
We confirm that, in our opinion, proper accounting records have been kept by the Bank and the consolidated financial statements, and the contents of the Directors’ report relating to these consolidated financial statements, are in agreement therewith. We further report, to the best of our knowledge and belief, that no violations of the Bahrain Commercial Companies Law, nor of the Bahrain Monetary Agency Law, nor of the memorandum and articles of association of the Bank have occurred during the year ended 31 December 2005 that might have had a material adverse effect on the business of the Bank or on its consolidated financial position and that the Bank has complied with the terms of its banking licence. We obtained all the information and explanations which we required for the purposes of our audit.
21 February 2006 29 Manama, Kingdom of Bahrain ) . C . S . B ( n o i t a r o p r o C g n i k n a B b a r A f o s r e d l o h e r a h S e h t o t t r o p e R ’ s r o t i d u A
Annual Report 2005 ABC Group 1430 ConsPorliodfaitteadndBaLolasnscAecScohuenet Dealing profits Other liabilitie Taxation 7 Interest payable O Interest receivable Placements withbanks andother financialinstitutions Trading securities E Tax (charge)/ credit onordinary activities R Profit onordinary activities before tax 5 E 4 Provision release T TERM NO Certificates of deposit Deposits from banks andother financialinstitutions Other operating income Deposits from customers LIABILITIES TOTAL ASSETS P Net interestincome Investments inassociates Interest payable Loans andadvances Non-trading securities Other interest receivable andsimilarincome securities andcertificates of depositpurchased L Interest receivable andsimilarincomeASSETS arisingfrom debt 31 December 2005 For theyear ended31st December 2005 Consolidated Balance Sheet Profit andLoss Account B Group ABC Group The attached notes 1to 27form partof these consolidated financial statements. or losses forthe current orprevious financialyear other thanthosealready dealt withintheprofit andloss account. A T T Profit for thefinancialyear Minority in R Depreciation andamortisation Administrative expenses Total operating income Fees andcommissions payable F their behalfb The Shar iquid funds ees and commissions receivable O OTAL EQUITY OTAL LIABILITIESANDEQUITY QUITY QUITY ATTRIBUTABLE TO THESHAREHOLDERSOFPARENT remises andequipment etained earnings eserves hrast 6 ther assets statement of total recognised gainsandlosses hasnot beenincludedasthere were norecognised gains TAL LIABILITIES se consolidated financialstatements were authorisedfor issue by theBoard of Directors on21February 2006andsignedon e capital Annual Report 2005 Annual Report 2005 TES terests y , Mohammed La s BONDS ANDOTHER TERMFINANCING the ChairmanandPresident &Chief Executive. Chairman yas Ghazi M. Abdul-Jawad Ghazi M. yas Cairo, Egyp3t Note Note 10 8 9 3 5 4 3 2 7 6 President &Chief Executive (33,238) (32,957) 15 39,518 15,766 1 17,588 46,978 70,730 52,620 18,110 17 23,752 (1,213) (3,103) 6,754 1,494 1 8,108 1,932 5,310 6,833 6,003 3,264 1 1 6,561 1 6,432 (129) £000 2005 2005 ,575 ,973 ,926 ,000 ,615 ,588 396 109 183 1 2 146 593 3 496 430 29 82 09 44 73 29 47 All figures in US$ million US$ in figures All (26,630) (24,255) 13 32,355 12,459 1 14,922 19,896 28,198 48,094 41,077 14 (1,574) 0,219 3,371 1 5,506 3,814 5,081 6,012 3,617 4,305 7,017 1 8,623 1 8,100 1 (996) £000 2004 2004 ,828 ,892 ,852 ,000 ,030 ,922 426 1 2 184 3 523 424 428 43 38 03 23 72 94 89 31 40 - Consolidated StatementBalance of Income Sheet Year Aendeds at 31st 31 December 2005
2005 All figures in US$ million2004 Note 2005£000 2004£000
OPERATINGAssets INCOME ICashnterest and income balances at central banks 24,223705 8,098512 InterestCertificates expense of deposit purchased 8 190,000(512) 239,441(360) Loans and advances to banks 9 695,260 287,482 NetLoans interest and advances income to customers 10 896,427193 664,224152 OtherDebt securities operating income 1113 79,117159 18,341153 Interest in associated undertakings 14 4,809 923 TotalShares operating in Group income undertakings 15 1,075352 1,165305 Tangible fixed assets 16 3,613 2,931 WOtherrite backassets of impairment provisions - net 3,29214 1,34010 Prepayments and accrued income 17 17,035 13,112 NET OPERATING INCOME AFTER PROVISIONS 366 315 Total assets 1,914,851 1,237,057 OPERATING EXPENSES Staff 134 121 Liabilities Premises and equipment 23 24 Deposits from banks and other financial institutions 18 1,246,744 585,381 Other 54 54 Deposits from customers 19 116,855 132,750 Certificates of deposit issued 20 32,119 40,112 Total operating expenses 211 199 Other liabilities 21 27,683 13,058 Accruals and deferred income 22 12,864 12,182 PROFIT BEFORE TAXATION 155 116 Term borrowing 23 185,594 196,289 Taxation on foreign operations 7 1,621,859(20) 979,772(3)
NET PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 135 113 Subordinated liability 24 44,154 47,175 DISCONTINUED OPERATIONS (SUBSIDIARIES SOLD IN 2004) Called up share capital 26 182,296 150,000 PrProfitofit fromand loss discontinued account operations - net of tax 12 (b) 66,542- 60,110470 Equity shareholders’ funds 27 248,838 210,110 NET PROFIT FOR THE YEAR FROM DISCONTINUED OPERATIONS - 470 Capital resources 292,992 257,285 NET PROFIT FOR THE YEAR 135 583 Income attributable to minority interests (6) (4) Total liabilities and shareholders’ funds 1,914,851 1,237,057
INCOME ATTRIBUTABLE TO THE SHAREHOLDERS OF THE PARENT 129 579 1531 Memorandum items t e BASIC EARNINGS PER SHARE (expressed in US $) 26 e m e
Contingent liabilities o h c - Profit for the year 1.29 5.79 S n I
Acceptances and endorsements 13,798 3,387 e c - Profit from continuing operations 1.29 1.09 f n o
Guarantees and letters of credit 633,946 334,205 a t l n a e 647,744 337,592 B m e t a Commitments t S
Other commitments d e t a
30 176,575 121,421 d i l o s
176,575 121,421 n o C
The attached notes 1 to 27 form part of these consolidated financial statements.
Annual Report 2005 ABC Group 32 Consolidated Statement of Cashflows Liquid funds*a S Cash dividendpaid Items considered separately: Items not involving cashflow: Spain andIn The cashf * Decr R FINANCING A Ne S Pur Pur Ne INVES Net cashfrom (usedin)operating activities I OPERATING ACTIVITIES Y Consolidated Statement of Cashflows ABC Group The attached notes 1to 27form partof these consolidated financial statements. Liquid funds*a Ne R C Ef Is ncome attributable to theshareholders of theparent ale andr ale o hanges inoperating assets andliabilities: ear ended31December 2005 epayment of term notes, bondsandother term financing edemption of certificates of deposit-net (2004: e sue of term notes, bondsandother term financing Liquid fundsc fect of exchange rate changes onliquidfunds Depreciation Placements withbanks andother financialinstitutions an eslse nnntaigscrte 11 Gains less losses onnon-trading securities Other non-cash movementsOther non-cash Deposits from customers Other assets Write backof impairment provisions- net rfto aeo usdais 12(b) Deposits from banks andother financialinstitutions Profit of subsidiaries onsale Loans andadvances T Other liabilities t t t chase o chase o rading securities pr cash (usedin)from financingactivities cash usedininvesting activities ease inliquidfunds f cesfo aeo usdais 12(b) oceeds from of subsidiaries sale TING A premises andequipment Annual Report 2005 xcluding relating US$390million to subsidiaries soldin2004) edemption of non-trading securities lows of theprevious year donot includetheactivities of Group Banco Atlantico companies, S.A. f f premises andequipment non-trading securities ternational HongKong of Asia, Bank whichhave beensold. CTIVITIES CTIVITIES t t omprise cash,nostro balances andbalances withcentral banks. end of the year beginning of theyear - - 2003 2004 final/in terim Note (3 (2 1 2,611 2,749 (100) (958) (304) (779) ( ,805) ,297) 2005 ,513 261 925 1 309 303 544 409) (14) (10) (50) (19) 29 33 11 10 (6) (7) (4) 2 - - - All figures in US$ million US$ in figures All (3 (1,634) 2 1 1,834 (105) (120) ( (226) (646) (470) 2004 ,770) ,462 ,198 112) 164 357 5 303 319 194 616 (25) (24) (66) (13) (98) (97) (65) (10) 79 11 (9) 8 3 Consolidated Statement of Changes in Equity Year ended 31 December 2005
All figures in US$ million Attributable to shareholders of the parent
Cumulative Share Statutory General Retained changes in Minority Total 1 capital reserve reserve Others earnings 2 fair values Total interests equity
Balance at the end of the year 2003 1,000 205 140 16 211 13 1,585 512 2,097 Foreign exchange translation adjustments - - - - (13) - (13) - (13) Cumulative changes in fair values and other - - - (9) - 2 (7) - (7)
Net income recognised directly in equity - - - (9) (13) 2 (20) - (20)
Net profit for the year – 2004 - - - - 579 - 579 4 583
Total recognised income and expense for the year - - - (9) 566 2 559 4 563
Transfers during the year - 58 10 (10) (58) - - - - Cash dividend - 2003 - - - - (66) - (66) - (66) Interim cash dividend - 2004 - - - - (226) - (226) - (226) Interim stock dividend - 2004 - - - 3 (3) - - - - Sale of subsidiaries ------(476) (476) Balance at the end of the year 2004 1,000 263 150 - 424 15 1,852 40 1,892
Foreign exchange translation adjustments - - - - 6 - 6 1 7 Cumulative changes in fair values and other - - - - - (11) (11) - (11)
Net income recognised directly in equity - - - - 6 (11) (5) 1 (4)
Net profit for the year – 2005 - - - - 129 - 129 6 135
Total recognised income and expense for the year - - - - 135 (11) 124 7 131
Transfers during the year - 13 - - (13) - - - - Dividend - - - - (50) - (50) - (50) Balance at the end of the year 2005 1,000 276 150 - 496 4 1,926 47 1,973
33 1) Others include treasury stock [2005 & 2004: Nil], extra-ordinary financial reserve [2005: Nil & 2004: US$ 10 million], capital
reserve [2005 & 2004: Nil] and share premium [2005 & 2004: Nil]. y t i u q 2) Retained earnings include US$ 2 million (2004: negative balance of US$ 4 million) representing net unrealised gains/losses on E n i
translation of investments in foreign subsidiaries into US dollars and non-distributable reserves amounting to US$ 144 million s e g
(2004: US$ 118 million). n a h C f o t n e m e t a t S d e t a d i l o s n
The attached notes 1 to 27 form part of these consolidated financial statements. o C
Annual Report 2005 ABC Group 34 Notes to the Consolidated Financial Statements T Liquid fundsc Liquid funds f The Consolidation year ended31December 2005. During 2003, theGroup hadearly adopted therevised versions 39whichwould 32andIAS of have IAS become mandatory for the 39 Early adoption 32andIAS of IAS the riskbeinghedged. are hedged,items infair value hedges, andare otherwise carriedat are cost, adjusted to record changes infair values attributable to v T Accounting convention previous year: Monetary AgencyLaw. Thefollowing isasummaryof thesignificant accounting policies whichare consistent withthoseusedinthe with International FinancialReporting Standards (IFRS)andinconformity withtheBahrain Commercial Companies Law andtheBahrain The consolidated financialstatements of Arab Corporation Banking anditssubsidiaries [theGroup] are (B.S.C.) prepared inaccordance 2 u Arab Corporation Banking incorporatedThe Parent [theBank] (B.S.C.), Bank, intheKingdomof Bahrain by anAmiridecree, operates Incorporation andActivities 1. 3 Notes to theConsolidated FinancialStatements ABC Group me Sec maturity to Held Al - - The Non- change The carryingv Plac Plac and dividendsr fr T da ac pr or minorityin rading securities are recorded initially at cost andsubsequently remeasured at fair value with any gainsandlosses arising rading securities hese consolidated financialstatements are prepared underthehistorical cost convention, asmodifiedby themeasurement at fair alue of derivatives, trading andavailable forfinancialassets. sale Inaddition,asmore discussed fully below, assets andliabilities that nder anoffshore bankinglicence issued by theBahrain Monetary Agency. . 1 om changes infair values beingincludedintheconsolidated statement of income intheperiodwhichitarises. Interest earned Held t A epar l quisition charges associated withthesecurity. t Significant AccountingPolicies vailable for sale e asured at less amortisedcost, provision for impairment invalue. urities whichhave fixed ordeterminable payments andfixed maturity which are intended to beheldto maturity, are subsequently se c se are classified asfollows: December 2005 non-trading securities are recognised initially at being thefair cost, value of theconsideration given includingincremental The consolidated financialstatements have beenpresented inUnited States whichisthefunctionalcurrency Dollars of theGroup. Subsidiarie ements withbanks andother financialinstitutions are stated at cost net of any amounts written off andprovision for impairment. ements withbanks and other financialinstitutions trading securities on whichcontrol istransferred outof theGroup. ed forreporting thesame yearusingconsistent astheParent accounting Bank, policies. s o onsolidated financialstatements includethefinancialstatements of theParent anditssubsidiaries after Bank adjustment in fair value beinghedged.Resultant changes are recognised intheconsolidated statement of income. maturity Annual Report 2005 omprise cash,nostro balances andbalances withcentral banks. alues of suchassets whichare beingeffectively hedgedfor changes infair value are adjusted to theextent of the s terests andelimination of inter-company transactions andbalances. Thefinancial statements of thesubsidiaries are eceived are includedininterest income andother operating income respectively. ar e consolidated from thedate onwhichcontrol istransferred to theGroup andcease to beconsolidated from the Notes to the Consolidated Financial Statements 31 December 2005
Available for sale Securities intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity, changes in interest rates or equity prices are classified as “available for sale”. After initial recognition, these are normally remeasured at fair value, unless fair value cannot be reliably determined in which case they are measured at cost less impairment. Fair value changes which are not part of an effective hedging relationship, are reported as a separate component of equity until the investment is derecognised or the investment is determined to be impaired. On derecognition or impairment the cumulative gain or loss previously reported as "cumulative changes in fair value" within equity, is included in consolidated statement of income for the period. That portion of any fair value changes relating to an effective hedging relationship is recognised directly in the consolidated statement of income.
Loans and advances Loans and advances quoted in an active market are classified as “held to maturity” or “available for sale” depending on management's intent. Loans and advances that are not quoted in an active market are classified as “unquoted loans and advances”. Unquoted loans and advances and held to maturity loans and advances are stated at amortised cost, less provision for impairment. Loans and advances classified as available for sale are stated at fair value. Unless unrealised gains and losses on remeasurement to fair value are part of an effective hedging relationship, they are reported as a separate component of equity until the loan is sold, collected or otherwise disposed of, or the loan is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of income for the period. In relation to loans and advances which are part of an effective hedging relationship any gain or loss arising from a change in fair value is recognised directly in the consolidated statement of income. The carrying values of loans and advances which are being effectively hedged for changes in fair value are adjusted to the extent of the changes in fair value being hedged.
Investments in associates Investments in associates are accounted for by the equity method. Associates are enterprises in which the Bank exercises significant influence, normally where it holds 20% to 50% of the voting power.
Premises and equipment Premises and equipment are stated at cost, less accumulated depreciation and provision for impairment in value, if any. Freehold land is not depreciated. Depreciation on other premises and equipment is provided on a straight-line basis over their estimated useful lives.
Impairment and uncollectability of financial assets An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, an impairment loss is recognised in the statement of income. The recoverable amount is based on the net present value of anticipated future cash flows, discounted at the original interest rate. In addition to the provision for specific impaired loans and advances, a provision is made to cover impairment against specific group of assets where there is a measurable decrease in estimated future cash flows. 35 Impairment is determined as follows:
a) for assets carried at amortised cost, impairment is based on the present value of estimated future cash flows discounted at the s t n
original effective interest rate; e m
b) for assets carried at fair value, impairment is the difference between cost and fair value; and e t a c) for assets carried at cost, impairment is based on the present value of estimated future cash flows discounted at the current t S l
market rate of return for a similar financial asset. a i c n
In the case of impaired available for sale equity securities, any increase in fair value is recognised as an increase in cumulative a n i changes in fair value directly in equity until disposed of. F d e t a d i
Deposits l o s
All money market and customer deposits are carried at amortised cost. An adjustment is made to these, if part of an effective fair n o value hedging strategy, to adjust the value of the deposit for the fair value being hedged with the resultant changes being recognised C e h in the consolidated statement of income. t o t s e t o N
Annual Report 2005 ABC Group 36 Notes to the Consolidated Financial Statements F F s when o yield method unless Therecognition collectibility isindoubt. of interest income issuspendedwhenloansbecome impaired, suchas Interest income andloanfees whichare considered anintegral partof theeffective yieldof aloan,are recognised usingtheeffective Revenue recognition based onprevailing regulations applicableineach location. Costs relating to employee pensionandother endof service benefits are generally accrued inaccordance withactuarialvaluations E settle theobligation are both probable andableto bereliably measured. Provisions are recognised whentheGroup hasapresent obligation (legalorconstructive) asaresult of apast event andthecosts to Provisions purchase andresale price istreated asinterest income usingeffective yieldmethod. included inplacements withbanks andother financialinstitutions orloansandadvances, asappropriate. Thedifference between r y f liability for amounts received underthese agreements isincludedindepositsfrom banks andother financialinstitutions ordeposits Assets soldwithasimultaneouscommitment to repurchase at aspecifiedfuture date (‘repos’) are not derecognised. Thecounterparty Repurchase andresale agreements 2. Significant Accounting Policies 3 Notes to theConsolidated FinancialStatements ABC Group has theintention andabilityto holdthese to maturity. in advances and loans quoted and a investments Upon ac of Classification in In thepr Judgemen Significan inc similar in quo t v char similar sec on demand. ecognised inthebalance asthebankdoes not obtain control sheet, over theassets. Amounts paidunderthese agreements are rom customers, asappropriate. Thedifference between andrepurchase sale price istreated asinterest expense usingeffective o ta air v or sec mployee pensionandother endof service benefits alue of unquoted derivative instruments isdetermined either by discounted cashflows, internal pricingmodelsorby reference vailable for sale. ield method. Assets purchased withacorresponding commitment to resell at aspecifiedfuture date (‘reverse repos’) are not 1 volving estimations, whichhave themost significant effect intheamounts recognised inthefinancialstatements: brokers’ quotes. ome ore tement of income) are amortisedusingtheeffective interest method andtaken to interest income. December 2005 ted market prices. Bidprices are usedfor assets andoffer prices are usedfor liabilities. Inthecaseof unitsinmutualfunds, or Pr For thosedeemedto beheldto maturity theGroup ensures that therequirements 39are of IAS met andinparticular theGroup Quoted loansandadvances are classified as"heldto maturity" or"available fordependingonmanagement's intent. sale" Sec The Gr Wher F The f The e acteristics. terest rates orequityprices are classified asavailable for sale. or unquoted securities fair value isdetermined by reference to brokers' quotes, recent transaction(s), themarket value of alues emiums anddisc urities, derivatives andloansadvances traded inorganised financialmarkets, fair value isdetermined by reference to urities intended to beheldfor anindefinite periodof timeandwhichmay besoldinresponse to needsfor liquidity, changes v quisition of aninvestment, management decides whether itshouldbeclassified asheldto maturity, heldfor trading or erdue by more than90days. Otherfee income andexpense are recognised when earned orincurred. air value of forward exchange contracts iscalculated by reference to forward exchange rates with similar maturities. Thefair e vestment vehicles fair values are basedonthelast publishedbidprice. ocess of applyingtheGroup's accounting policies, management hasmadethefollowing judgements, apartfrom those stimated fair value of depositswith nostated maturity, whichincludes non-interest bearing deposits, istheamount payable Annual Report 2005 t ts oup classifies investments astrading ifthey are acquired primarilyfor thepurposeof makingshortterm profit. urities, orbasedonthe expected discounted cashflows at current rates applicablefor items withsimilarterms andrisk the B accounting judgements andestimates xpense isadjusted by thenet interest ontheswap. ank enters into aninterest rate swap to changeinterest from fixed to (orvice floating versa) theamount of interest ounts onnontrading securities andloansadvances (except loansandadvances carriedat fair value through (continued) Notes to the Consolidated Financial Statements 31 December 2005
Estimation uncertainty The key assumptions concerning the future and other key sources of estimation at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Impairment losses on financial assets On a quarterly basis the Group assesses whether a provision for impairment should be recorded in the income statement. In particular, considerable judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgement and uncertainty, and actual results may differ resulting in future changes in such provisions.
Impairment against specific group of financial assets In addition to specific provisions against individually significant loans and advances and investments, the Group also makes a provision to cover impairment against specific group of financial assets where there is a measurable decrease in estimated future cash flows. This provision is based on any deterioration in the internal grade of the financial assets since it was granted. The amount of provision is based on historical loss pattern for loans within each grading and is adjusted to reflect current economic changes. The internal grading process takes into consideration factors such as deterioration in country risk, industry, technological obsolescence as well as identified structural weakness or deterioration in cash flows.
Taxation on foreign operations There is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign operations is provided for in accordance with the fiscal regulations applicable in each location. No provision is made for any liability that may arise in the event of distribution of the reserves of subsidiaries. A substantial portion of such reserves is required to be retained to meet local regulatory requirements.
Foreign currencies Monetary assets and liabilities in foreign currencies are translated into US dollars at the market rates of exchange prevailing at the balance sheet date. Any gains or losses are taken to the consolidated statement of income. The assets and liabilities of foreign operations are translated at rates of exchange ruling at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Foreign exchange translation gains and losses arising from translating the financial statements of subsidiaries into US dollars are recorded directly in retained earnings.
Trade and settlement date accounting All “regular way” purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Bank commits to purchase or sell the asset.
Derivatives The Group enters into derivative instruments including forwards, futures, forward rate agreements, swaps and options in the foreign exchange, interest rate and capital markets. These are stated at fair value. Derivatives with positive market values (unrealised gains) are included in other assets and derivatives with negative market values (unrealised losses) are included in other liabilities in the consolidated balance sheet. 37 Changes in the fair values of derivatives held for trading activities or to offset other trading positions are included in other s operating income in the consolidated statement of income. t n For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges which hedge the exposure e m e to changes in the fair value of a recognised asset or liability; and (b) cash flow hedges which hedge the exposure to variability in cash t a t S
flows that is attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. l a i
Changes in the fair value of derivatives that are designated, and qualify, as fair value hedges and that prove to be highly c n a
effective in relation to the hedged risk, are included in other operating income along with the corresponding changes in the fair value n i of the hedged assets or liabilities which are attributable to the risk being hedged. F d e Changes in the fair value of derivatives that are designated, and qualify, as cash flow hedges and that prove to be highly effective t a d i in relation to the hedged risk are recognised in a separate component of equity, and the ineffective portion recognised in the l o s consolidated statement of income. The gains or losses on cash flow hedges recognised initially in equity are transferred to the n o consolidated statement of income in the period in which the hedged transaction impacts the income. Where the hedged transaction C e h results in the recognition of an asset or a liability the associated gain or loss that had been initially recognised in equity is included t o in the initial measurement of the cost of the related asset or liability. t s e t o N
Annual Report 2005 ABC Group 38 Notes to the Consolidated Financial Statements income statement. the income These statement. embedded derivatives are measured at fair value withthechanges infair value recognised inthe characteristics andrisks are not closelyrelated to thoseof thehost contract andthehost contract isnot carriedat fair value through as derivatives heldfor trading andthe related fair value gainsandlosses reported inother operating income. r C - - no longerqualifies for hedgeaccounting orisrevoked. Uponsuchdiscontinuance: Hedge accounting isdiscontinued whenthederivative hedginginstrument eitherexpires orissold,terminated orexercised, managers. E Deb E 3. en Financial as Of c Assets heldintrust orinafiduciarycapacityare not treated asassets of theGroup and,accordingly, are not includedinthe Fiduciary assets 2. Significant Accounting Policies 3 Notes to theConsolidated FinancialStatements ABC Group of future andlack of cashflows suitable alternative methods to arrive at areliable fair value. rated debt securities. are of investment grade andare managedby international investment banks withunderlying investments inpredominantly AAA Available forinvestments sale includeinvestments of astructured (2004:US$208 million) of US$ 340million finance nature which Held t A 4. Non- E isk management positions, donot qualifyfor hedgeaccounting 39andare underthespecificrules inIAS therefore accounted for onsolida xternally managedfundsrepresent investments inhedgefunds(fundof funds)managedby internationally renowned asset xternally managedfunds quities ertain derivative transactions, whileproviding effective economic hedges undertheGroup's asset andliabilitymanagement and vailable for sale 1 fse E AAA r Other deb Other in AA t f T orceable right to offset therecognised intends amounts andtheBank to settle onanet basis. quity securities December 2005 Certain derivatives embeddedinother financialinstruments are treated asseparate derivatives whentheireconomic h in thecaseof fair value hedges of interest bearing financialinstruments any to adjustment thecarryingamount relating to the e a in theconsolidated statement of income orincludedintheinitialmeasurement of thecost of therelated asset orliability, as equity until theforecasted transaction occurs. Whensuchtransaction occurs thegainorloss retained inequityisrecognised in Unquoted are equitysecurities (2004:US$20million) of carriedat US$24million Thisisdueto cost. theunpredictable nature t rading Securities ppropriate. Where thehedgedtransaction isnolongerexpected to occur, thenet cumulative gainorloss recognised in quity istransferred to theconsolidated statement of income. edged riskisamortisedintheconsolidated statement of income over theremaining term to maturity. tting securities o the caseof hedges, cashflow any cumulative gainorloss onthehedginginstrument recognised inequityisretained in o Trading Securities ated debt securities maturity A ted balance sheet. Annual Report 2005 vestment grade debt securities rated debt securities se t ts andfinancialliabilities are onlyoffset andthenet amount reported inthebalance sheet whenthere isalegally securities - Deb t securities (continued) 6 5 1 3 ,003 ,996 ,166 ,961 2005 2005 422 396 593 584 51 7 1 8 All figures in US$ million US$ in figures All 3 3 2 2004 2004 ,617 ,610 ,512 175 344 531 184 160 48 22 7 2 Notes to the Consolidated Financial Statements 31 December 2005
All figures in US$ million 5. Loans and Advances 2005 2004 i) By industrial sector Financial services 2,965 2,345 Other services 1,546 1,500 Manufacturing 1,678 1,503 Construction 133 196 Trade 324 381 Consumer 104 32 Government 276 357 Other 212 166 7,238 6,480 Loan loss provisions (405) (468) 6,833 6,012 ii) By classification 2005 2004 Quoted loans and advances: Available for sale 62 160 Held to maturity 3 1 Unquoted loans and advances 7,173 6,319 7,238 6,480 Loan loss provisions (405) (468) 6,833 6,012
The movements in loan loss provisions during the year were as follows: 2005 2004
At 1 January 468 608 Charge for the year 32 42 Write backs/recoveries (46) (52) Write-offs (52) (99) Foreign exchange translation and other adjustments * 3 (31) At 31 December 405 468
* Foreign exchange translation and other adjustments include US$ Nil (2004: U$ 25 million) transferred to provisions on non- trading securities following the restructuring of a loan converted partially into equity. 39 At 31 December 2005 uncollected interest in suspense on past due loans amounted to US$ 182 million (2004: US$ 175 million). s The gross carrying value of loans placed on a non-accrual basis amounted to US$ 262 million at the year end (2004: US$ 331 t n million). e m e t a t S
6. Other Assets l a i
2005 2004 c n a n i Positive fair value of derivatives (note 13) 72 73 F d e Assets acquired on debt settlement 11 11 t a d i Staff loans 16 11 l o s
Bank owned life insurance 25 25 n o Securities sold awaiting value 35 10 C e h Deferred tax assets 10 16 t o Others 113 92 t s e t 282 238 o N
The negative fair value of derivatives amounting to US$ 77 million (2004: US$ 89 million) is included in other liabilities (Note 8). Details of derivatives are given in Note 13.
Annual Report 2005 ABC Group 40 Notes to the Consolidated Financial Statements reconciliation between theaccounting andtaxable profits together withthedetails of effective tax rates. In view of theoperations of theGroup to beingsubject various tax jurisdictionsandregulations, itisnot practical to provide a De Cheque Sec Non c Employee related payables Margin depositsincludingcashcollateral Al o The positiv Ac Negative fair value of derivatives (note 13) 8. OtherLiabilities Deferred tax onforeign operations Current tax onforeign operations Consolidated statement of income: D C C 7. Taxation onForeign Operations 3 Notes to theConsolidated FinancialStatements ABC Group T 2010 2009 2008 2007 2006 Aggr T a In theor 9. T otal obligations outstanding at 31December 2004 otal obligations outstanding at 31December 2005 onsolidated balance sheet: urrent tax liability t f 1 eferred tax liability l crued char commercial rates. f derivatives are given inNote 13. obligations bear rates floating of interest. uritie erred income December 2005 erm Notes, BondsandOtherTerm Financing egate maturities: orpor s s dinary course of business, theParent andcertain Bank subsidiaries raise term financingthrough various capitalmarkets f Annual Report 2005 or collection purchased awaiting value e ate tax payable fair value of derivatives isincludedinother amounting toassets (2004:US$73million) US$72million (Note 6).Details ges andother payables P rn ak usdais Total Subsidiaries arent Bank 1 1 ,349 226 1,575 ,460 368 1,828 399 500 300 100 50 2005 2005 105 396 100 400 126 226 25 17 48 12 46 66 77 20 11 4 3 1 4 3 1 9 399 500 - - 50 - All figures in US$ million US$ in figures All 2004 2004 146 426 13 19 10 10 41 98 89 10 2 1 (7) 8 3 3 5 Notes to the Consolidated Financial Statements 31 December 2005
All figures in US$ million 10. Equity a) Share capital 2005 2004 Authorised – 150 million shares of US$ 10 each 1,500 1,500
Issued, subscribed and fully paid – 100 million shares of US$ 10 each 1,000 1,000 b) Statutory reserve As required by the Articles of Association of the Bank and the Bahrain Commercial Companies Law, 10% of the net profit for the year is transferred to the statutory reserve. Such annual transfers will cease when the reserve totals 50% of the paid up share capital. The reserve is not available for distribution but can be utilised as security for purpose of a distribution in such circumstances as stipulated in the Bahrain Commercial Companies Law and following the approval of the Bahrain Monetary Agency. c) General reserve The general reserve underlines the shareholders’ commitment to enhance the strong equity base of the Bank.
11. Other Operating Income 2005 2004 Fee and commission income 94 72 Fee and commission expense (16) (7) Gains less losses on non-trading securities 6 9 Gains less losses on dealing in foreign currencies 11 1 Gains less losses on dealing in derivatives 9 11 Gains less losses on trading securities 27 7 Gains less losses on loans carried at fair value through statement of income - 20 Other – net 28 40 159 153
12. Investments in Subsdiaries and Associates a) The principal subsidiaries, all of which have 31 December as their year end, are as follows: Interest of Country of Arab Banking incorporation Corporation (B.S.C.) (%) 41 ABC International Bank plc United Kingdom 100 s
ABC Islamic Bank (E.C.) Bahrain 100 t n
Arab Banking Corporation (ABC) – Jordan Jordan 87 e m e
Banco ABC Brasil S.A. Brazil 84 t a t
ABC Algeria Algeria 70 S l a Arab Banking Corporation - Egypt [S.A.E.] Egypt 98 i c n
ABC Tunisie Tunisia 100 a n i F d e
The principal associate is Arab Financial Services B.S.C. (c), incorporated in Bahrain, with a 43% ownership (2004: 42%) t a d i l o s n o C e h t o t s e t o N
Annual Report 2005 ABC Group 42 Notes to the Consolidated Financial Statements b) Risk w a) Deriv Atlantico S.A. groupAtlantico of companies S.A. asthese were soldeffective 31December 2003. statements for theyear ended31December 2003. m a Derivatives held for trading: for held Derivatives market orcredit risk. measured. Thenotional amounts indicate thevolume of transactions outstanding at year endandare not indicative of either a In theordinary course of business theGroup enters into various types of transactions that involve derivative financialinstruments. 13. Derivatives agreementsHong Kong, for whichwere entered into in2003, were completed duringtheprevious year. ofThe sales theBank’s retail subsidiaries, group Banco Atlantico of companies, S.A. SpainandInternational Limited, of Asia Bank b) Discontinued operations of -Sale subsidiaries 12. Investments inSubsdiaries andAssociates 3 Notes to theConsolidated FinancialStatements ABC Group hedges: as held Derivatives mounted to respectively; US$1,200 andUS$301million, million tax expense arisingfrom amounted thesales to US$303 1 F F Op F In F In F illion andnil,respectively.illion derivative’s reference underlyingasset, rate orindex andisthebasisuponwhichchanges inthevalue of derivatives are orw orw orward foreign exchange contracts utur utures terest rate andcurrency swaps t December 2005 ahfo egswt oinlaon fU$5mlin(04 S ilo) opiigitrs aesaso S million 5 US$ of swaps rate interest comprising million), 7 US$ (2004: million 5 US$ of amount (2004: notional a with hedges flow Cash arvlehde hc r rdmnnl sdt eg arvlecagsaiigfo neetrt lcutosi on and loans in fluctuations rate interest from arising changes value fair hedge to used adv predominantly are which hedges value Fair The comparative figures relating to theprevious year donot includetheresults of International Limited of Asia andBanco Bank The profit of thesubsidiaries ondisposal was calculated basedonthecarryingvalues aspresented intheaudited financial The tablebelow shows thepositive andnegative fair values of derivative financialinstruments. Thenotional amount isthat of P erest rate andcurrency swaps tions roceeds, net of expenses, from of group thesales Banco Atlantico of companies S.A. andInternational Limited of Asia Bank atives heldashedges include: ard foreign exchange contracts ard rate agreements eighted equivalents (credit andmarket risk) es es ne,paeet,dpst n vial o aedb euiis and securities; debt sale for available and deposits placements, ances, Annual Report 2005 S ilo) h arvleo hc simmaterial. is which of value fair the million), 7 US$ (continued) arvle arvle amount fair value fair value oiieNgtv Notional Positive Negative 18 33 72 71 14 1 1 6 - - - 2005 61,553 16 1,235 16 12 34 77,910 77 6,357 61 7 8 318 -- - - 1,585 2,137 2,403 299 232 - arvle arvle amount fair value fair value Positive Negative Notional 49 73 71 11 9 2 1 1 2 - - All figures in US$ million US$ in figures All 2004 44 98,310 89 6,860 69 15 10 01,450 20 612 20 -89 - 749 - - 1,989 2,626 1,727 508 208 10 Notes to the Consolidated Financial Statements 31 December 2005
All figures in US$ million Derivative product types Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or financial instrument at a specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Foreign currency and interest rate futures are transacted in standardised amounts on regulated exchanges and are subject to daily cash margin requirements. Forward rate agreements are effectively tailor-made interest rate futures which fix a forward rate of interest on a notional loan, for an agreed period of time starting on a specified future date. Swaps are contractual agreements between two parties to exchange interest or foreign currency amounts based on a specific notional amount. For interest rate swaps, counterparties generally exchange fixed and floating rate interest payments based on a notional value in a single currency. For cross-currency swaps, notional amounts are exchanged in different currencies. For cross- currency interest rate swaps, notional amounts and fixed and floating interest payments are exchanged in different currencies. Options are contractual agreements that convey the right, but not the obligation, to either buy or sell a specific amount of a commodity or financial instrument at a fixed price, either at a fixed future date or at any time within a specified period.
Derivative related credit risk Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default on its contractual obligations and is limited to the positive fair value of instruments that are favourable to the Group. The majority of the Group’s derivative contracts are entered into with other financial institutions and there is no significant concentration of credit risk in respect of contracts with positive fair value with any individual counterparty at the balance sheet date.
Derivatives held or issued for trading purposes Most of the Group’s derivative trading activities relate to sales, positioning and arbitrage. Sales activities involve offering products to customers. Positioning involves managing market risk positions with the expectation of profiting from favourable movements in prices, rates or indices. Arbitrage involves identifying and profiting from price differentials between markets or products. Also included under this heading are any derivatives which do not meet IAS 39 hedging requirements.
Derivatives held or issued for hedging purposes The Group has adopted a comprehensive system for the measurement and management of risk. Part of the risk management process involves managing the Group’s exposure to fluctuations in foreign exchange rates (currency risk) and interest rates through asset and liability management activities. It is the Group’s policy to reduce its exposure to currency and interest rate risks to acceptable levels as determined by the Board of Directors. The Board has established levels of currency risk by setting limits on currency position exposures. Positions are monitored on an ongoing basis and hedging strategies used to ensure positions are maintained within established limits. The Board has established levels of interest rate risk by setting limits on the interest rate gaps for stipulated periods. Interest rate gaps are reviewed on an ongoing basis and hedging strategies used to reduce the interest rate gaps to within the limits established by the Board. As part of its asset and liability management the Group uses derivatives for hedging purposes in order to reduce its exposure to currency and interest rate risks. This is achieved by hedging specific financial instrument, forecasted transactions as well as strategic hedging against overall balance sheet exposures. For interest rate risk this is carried out by monitoring the duration of assets and liabilities using simulations to estimate the level of interest rate risk and entering into interest rate swaps and futures to hedge a proportion of the interest rate exposure, where appropriate. Since strategic hedging does not qualify for special hedge 43 accounting related derivatives are accounted for as trading instruments. s The Group uses forward foreign exchange contracts and currency swaps to hedge against specifically identified currency risks. t n In addition, the Group uses interest rate swaps and interest rate futures to hedge against the interest rate risk arising from e m e specifically identified loans and securities bearing fixed interest rates. The Group also uses interest rate swaps to hedge against t a t S
the cash flow risks arising on certain floating rate loans. In all such cases the hedging relationship and objective, including details l a i of the hedged item and hedging instrument, are formally documented and the transactions are accounted for as hedges. c n a n i F d e t a d i l o s n o C e h t o t s e t o N
Annual Report 2005 ABC Group 44 Notes to the Consolidated Financial Statements F T Others L Non- Plac T Liquid funds Assets as follows: non-trading securities amounting to US$3,770 (2004:US$2,268 whichisbasedonexpected million million) repayment dates is except for Mortgage Securities, Backed Business Small Administration poolsandCollateralised Debt Obligations classified as The maturity analysisof assets, liabilities andoff balance sheet items basedonremaining periodto thecontractual maturity date, 15. Maturities of Assets, Liabilities andOff Balance Sheet Items Risk weighted equivalents Undrawn loansandother commitments D Short-term self-liquidating trade andtransaction-related contingent items guarantees, whichare structured to meet thevarious requirements of customers. Credit commitments andcontingent items includecommitments to extend standbyletters credit, acceptances of credit, and 14. Credit Commitments andContingent Items 3 Notes to theConsolidated FinancialStatements f aac he tm ,1 ,3 ,5 ,6 ,0 5 3 7-12,790 - 27 135 957 ABC Group 2,204 1,663 1,955 2,334 3,515 items sheet Balance Off T A T In F Cr Of T E Others T C Deposits fr Deposits fr Liabilitie Total liabilities, minorityinterests At 31December 2005 n qiy ,9 245 ,3 65 ,5 2 --243 14,922 2,413 - - 20 1,359 655 1,531 2,445 6,499 equity and tlast 420 ,3 143 ,2 354 ,6 33 71 14,922 711 4 353 1,569 3,524 1,425 1,423 1,633 4,280 assets otal erm notes, bondsandother term r otal assets otal otal liabilities, minorityinterests oans andadv orward asset purchase commitments oreign exchange contracts quity andminorityinterests ertificates of deposit 1 and equity t irect credit substitutes, guarantees andacceptances financial ins ins financing ading securities terest rate contracts edit commitments andcontingent items f 31 December 2004 December 2005 At thebalance sheet date, theprincipaloutstanding andtheriskweighted equivalents were asfollows: Balance Sheet Items emen titutions tr ading securities s, MinorityInterests andEquity Annual Report 2005 ts withbanks and other om banks andother financial om customers titutions ances ihn1 o3 o6 o1 1t 5t 0 0t 0 Over 20 20 to 10 10 to 5 5 to 1 12 to 6 6 to 3 3 to 1 Within 1 ot otsmnh ots er yas er yasUdtd Total years Undated years years years months month months months 2 9 5 4 1 2 3 3 46925138 2 4 4,313 - - 17,588 2,522 14 - - 8,108 22 531 ,446 962 - 338 - 36 356 1,662 767 ,224 3,021 - - 13 125 129 312 ,897 1,632 17,5881,222 6 878 1,547 4,395 1,218 2,633 ,224 1,465 ,343 ,565 30210155144223109 1 3 -12,105 - 30 314 1,555,390 2,110 1,484 2,203 1,019 32123 2 7 18 3 5,310 - - - 23 188 77 427 ,302 1,293 137 807 309 18 7 5 2 - - - 4 3 1 ,0 1 25 3,597 - 4,195 - 543 338 310 1,108 - 245 916 605 686 30 836 55 1,073 103 1 43 -----3,264 - - - 6,833 - - 815 788 5 861 2,022 334 665 - 611 54 34 9-10139----1,575 - - - - -150 1,349 69 38 72 ------73 ------27 28 1 1,973 1,973 549 ------6602 321 97 8 -51 6,003 - 36 650 2,372 884 1,967 -1 585 593 - 1 21 - 586 ------309 ------1,390 4 1,021 2,657 ,195 2005 4 98 1 9 All figures in US$ million US$ in figures All 1,372 4 1,387 2,663 2004 ,480 4 30 - Notes to the Consolidated Financial Statements 31 December 2005
All figures in US$ million 16. Interest Rate Risk Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments. The bank is exposed to interest rate risk as a result of mismatches of interest rate repricing of assets and liabilities. The Board has established levels of interest rate risk by setting interest rate sensitivity limits Positions are monitored on an ongoing basis and hedging strategies used to ensure positions are maintained within established limits. The bank’s interest sensitivity position based on contractual repricing arrangements or maturity at 31 December 2005 has been shown in the table below: 6 Non- months interest Effective Up to 1 1 to 3 3 to 6 to 1 1 to 5 Over 5 bearing interest month months months year years years items Total rates
Liquid funds 309 ------309 1.1 Trading securities 2 1 - 2 1 2 585 593 5.0 Placements with banks and other financial institutions 2,569 612 48 35 - - - 3,264 4.6 Non-trading securities 3,766 1,496 141 26 333 190 51 6,003 4.5 Loans and advances 2,145 1,737 1,736 589 545 81 - 6,833 5.7 Others ------586 586 - Total assets 8,791 3,846 1,925 652 879 273 1,222 17,588
Deposits from customers 3,583 1,151 292 46 67 24 147 5,310 3.7 Deposits from banks and other financial institutions 6,004 1,641 345 93 5 - 20 8,108 3.9 Certificates of deposit 19 27 27 - - - - 73 4.4 Others ------549 549 TERM NOTES, BONDS AND OTHER TERM FINANCING 107 1,068 400 - - - - 1,575 4.6 Equity and minority interests ------1,973 1,973
Total liabilities, minority interests and equity 9,713 3,887 1,064 139 72 24 2,689 17,588
On balance sheet gap (922) (41) 861 513 807 249 (1,467) - Off balance sheet gap 698 56 (181) 7 (281) (299) - -
Total interest rate sensitivity gap (224) 15 680 520 526 (50) (1,467) - 45 Cumulative interest rate sensitivity gap (224) (209) 471 991 1,517 1,467 - - s t n e
At 31 December 2004 m e t a
Cumulative interest rate sensitivity gap 450 539 720 771 1,548 1,666 - - t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N
Annual Report 2005 ABC Group 46 Notes to the Consolidated Financial Statements arr P Egyptian pound go J North America compliant products andservices. W 19. Geographical Distribution of Assets, Liabilities andOff Balance Sheet Items of composition of loansandadvances portfolio refer note 5. of credit riskalsoinvolves themonitoring of riskconcentrations by industrial sector aswell asby geographic location. For details accordance withthecredit policies whichclearly define delegated lendingauthorities, policies andprocedures. Themanagement traderisk arises from finance, lending, treasury and other activities undertaken by theGroup. Credit riskisactively monitored in Credit riskisthethat acustomer orcounterparty fail will to meet resulting acommitment, infinancialloss to Group. the Such 18. Credit Risk Brazilian real Long (Short) Significant net foreign currency exposures, arisingmainlyfrom investments insubsidiaries, are asfollows: 17. Significant Net Foreign Currency Exposures 3 Notes to theConsolidated FinancialStatements ABC Group services banking Islamic corporate and banking Commercial Finance Trade Finance Structured and Project Treasury which financialin busine Segmen 20. Segmen Other La A Ar Saudi riyalSaudi and cooperation andcoordinationamong theGroup’s product andgeographic units. Algerian dinar c ordanian dinar ustomer relationships, andinvestments incapitalefficient anddiversified investment portfolios. ound sterling 1 sia e ab World tin America vernment andfinancial institutions. anging, andsyndicating complexanging, transactions, andproviding advisoryservices to clients throughout theArab world. stern Europe December 2005 F or financialreporting purposes, theGroup isdividedinto thefollowing mainbusiness segments: ss segments isbasedontheproducts andservices provided orthetypeof customer serviced andreflects themannerin tal information ispresented inrespect of theGroup's business andgeographical segments. Theprimaryreporting format, f Annual Report 2005 ocuses primarilyondiversification of fundingsources andrevenue streams by marketing to develop andbuildlong-term tal Information o ffers structured trade finance and forfaiting solutionsto meet types theneedsof of all customers, including formation isevaluated by management andtheBoard of Directors. provides through itsdedicated operations, institutional, corporate, highnet worth andretail Sharia'a- o ffers clients andproject sponsorsconsiderable experience andproven abilityinstructuring, offers avariety of products and services for itsclients through arelationship-based approach 17 1 5 5 3 A 0183241 332 823 810 2,517 ,091 ,244 12,501 ,985 ,439 581,8 4,195 17,588 ,588 910 919 s eseut items sets equity Liabilitie 2,156 759 2005 5 55 552 291 746 and s c ommitmen c ontingent Currency equivalent 2,332 32 Cr 228 40 (68) (18) (12) (5) edit a 1 5 nd ts 3 4 2005 14 3 5 3 A 2628370 228 2,872 ,226 11,501 ,583 ,976 921,2 4,480 14,922 ,922 676 865 596 s eseut items equity sets US$ 22 76 All figures in US$ million US$ in figures All Liabilitie Currency equivalent 1,725 24 ,9 821 1,392 (231) (61) 2004 190 31 2 45 160 628 588 585 212 and 3 11 4 6 9 s 2004 c ommitmen c ontingent Cr edit US$ a 51 18 nd ts Notes to the Consolidated Financial Statements 31 December 2005
All figures in US$ million Retail is aimed at offering a wide range of consumer finance and wealth management products to the retail sector. Other comprises items which are not directly attributable to specific business segments and earnings on the Group's net free capital. Unallocated operating expenses are reported separately. The results reported for the business segments are based on the Group's internal financial reporting systems. The accounting policies of the segments are the same as those applied in the preparation of the Group's consolidated financial statements as set out in Note 2. Transactions between segments are conducted at estimated market rates on an arm's length basis. Secondary segment information is based upon the location of the units responsible for recording the transaction.
Primary segment information 2005 Project Commercial and banking Islamic Equity structured Trade and banking and Treasury finance finance corporate services Retail Other Total
Net interest and other income 106 30 91 50 17 13 45 352 Segment result 74 15 57 37 8 1 45 237 Unallocated operating expenses (82) Net Profit before taxation and minority interests from continuing operations 155
Segment assets employed 9,694 1,330 3,615 1,329 755 171 694 17,588 Segment liabilities, minority interests and equity 15,175 - - - - - 2,413 17,588
2004 Project Commercial and banking Islamic Equity structured Trade and banking and Treasury finance finance corporate services Retail Other Total
Net interest and other income 79 31 63 51 10 10 61 305 Segment result 55 17 27 25 4 2 61 191 Unallocated operating expenses (75) Net Profit before taxation and minority interests from continuing operations 116 Segment assets employed 8,107 1 ,483 2,783 1,156 595 98 700 14,922 47 Segment liabilities, minority interests and equity 12,581 - - - - - 2,341 14,922 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N
Annual Report 2005 ABC Group 48 Notes to the Consolidated Financial Statements C Deposits fr S In financial s The e L in partie The 22. T and relate to customer product andtreasury activities. Proceeds from assets soldunderrepurchase agreements at theyear-end amounted to US$1,260 (2004:US$179million). million 21. Repurchase andResale Agreements Segment assets Segment profit before 20. Segmental Information 3 Notes to theConsolidated FinancialStatements ABC Group P Short t asadavne --- - - oans andadvances ompensation ofompensation thekey management personnelisasfollows: egment profit before taxation ost employment benefits 1 v eetepne -- - 6 terest expense discontinued operations operations and minorityinterests from interests from continuing taxation andminority olve more thananormalamount of risk. se ar December 2005 The y Amounts paidfor assets purchased underresale agreements at theyear-end amounted to (2004:US$49million) US$ 163million r xpenses inrespect of related parties includedintheconsolidated s ansactions withRelatedansactions Parties erm employee benefits ar e e e Annual Report 2005 tatements are asfollows: with major shareholders,with major directors, associates seniormanagement, andother related parties. Transactions withrelated ar endbalances inrespect of related parties includedintheconsolidated financialstatements are asfollows: mcsoes 6 2 9 2 660 om customers made on the same commercialmade onthesame terms asthoseapplicableto comparable transactions withunrelated parties anddonot (continued) 12,845 4,743 17,588 ol mrcsTotal Americas World rbEurope and Arab 120 35 155 --- shar eholders 2005 M a jor Directors Associates 10,292 4,630 14,922 ol mrcsTotal Americas World rbEurope and Arab 7 773 - 773 106 10 116 All figures in US$ million US$ in figures All 2004 2005 2005 671 15 10 5 6 - 2004 2004 407 12 10 16 2 6 Notes to the Consolidated Financial Statements 31 December 2005
All figures in US$ million 23. Fiduciary Assets Funds under management at the year-end amounted to US$ 3,517 million (2004: US$ 3,208 million). These assets are held in a fiduciary capacity and are not included in the consolidated balance sheet.
24. Fair Value of Financial Instruments “Fair value” is the amount at which an asset could be exchanged or a liability settled in a transaction between knowledgeable, willing parties in an arm’s length transaction. Underlying the definition of fair value is the presumption that the Group is a going concern without any intention or requirement to curtail materially the scale of its operation. The carrying value of financial instruments is not significantly different from the fair values.
25. Assets Pledged as Security At the balance sheet date, in addition to the items mentioned in note 21, assets amounting to US$ 114 million (2004: US$ 125 million) have been pledged as security for borrowings and other banking operations.
26. Basic Earnings and Dividend per Share “Basic” earnings per share is calculated by dividing the net profit for the year by the weighted average number of shares during the year. No figures for diluted earnings per share have been presented, as the Bank has not issued any capital based instruments which would have any impact on earnings per share, when exercised. The Group’s earnings and dividend per share for the year are as follows: 2005 2004 Net profit for the year from continuing operations 129 109 Net profit for the year 129 579 Weighted average number of shares outstanding during the year (million) 100 100 Basic earnings per share (US$) - Profit for the year 1.29 5.79 - Profit from continuing operations 1.29 1.09
Dividend per share - Proposed cash dividend (US$) 0.70 0.50 - Interim cash dividend paid (US$) - 2.40 - Interim stock dividend distributed (per share) - 0.062
During the previous year, an interim cash dividend of US$ 2.4 per share and an interim stock dividend of 0.062 shares for each share held on 2 September 2004 was approved by the Board of Directors and the Bahrain Monetary Agency. This was paid/distributed on 13 October 2004. A final dividend of US$ 0.70 per share (2004: US$ 0.50 per share) has been proposed for approval at the Annual Ordinary General Meeting. 49 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N
Annual Report 2005 ABC Group 50 Notes to the Consolidated Financial Statements * Claims onpublicsector entities, central governments, central banks andlonger Cr Claims onbanks andpublicsector companies incorporated inOECD countries and T M Deriv Cr Of Claims secured by mortgage of residential property C Assets Risk Weighted Exposures Total capitalbase Tier 2capital T Capital base as follows: The riskasset ratio calculations, inaccordance withthecapitaladequacyguidelines established for theglobal bankingindustry, are 27. CapitalAdequacy 3 Notes to theConsolidated FinancialStatements ABC Group Risk as otal riskweighted assets ier 1capital ash andclaimson,guaranteed by orcollateralised by securities of central 1 including claimsonpriv term claimsonbanks incorporated countries innon-OECD other assets, andall short term claimsonbanks incorporated countries innon-OECD governments andcentral banks of OECD countries M edit riskw edit c ark f December 2005 arket riskcapital requirements are basedonthestandardised measurement methodology. balanc et riskweighted assets andoff balance sheet items * a tives (note 13) set ratio ommitments andcontingent items (note 14) Annual Report 2005 e eighted assets andoff balance sheet items sheet items a te sector entities 4 5 8,291 2,830 7 ,194 ,908 ,910 2005 82 aac Riskweighted equivalents Balance 4 4 7,014 2,873 8 2004 ,480 ,881 ,310 79 All figures in US$ million US$ in figures All 10 19.9% 1 5 1,658 2,089 1 1 9 ,390 ,908 ,842 ,467 ,009 ,476 2005 2005 247 41 12 - 23.9% 1 4 1,403 1,974 1 8 7 2004 2004 ,372 ,881 ,249 ,707 ,292 682 542 40 11 - Head Office Directory
Head Office Banking Group Treasury & Marketable Securities ABC Tower, Diplomatic Area, Arab World Division FX, Middle East Currencies & Sales Kareem Dashti PO Box 5698, Manama, Nour Nahawi, Tel: (973) 17 533 044 Kingdom of Bahrain Division Head [email protected] Tel: (973) 17 543 000 Tel: (973) 17 543 272 Fax: (973) 17 533 163 / 17 533 062 [email protected] Derivatives, MM, Islamic, New Products Tlx: 9432 ABCBAH BN & Treasury Support http://www.arabbanking.com Co-ordination Unit [email protected] Amr Gadallah Qutub Yousafali Tel: (973) 17 543 555 Tel: (973) 17 543 273 [email protected] Ghazi Abdul-Jawad [email protected] President & Chief Executive Fixed Income Proprietary Investment Islamic Financial Services & Trading Abdulmagid Breish Duncan Smith Arif Mumtaz Deputy Chief Executive & Tel: (973) 17 543 347 Tel: (973) 17 533 169 Chief Banking Officer [email protected] [email protected]
Legal & Compliance Retail Banking Portfolio Management Dr Khaled Kawan, Sethu Venkateswaran Mahmoud Zewam Legal Counsel Tel: (973) 17 543 710 Tel: (973) 17 533 169 Tel: (973) 17 543 367 [email protected] [email protected] [email protected] Recovery Business Unit Alternative Investments & Equity Audit Group Nabil Hamdan Pradeep Mehra Jehangir Jawanmardi Tel: (973) 17 543 522 Tel: (973) 17 543 441 Tel: (973) 17 543 387 [email protected] [email protected] [email protected]
Planning & Financial Control Global Products Investment Banking Group Asaf Mohyuddin Project & Structured Finance Colin Geddes, Tel: (973) 17 543 274 Graham Scopes Group Head [email protected] Tel: (973) 17 543 622 Tel: (973) 17 543 319 [email protected] [email protected] Support Group Syndications Corporate Finance Sael Al Waary, John McWall David Clarke Group Head Tel: (973) 17 543 967 Tel: (973) 17 543 539 Tel: (973) 17 543 707 [email protected] [email protected] [email protected] Corporate & Institutional Banking Equities Corporate Communications & Rashed Al Khalifa Stephen Inglis Premises & Engineering Tel: (973) 17 543 314 Tel: (973) 17 543 305 Nawaf Beyhum [email protected] [email protected] Tel: (973) 17 543 307 [email protected] Trade Finance & Forfaiting Placement and Fund Raising Group Paul Jennings, Michael Miller 51 Human Resources & Administration Global Head Tel: (973) 17 543 589 Dr Lulwa Mutlaq Tel: (44) (20) 7776 4040 [email protected] y Tel: (973) 17 543 308 [email protected] r o t
Credit & Risk Group e r Amr El Ashmawi i Operations Riyad M. Al Dughaither, D
Tel: (973) 17 543 516 e c Chief Credit & Risk Officer i Andrew Wilson f
Tel: (973) 17 543 714 Tel: (973) 17 543 280 O
[email protected] d [email protected] a e
Treasury Group H Risk Management Department Global Information Technology Essam El Wakil, Abhijit Choudhury Abbas Malalla Group Treasurer Tel: (973) 17 543 724 Tel: (973) 17 543 288 Tel: (973) 17 543 375 / 17 532 933 [email protected] [email protected] [email protected] Head Office Credit Department Ali Mirza, Kishore Rao Naimpally Assistant Treasurer Tel: (973) 17 543 570 Tel: (973) 17 543 241 [email protected] [email protected] Remedial Loans Unit Stephen Jenkins Tel: (973) 17 543 713 [email protected]
Economics Department Margaret Purcell Tel: (973) 17 543 776 [email protected]
Annual Report 2005 ABC Group 52 International Directory [email protected] T Manager General R Dir Tlx F T Ne 32nd F Ne Mobile: Manager General Mowafaq H.Mahmood, Fax: Tel: IraqBaghdad, ofNational Iraq Bank Building AlFirdaws Square St., Al Saadon Manager General & Baghdad Manager Country Resident O.Saddek El-Kaber, Swift: Direct Dealing Reuters Code: Tlx: F T Tunisia Les 1053Tunis, Berges duLac, RueduLacd'Annecy,ABC Building, Tunis (OBU) Branches Directory International ABC Group c/o AB Gr da T T Da thomas T T Thomas Fitzherbert r T C Rami ElRif chris T T L r [email protected] el: el: el: el: el: el: el: [email protected] [email protected] a ax: reasurer rade andCorporate Finance rade Finance . orporate Finance obert Ivosevich, x: ect De : and Cayman [email protected] Christian Rigby, vid Siegel, w w (1) (212)5834783 (1) (212)5834726 (1) (212)5834874 (1) (212)5834873 (1) (212)5834863 421911/661979 AB 661978/427531 AB (1) (212)5830921 (1) (212)5834720 (964) (1)7173364 7173776/717 3779 (964) (1)7173774/ 12505 ABCTU TN (216) (71)860921/835 (216) (71)861110(Treasury) (216) (71)861 [email protected] ABCOTNTT Y Y (964) 7901618048 ork NY10172-3299, USA ork aling Reuters Code: loor C [email protected] New York Branch , Annual Report 2005 ai, 277 Park Avenue, , ABCT AB CFX (De CNY(Gener CN aling Room) al); [email protected] [email protected] [email protected] [email protected] Chief Representative [email protected] Representative Chief Kah EngLeaw, F T Singapore 048619 9 Singapore Representative Chief Abouen, Mansour F T 16th Floor, POBox 3578, Tripoli, Libya That EmadAdministrative Centre Tower 5, Tripoli Representative Chief Aziz Farrashi, F T Hamassi Alley),Tavanir Tehran, Street, Iran Nezami Street Ganjavi (corner of Ground floor, Number12A, Tehran Representative Chief Mohamed ElCalamawy, F T PO Box 6689, AbuDhabi,UAE AbuDhabiMall, 2nd Street, 10th Floor, East Tower of theTrade Centre Abu Dhabi R el: el: el: el: ax: ax: ax: ax: epresentative Offices Raffles Place, #60-03 Republic Plaza Place,Raffles #60-03 (65) 65326288 (65) 65359339 (218) (21)3350229 335 0227/0228 (218) (21)3350226/ (98) (21)88662388 (98) (21)88662455 (971) (2)6444429 (971) (2)6447666 Reidha SlimaneTaleb, S [email protected] F T Bir Mourad Rais, Algiers, Algeria 54 Avenue des Trois Freres Bouaddou, PO Box 367, Arab Corporation Banking -Algeria [email protected] Manager General Zewam,Mahmoud T F T Kingdom of Bahrain PO Box 5698, Manama, ABC Tower, Diplomatic Area ABC Securities W.L.L. [email protected] Director Managing Naveed Khan, T F T Kingdom of Bahrain PO Box 2808, Manama, ABC Tower, Diplomatic Area, (E.C.) ABC IslamicBank S Deputy Chief Executive Executive Chief Deputy Ammar AlSafadi, [email protected] Tlx: Fax: Tel: PO Box 926691, Amman11190, Jordan Arab Corporation Banking (Jordan) [email protected] Chairman Tarek Helmy, Fax: Tel: Cairo, Ayoub1, ElSaleh Zamalek, Egypt St. ABC Securities (Egypt) S.A.E. Officer Executive Chief Tarek Helmy, [email protected] Fax: T Cairo, Ayoub1, ElSaleh Zamalek, Egypt St., Egypt) (ABC Bank, Arab Corporation Banking -Egypt (S.A.E.) Manager. General Deputy Ghassan Haikal, Manager General & el: el: el: el: ax: ax: ax: lx: lx: wift: wift: ubsidiaries Acting Chief Executive Executive Chief Acting (213) (21)541604/122 (213) (21)541515/534 9432 ABCBAHBN (973) 17533012 (973) 17535760 9432 (973) 17536379/533163 (973) 17543000 22258/21114 ABC JO Branch)(962) (6)5623685(Main (962) (6)5686291(General) (962) (6)5692713(Dealing Room) (962) (6)5664183-5(General) (202) 7363643/14 (202) 7363629 (202) 7362684(10lines)/ (202) 7363643/14 (202) 7363629 (202) 7362684(10lines)/ (962) (6) 562 3684 (Main Branch)(962) (6)5623684(Main ABCODZAL (962) (6)5608302(Foreign Dept.) / 9433 ABCBAHBN International Directory
ABC International Bank plc - Affiliate ABC Tunisie Marketing Offices ABC Building, Rue du Lac d’Annecy, Arab Financial Services Company B.S.C. (c) Les Berges du Lac, 1053 Tunis, Tunisia UK & Ireland PO Box 2152, Manama, Tel: (216) (71) 861 861 Station House, Station Court, Rawtenstall Kingdom of Bahrain (216) (71) 861 110 (Treasury) Rossendale BB4 6AJ, UK Tel: (973) (17) 290 333 Tel: Fax: (216) (71) 960 427 / 960 406 (44) (1706) 237900 Fax: (973) (17) 291 323 / 290 050 Fax: Tlx: 12505 ABCTU TN (44) (1706) 237909 Tlx: 7212 AFS BN [email protected] John Clegg, Rasool Hujair, Direct Dealing Reuters Code: ABCT [email protected] Chief Executive Officer Swift: ABCOTNTT Fax: (973) 17 291 122 Sadok Attia, Iberia – Representative Office [email protected] General Manager Paseo de la Castellana 163 2° Dcha, Madrid 28046, Spain Tel: (34) (91) 5672822 ABC International Bank plc - Fax: (34) (91) 5672829 Head Office and London Branch Usama Zenaty, Arab Banking Corporation House [email protected] 1-5 Moorgate, London EC2R 6AB, UK Tel: (44) (20) 7776 4000 (General) Nordic Region (44) (20) 7726 4091 (Dealing Room) Stortorget 18-20, SE-111 29 Stockholm Fax: (44) (20) 7606 9987 (General) Sweden (44) (20) 7606 1710 (Dealing Room) Tel: (46) 823 0450 Tlx: 893748 ABC GEN G (General) Fax: (46) 823 0523 892171 ABC FXL G (Dealing Room) Klas Henrikson, Direct Dealing Reuters Code: ABCL [email protected] Swift: ABCE GB 2L Michael Duval, Turkey – Representative Office Managing Director & Chief Executive Officer Eski Büyükdere Cad. Ayazaga Yolu Sok [email protected] Iz Plaza No:9 Kat:19 D:69 William Playle, 34398 Maslak - Istanbul, Turkey Head of Risk Management Tel: (90) (212) 329 8000 Tel: (44) (20) 7776 4135 Fax: (90) (212) 290 6891 [email protected] Muzaffer Aksoy, [email protected] ABC International Bank plc (Paris Branch) 4 rue Auber, 75009 Paris, France ABC (IT) Services Ltd. Tel: (33) (1) 49525400 Arab Banking Corporation House Fax: (33) (1) 47207469 1-5 Moorgate, London EC2R 6AB, UK Tlx: 648343 ABC F (General) Tel: (44) (20) 7776 4050 Alexander Ashton, Fax: (44) (20) 7606 2708 General Manager [email protected] [email protected] Sael Al Waary, Director ABC International Bank plc (Frankfurt Branch) Neue Mainzer Strasse 75 Banco ABC Brasil S.A. 60311 Frankfurt am Main, Germany Av. Pres. Juscelino Kubitschek, 1400 y 04543-000 Itaim Bibi r Tel: (49) (69) 71403-0 o t
São Paulo – SP, Brazil c
Fax: (49) (69) 71403-240 e r Tel: (55) (11) 317 02000 i
Tlx: 411 536 AIBF D D Fax: (55) (11) 317 02001 l [email protected] a Tito Enrique da Silva Neto, n o
Gerald Bumharter, i t
General Manager President a n [email protected] r e t n
ABC International Bank plc I (Milan Branch) Via Turati 16/18, 20121 Milan, Italy Tel: (39) (02) 863331 Fax: (39) (02) 86450117 Swift: ABCO IT MM Paolo Provera, General Manager [email protected] Sami Bengharsa, Deputy General Manager Tel: (39) (02) 86333 [email protected]
Annual Report 2005 ABC Group