Sustainable

excellence
ANNUAL REPORT 2014
Contents

Financial Highlights 05
Joint Message 06
Review of Operations 10
Financial Performance 17
Subsidiaries and Associates 18
Board of Directors 20
Sharia Supervisory Board 23
Executive Management 24
Corporate Governance 28
Risk Management 43
Compliance, Anti-Money Laundering and Internal Controls 47
Funds Under Management 48

CONSOLIDATED FINANCIAL STATEMENTS

Report of the Sharia Supervisory Board 53
Report of the Directors 55
Independent Auditor’s Report 57
Consolidated Statement of Financial Position 58
Notes to the Consolidated Financial Statements 63

ANNEXES
Basel II Pillar III Quantitative Disclosures 101
Share Information 113
Corporate Information 116
02 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

AT A GLANCE

Ithmaar Bank B.S.C. (stock code “ITHMR”) is a Bahrain-based Islamic

retail bank that is licensed and regulated by the Central Bank of Bahrain
(CBB). Ithmaar Bank provides a diverse range of Sharia compliant
products and services that cater to the financing and investment needs
of individuals and institutions.

Ithmaar Bank is a subsidiary of Dar Al-Maal Al-Islami Trust (DMIT), and has a
paid-up capital of US$757.7 million and is listed on the Bahrain Bourse and the
Kuwait Stock Exchange.
Ithmaar Bank, formerly an investment bank, completed in April 2010 a
comprehensive reorganisation with its then wholly-owned subsidiary, Shamil
Bank, to emerge as a premier Islamic retail bank. Ithmaar maintains a presence
in Bahrain and overseas markets through its subsidiaries, associated and
affiliated companies, as well as a representative office. These include Bahrain-
based BBK, Ithmaar Development Company Limited, Naseej and Solidarity, as
well as Faysal Bank Limited (Pakistan), Faisal Private Bureau (Switzerland), and
Ithraa Capital (Saudi Arabia).
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 03

VISION, MISSION
AND VALUES

Our Vision Our Mission Our Values

A trusted leading Islamic To be the preferred Bank for our > Comply with Islamic Sharia
financial institution offering a customers, counterparties and principles;
comprehensive range of financial strategic partners by creating > Honesty, integrity and
solutions and contributing to value through innovation and objectivity in all our
social development. customer service. These include: relationships;
retail and commercial banking, > Market and customer
asset management, private focused;
banking, takaful, and real estate
development. > Continuous improvement,
creativity, innovation and
willingness to bring about
changes; and
> Active role in the community.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 05

FINANCIAL
HIGHLIGHTS

2014 2013 2012 2011 2010

Net loss ($ 000) (8,847) (79,327) (26,828) (61,902) (140,008)

Net loss attributable to shareholders ($ 000) (15,012) (80,372) (30,480) (62,886) (150,409)
Total equity attributable to shareholders ($ 000) 523,386 531,568 589,114 576,828 656,578
Book value per share (US cents) 18 19 22 21 24
Earnings per share (US cents) (0.52) (2.76) (11.35) (23.13) (58.90)
Total assets ($ 000) 7,860,904 7,403,135 7,225,737 6,899,419 6,747,467
Funds under management (restricted and unrestricted
investment accounts) ($ 000) 2,381,660 2,464,780 2,613,483 2,571,411 2,966,362
Return on average shareholders’ equity -2.85% -14.34% -5.23% -10.20% -21.99%
Return on average assets -0.12% -1.08% -0.38% -0.91% -2.18%
Return on average paid in capital -2.06% -11.49% -4.54% -9.37% -24.26%
Cost to operating income ratio 87.28% 97.60% 85.38% 121.71% 72.06%
Capital adequacy ratio 12.11% 12.77% 12.64% 12.88% 13.20%
Market price per share (US cents) 16 23 17 7 12
Market price per share/Book value per share 0.89 1.21 0.77 0.30 0.52
06 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

JOINT MESSAGE

HRH Prince Amr Mohammed Al Faisal

Chairman

In the name of Allah, most Gracious, most Merciful

Dear Shareholders,
We are pleased to announce that the strategic decisions This improved financial performance is mainly due to
taken by Ithmaar Bank early in 2014 have already started sustainable growth in Ithmaar Bank’s core retail banking
yielding results. operations, as is evident in the significant growth of the
Bank’s operating income which increased more than 13
These decisions, which aimed at turning the Ithmaar percent to US$ 227.7 million in 2014, from US$ 199.9
Group around by significantly transforming the Group’s million in 2013. Despite growth in business, total expenses
operations, included initiatives for increased revenue, for the year ended 31 December 2014, at US$198.8
improved margins, divestment of non-core assets and cost million, are under control and 1.9 percent higher than
reductions across Ithmaar Group. Key decisions included 2013 expenses of US$195.1 million. We are also pleased
the full conversion of Ithmaar Bank’s subsidiary Faysal to report that the balance sheet continues to be stable,
Bank Limited Pakistan’s (FBL) remaining conventional with total assets increasing by six percent to US$ 7.86
operations to Islamic banking. billion as at 31 December 2014, compared to US$ 7.4
billion as at 31 December 2013.
The immediate implementation of these initiatives,
coupled with the consistent growth of our core business The 2014 results show that, during the year, the equity of
has, despite challenging local, regional and international unrestricted investment account holders marginally grew
market conditions, contributed to improving the Bank’s to US$2 billion as at 31 December 2014 as compared
performance. to US$1.99 billion as at 31 December 2013. Customers’
current accounts have increased by eight percent to
As a result, Ithmaar Bank has reported net profit before
US$1.37 billion as at 31 December 2014, compared to
impairment provision and taxation of US$ 28.9 million
US$1.27 billion as at 31 December 2013, and deposits
compared to US$ 4.8 million profit for 2013. The net loss
from banks, financial and other institutions have increased
after impairment provision and taxation attributable to
by 13 percent to US$1.47 billion as at 31 December 2014,
shareholders of US$ 15 million is significantly lower by
compared to US$1.30 billion as at 31 December 2013. This
81% compared to US$ 80.3 million for 2013.
increase reflects growing customer confidence in the Bank
and demand for its products and services.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 07

Ahmed Abdul Rahim

Chief Executive Officer

This growth is a result of the Bank’s commitment to housing challenges. The Social Housing Financing Scheme
listening closely to its customers, and working to realise allows eligible citizens to finance their first homes through
their aspirations by continuously improving its products Ithmaar Bank by paying 25 percent of their monthly
and services. income towards the property’s monthly instalment with
the rest being paid for by the Ministry of Housing through
In 2014, for example, Ithmaar Bank introduced a full suite Eskan Bank.
of new credit card solutions from MasterCard, substantially
enhanced its popular prize-based savings account, These initiatives helped drive the continued growth
Thimaar, and created new home, personal and auto in the Bank’s Bahrain retail banking business in 2014.
finance products designed specifically to meet customer Ithmaar Bank’s financing business in Bahrain, for example,
requirements. increased by 23 percent, from US$745 million at the end
of 2013, to US$914 million at the end of 2014. This growth
Ithmaar Bank operates one of the largest retail banking in 2014 was driven mainly by Home Financing which
networks in Bahrain with 46 ATMs and 17 full-service increased by 53 percent and Personal Financing which
branches, while our key subsidiary, FBL, with its 274 increased by 21 percent. Similarly, total customer current
branches across all cities in Pakistan, is amongst the top accounts, savings accounts, Thimaar and URIA deposits,
10 banks in Pakistan. increased by 11 percent in 2014, from US$1.38 billion at
the end of 2013, to US$1.54 billion at the end of 2014.
In 2014, Ithmaar Bank also signed a partnership
agreement with the Bahrain’s Ministry of Housing and The focus on growth did not distract Ithmaar from its
Eskan Bank to help overcome the Kingdom’s housing long-standing commitment to excellence: in 2014, the
challenges. Under the agreement, Bahraini citizens will be Bank continued to earn recognition for growth, innovation
offered government-subsidised financing through Ithmaar and Information Technology security. Ithmaar Bank also
Bank to help them buy their first homes as part of a earned an award recognizing the Bank as Bahrain’s fastest
national scheme designed to help overcome the Kingdom’s growing MasterCard debit card portfolio.
08 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

JOINT MESSAGE
CONTINUED

As always, we stress that these achievements are, shareholders for their continued support, our customers,
ultimately, a result of the commitment, dedication and investors and all other stakeholders for their confidence,
expertise of the people at Ithmaar Group who we continue our regulators for their guidance and the members of
to regard as our greatest asset. In 2014, we continued to the Board of Directors and the Sharia Supervisory Board
reorganize and refocus on this asset. for their continued support to realizing the Ithmaar Bank
vision of becoming the region’s premier Islamic retail
In addition to thanking all our employees for their bank.
contributions, we take this opportunity, also, to thank our

Amr Mohammed Al Faisal Ahmed Abdul Rahim

Chairman Chief Executive Officer
REVIEW OF OPERATIONS
10 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

REVIEW OF
OPERATIONS

Strategy and Focus Total customer current accounts, savings accounts, Thimaar and
Ithmaar Bank’s strategy continues its single focus: return to URIA deposits, for example, increased by 11 percent in 2014, from
sustainable profitability. The strategies to achieve the Bank’s key US$1.38 billion at the end of 2013, to US$1.54 billion at the end of
objectives include a firm focus on core business, together with 2014.
improving asset allocation including divestment of non-core assets,
Similarly, Ithmaar Bank continued to expand its financing business,
cost rationalization and improving efficiency levels.
which increased by 21 percent, from US$745 million at the end of
Economic outlook 2013, to US$914 million at the end of 2014. This growth was driven
mainly by Home Financing which increased by 54 percent in 2014.
Overall, global growth is expected to rise moderately to 3.0 percent
in 2015, and average about 3.3 percent through 2017. In developing This growth is due, in a large part, to continuous improvements in
countries, as the domestic headwinds that held back growth in 2014 Ithmaar Bank’s products and services. Early in 2014, for example,
ease and the recovery in high-income countries slowly strengthens, Ithmaar Bank introduced a full suite of new, Sharia-compliant
growth is projected to gradually accelerate, rising from 4.4 percent MasterCard credit cards which were tailored to meet the specific
in 2014 to 4.8 percent in 2015 and 5.4 percent by 2017. Lower oil requirements of Ithmaar customers. The new cards - MasterCard
prices will contribute to diverging prospects for oil-exporting and Gold, MasterCard Gold Plus, MasterCard Titanium and MasterCard
importing countries, particularly in 2015. [Source: World Bank Global Platinum - offer a range of extended features and benefits including
Economic Prospects – January 2015]. free worldwide Takaful travel insurance, exclusive discounts through
MasterCard and free access to selected airport lounges for Titanium
Firm focus on core business
and Platinum credit card holders.
The focus on developing Ithmaar Bank’s core business delivered
significant growth in the Bank’s Bahrain retail banking business As part of its commitment to continuously improving its customer
which continued to report consistent growth in 2014. service offerings, Ithmaar Bank also began providing its award-

The focus on developing Ithmaar Bank’s core business delivered

significant growth in the Bank’s Bahrain retail banking business
which continued to report consistent growth in 2014.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 11

Total customer current accounts, savings accounts, Thimaar and URIA

deposits increased by 11 percent in 2014, from US$1.38 billion at the
end of 2013, to US$1.54 billion at the end of 2014.

winning card-less cash solution, MobiCash, to customers without a Thimaar is the only saving scheme in Bahrain that offers both gold
service charge. MobiCash, Bahrain’s first card-less cash withdrawal and cash prizes, as well as anticipated profit rates and free life
system, allows customers access to Ithmaar Bank ATMs using their takaful, as an added incentive to save. During the year-long Thimaar
mobile phones or computers. campaign, a total of 3,540 winners will win cash and gold prizes of
more than US$2,000,000.
In 2014, Ithmaar Bank was accredited as a participant in the
Social Housing Financing Scheme after signing an agreement with In 2014, Ithmaar Bank renovated its Muharraq Branch, further
Eskan Bank. The Scheme, which was introduced by the Ministry upgrading its retail banking network which is already one of the
of Housing in cooperation with the Ministry of Finance and Eskan largest in Bahrain.
Bank, is among the most important financing solutions provided by
the Government of Bahrain to address housing needs. Ministry of Ithmaar Bank also enhanced its electronic delivery channels in 2014,
Housing data indicates that the first phase of the Scheme included installed new ATM interface screens with environmentally friendly
1,200 citizens whose housing applications were listed on the features, and redesigning the corporate website. The website offers
waiting list. an improved user experience and delivers innovative, customer-
focused solutions using the latest technology.
Ithmaar Bank also signed an agreement with Naseej, Bahrain’s
first fully-integrated real estate and infrastructure company and
an Ithmaar Bank associate company, to provide Sharia-compliant
financing for Naseej’s affordable housing solutions. As a result,
Ithmaar Bank offers potential buyers of units in the Al Madina Al
Shamaliya development, part of the ground-breaking social and
affordable housing public-private-partnership (PPP) between the
Ministry of Housing and Naseej, Sharia-compliant property financing.

Ithmaar Bank re-launched in October 2014 its popular prize-based

savings account, Thimaar, to offer bigger prizes to more winners.
12 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

REVIEW OF OPERATIONS
CONTINUED

Ithmaar Bank Markets Served (Bahrain)

FINANCINGS – FYE 2014

TERRITORY SECTOR

Bahrain 76% Personal 53%

GCC 5% Financial Institutions 3%
Others 19% Real estate and construction 15%
Trade and manufacturing 13%
Services 16%
Total 100% 100%

CUSTOMER FUNDS – FYE 2014

TERRITORY SECTOR

Bahrain 88% Personal 59%

GCC 1% Financial Institutions 4%
Others 11% Real estate and construction 8%
Trade and manufacturing 9%
Services 11%
Government related 9%
Total 100% 100%

Ithmaar Bank Retail Banking – Customer Funds (Bahrain)

Customer Funds (URIA) (US$ million)

1,540
1,382

1,144

952
733

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14

 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 13

Customer Financing (US$ million)

Home Personal Corporate &

finance finance SME finance

Dec-10 22 272 416

Dec-11 25 395 446
Dec-12 44 533 617
Dec-13 51 659 577
Dec-14 78 798 552

Ithmaar Bank Market Share (Bahrain)

Customer Corporate & Home Credit Card Personal

Deposits/Funds SME finance finance Receivables finance
(%) (%) (%) (%) (%)

Dec-10 6.1 4.3 2.4 2.5 8.1

Dec-11 6.7 4.1 1.4 2.7 10.8
Dec-12 7.0 4.3 2.3 2.6 13.6
Dec-13 6.9 4.3 2.2 3.0 15.0
Sep-14 6.7 4.5 2.5 4.4 16.2
Based on statistics compiled by the Central Bank of Bahrain.

Ithmaar Bank continued to expand its financing business,

which increased by 23 percent, from US$745 million at
the end of 2013, to US$914 million at the end of 2014.
This growth in 2014 was driven mainly by Home Financing
which increased by 53 percent and Personal Financing
which increased by 21 percent.
14 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

REVIEW OF OPERATIONS
CONTINUED

Private Banking continued to achieve good results in 2014, which peers and facilitate the additional deployment of funds in financing,
is reflected in the Bank’s overall performance both directly and thereby contributing to the net margins.
indirectly, and contributed to a positive outlook for the year ahead.
During 2014, Asset Management continued to effectively manage
Despite overall market and industry challenges, for example, Private and monitor Ithmaar Bank’s investments including subsidiaries
Banking managed to attract a steady growth in both liabilities and and associates. Asset Management also manages a number of the
assets with the introduction of new clientele. Bank’s funds as Modareb for the fund’s investors.

Private Banking, which manages the Ithmaar Premier programme, In June 2014, Ithmaar Bank issued an investor report on its Shamil
also reported a significant increase of more than 20 percent in Bosphorus Modaraba (SBM) indicating the fund will not achieve its
membership since the programme was introduced in 2013. Ithmaar investment objectives and stating that there is a low probability
Premier is a members-only programme designed to recognise the that investors will have their entire capital returned. In November
Bank’s most valuable customers by providing exclusive benefits 2014, Ithmaar sent SBM investors notice of the fund’s termination
and services. In 2014, Ithmaar signed an agreement with Solidarity along with certain exit options. As Modareb, Ithmaar Bank met SBM
Group, one of the largest Takaful groups and an Ithmaar Bank investors to discuss the investor report and explain available exit
associate company, to offer Ithmaar Premier members exclusive options. A number of investors have opted to receive the proposed
insurance rates. settlement, while others requested additional time.

Commercial and International Banking focused in 2014 on Small Cost rationalization and improving efficiency
and Medium Enterprises (SMEs) as well as on developing the Bank’s In line with the strategic decisions taken by the Board of Directors in
Corporate Banking and International Banking business. early 2014 to significantly transform Ithmaar Group’s operations by
increasing revenues, improving margins and reducing costs across
Despite the challenging and the highly competitive environment
the group, Ithmaar Bank implemented reorganisation and staff cost
in the local and regional markets, the Corporate Banking Unit
rationalization under the Voluntary Separation Programme.
managed to conclude transactions that match Ithmaar Bank’s core
market. Meanwhile, in order to support Ithmaar Bank’s geographic Several employees opted to participate in the Programme which, in
diversification strategy, the International Banking Unit continued to addition to contributing to the Bank’s cost rationalization plans, also
focus on identifying new markets and providing financial solutions improved efficiency within the Bank and provided opportunities for
to corporate customers in international markets. employee growth through internal promotions.
Based mainly in Bahrain, Ithmaar Bank’s range of operations Reorganised, refocused workforce
presently spans the Middle East, North Africa, Turkey and the Far
Ithmaar Bank has long recognised that, ultimately, it is the quality
East. Ithmaar Bank through the Commercial and International
of its people that drive the Bank’s success and that, to become
Banking Department is focused on becoming the bank of choice for
one of the region’s premier Islamic retail banks, it must invest in
corporate clients.
continuously developing its human resources.
Improving Asset Allocation
During 2014, Ithmaar Bank conducted a number of in-house training
The main objective of Asset Management is to preserve the value courses that were developed specifically to meet employee training
of the existing investment portfolio of the Bank and identify and development needs. These include a collaboration with the
opportunities for investment exits at acceptable valuations. The General Council for Islamic Banks and Financial Institutions (CIBAFI)
planned and managed exit from certain non-revenue generating to certify 11 employees from different departments as Certified
investments will help restore the asset allocation to be in line with
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 15

Islamic Bankers. Two intensive courses, a Credit Programme and a Twenty-four employees from the Retail, Private and Corporate
Collection Programme, were also conducted in collaboration with Banking departments also completed the Financial Adviser
the Bahrain Institute of Banking and Finance (BIBF). Programme (FAP) Level 1 in 2014.

In 2014, Ithmaar Bank conducted Information Security Awareness Ithmaar Bank, which has long encouraged diversity and equal
sessions, as well as Business Continuity Plan Awareness sessions opportunity for all employees, marked Bahrain Women’s Day on
for all employees; and the Internal Sharia Compliance Officer 1 December 2014 by honouring the Bank’s women employees
conducted a “Murabaha” session for the Corporate Banking Team and presenting each with a gift at a ceremony that was hosted by
and “Tawaruq” (Islamic Finance) sessions for all Branch employees. the Chief Executive Officer. Ithmaar Bank’s total workforce of 268
In compliance with CBB requirements, the Bank held Anti-Money employees include 74 women employees who account for almost
Laundering (AML) Refresher E-Learning Courses for specific 28 percent of the workforce. Kuwait’s Shaikha Hissah bint Saad
employees. Al Sabah, who is president of both the Council for Arab Business
Women and the Council for Arab African Business Women, is also a
member of the Ithmaar Bank Board of Directors.

Training

BIBF Levy Training Total: 1,917 Hours

Managers and Above: 100 Hours
Below Managers: 1,817 Hours
External Training Total: 319 Hours
Managers and Above: 161 Hours
Below Managers: 158 Hours
Islamic Banking Ethics and Governance Course – CBB Requirement 12 Employees attended
Anti-Money Laundering (AML) – CBB Requirement New Joiners: 28 Employees
Annual Refresher Course: 118 Employees
Financial Adviser Programme (FAP) Level 1 – CBB Requirement 24 Employees successfully completed FAP Level 1
Certified Islamic Banker (CIB) certification 11 Employees successfully completed and obtained
the CIB certificate

Staff Overview

Bahrain Operations Only

Bahrainis Non Bahrainis

Assistant Assistant
Manager and Associate and Officer and Manager and Associate and Officer and
Above Senior Officer Below Others Above Senior Officer Below Others Total

Male 62 37 78 3 13 1 0 0 194
Female 6 36 32 0 0 0 0 0 74
Total 68 73 110 3 13 1 0 0 268
16 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

REVIEW OF OPERATIONS
CONTINUED

Global certification for information security Ithmaar Bank also continued to support the education of
In 2014, Ithmaar Bank also earned international recognition for its underprivileged students. Together with the Kingdom of Bahrain’s
information security processes when it was formally awarded the Royal Charity Organisation, Ithmaar continues to sponsor 18
ISO27001 certification following a rigorous audit that was conducted orphaned students from preschool right through to Grade 12 at an
by Bureau Veritas on the Bank’s Information Security Management accredited private school in Bahrain. In total, up to the end of 2014,
System. The accreditation will further enhance customer confidence Ithmaar Bank has sponsored 34 Bachelor degree graduates, 16
and reinforces Ithmaar’s position as a pioneering Islamic retail Bank. Master’s degree graduate and one PHD degree graduate.

Global awards for growth in card business and innovation In 2014, Ithmaar Bank supported public health awareness
campaigns, and provided financial support to various societies and
During 2014, MasterCard Division President, Middle East and North
associations that help the sick, the blind, the disabled, and the
Africa, presented an award to the Ithmaar Bank Chief Executive
elderly. The Bank also sponsored various sport events including, for
Officer in recognition of Ithmaar Bank achieving the Kingdom’s
the second consecutive year, the His Majesty King Hamad Horserace
fastest growing MasterCard debit card portfolio.
Championship that was organized by the Rashid Equestrian and
Ithmaar Bank earned prestigious international awards for its new, Horseracing Club, and for the seventh consecutive year, the His
customer-focused interactive website when it was named the Silver Majesty King Hamad Trophy Golf Championship. Ithmaar Bank also
winner in two separate categories at the high-profile W3 Awards. sponsored the King’s Football Cup of 2014.The Championship is a
The W3 Awards are prestigious international awards which honour popular national sports event, and a key highlight on the annual
creative excellence on the web, and recognises institutions behind calendar.
award-winning sites, marketing programmes, social content, mobile
Ithmaar Bank also continued in 2014 to contribute to Bahrain’s
site/apps and online videos.
development as a key regional banking and finance by supporting
various initiatives undertaken by the Bahrain Association of Banks
Role in the community (BAB), the Accounting and Auditing Organisation for Islamic
Ithmaar Bank has long-recognized the important role it must play Financial Institution (AAOIFI) and the World Islamic Banking
in supporting the community in which it operates. In line with Conference (WIBC).
that commitment, the Bank continued throughout 2014 to support
worthy national causes. In particular, Ithmaar Bank offered financial
support meet educational, medical and sporting initiatives.

In 2014, for example, Ithmaar joined other Banks in Bahrain to help

finance the establishment of the BIBF dealing room, a first of its kind
training facility in the Middle MENA region, which allows students
to learn about trading stocks and bonds in a real environment.
Ithmaar Bank also continued to invest its own staff time and
resources on training and developing aspiring job seekers, and in
2014, provided on-the-job training opportunities to 46 university
students from different universities across Bahrain. Ithmaar Bank
staff also volunteered to teach at different government schools
as part of the inJAz programme. InJAz Bahrain is a member of
the worldwide Junior Achievement Organisation that inspires and
prepares young Bahrainis to succeed in the global economy.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 17

FINANCIAL
PERFORMANCE

The Bank has substantially reduced its loss in 2014 and reported December 2014 compared to US$ 1.31 billion as at 31 December
a net loss attributable to equity holders of the Bank for 2014 2013 mainly due to higher investment in government securities.
amounting to US$ 15 million, compared to a net loss of US$ 80.4
million reported last year. The equity of unrestricted investment account holders marginally
grew to US$ 2 billion as at 31 December 2014 as compared to
Over all, the recurring income from all revenue streams increased US$ 1.99 billion as at 31 December 2013. The Bank’s focus on low
resulting in profit before provision for impairment and taxation cost deposit is evident from growth in customers’ current accounts
of US$ 28.9 million for 2014, which is an increase of more than which increased by 8% to US$ 1.37 billion as at 31 December 2014,
500% from US$ 4.8 million for 2013. This is due to significant compared to US$ 1.27 billion as at 31 December 2013. Deposits
growth of the Bank’s operating income which increased by 14% from banks, financial and other institutions have increased by 13%
to US$ 227.8 million in 2014, from US$199.9 million in 2013. This to US$ 1.47 billion as at 31 December 2014, compared to US$ 1.3
increase is mainly due to sustainable revenue growth across most billion as at 31 December 2013.
income streams. A major contributor was income from investments,
which increased by 30% to US$ 126.7 million compared to US$ Shareholders’ equity continues to be stable at US$523.4 million as
97.3 million in 2013. This is mainly due to growth in government at 31 December 2014.
securities portfolio by Faysal Bank Limited (FBL). This is partly offset
During 2014, the Bank improved its maturity profile with a shift
by reduced share of profit from associates by 42% to US$ 22.3
in liabilities from short-term to medium-to-long-term maturities.
million in 2014, compared to US$ 38.4 million in 2013.
Overall, during the past three years, customer accounts have
Despite the growth in business, total expenses for the year ended consistently registered significant growth. Maintaining adequate
31 December 2014, at US$ 198.8 million are under control and liquidity continues to be the focus and, liquid assets, at US$ 889.7
marginally higher by 1.9% than 2013 expenses of US$ 195.1 million, formed 11% of the total assets as at 31 December 2014.
million. The 2014 expenses include the one-off expenses associated
with the Staff Voluntary Separation Scheme and the full year impact
in 2014 of certain branches opened in 2013 in Pakistan.

Financial Position
Total assets increased by 6% to US$ 7.86 billion as at 31 December
2014, compared to US$7.4 billion as at 31 December 2013. This is
mainly due to growth in core business (Murabaha, Musharaka and
Ijara financings) by 7% to US$ 3.49 billion as at 31 December 2014
compared to US$ 3.28 billion as at 31 December 2013. Investment
securities also increased by 35% to US$ 1.77 billion as at 31
18 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

SUBSIDIARIES AND
ASSOCIATES

Key operating subsidiaries

Faysal Bank Limited (FBL) Ithmaar Development Company (IDC)

Faysal Bank Limited (the Bank) was incorporated in Pakistan Ithmaar Development Company (IDC) is a wholly-owned subsidiary
on October 3, 1994. Its shares are listed on Karachi, Lahore of the Group which was established in 2007 with the objective
and Islamabad Stock Exchanges. The Bank is mainly engaged of developing and managing major development, real estate and
in Corporate, Commercial and Consumer banking activities. The other infrastructure projects. IDC’s flagship projects include Dilmunia,
Bank has a network of 274 branches including 58 Islamic banking a 1.25 million square meters manmade island off the coast of
branches as of 31 December 2014, with combined business assets Bahrain.
of over PKR 380 billion. The Group owns 66.6 percent of FBL.
During 2014, the decision was taken to convert FBL’s remaining IDC, together with Ithmaar, is aggressively working on the sale of
conventional operations to Islamic banking. parcels relating to the project and has achieved significant success
during 2014 with two major announcements following the sale of
The current strategy of FBL focuses on growth in deposits (including the key plots.
improvement in low cost deposits portfolio) and reduction on
operating costs in order to achieve higher profitability. The total “The Treasures” a US$45 million residential apartment project by Bin
assets and total shareholders’ equity as of 31 December 2014 Faqeeh Real Estate Investment Company, a major Bahrain real estate
amounted to PKR 388 billion and PKR 26.3 billion respectively. developer, and later in the year, “Essence of Dilmunia” a US$130
million luxury apartment development by Cooperation Investment
Faisal Private Bureau [formerly Faisal Private Bank] (FPB) House (CIH), another major Bahrain real estate developer. These
two new major developments announced in 2014 are the latest to
FPB, a wholly-owned subsidiary of the Group, was established in join the Dilmunia family, alongside the sold-out Temara and Seavilla
1980 as Sharia Investment Services in Geneva, Switzerland, and projects that were announced in during 2013.
later got a banking license and was providing Islamic financial
services in the European region. FPB voluntarily surrendered its The current strategy of IDC focuses on the infrastructure
banking license in June 2013 and the activities of the new entity are development relating to Dilmunia project as well as providing
restricted to providing advice and wealth management services. development management services to Naseej relating to the Private
Public Partnership Housing Project (PPPHP) project.
The current strategy of FPB focuses on serving existing clients of the
erstwhile Faisal Private Bank through providing advice and wealth
management services. The total assets and total shareholders’
equity as of 31 December 2014 amounted to US$ 31.1 million and
US$ 14.6 million respectively. The Funds Under Management (FUM)
as at 31 December 2014 amounted to US $ 138.6 million.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 19

Key operating associates

BBK B.S.C. (BBK) Solidarity Group Holdings (Solidarity)

BBK is one of the largest commercial banks in Bahrain with a Solidarity is one of the largest takaful (Islamic insurance) companies.
presence in Kuwait, India and Dubai (United Arab Emirates). BBK The Company provides general and family takaful products and
provides a full range of lending, deposit, treasury and investment services, which comply with the principles of the Islamic Sharia,
services, and has established a number of subsidiaries in the areas around the globe. Solidarity operates two fully-owned subsidiaries
of brokerage, financial services and credit cards. The Group owns in Bahrain, one subsidiary in Jordan, and other business interests
25.4 percent of BBK. BBK has 16 branches, including seven financial in Saudi Arabia and Malaysia. The Group owns 33.8 percent of
malls, and 53 ATMs in Bahrain. Solidarity.

BBK’s strategy focuses on growth of its retail banking business Solidarity’s strategy focuses on providing general takaful services
through branch expansion in GCC and international markets, mainly both locally and in key international markets, mainly Jordan, Saudi
India. The total assets and total shareholders’ equity as of 31 Arabia and Malaysia, in order to achieve sustainable profitable
December 2014 amounted to US$ 9.3 billion and US$ 949 million growth. The total assets and total shareholders’ equity as of 31
respectively. December 2014 amounted to US$ 326.4 million and US$ 228.6
million respectively.
Naseej B.S.C. (Naseej)
Naseej is the MENA region’s first fully-integrated real estate and CITIC International Asset Management Limited (CITICIAM)
infrastructure development company, encompassing the entire CITICIAM is part of the CITIC Group, a major diversified financial and
value chain from concept to completion. The Company’s core investment conglomerate wholly-owned by the State Council of the
activities comprise design and master planning; development and People’s Republic of China. CITICIAM’s principal activity is to invest in
construction; building components; mortgage facilitation; and asset companies and projects in China and internationally, both for its own
management. Naseej was established by prominent private and account and on behalf of clients. Established in 2002 to specialize in
public sector investors to act as a pioneering catalyst for addressing distressed asset management, the current portfolio of CIAM includes
the region’s affordable housing development needs. The Group direct investments in real estate, high technology, health, retail and
owns 30.7 percent of Naseej. industrial projects. The Group owns 20 percent of CITICIAM.

Naseej’s strategy focuses on pursuing property development and CITICIAM’s strategy focuses on investment mainly in China in
investment opportunities in affordable housing and retail real estate environmental, agricultural, natural resources and health sector
sectors in the MENA region besides working on the Private Public of China specifically in companies, mainly SME’s, which are run in
Partnership Housing Project (PPPHP) project in Bahrain which was line with the state policies and contribute to the socio-economic
awarded to the Company in 2012 and the financial close achieved development of China.
in September 2013. In 2014, Naseej announced that the project’s
housing units were available to all Bahrainis, regardless of income
level. Under the terms of the PPPHP, the units were initially
available exclusively to Ministry of Housing applicants and then to
Bahraini families with a household income of less than BD2,000.

In 2014, Naseej also announced Yasmeenat Saar, a development

targeted at the mid-high income segment and comprising 32 villas
on an overall plot size of 17,000 square meters.
20 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

BOARD OF
DIRECTORS

HRH Prince Amr Mohammed Al Faisal Sheikh Al-Zamil is actively involved in service in sectors which include medical
Chairman various institutions such as the Chambers of services, research and development, defense,
Appointed 5 November 2009, Elected 28 Commerce, industrial companies and banks in and narcotics and addiction control. Shaikha
March 2010 and 31 March 2013 (approved by his capacity as a Director. Hissah is also the President of the Council of
the CBB on 9 May 2013). Educated in the United States, he has BS Arab African Business Women.
HRH Prince Amr has more than 26 years degree in Petroleum Engineering from the Shaikha Hissah studied Public Administration
of extensive and diversified experience in University of Southern California (USC) and and Political Science at the American University
commercial and investment banking, executive an MS degree in the same major from West of Beirut, Lebanon, and holds a Doctorate in
management, architecture and engineering. Virginia University, USA. Humane Letters.
He is a Member of the Board of Supervisors Tunku Dato’ Ya’acob Bin Tunku Abdullah
of Dar Al Maal Al Islami Trust, Faisal Islamic
Abdelhamid Mohamed Aboumousa
Independent, Non-Executive Board Executive Board Member
Bank (Sudan) and Faisal Islamic Bank (Egypt). Member
HRH Prince Amr is also Founder and Director Elected 11 May 2006, 28 March 2010 and 31
Elected 11 May 2006, 28 March 2010 and 31 March 2013 (approved by the CBB on 9 May
of the Red Sea Design Consultants ( Jeddah),
March 2013 (approved by the CBB on 9 May 2013)
Chairman of the Board of Directors of Al
2013)
Daleel Company for Information Systems Mr. Aboumousa has more than 46 years of
(headquartered in Jeddah with sister Prince Ya’acob has more than 31 years of banking experience. He is Governor of Faisal
companies in Tunisia, Sudan and Pakistan), banking and finance experience. Islamic Bank of Egypt, which he joined in
Al Wadi Company for Trading Ltd. ( Jeddah) He is Chairman of MAA Group Berhad 1977. Prior joining Faisal Islamic Bank of
and Amr Establishment for Marketing and (Malaysia), which he joined in 1999. Prior to Egypt, Mr. Aboumousa worked in the Central
Commerce. his current position, Prince Ya’acob worked Bank of Egypt for 15 years. He is a Member
He is a Fellow of the Saudi Association for for 19 years at Malaysian Assurance Alliance of the Coordinating Council that determines
Construction Societies, City Development and Berhad, where his last position was Chairman. the monetary and fiscal policy objectives
Clean Environment and a Member of the Saudi He also worked at PriceWaterhouse, UK and of the Egyptian economy, and a Member of
Council of Engineers. HRH Prince Amr holds a Malaysia. the General Assembly of the Public Banks
Bachelor of Arts Degree in Architecture from Prince Ya’acob holds a Bachelor of Science representing the Egyptian Government in state
King Abdulaziz University, Saudi Arabia. Degree with Honours from the City University owned banks.
in London and is a Fellow of the Institute of He holds a Bachelor of Science Degree in
Sheikh Zamil Abdullah Al-Zamil Chartered Accountants of England and Wales. Accounting and a Diploma in Finance from
Independent, Non-Executive Board Cairo University in Egypt, and a Diploma
Member Shaikha Hissah bint Saad Al-Sabah in Banking Economics from Lwegi Boconi
Elected 28 March 2010 and 31 March 2013 Independent, Non-Executive Board University in Milano, Italy.
(approved by the CBB on 9 May 2013) Member
Sheikh Al-Zamil is a prominent businessman Elected 11 May 2006 and 28 March 2010 and
in the Kingdom of Saudi Arabia and in GCC 31 March 2013 (approved by the CBB on 9
countries. May 2013)
He is Executive Vice-President of Zamil Group Shaikha Hissah has more than 16 years of
Holdings Company and serves as the Chairman banking experience.
of Zamil Offshore Services Co. and Zamil She is President of the Council of Arab
Operations and Maintenance Co. Ltd. Businesswomen, and has a long history in
the Kuwait Government and private voluntary
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 21

Khalid Abdulla-Janahi Mohammed A. Rahman Bucheerei Abdulellah Ebrahim Al-Qassimi

Executive Board Member Non-Executive Board Member Independent, Non-Executive Board
Elected 11 May 2006, 28 March 2010 and 31 Elected 28 March 2010 and 31 March 2013 Member
March 2013 (approved by the CBB on 9 May (approved by the CBB on 9 May 2013) Appointed 15 July 2012 and Elected 31 March
2013) Mr. Bucheerei has more than 44 years of 2013 (approved by the CBB on 9 May 2013)
Mr. Janahi has more than 28 years of banking experience in Accounting, Commercial and Mr. Al-Qassimi has more than 31 years of
experience. Offshore Banking. diversified management experience.
He is Group Chief Executive Officer of Dar He was Chief Executive Officer of Ithmaar Bank His previous positions include Chief Executive
Al-Maal Al Islami Trust (DMI Trust), Chairman from July 12, 2010 to August 31, 2013, and of the Labour Fund (Tamkeen), from which
of Faisal Private Bureau (Switzerland), DMI has been a Member of the Ithmaar Bank Board he resigned in May 2010, Deputy Chief
Administrative Services, Islamic Investment of Directors since March 2010. He is also a Executive Officer of Labour Fund Project at
Company of the Gulf (Bahamas) Ltd., Solidarity Member of the Bank’s Executive Committee. the Bahrain Economic Development Board,
Group, Naseej and Ithmaar Development Previously, Mr. Bucheerei served as the Assistant Undersecretary for Training at the
Company, Bahrain. General Manager of the Private Offices of Bahrain Ministry of Labour and Social Affairs,
He is also the Chairman of the Executive HRH Prince Mohamed Al Faisal Al Saud, Saudi Director of Engineering and Maintenance
Committee and Member of the Board of Saudi Arabia, and Executive Vice-President, Shamil at the Bahrain Ministry of Health. He has
Takaful Company, Saudi Arabia. Bank of Bahrain. also served as the Chairman of the Bahrain
Qualifications Framework Steering Committee
Mr. Janahi is a member of the Board of He currently serves on the Boards of Islamic
and the Steering Committee of Career Expo
Faisal Islamic Bank of Egypt and the Centre Investment Company of the Gulf (Bahamas
and was a Board member of the Bahrain
for International Business and Management and Sharjah) Limited, Faysal Bahamas Limited,
Society of Engineers and the Bahrain Consumer
(CIBAM) at the University of Cambridge. Crescent International Limited (Bermuda), DMI
Protection Society.
He had earlier served as Chairman of the (Jersey) Limited, MFAI (Jersey) Limited, Gulf
Investors Asset Management Company (Saudi He is currently a Member of the Board of
Board of Directors of First Leasing Bank,
Arabia), Cantara S.A . (Switzerland), Abudhabi Tamkeen, Solidarity Group Holding, Durah
Bahrain; Chairman of the Executive Committee
Investment House (Abudhabi), Al Areen Palace Resort Management Company, Naseej BSC,
of the Bank of Bahrain and Kuwait; a Member
Hotel (Bahrain), Lost Paradise of Dilmun Faysal Bank Limited (Pakistan) and the Bahrain
of the Economic Development Board of
(Bahrain) and Overland Capital Group, USA. Development Bank, as well as a Member
Bahrain; Chairman of the Executive Committee
of the Committee for HRH Princess Sabeeka
of the Board of Directors of Faysal Bank He studied accounting, mathematics and
bint Ibrahim Al Khalifa’s Award for Women
Limited (Pakistan); and Vice Chairman of the economics at Gulf Polytechnic, Bahrain.
Empowerment (Supreme Council for Women,
Arab Business Council, as well as a Member of
SCW).
the Board of the Bahrain Stock Exchange, the Nabeel Khaled Mohamed Kanoo
Accounting and Auditing Standards Board for Mr. Al-Qassimi holds a BSc in Civil Engineering
Independent, Non-Executive Board Member
Islamic Banks and Financial institutions, the from Queen Mary College, University of
Elected 28 March 2010 and 31 March 2013 London, UK, and MSc in Health Facility Planning
Bahrain Academic Qualification Accreditation
(approved by the CBB on 9 May 2013) from the University of North London, UK, and a
Committee and the Public Accounting
Standards Setting Committee in Bahrain. Mr. Kanoo has more than 16 years of business Diploma in Health Care Management from the
and management experience. Royal College of Surgeons in Ireland, Bahrain.
He holds a Bachelor of Science degree in
Computer Science & Accountancy from the He is Director of Public Relations and
University of Manchester, UK; and is a Fellow Marketing of YBA Kanoo as a group, a Director
of the Institute of Chartered Accountants in of YBA Kanoo’s Saudi Arabia Board, a Director
England and Wales. of YBA Kanoo’s Bahrain Board, a Director of
Kanoo Travel Co. UK and France, a Director of
Kanoo and El-Shabrawy Ltd. Co. Egypt, and
a Board Member of the Bahrain Chamber of
Commerce.
Mr. Kanoo holds a Bachelor of Business
Management Degree from St. Edwards
University, Austin, Texas.
22 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

BOARD OF DIRECTORS
CONTINUED

Imtiaz Ahmad Pervez Committees of Solidarity General, Solidarity Social Development and the Arab Authority for
Non-Executive Board Member Family, Shamil Bank and Faysal Bank Limited Agriculture and Investment where he was also
Appointed 15 July 2012 and Elected 31 March (Pakistan) as well as a Director and Chairman the CFO. He has served these two institutions
2013 (approved by the CBB on 9 May 2013) of the Audit Committee at Citic International for seven years.
Assets Management Limited (Hong Kong). Mr. Ali is a Certified Accountant, Leeds
Mr. Pervez has more than 36 years of banking Mr. Walker was earlier Chief Operating Officer
experience. College of Commerce, UK, and a Fellow of the
at Foreign & Colonial Management Limited Association of Chartered Certified Accountants.
He has previously served on the Boards of and Deputy Managing Director of Standard
AlBaraka Bank Pakistan Limited, Faysal Islamic Chartered Equitor Limited.
Bank of Bahrain, Faysal Investment Bank Mr. Walker qualified as a Chartered Accountant
of Bahrain EC., Faysal Bank Ltd., Pakistan, and is a member of the Institute of Chartered
Al Faysal Investment Bank Ltd., Pakistan, Accountants of Scotland.
Trust Leasing Corp. Limited, and Namco
Management Company Ltd.
Omar Abdi Ali
He has also held many senior positions in Non-Executive Board Member
the banking industry, including those of Chief
Elected 31 March 2013 (approved by the CBB
Operating Officer of the Faysal Islamic Bank of
on 9 May 2013)
Bahrain EC, and Chief Executive Officer of Al
Faysal Investment Bank Ltd., Pakistan. Mr. Ali has more than 46 years of experience
in financial and general management in
Mr. Pervez holds a BA degree from University
development as well as commercial and
of the Punjab, Pakistan, and is a Fellow of the
investment banking in Africa, the Middle East
Institute of Islamic Banking and Insurance,
and Europe. He is Founder and Chairman of
London.
the Board of Directors of Quadron Investments
Co. Ltd. (Sudan) and Integrated Property
Graham R. Walker Investments (United Kingdom and Tanzania).
Non-Executive Board Member
Previously, Mr. Ali served at Dar Al-Maal Al-
Elected 31 March 2013 (approved by the CBB Islami Trust (DMI – Trust) where he was Chief
on 9 May 2013) Executive Officer and Chief Operating Officer
Mr. Walker has more than 46 years of from 1986 to 1999 and, before that, Executive
experience in banking and financial Vice-President Finance and Vice-President
services. He has a strong record in General in charge of Internal Audit from 1983 to
Management, Finance and Strategic Planning 1986. Prior to his DMI appointments, Mr. Ali
gained internationally in banking, securities was Director of Finance and Chief Financial
and investment management. Officer at the Arab Authority for Agricultural
Mr. Walker served as Finance Director and Investment and Development (Sudan).
a member of the Executive Committee at He is currently a member of the Board of
Ithmaar Bank from 2003 to 2008. directors of Faisal Islamic Bank of Egypt and
Previously, Mr. Walker served at Dar Al- serves as chairman of the Audit and Risk
Maal Al- Islami Trust (DMI Trust) where he Committees of the Board. He has served in the
was Executive Vice President, Group Head African Development Bank for ten years and
of Finance and Risk Management. He also his last post there was CFO of the Bank. He has
served as Director and member of the Audit also served in the Arab Fund for Economic and
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 23

SHARIA SUPERVISORY
BOARD

Sheikh Abdullah Sulaiman Al Manee’a Sheikh Yaqouby holds a Bachelor degree in of Sharia Supervisory Boards in many other
Chairman economics and comparative religions from Banks in Bahrain and abroad. Sheikh Bahar
Sheikh Al Manee’a is a prominent, highly- McGill University, Canada. He has authored a holds a Doctorate from Lahaye University in
respected Sharia scholar from the Kingdom of large number of books. the Netherlands, a Master’s degree from Al
Saudi Arabia. He is the Vice Chairman of the Emam Al Awzae University in Lebanon, and a
Sharia Board of the Accounting and Auditing Sheikh Mohsin Al-Asfoor Bachelor’s degree in Islamic Sharia from Prince
Organisation for Islamic Financial Institutions Member Abdul Qader Al Jaazaeri University of Islamic
(AAOIFI) and a member of the Senior Scholars Studies in Algeria.
Sheikh Al-Asfoor is a well-known and highly-
Council of the Kingdom of Saudi Arabia and the respected Sharia scholar from the Kingdom of
Awqaf Supreme Council. He is also Chairman Bahrain. In addition to his membership of the
or a member of the Sharia Supervisory Boards Ithmaar Bank Sharia Advisory Board, he serves
of several other Islamic banks and financial on the Sharia Advisory Boards of six other
institutions. companies. He has previously been a judge at
An expert at the Islamic Fiqh Academy, Sheikh the Supreme Sharia Court of Appeal (Jaafari).
Al Manee’a holds a Master’s degree from the Sheikh Al-Asfoor is a member of Curriculum
Higher Institute for Judgment and has authored Development at the Jaafari Religious Institute
several books including ‘Paper Money: Truth, as well as the Sharia Board of the International
History and Reality’ and ‘Economic Research’. Islamic Rating Agency of the Islamic
Development Bank. He is a graduate of Islamic
Sheikh Dr. Nedham Yaqouby Hawza from Qom, Iran and has authored more
Member than 60 books on Islamic Sharia.
Sheikh Yaqouby is a prominent, highly-
respected Sharia scholar and a successful Sheikh Dr. Osama Mohammed Saad
businessman from the Kingdom of Bahrain. Bahar
He is a member of the Sharia Board of the Member
Accounting and Auditing Organisation for Sheikh Bahar is a well-known, highly-
Islamic Financial Institutions (AAOIFI), and respected Sharia scholar from Bahrain.
is also a member of the Sharia Supervisory
He is currently a Sharia member and Head of
Boards of several regional and international
the Sharia Compliance and Advisory at First
banks as well as many investment funds
Energy Bank, following earlier senior positions
around the world.
at Islamic banks in Bahrain including Head
In 2007, the King of Bahrain, His Majesty King of Sharia Compliance at Al Salam Bank and
Hamad bin Isa Al Khalifa, awarded Sheikh before that, Sharia Compliance Officer at ABC
Yaqouby the Order Merit in recognition of Islamic Bank.
his services in Bahrain and abroad. Sheikh
Sheikh Bahar is also a chairman of the
Yaqouby has also received the Euromoney
Sharia Supervisory Boards of several Banks
award for Innovation in Sharia Supervision, as
in the Kingdom of Bahrain and a member
well as the Malaysian Islamic Banking award.
24 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

EXECUTIVE
MANAGEMENT

Ahmed Abdulrahim Ravindra Anant Khot Prior to his current appointment, he was the
Chief Executive Officer Chief Operating Officer Ithmaar Bank Assistant General Manager, Head
Ahmed Abdulrahim has more than 36 years of Ravindra Khot, who was appointed the Ithmaar of Private Banking, and led the investment
retail banking experience. Bank Chief Operating Officer in September placement and private banking activities.
He currently serves as Vice Chairman of Faysal 2013, has more than 29 years of banking Prior to Ithmaar Bank’s reorganisation with its
Bank Limited (Pakistan) and Board member of and finance experience. Prior to his current then wholly-owned subsidiary, Shamil Bank,
Solidarity Group Holding, The Benefit Company appointment, he was the Ithmaar Bank Chief and its subsequent transformation into an
B.S.C and Injaz Bahrain. Financial Officer. Islamic retail bank, Mr. Al-Mutawa held several
Mr. Khot had previously held many senior other senior positions at the Bank, including
Prior to his appointment as Ithmaar Bank Chief Head of Private Banking at Shamil Bank, as
Executive Officer, he was the Ithmaar Bank positions both in Bahrain and abroad.
well as other senior positions in investment
General Manager, Retail Banking, and has held He was Vice President, Financial and corporate banking.
several other senior positions at the Bank since Administration at TAIB Bank, Bahrain;
2006. Senior Manager, Assurance and Advisory at Mr. Al-Mutawa spent more than 12 years in a
PricewaterhouseCoopers, Bahrain; Principal commercial capacity in the airline and aviation
Prior to Ithmaar Bank’s reorganisation with its industry. In his early career, he was a practicing
then wholly-owned subsidiary, Shamil Bank, Consultant, Financial Services, Consulting at
Oracle Financial Services (erstwhile i-flex engineering.
Mr. Abdul Rahim held the dual roles of Ithmaar
Bank Chief Operating Officer and Shamil Bank Solutions Ltd), India; and Senior Vice President, Mr. Al-Mutawa holds an MBA from the
Deputy Chief Executive Officer. Group Financial Controller at Bahrain Middle University of Bahrain and a Bachelor degree
East Bank BSC, Bahrain. in engineering from the University of Texas at
Mr. Abdul Rahim held senior positions at Austin.
the National Bank of Bahrain (NBB) before Mr. Khot is a Fellow Chartered Accountant
his Ithmaar Bank appointments. His NBB (FCA), the Institute of Chartered Accountants As General Manager, Retail and Private
appointments included Manager FX and of India, and holds a Bachelor of Commerce, Banking, his responsibilities include, among
Funding, Chief Internal Auditor and, later, (Financial Accounting) from the University of other things, the performance of the
Assistant General Manager, Corporate Services. Mumbai, India. Bank’s Retail Banking including the Product
As the Ithmaar Bank Chief Operating Officer, his Management and Development department;
He holds an MBA from the University of Private Banking, including Shareholder Affairs;
Glamorgan, Wales (UK), and is an Associate responsibilities include, among other things,
the performance of the Bank’s Operations, and Marketing Communications.
in Financial Accounting from the Institute of
Financial Accountants, London (UK). He also Information Technology and Administration,
holds an Executive Management Diploma from as well as the Financial Control, Asset Abdulrahman Mohammed Al Shaikh
Management, Remedial Management and General Manager, Banking Operations,
the University of Bahrain and an Advanced
Collection, Corporate Secretary and Legal, and Information Technology and
Banking Diploma from the Bahrain Institute of
Corporate Communications departments. Administration
Banking and Finance.
Abdulrahman Al Shaikh, who was appointed
As the Ithmaar Bank Chief Executive Officer,
his responsibilities include, among other Abdulhakeem Khalil Al Mutawa the Ithmaar Bank General Manager, Banking
General Manager, Retail & Private Banking Operations, Information Technology and
things, execution of strategic plans set by the
Abdulhakeem Al Mutawa, who was appointed Administration in September 2013, has almost
Board of Directors from time to time and that
the Ithmaar Bank General Manager, Retail and 40 years of banking experience.
the Bank is run in an efficient and effective
manner in compliance with the laws, rules Private Banking in September 2013, has more Prior to his current appointment, he was the
and regulations. He is also responsible for than 30 years of management and banking Ithmaar Bank Assistant General Manager,
the performance of the Bank’s executive experience. Banking Operations Department. Mr. Al Shaikh
management team. has held many senior positions at Shamil Bank,
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 25

including Head of the Banking Operations He holds an Advanced Diploma in Banking and Rafed Ahmed Al Mannai
Department; Head of the Banking Operations Finance, from the Bahrain Institute of Banking Head, Private Banking
Department and Information Technology; and and Finance. Rafed Al Mannai, who was appointed Head of
Assistant Vice President, Banking Operations As Assistant General Manager, Retail Banking, Ithmaar Bank’s Private Banking Department in
Department. his responsibilities include, among other May 2014, has 14 years of banking experience.
Prior to joining Shamil Bank, Mr. Al Shaikh held things, the performance of the Bank’s Retail Mr. Al Mannai joined Shamil Bank, then a
various senior positions at Bank of America, Banking activities, including the performance wholly-owned subsidiary of Ithmaar Bank, in
Bahrain, including Assistant Vice President, of the Product Management and Development May 2007 as a Manager in the Private Banking
Operations Manager; Head of Letter of Credit; department. Department before moving to Ithmaar Bank’s
and Head of FX Processing Department. He Private Banking Department in September
started his career in 1976 at Habib Bank. Yousif Abdulla Alkhan 2008.
Mr. Al Shaikh holds a Commercial Diploma Assistant General Manager, Information
Prior to joining Shamil Bank, Mr. Al Mannai
from Bahrain. Technology
was Product Development Manager in the
As General Manager, Banking Operations, Yousif Alkhan, who was appointed the Ithmaar Cards and Distribution Department of the
Information Technology and Administration, his Bank Assistant General Manager, Information National Bank of Bahrain from 2001 to 2007.
responsibilities include, among other things, Technology in July 2008, has more than 25
Mr. Al Mannai holds a Bachelor of Science
the performance of the Banking Operations, years of experience.
degree in Architectural Engineering from
Information Technology and Administration Prior to his current appointment, he was the University of Bahrain, and a Master of
departments. the Assistant General Manager, Information Commerce degree in Information Systems from
Technology at Shamil Bank, prior to its the University of Queensland.
Mohammed Hasan Janahi reoganisation with Ithmaar Bank.
As Head of Private Banking, his responsibilities
Assistant General Manager, Retail Banking Mr. Alkhan has held many senior positions include, among other things, the performance
at Shamil Bank and its predecessor, Faysal of the Private Banking department.
Mohammed Janahi, who was appointed the
Islamic Bank of Bahrain. He started his career
Ithmaar Bank Assistant General Manager,
as a Computer Programmer at the Information Abdulla Abdulaziz Ali Taleb
Retail Banking in August 2008, has almost 30
Technology Department of Faysal Islamic Bank Head, Commercial and International
years of experience.
of Bahrain in 1989, and has since developed Banking Department
Prior to his current appointment, he was the his career within the Bank.
Assistant General Manager, Retail Banking, at Abdulla Abdulaziz Ali Taleb, who was
He was with the Corporate Banking appointed Head of Ithmaar Bank’s Commercial
Shamil Bank, prior to its reoganisation with
department for a year but has, otherwise, and International Banking Department in July
Ithmaar Bank.
focused on his Information Technology career, 2014, has 14 years of banking experience.
Mr. Janahi has held many senior positions at becoming first Assistant Vice President,
Shamil Bank and, before that, at BBK. then Resident Vice President before being Prior to joining Ithmaar Bank in January 2014
promoted, first to Vice President then Senior as Senior Manager, Corporate Banking, Mr.
He joined Shamil Bank in 2002 as Manager,
Manager at the Information Technology Taleb was a Relationship Manager at the
Retail Banking, before being promoted, first to
Department. Mr. Alkhan was appointed Islamic Financial Services Department of BMI
Senior Manager, Retail Banking in 2006, then
as Head of the Information Technology Bank from January 2014. Before that, he was
to Assistant General Manager in 2008. Prior to
Department in 2005, and in 2008 promoted to a Senior Associate at the Capital Markets
joining Shamil Bank, Mr. Janahi was Head of
Assistant General Manager. Department of the First Investment Bank from
Branches Administration and Collection Unit at
June 2008 to December 2010.
BBK which he had joined in 1985. He holds a Bachelors in Computer Science from
the University of Bahrain, and an MBA from
AMA International University, Bahrain.
As Assistant General Manager, Information
Technology, his responsibilities include,
among other things, the performance of the
Bank’s Information Technology systems and
strategies.
26 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

EXECUTIVE MANAGEMENT
CONTINUED

He was, earlier, a Senior Officer at the He started his career in 1987 as an Accountant Ahmed Baluch Abdulhameed
Investment Banking Department of Shamil in the Reserve Directorate of the Bahrain Head, Risk Management Department
Bank from 2005 to 2007, after working in the Monetary Agency (BMA) which later became Ahmed Abdulhameed, who was appointed
Credit and the Islamic Finance departments of the Central Bank of Bahrain, before becoming Head of Ithmaar Bank’s Risk Management
Khaleeji Finance and Investments from 2001 a Dealer at the BMA Dealing Room in 1989. Department in February 2015, has 14 years of
to 2003. Mr. Al-Sowaidi holds a B.Sc. In Business banking and finance experience.
Mr. Taleb holds a B.Sc. in Banking and Finance Administration from the University of Bahrain, Mr. Abdulhameed joined Ithmaar Bank in July
from Kingdom University, and an Advanced and a Master of Business Administration 2008 as a Manager in the Risk Management
Diploma in Islamic Banking from the Bahrain (Financial Management) from the University and Compliance Department, and was
Institute of Banking and Finance (BIBF). of Hull. promoted to Senior Manager in the same
As Head of the Commercial and International As Head of the Treasury and Financial department in September 2010.
Banking Department, his responsibilities Institutions Department, his responsibilities Prior to joining Ithmaar Bank, he was a
include, among other things, setting up the include, among other things, the liquidity Manager in the Financial Services Risk
strategies pertaining to, and the performance management and relationship building with Management Department of Ernst and
of, the Commercial and International Banking banks and financial institutions. Young Middle East and, before that, a Senior
department. Associate in the Risk Advisory Services
Saqib Mahmood Mustafa department of KPMG Fakhro Bahrain. Prior to
Ahmed Khamis Abdulla Al-Sowaidi Head, Financial Control Department that, he was Senior Risk Analyst (Team Leader-
Head, Treasury and Financial Institutions Saqib Mustafa, who was appointed Head of Credit Risk Management Team) at United Bank
Department Ithmaar Bank’s Financial Control Department Limited, and before that, Assistant Director
Ahmed Al-Sowaidi, who was appointed Head in May 2014, has 16 years of banking and of the Banking Supervision Department (Risk
of Ithmaar Bank’s Treasury and Financial finance experience. Management Division) of the State Bank of
Institutions Department in February 2015, has Mr. Mustafa has been with the Ithmaar Bank Pakistan where he started his career, in 2001,
28 years of banking and finance experience. Financial Control Department since he joined as Assistant Director at the Banking Inspection
Mr. Al-Sowaidi joined Shamil Bank in 2000 as the Bank in April 2007. Prior to joining Ithmaar Department.
an Assistant Manager in the Bank’s Financial Bank, he was a Senior Auditor in the Financial Mr. Abdulhameed holds a Master of Business
Institution and Treasury Department before Services Group of Ernst & Young (Bahrain) from Banking and Finance from Monash University
being promoted, in 2006, to Manager in the December 2004 to 2007, and before that, he (Australia), and an MBA in Finance and
same department. Following the Ithmaar- was a Supervisory Senior in the Assurance Accounting from the Institute of Business
Shamil Bank reorganization in 2010, Mr. Division at KPMG Karachi (Pakistan). Administration (IBA) (Pakistan). He is a
Al Sowaidi joined Ithmaar Bank and was Mr. Mustafa holds a Bachelor of Commerce Member of the Certified Practising Accountants
promoted in 2011 to Senior Manager at the from Karachi University (Pakistan) and is (CPA) Australia, and he also is a Certified
Financial Institution and Treasury Department a Member of the Institute of Chartered Financial Risk Manager (FRM) from Global
and, in 2012, to Executive Senior Manager at Accountants of England & Wales (ICAEW), a Association of Risk Professionals (GARP).
the Treasury Department. Fellow Member of the Association of Chartered As Head of the Risk Management department,
Prior to joining Shamil Bank, Mr. Al-Sowaidi Certified Accountants (ACCA), and a Certified his responsibilities include, among other
was Assistant Manager at the Institutional Islamic Professional Accountant (CIPA). He also things, setting the appropriate policies and
Marketing Department of the Islamic holds an International Certificate in Banking procedures for the various functions, ensuring
Investment Company of the Gulf (IICG) where Risk & Regulation (ICBRR). that the Bank works within approved risk
he was, earlier, an Equity Trader in the Capital As Head of the Financial Control department, framework; highlighting areas of risks to the
Markets Department and, before that, an his responsibilities include, among other management and the Board, and monitoring
Accountant in the Operations Department. things, the performance of the Financial the performance of the Risk Management
Control department. department in general.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 27

Hana Ahmed Al Murran after the business process re-engineering, Prior to his current appointment, Mr. Raouf
Head, Compliance and AML Department strategic financial advisory and corporate was Senior Manager, Public Relations, at
Hana Al Murran, who was appointed Head restructuring areas. Ithmaar Bank, which he joined in 2008.
of Ithmaar Bank’s Compliance and Anti Mr. Ijlal, a Chevening scholar, holds MBA Prior to his Ithmaar Bank appointments, he
Money Laundering (AML) Department in degrees from the Institute of Business was Head of Corporate Communications at
February 2015, has 12 years of banking Administration, Karachi, and Management Aluminium Bahrain (Alba) which he joined
and finance experience. School, University of Bath. in 2004 and, before that, Deputy Features
Editor at the Bahrain Tribune which he
Prior to her Ithmaar Bank appointment, As Head of Asset Management, his
joined in 1997.
Ms. Al Murran was Head of Retail Islamic responsibilities include managing and
Banking Supervision at the Central Bank of monitoring assets in excess of USD 1 billion Mr. Raouf holds a B.Sc. in Computer Science
Bahrain (CBB) where she has held several spread over GCC, Asia, USA and Central and from the University of Bahrain.
key position since joining in 2004. Prior to Eastern Europe. As Head of Marketing & Corporate
joining the CBB, she worked for Bahrain Communications, his responsibilities
Islamic Bank at the Corporate Banking Dana Aqeel Raees include, among other things, the
Department from 2003 to 2004. Head of Legal and Company Secretary performance of the Marketing & Corporate
Ms. Al Murran holds a B.Sc. in Banking and Dana Raees, who was appointed Head Communications department.
Finance from the University of Bahrain and of Ithmaar Bank’s Legal Department and
an MBA from the University of Strathclyde Company Secretary in May 2014, has 10 Enas Mohammed Rahimi
Business School, as well as a Treasury and years of legal experience. Head, Human Resources
Capital Markets Diploma from the Bahrain Prior to her current appointment, Ms. Enas Rahimi, who was appointed Head
Institute of Banking & Finance (BIBF). Raees was Executive Senior Manager, Legal of Ithmaar Bank’s Human Resources
As Head of the Compliance and AML Department, at Ithmaar Bank, which she Department in March 2015, has 14 years
department, her responsibilities include, joined in 2006. Prior to her Ithmaar Bank of management and human resource
among other things, ensuring that the Bank appointments, she worked with Trowers & experience.
complies with the relevant laws, guidelines Hamlins LLP, UK, and trained at Sheppard Prior to her current appointment, Ms.
and regulations, including that relating to Mullin Richter & Hampton LLP, USA. Rahimi was Manager, Human Capital
Anti-money laundering. Ms. Raees holds a Bachelor of Laws (LLB), Development, at Ithmaar Bank which
UK, a Post Graduate Diploma in Legal she joined in 2005, then Shamil Bank, a
Muhammed Wasif Ijlal Practice (LPC) , UK, and is admitted as a wholly-owned subsidiary of Ithmaar Bank.
Head of Asset Management Solicitor in the Senior Courts of England and Prior to that, she was a Management
Muhammed Ijlal, who was appointed the Wales. Analyst at the Ministry of Education which
Ithmaar Bank Head of Asset Management As Head of Legal and Company Secretary, she joined in 2003 and, before that, an
in May 2014, has almost 20 years of her responsibilities include, among other Instructor at the Bahrain Training Institute
investment banking and capital markets things, the performance of the Legal which she joined in 2001.
experience. department as well as serving as the Ms. Rahimi holds an MBA, with a
Prior to his current appointment, he Company Secretary. specialization in Project Management, from
was Executive Senior Manager, Asset AMA International University, Bahrain, and
Management at Ithmaar Bank. Mr. Ijlal Taimour Raouf a BSc. in Banking and Finance from the
joined Shamil Bank, then a wholly-owned Head, Marketing & Corporate University of Bahrain.
subsidiary of Ithmaar Bank, in 2006. Communications As Head of Human Resources, her
Prior to his Shamil Bank appointment, he Taimour Raouf, who was appointed Head responsibilities include, among other
was Country Manager at Elixir Securities of Ithmaar Bank’s Marketing and Corporate things, the performance of the Human
Pakistan (formerly Credit Agricole Indosuez Communications Department in September Resources department.
Securities) which he joined in 2004. Prior to 2013, has 18 years of communications
that, he was Director of Business Consulting experience.
at Deloitte & Touche Pakistan, looking
28 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE
GOVERNANCE
CORPORATE GOVERNANCE

Ithmaar Bank complies with the High Level Controls Module of the The Board’s adherence to corporate governance practices is
Rulebook issued by the Central Bank of Bahrain and the Corporate underlined by various principles, such as integrity, transparency,
Governance Code of the Kingdom of Bahrain. independence, accountability, responsibility, fairness, Sharia
principles and social responsibility.
The Bank’s Corporate Governance Policy provides guidance on
engaging with our stakeholder groups. It is based on the Central Moreover, the Bank’s corporate governance policies are designed
Bank of Bahrain’s Rulebooks on High Level Controls and Public to lay a solid foundation for the executive management and
Disclosures, the Bank’s Articles and Memorandum of Association, the the Board of Directors in managing the Bank, promote ethical
Bahrain Commercial Companies Law, Islamic Financial Services Board and responsible decision-making, safeguard integrity in financial
recommendations, AAOIFI standards and international best practices reporting, make timely disclosures, respect the rights of
where applicable. shareholders, recognize and manage risk, encourage enhanced
performance, remunerate fairly and responsibly and recognize the
Recognizing its fundamental stewardship role towards its
legitimate interest of stakeholders. The Bank’s written Code of Ethics
shareholders, it is the Bank’s policy to treat its shareholders, major
and Business Conduct that binds all employees, members of the
and minor, equally and fairly in line with the governing laws and
Sharia Supervisory Board and Directors, lends further weight to the
regulatory guidelines. The overarching goal of the Bank is to ensure
practical implementation of our stated policies.
sustainable growth with due consideration to both current and
future risks, and thereby generate optimum value to shareholders The Bank’s Corporate Governance policy is posted on the Bank’s
over the long-term. The Bank adheres to Sharia principles in striking website.
a balance between the interests of its various stakeholders.
BANK ADMINISTRATION
The Bank respects a business approach that is transparent, honest
and fair. It has established various written policies such as the Code The Bank is administered by the Board of Directors and the Sharia
of Ethics and Business Conduct, Anti-Money Laundering and Whistle- Supervisory Board, and, for day-to-day matters, by the Executive
Blowing Policy for strict adherence by Directors, executives and Management.
employees at all levels. These are distributed as guidelines through
multiple internal communication channels of the Bank.

The Board’s adherence to corporate governance practices is

underlined by various principles, such as integrity, transparency,
independence, accountability, responsibility, fairness, Sharia
principles and social responsibility.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 29

ORGANISATION CHART

Sharia Supervisory
Executive Committee Board of Directors
Board

Audit & Governance Remuneration & Sharia Compliance

Risk Policy Committee Officer
Committee Nomination Committee

Chief Executive
Internal Audit Compliance & AML
Officer

Risk Management

Chief Operating Officer

Banking Operations, Commercial &

Retail & Private Banking
IT and Administration International Banking Human Resource Treasury & Financial
Development Institutions
Information Retail Banking
Technology
Product Management &
Banking Operations Corporate Banking Development

Marketing & Corporate

Administration SME Banking
Communications

Financial Control International Banking Private Banking

Asset Management Qatar Rep. Office Shareholder Affairs

Remedial Management
& Collections

Corporate Secretary
& Legal

Notes:

For Remedial Management related matters, the Head of Remedial Management & Collections reports to the Chief
Operating Officer and, for Collections, reports to the Head of Retail Banking.
For Corporate Secretarial related matters, the Corporate Secretary reports to the Chairman of the Board of
Directors and, administratively, reports to the Chief Executive Officer.
For Corporate Communications related matters, the Head of Marketing & Corporate Communications reports to the
Chief Operating Officer and, for Marketing Communications, reports to the Head of Retail & Private Banking.
30 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE GOVERNANCE
CONTINUED

BOARD OF DIRECTORS financing exceeding certain limits, including business relationship

The Board of Directors comprises twelve members of whom five are with connected counterparties, require the Board’s approval.
independent. The Board is headed by a Chairman.
All transactions that require Board approval have been approved
The Board of Directors is accountable to the shareholders for setting by the Board as per applicable regulations. The Board of Directors’
the broad policy guidelines and strategic direction and the creation functions, mandate, appointment, responsibilities and terminations
and delivery of strong, sustainable financial performance and long- are governed by the Articles of Association of the Bank which
term shareholder value. The Chairman is responsible for leading the complies with applicable statutory and regulatory structures. Board
Board and ensuring its effectiveness. members serve three year terms, unless reinstated.

The Board’s role includes the task of monitoring management in The next election of Directors will take place during the next Annual
such a manner as to ensure that appropriate policies and processes General Meeting of the Bank in March 2016.
are in place, that they are operating effectively, and that the Bank is
STRUCTURE AND COMPOSITION OF THE BOARD
meeting its plans and budget targets.
The Bank is administrated at the high level by a Board of Directors.
The Board of Directors duties and responsibilities are documented in The actual size of the Board is determined by the shareholders
the Bank’s Corporate Governance Policy, and include, inter alia, the in the General Meetings based on recommendations from the
following responsibilities: Corporate Governance Committee. In all cases the size of the Board
is subject to the Bank’s Articles of Association and the rules and
• Set the Bank’s strategic direction procedures decreed by the Ministry of Industry and Commerce and/
• Overall responsibility for the performance of the Bank or the Central Bank of Bahrain.
• Select, appoint and evaluate the Executive Management
DUTIES OF DIRECTORS
• Review management performance and compensation
Directors, individually and collectively, are bound by distinct
• Review management structure and succession planning fiduciary duties to the Bank. Directors owe their fiduciary duty to the
• Advise and counsel management Bank as a corporate being in its own right and not just individual
• Monitor and manage potential conflict of interest shareholders and/ or group of shareholders. These duties apply to
all Directors whether they are representing (appointed by) major
• Ensure the integrity of the financial information
shareholders or are elected as an Independent Director.
• Monitor the effectiveness of the governance and compliance
practices The main duties that Directors owe the Bank are the duty of
• Timely and adequate disclosures obedience, the duty of care and the duty of loyalty.
• Ensure effective risk management and internal control measures Duty of Obedience
• Arrange shareholders’ general meetings Directors are required to act in accordance with the Bank’s rules
• Ensure equitable treatment of minority shareholders and policies and in furtherance of its goals as stated in the mission
statement and Memorandum & Articles of Association. In addition,
Some of the responsibilities of the Board of Directors are delegated Directors must comply with all relevant laws and regulations.
to the Committees of the Board. The duty of obedience forbids acts outside the scope of internal
authorities, powers and limits.
The Board of Directors has drawn a ‘Business Discretionary Powers’
policy which outlines authorities and approval powers for the
Board and the Executive Management. These powers conform to
the provisions of the Article and Memorandum of Association. In
general, all business decisions relating to strategic investment, and
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 31

Duty of Care The Remuneration and Nomination Committee reviews annually

Directors are under duty to exercise the same care that an ordinary, the composition and performance of the Board of Directors. The
prudent person would exercise in a like position or under similar Remuneration and Nomination Committee’s duties in relation to
circumstances. In complying with this duty, Directors are expected to the composition and performance of the Board of Directors include,
among other things, assessing the skills required for the Board of
• Attend all Board meetings. At a minimum, Directors are expected
Directors to competently discharge its responsibilities and meet
to attend not less than 75 percent of all scheduled Board
its objectives as well as developing and implementing a plan
meetings.
to identify, assess and enhance Directors’ competencies. In the
• Consider all material information reasonably available and/or event of a vacancy on the Board of Directors, the Remuneration
seek relevant information prior to making a business decision and Nomination Committee shall make recommendations to
relating to the issue. Directors have the rights of access to the the Board of Directors for the appointment of a Director, which
Executive Management and/or advisors when in doubt. recommendation shall be made pursuant and subject to the legal
and regulatory requirements in place.
Duty of Loyalty
This duty requires Directors to act solely in the best interest of the All Directors receive a letter of appointment signed by the Chairman
Bank, free of any self-dealing, conflicts of interest, or other abuse of in which relevant information, including responsibilities, are
the principal for personal advantage. Directors are barred from using described. Directors also receive a copy of the Bank’s Code of Ethics
Bank properties or assets for their personal pursuits, insider trading, and Business Conduct.
or taking business opportunities for themselves. This duty also
requires Directors to retain the confidentiality of information that is BOARD INDUCTION PROGRAMME
explicitly deemed confidential by the Bank, as well as information The Company Secretary provides sufficient information to newly
that appears to be confidential from its nature or matter. appointed or elected Board members including a discussion of the
Corporate Governance Principles of the Bank and the Code of Ethics
The Bank provides insurance to indemnify Directors for negligence, and Business Conduct. These Board members are also received by
default, breach of duty or breach of trust provided such breach has the Chief Executive Officer of the Bank who provides them with
occurred in good faith. details on the structure of the Bank, strategic and business plans,
the past financial performance and outstanding issues. Newly
The above duties are detailed in the Bank’s Code of Ethics and
appointed members also meet with, and receive presentations
Business Conduct policy approved by the Board.
from, the Heads of various departments at the Bank. The Board is
DIRECTORS’ ELECTION AND EVALUATION SYSTEM continuously kept abreast of new regulations and laws.
Any shareholder who owns 10 percent or more of the capital of DIRECTORS’ REMUNERATION
Ithmaar Bank shall have the right to appoint a representative on the
Board of Directors of Ithmaar Bank. In the event that a shareholder Directors’ sitting fees for 2014 amounted to US$348,000 (2013:
exercises this right, such shareholder shall lose the right to vote US$213,500). Sharia Supervisory Board retention fee amounted to
for the percentage for which the shareholder has appointed a US$60,000 (2013: US$60,000) and their sitting fees for 2014 was
representative on the Board of Directors. US$25,000 (2013: US$19,000).

Subject to the foregoing, the General Assembly shall elect members

of the Board of Directors by a secret ballot. The members shall be
elected by the relative majority of valid votes.

All appointments to the Board of Directors are governed by and

subject to Ithmaar Bank’s Memorandum & Articles of Association,
the Code of Ethics and Business Conduct, the Corporate Governance
Policy and laws, rules, regulations, policies and charters in place as
amended from time to time.
32 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE GOVERNANCE
CONTINUED

REMUNERATION RELATED DISCLOSURES The Banks remuneration policy in, particular, considers the role of
The Banks total compensation policy, which includes the variable each employee and has set guidance depending on whether an
remuneration policy, sets out the Banks’s policy on remuneration employee is a Material Risk Taker and/or an Approved Person in
for senior management and the key factors that were taken into business line, control or support functions. An Approved Person is
account in setting the policy. During the year, the Bank has adopted an employee whose appointment would require prior regulatory
the Sound Remuneration Practices issued by the Central Bank of approval because of the significance of the role within the Bank,
Bahrain and requires revisions to its existing variable remuneration and an employee is considered a Material Risk Taker if they head
policy. significant business lines and if any individuals within their control
have a material impact on the Bank’s risk profile.
The key features of the revision to the existing policy are
summarised below. In order to ensure alignment between what we pay our people
and our business strategy, we assess individual performance
Remuneration strategy against annual and long-term financial and non-financial objectives
It is the Bank’s basic compensation philosophy to provide a summarised in line with our performance management system.
competitive level of total remuneration to attract and retain qualified This assessment also takes into account adherence to the Bank’s
and competent employees. The Bank’s variable remuneration values, risk and compliance measures and, above all, acting with
policy will be driven primarily by a performance based culture that integrity. Altogether, performance is therefore judged not only on
aligns employee interests with those of the shareholders of the what is achieved over the short and long-term but also, importantly,
Bank. These elements support the achievement of our objectives on how it is achieved, as the RNC believes the latter contributes to
through balancing reward for both short-term results and long-term the long-term sustainability of the business.
sustainable performance. Our strategy is designed to share our
RNC role and focus
success, and to align employees’ incentives with our risk framework
and risk outcomes. The RNC has oversight of all reward policies for the Bank’s
employees. The RNC is the supervisory and governing body for
The Bank’s reward package comprises the following key elements: remuneration policy, practices and plans.

1. Fixed pay; The responsibilities of the RNC as regards the variable remuneration
2. Benefits; policy of the Bank, as stated in its mandate, include, but are not
3. Discretionary performance bonus limited to, the following:

A robust and effective governance framework ensures that the Bank • Approve, monitor and review the remuneration system to ensure
operates within clear parameters of its remuneration strategy and the system operates as intended.
policy. All remuneration matters, and related overall compliance • Approve the remuneration policy and amounts for each
with regulatory requirements, are overseen by the Remuneration Approved Person and Material Risk-Taker, as well as total variable
and Nomination Committee of the Board (RNC). remuneration to be distributed, taking into account the total
remuneration including salaries, fees, expenses, bonuses and
other employee benefits.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 33

• Ensure remuneration is adjusted for all types of risks and that the The Bank has adopted a Board-approved framework to develop a
remuneration system takes into consideration employees that transparent link between variable remuneration and performance.
earn same short-run profit but take different amounts of risk on The framework is designed on the basis that the combination of
behalf of the Bank. meeting both satisfactory financial performance and achievement
• Ensure that for approved persons in risk management, internal of other non-financial factors, would, all other things being equal,
audit, operations, financial controls and compliance functions, the deliver a target bonus pool for the employees, prior to consideration
mix of fixed and variable remuneration is weighted in favour of of any allocation to business lines and employees individually. In the
fixed remuneration. framework adopted in determining the variable remuneration pool,
the RNC aims to balance the distribution of the Bank’s profits to
• Recommend Board member remuneration based on their
shareholders and performance bonus to employees.
attendance and performance and in compliance with Article 188
of the Bahrain Commercial Companies Law. The key performance metrics at the bank level include a
combination of short term and long term measures and include
The remuneration policy is reviewed on a periodic basis to reflect
profitability, solvency, liquidity and growth indicators. The
changes in market practices and the business plan and risk profile of
performance management process ensures that all goals are
the Bank.
appropriately cascaded down to respective business units and
External consultants employees.
Consultants were appointed during the year to advise the Bank In determining the amount of variable remuneration, the Bank
on amendments to its variable remuneration policy to be in line starts from setting specific targets and other qualitative performance
with the CBB’s Sound Remuneration Practices and industry norms. measures that would result in a target top—down bonus pool. The
This included assistance in designing an appropriate Share-based bonus pool is then adjusted to take account of risk via the use of
Incentive Scheme for the Bank. risk-adjusted measures (including forward-looking considerations).
Scope of application of the remuneration policy The Bank uses a formalized and transparent process to adjust the
The remuneration policy has been adopted on a bank-wide basis. bonus pool for quality of earnings. It is the Bank’s objective to pay
out bonuses out of realized and sustainable profits. If the quality of
Board remuneration earnings is not strong, the profit base could be adjusted based on
The Bank’s board remuneration is determined in line with the the discretion of the RNC.
provisions of Article 188 of the Bahrain Commercial Companies Law,
2001. The board of directors’ remuneration will be capped so that For the overall Bank to have any funding for distribution of
the total remuneration (excluding sitting fees) does not exceed 5% bonus pool; thresholds of financial targets have to be achieved.
of the Bank’s net profit, after all the required deductions outlined in Furthermore, the target bonus pool as determined above is subject
Article 188 of the Companies law, in any financial year. The board to risk adjustments in line with the risk adjustment and linkage
remuneration is subject to approval of the shareholders in the framework.
Annual General Meeting. Remuneration of non-executive directors
Remuneration of control functions
do not include performance-related elements such as grants of
shares, share options or other deferred stock-related incentive The remuneration level of staff in the control and support functions
schemes, bonuses or pension benefits. allows the Bank to employ qualified and experienced personnel in
these functions. The Bank ensures that the mix of fixed and variable
Variable remuneration for staff remuneration for control and support function personnel should be
The variable remuneration is performance related and consists weighted in favour of fixed remuneration. The variable remuneration
primarily of the annual performance bonus award. As a part of the of control functions is to be based on function-specific objectives.
staff’s variable remuneration, the annual bonus rewards delivery
of operational and financial targets set each year, the individual
performance of the employees in achieving those targets, and their
contribution to delivering the Bank’s strategic objectives.
34 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE GOVERNANCE
CONTINUED

The Bank’s performance management system plays a major role Risk adjustments take into account for all types of risk, including
in deciding the performance of the support and control units intangible and other risks such as reputation risk, liquidity risk and
on the basis of the objectives set for them. Such objectives are the cost of capital. The Bank undertakes risk assessment to review
more focused on non-financial targets that include risk, control, financial and operational performance against the business strategy
compliance and ethical considerations as well as the market and and risk performance prior distribution of the annual bonus. The
regulatory environment apart from value adding tasks which are Bank ensures that total variable remuneration does not limit its
specific to each unit. ability to strengthen its capital base. The extent to which capital
needs to be built up is a function of a bank’s current capital position
Variable compensation for business units and its ICAAP.
The variable compensation for the business units is primarily
decided by the key performance objectives set through the The size of the variable remuneration pool and its allocation within
performance management system of the Bank. Such objectives the Bank takes into account the full range of current and potential
contain financial and non-financial targets, including risk control, risks, including:
compliance and ethical considerations as well as market and
(a) The cost and quantity of capital required to support the risks
regulatory environment. The consideration of risk assessment
taken;
in the performance evaluation of individuals ensures that any
two employees who generate the same short-run profit but (b) The cost and quantity of the liquidity risk assumed in the
take different amounts of risk on behalf of the bank are treated conduct of business; and
differently by the remunerations system. (c) Consistency with the timing and likelihood of potential future
revenues incorporated into current earnings.
Risk assessment framework
Risk adjustments
The purpose of the risk linkages is to align variable remuneration
The Bank has an ex-post risk assessment framework which is a
to the risk profile of the Bank. The risk assessment process
qualitative assessment to back-test actual performance against risk
encompasses the need to ensure that the remuneration policy
assumptions.
designed reduces employees’ incentives to take excessive and
undue risk is symmetrical with risk outcomes and has an appropriate In years where the Bank suffers material losses in the financial
mix of remuneration that is consistent with risk alignment. performance, the risk adjustment framework would work as follows:
The Bank’s RNC considers whether the variable remuneration policy • There would be considerable contraction of the Bank’s total
is in line with the Bank’s risk profile and ensures that through variable remuneration.
the Bank’s ex-ante and ex-post risk assessment framework and
• At the individual level, poor performance by the Bank would
processes, remuneration practices where potential future revenues
mean individual KPIs are not met and hence employee
whose timing and likelihood remain uncertain are carefully
performance ratings would be lower
evaluated.
• Reduction in value of deferred shares or awards
• Possible changes in vesting periods and additional deferral
applied to unvested rewards
• Lastly, if the qualitative and quantitative impact of a loss incident
is considered significant, a malus or clawback of previous bonus
awards may be considered.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 35

The RNC, with Board’s approval, can rationalize and make the Any decision to take back an individual’s award can only be taken
following discretionary decisions: by the Bank’s Board of Directors.

• Increase/ reduce the ex-post adjustment The Bank’s malus and clawback provisions allows the Bank’s Board
• Consider additional deferrals or increase in the quantum of share to determine that, if appropriate, vested /unvested elements under
awards the deferred bonus plan can be adjusted/ cancelled in certain
situations. These events include the following:
• Recovery through malus and clawback arrangements
• Reasonable evidence of willful misbehaviour, material error,
Malus and Clawback framework
negligence or incompetence of the employee causing the Bank/
The Bank’s malus and clawback provisions allows the Bank’s the employee’s business unit to suffer material loss in its financial
Board of Directors to determine that, if appropriate, unvested performance, material misstatement of the Bank’s financial
elements under the deferred bonus plan can be forfeited/ adjusted statements, material risk management failure or reputational loss
or the delivered variable compensation could be recovered in or risk due to such employee’s actions, negligence, misbehaviour
certain situations. The intention is to allow the Bank to respond or incompetence during the concerned performance year.
appropriately if the performance factors on which reward decisions
• The employee deliberately misleads the market and/or
were based turn out not to reflect the corresponding performance
shareholders in relation to the financial performance of the Bank
in the longer term. All deferred compensation awards contain
during the concerned performance year.
provisions that enable the Bank to reduce or cancel the awards
of employees whose individual behaviour has had a materially Clawback can be used if the malus adjustment on the unvested
detrimental impact on the Bank during the concerned performance portion is insufficient given the nature and magnitude of the issue.
year.

Components of Variable remuneration

Variable remuneration has the following main components:

Upfront cash The portion of the variable compensation that is awarded and paid out in cash on conclusion of the
performance evaluation process for each year.
Deferred Cash The portion of variable compensation that is awarded and paid in cash on a pro-rata basis over a
vesting period of three years
Upfront share awards The portion of variable compensation that is awarded and issued in the form of shares on conclusion
of the performance evaluation process for each year.
Deferred shares The portion of variable compensation that is awarded and paid in the form of shares on a pro-rata
basis over a vesting period of three years

All deferred awards are subject to malus provisions. All share rules of the Bank’s Share Incentive Scheme. Any dividend on these
awards are released to the benefit of the employee after a six shares is released to the employee along with the shares (i.e. after
month retention period from the date of vesting. The number of the retention period).
equity share awards is linked to the Bank’s share price as per the
36 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE GOVERNANCE
CONTINUED

Deferred compensation

All employees with job titles of Manager and above shall be subject to deferral of variable remuneration as follows:

Executive Senior
Element of variable Assistant General Senior Managers &
remuneration Managers and above Managers Managers Deferral period Retention Malus Clawback

Upfront cash 40% 50% 70% Immediate - - Yes

Upfront shares - 10% - Immediate 6 months Yes Yes
- - 30% Over 2 years - Yes Yes
Deferred cash
10% - - Over 3 years - Yes Yes
Deferred shares 50% 40% - Over 3 years 6 months Yes Yes

The RNC, based on its assessment of role profiles and risk taken by auditors and to coordinate and integrate the implementation
an employee, could increase the coverage of employees that would of the Corporate Governance Policy framework. The Audit and
be subject to deferral arrangements. Governance Committee reviews and, as appropriate, approves
and / or recommends for the approval of the Board of Directors,
Details of remuneration paid among other things: the interim and annual consolidated financial
results; status updates on implementation on various regulatory
The variable remuneration for 2014 shall be decided following the
reports; internal and external audit reports and status of their
Bank’s AGM on 31 March 2015 and will, thereafter, be updated on
implementation (as appropriate); liquidity and capital adequacy
the Bank’s website.
action plan; new accounting and regulatory pronouncements and
Severance Pay their implications.

Ithmaar Bank has introduced a voluntary separation scheme This committee also assists the Board in fulfilling its governance
during 2014 where 45 employees applied to it for a total cost responsibility, particularly to (a) oversee and monitor the
of US$2,658,889. The highest award to a single person totaled implementation of a robust compliance framework by working
US$216,072. together with the Management, and the Sharia Supervisory
Board, and (b) provide the Board of Directors with reports and
BOARD COMMITTEES recommendations based on its findings in the exercise of its
In accordance with regulatory requirements and best practices, the function.
Board has established the following committees and has adopted The Audit and Governance Committee is chaired by an Independent
charters setting out the matters relevant to their composition, Director and comprises:
responsibilities and administration.
• Tunku Dato’ Ya’acob Bin Tunku Abdullah - Chairman and Member
AUDIT AND GOVERNANCE COMMITTEE
• Sheikh Zamil Abdullah Al-Zamil - Member
The Audit and Governance Committee is appointed by the Board
of Directors to assist in reviewing the selection and application of • Imtiaz Ahmed Pervez - Member
the accounting and financial policies, reviewing the integrity of the • Sheikh Dr. Osama Bahar - Member
accounting and financial reporting systems and the effectiveness Sheikh Dr. Bahar is a Religious Supervisory Board Member with
of the internal controls framework, monitoring the activities a voting right in respect of the agendas relating to the Corporate
and performance of the internal audit function and external Governance.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 37

The key matters reviewed and, as appropriate, approved and / or • Enhancing the Operational Risk Framework across the Bank by
recommended for the approval of the Board of Directors during the approving the revised operational risk policy and operational key
year include: risk indicators
• The Internal Capital Adequacy Assessment Process (ICAAP) report
• Reviewing the consolidated financial statements and
for 2013.
recommending to the Board for approval;
• The Risk Assessment report of the Strategic Plan 2015-2017.
• Reviewing and approving the proposed annual Internal Audit
plan and strategy and all reports issued by the Internal Audit EXECUTIVE COMMITTEE
Department; and
The Executive Committee is appointed by the Board of Directors to
• Providing oversight for the Corporate Governance, Compliance and assist with the oversight of the general management of the Bank
Regulatory requirements. and its business by management, considering and recommending
to the Board of Directors the strategy, business plans and budget
RISK POLICY COMMITTEE
as well as evaluating the financial and business performance of
The primary objectives of the Risk Policy Committee are to make the Bank. The Executive Committee reviews and, as appropriate,
recommendations to the Board in relation to the Bank’s overall approves and / or recommends for the approval to the Board of
risk appetite and tolerances and the risk policies within which to Directors: credit proposals over certain threshold; review of asset
manage the aforementioned. These policies cover the credit risk, quality and exit strategies; status updates and reports from the
market risk, operational risk and liquidity risk in addition to any management in respect of group reorganization; consolidated
other risk categories the Bank faces in carrying out its activities. The financial performance; liquidity and capital adequacy action plan;
Risk Policy Committee also recommends and monitors the Bank’s strategic business plan; and key management initiatives, including
overall risk management framework which involves developing with respect to funds under management.
across all business activities and operations policies, internal
controls, methods of risk management and risk reporting to the The Executive Committee comprises:
Board.
• Omar Abdi Ali – Chairman and Member
The Risk Policy Committee of the Board duly discharged its • Mohammed A. Rahman Bucheerei - Member
responsibilities during the meetings where key matters were
• Graham R. Walker - Member
discussed or through circular resolutions.
The key matters reviewed and, as appropriate, approved and / or
The Risk Policy Committee comprises: recommended for the approval of the Board of Directors during the
year include:
• Abdelhamid Mohamed Aboumousa - Chairman and Member
• Abdulellah Ebrahim Al-Qassimi – Member • Evaluating the financial and business performance and monitoring
the implementation of the approved business / budget plans
• Nabeel Khaled Mohamed Kanoo – Member
against Key Performance Indicators (KPIs);
The key matters reviewed, approved (as appropriate) and
• Approve business proposals falling within its authority in
recommended for approval (as appropriate) to the Board of
accordance with the Business Discretionary Powers Policy.
Directors during the year include:
• Review the Company’s funding requirements and strategies;
• The new policy on FATCA implementation providing the • Reviewing the strategic business plan 2015-2017 and annual
comprehensive guidelines on the FATCA compliance framework. budget and recommending to the Board for approval;
• Updating and aligning all risk policies in line with changes in the
regulatory requirements;
• Establishing new risk limits for better control of credit, market,
liquidity and concentration risks;
38 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE GOVERNANCE
CONTINUED

• Reviewing the financial position (including the capital adequacy The key matters reviewed, approved (as appropriate) and
and liquidity positions) and the status of its overall business recommended for approval (as appropriate) to the Board of
portfolio; and Directors during the year include:
• Reviewing strategic and other investments.
• Recommending to the Board changes in the structure and job
REMUNERATION AND NOMINATION COMMITTEE descriptions of Approved Persons;
The Remuneration and Nomination Committee is appointed by the • Recommending to the Board the compensation adjustments,
Board of Directors to provide a formal forum for communication based on annual appraisals, and promotion of executive
between the Board and Management on human resource issues. management;
The Remuneration and Nomination Committee reviews and, as • Recommending the composition, quantum and structure of
appropriate, approves and / or recommends for the approval of the remuneration for the members of the Sharia Supervisory Board;
Board of Directors: • Recommending the Bank’s organisation chart and succession plan
and
• candidates for Board election;
• Recommending Bank’s Variable Remuneration Policy
• the appointment of new senior management executives;
implemented in compliance with the regulations of the Central
• the Bank’s remuneration policies as well as guidelines for Bank of Bahrain on Sound Remuneration Practices of Approved
increments and promotions; Person and Material Risk Takers.
The Committee has at least two Independent Directors, one of
whom acts as the Chairperson:

• Shaikha Hissah bint Saad Al-Sabah - Chairperson and Member

• Omar Abdi Ali – Member until 7 December 2014
• Abdulellah Ebrahim Al-Qassimi – Member
• Tunku Dato’s Ya’acob Bin Tunku Abdullah – Member, effective
7 December 2014

The Board of Directors is responsible for setting the Bank’s strategic

direction in accordance with the objectives upon which the Bank
is established and ensuring that the business activities are aligned
with the terms of the Bank’s license as well as the interest of the
Shareholders.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 39

Attendance
2014 Board of Directors / Board Committees Meetings Attendance

Audit & Meetings of Remuneration

Board of Governance the Executive & Nomination Risk Policy
Directors Committee* Committee Committee Committee
Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended

1 HRH Prince Amr Mohammed Al Faisal 6 6 - - - - - - - -

2 Mr. Khalid Abdulla - Janahi 6 6 - - - - - - - -
Tunku Dato ’Ya’acob Bin Tunku
3 Abdullah 6 6 4 3 - - - - - -
4 Sheikha Hissah Bint Saad Al-­‐Sabah 6 3 - - - - 5 3 - -
5 Sheikh Zamil Abdullah Al-­‐Zamil 6 6 4 3 - - - - - -
6 Governor Abdel Hamid Abo Moussa 6 5 - - - - - - 3 3
7 Mr. Nabeel Khalid Kanoo 6 5 - - - - - - 3 2
8 Mr. Mohammed Bucheerei 6 6 - - 8 8 - - 3 3
9 Mr. Abdulellah Ebrahim Al-­‐Qassimi 6 6 - - - - 5 5 - -
10 Mr. Imtiaz Ahmad Pervez 6 6 4 4 - - - - - -
11 Mr. Graham R.Walker 6 5 - - 8 8 - - - -
12 Mr. Omar Abdi Ali 6 6 - - 8 8 5 5 - -

Dates of meetings during 2014 30 Jan 20 Feb 14 Jan 3 Mar 1 Jun

Teleconference
3 Mar 8 May 2 Mar 2 Jun 8 Sep
2 Jun 7 Aug 31 May 7 Sep 7 Dec
23 Jun 6 Nov 1 Jun 27 Oct
7 Sep 6 Sep 7 Dec
7 Dec 2 Oct
Teleconference
17 Nov
6 Dec
*Dr Osama Bahar (Sharia Supervisory Board Member) also serves as a member of the Audit & Governance Committee.

In accordance with the Bank’s Articles of Association, the Board of The Board of Directors is responsible for setting the Bank’s strategic
Directors meets at least four times a year and the Board expects direction in accordance with the objectives upon which the Bank
each Director to attend at least 75 percent of all Board meetings is established and ensuring that the business activities are aligned
and the meetings of the committees on which they serve. with the terms of the Bank’s license as well as the interest of the
40 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE GOVERNANCE
CONTINUED

Shareholders. The Board of Directors has the overall responsibility for The SSB operates within its own charter which sets forth its policies,
the performance of the Bank and therefore the Board of Directors, procedures, meeting operations and responsibilities in addition to
among other things receive, review and, as appropriate, approve: the qualifications for membership. This charter was developed in
the status updates from the chairpersons of the various committees coordination with the Board and is disclosed on the Bank’s website.
of the Board; the status updates and reports from the management
in respect of the strategic business plan; the consolidated financial SSB members are entitled to remuneration comprising an annual
performance; the liquidity and capital adequacy action plan; the retainer fee and sitting fees paid per meeting attended. Non-
regulatory reports and related communications; new regulatory resident members are also entitled for full travel expenses.
updates; related-party proposals; and key management initiatives, These remunerations are recommended by the Remuneration &
including with respect to funds under management. Nomination Committee, the structure of which is approved by the
shareholders.
The key matters reviewed and approved (as appropriate) during the
year include: Currently, the Bank does not pay any performance related
remuneration to SSB members. If any, this will be structured in
• Approving the strategic business plan and budget; accordance with the Memorandum and Articles of Association and
• Overseeing the implementation of strategic initiatives with subject to shareholder approval.
respect to group restructuring/reorganization; and
The profiles of all members of the SSB are given in the section on
• Reviewing status of action plan to comply with regulatory Sharia Supervisory Board.
requirements.
MANAGEMENT
SHARIA SUPERVISORY BOARD
The day-to-day operations of the Bank are handled by the
The Bank shall always conduct its business in accordance with the management team.
Islamic Sharia rules.
Departments are grouped into Business and Support Units with
In compliance with licensing requirements of the Central Bank of clear delineation between them to avoid conflict of interests. These
Bahrain (CBB), the Bank’s Memorandum & Articles of Association safeguard measures are reinforced by independent internal audit
and the general practice of Islamic Banking, the Bank, at all times, and risk management and compliance departments.
has a Sharia Supervisory Board (SSB) appointed by the shareholders
at General Meeting based on recommendations of the Board of The Risk Management Department reports, functionally, to the
Directors (through the Remuneration & Nomination Committee). Risk Policy Committee and, administratively, to the Chief Executive
Officer.
The SSB actively participates in developing and overseeing the
Bank’s products and business activities. It is responsible for certifying The Compliance and Anti Money Laundering Department reports,
every product to ensure strict adherence to the principles of Sharia. functionally, to the Audit and Governance Committee and,
administratively, to the Chief Executive Officer.
The SSB has full access to the Board and the management
personnel of the Bank including access to the Bank’s Sharia The Internal Audit Department reports, functionally, to the Audit and
Compliance Officer who is proactively involved in: (a) reviewing and Governance Committee and, administratively, to the Chief Executive
advising on the Sharia compliance of all products and investment Officer.
projects, (b) auditing the operations of the Bank from a Sharia point
of view, and (c) producing reports to the SSB in order to ensure that
the Bank’s activities are under a strict and direct oversight of Sharia
guidelines. Furthermore, the Sharia Compliance Officer monitors on
a day-to-day basis to ensure that all areas of the Bank adhere to
SSB’s recommendations, advice and opinions.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 41

MANAGEMENT REMUNERATION Asset-Liability Committee

The Chief Executive Officer and senior management are The Committee is responsible for business performance review,
compensated in line with market trends. The Bank is working on managing the market and liquidity risks of the Bank and monitoring
implementing recent CBB guidelines with respect to management capital adequacy ratio. The main functions are to develop and
remuneration. manage the Bank’s assets and liabilities in accordance with the
Strategic Business Plan and relevant banking regulations and laws.
The total remuneration of the Executive Management Team in 2014 The Committee is chaired by the Chief Executive Officer.
was US$ 7.1 million. This remuneration does not include the 2014
performance award as the related policy framework is subject to Management Committee
approval by the shareholders at the Annual General Meeting. The Committee’s principal objective is to manage operations risk.
It focuses on improving communications and cooperation among
MANAGEMENT COMMITTEES
the various divisions and departments of the Bank and optimising
The Bank has in place the following Management committees. The the Bank’s operational efficiency. The Committee is chaired by the
members of committees comprise the Heads of Divisions who are Chief Executive Officer. The Management Committee has several
drawn from relevant and related functions. Sub Committees, including the Business Continuity Plan and Crisis
Management Team Committee, and the IT Steering Committee.
Investment and Credit Committee
The main objective of this Committee is to manage the credit risk
of the Bank including reviewing, approving and ratifying business
proposals falling within its authority, reviewing risk management
reports and resolving all credit-related issues. The Committee is
chaired by the Chief Executive Officer.

Ithmaar Bank maintains a website which stakeholders may access

for information, which includes the Bank’s profile, corporate
information, press releases, financial performance and performance
of investment funds and career opportunities, amongst others.
42 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE GOVERNANCE
CONTINUED

COMMUNICATION WITH STAKEHOLDERS voting at meetings, and the right to participate in the election or
The Board acknowledges the importance of regular communication disqualification of a Director, jointly or severally. Their rights also
with stakeholders and particularly the investors, through a number include voting on the appointments of independent auditors, voting
of means to promote greater understanding and dialogue. Measures for other businesses of Ithmaar, such as increases in, or reduction of
adopted include Annual General Meetings, annual reports, quarterly capital, right to receive dividend payments, as well as the right to
disclosures of financial reports and various announcements made give opinions and the right to inquire during shareholder meetings.
during the year as well as the Bank’s website, through which
Rights of Minority Shareholders
stakeholders have an overview of the Bank’s performance and
operations. The Board of Directors is structured to include independent Directors
with additional responsibilities of protecting minority shareholders’
The Chairman of the Board (or any other Director if delegated by rights. As additional measures to protect minority interests, the Bank
the Chairman) maintains continuing personal contact with its major subscribes to the following guidelines:
shareholders to solicit their views. The Chairman discusses the views
of the major shareholders with the Board of Directors. • Mandatory shareholder approval of major transactions such as
change in capital or transfer of business (as per limits prescribed
The Bank maintains a website which stakeholders may access by the Central Bank of Bahrain);
for information, which includes the Bank’s profile, corporate • Mandatory disclosures of transactions by substantial shareholders;
information, press releases, financial performance and performance
• Pre-emptive rights on issuance of new shares;
of investment funds and career opportunities, amongst others.
• Limitations on Bank’s business transactions with Directors,
To further assist with shareholder communications, the Bank has a controllers, and related parties as per the rules of the Central Bank
dedicated Shareholders Affairs Unit with the primary responsibility of Bahrain;
of acting as a liaison between the Bank, shareholders and the stock • Exercise rights to elect independent Directors;
exchanges where the Bank is listed. Views of shareholders are
• Penalties for insider trading; and
communicated to and discussed at Board meetings, which are part
of the agenda. • Provisions on takeovers, mergers, and acquisitions.

Interests of Directors and Executive Management CODE OF ETHICS AND BUSINESS CONDUCT
The interests of Directors and Executive Management in the shares The Bank’s Code of Ethics and Business Conduct applies to
of the Bank are disclosed in the Report of the Directors and Share members of the Board, as well as executive management, officers,
Information respectively. employees, agents, consultants, and others, when they are
representing or acting for the Bank. The Board expects all Directors,
Share Information as well as officers and employees, to act ethically at all times and to
Information on the distribution of share ownership together with acknowledge their adherence to the Bank’s policies. Any waiver of
key statistics on the performance of the Bank’s shares on the the Code of Ethics and Business Conduct for a Director or executive
Bahrain Bourse are disclosed in the section on Share Information of officer may be granted only by the Board or the appropriate Board
the annual report. committee and must be promptly disclosed to the shareholders.

Shareholders’ Rights
Recognising the importance of shareholders, it is Ithmaar Bank’s
policy to treat its shareholders equally and fairly in line with the
laws of regulatory agencies. Basic legitimate rights of shareholders
include the right to participate in shareholder meetings, the
right to appoint other persons as a proxy for participating in and
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 43

RISK MANAGEMENT

RISK GOVERNANCE STRUCTURE RISK MANAGEMENT STRATEGY

Risk is an integral part of Ithmaar Bank’s business and managing The risk management strategy in respect of each of these types of
it is critical to the Bank’s continuing success and profitability. The risks is set out below:
essence of effective risk management is to enhance shareholder
and investment account holders’ value through business profits Credit Risk
commensurate with the risk appetite of the Bank. Credit risk is the risk of potential loss arising from failure of a
counterparty to meet its contractual obligations. Ithmaar manages
Ithmaar has adopted an integrated risk management framework its credit risk arising from its banking exposures by implementing
to proactively identify, assess, manage and monitor risks in its robust policies and procedures with respect to identification,
decisions and operations. Ithmaar’s risk management framework is measurement, mitigation, monitoring and controlling the risks.
based on guidelines issued by the Central Bank of Bahrain, sound A centralised credit risk management system is in place where
principles of risk management issued by the Bank for International all significant exposures are independently reviewed by the Risk
Settlements and international best practices, wherever applicable. Management Department before approval by appropriate approval
authorities.
The Ithmaar risk management charter lays the foundations for a
risk governance structure in the Bank. The risk strategy in terms of The risk policies of the Bank set guidelines to limit concentration
the overall risk appetite, risk tolerance levels and risk management risk within the portfolio by larger exposure, connected counterparty,
methodologies are assimilated in the various risk policies and the country, industry, tenor and products. The RMD has also developed
Internal Capital Adequacy Assessment Programme (ICAAP) report internal rating and scoring models incorporating both quantitative
of the Bank which are reviewed and approved by the Board of and qualitative risk parameters for the grading and classification of
Directors. The risk strategy of the Bank is reviewed annually in line credit risk exposures.
with the Bank’s business strategy. The Board also oversees the
establishment and implementation of risk management systems The Bank uses a robust management information system to monitor
and policies for all material risks exposure of the Bank. its exposures and concentrations by various dimensions. The
significant concentration of credit risk as at 31 December 2014 is set
The process of risk management is carried out by an independent out in Note 37.
control function; The Risk Management Department (RMD) headed
by the Chief Risk Officer with a direct reporting line to the Risk All credit exposures are subject to at least an annual review as per
Policy Committee. The Department is mandated with identifying, policy. All commercial financings exposures are reviewed and rated
quantifying and assessing all risks and recommending appropriate annually and appropriate provisions are maintained for any classified
prudential limits and risk management methodologies within the account as per the provisioning policy in line with relevant Central
parameters of the overall risk management strategy approved by Bank of Bahrain guidelines. All financing exposures are classified
the Board. Further, the RMD plays an active role in highlighting all as past due and impaired when any exposure instalment not
risks associated with a product before it is approved and launched paid over 90 days period. The Bank follows, except the subsidiary
by the Bank. entities which may follow their own regulatory guidelines, a time-
based criteria of past due days to estimate the specific provisioning
requirements and past due accounts are reviewed periodically.
However, each investment exposure is evaluated individually for
impairment assessment on its merits, strategy, and estimated cash
flows recoverability.
44 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

RISK MANAGEMENT
CONTINUED

ECAI Ratings MARKET RISK

The Bank has adopted the CBB guidelines for utilization of external Market risk is the potential loss arising from change in the value of
ratings, where available, by External Credit Assessment Institutions any exposure due to adverse changes in the underlying benchmark
(ECAI) for the purpose of risk assessment. In case of multiple ECAI market rates, i.e. foreign exchange rates, equity prices and profit
rating of a single counterparty, the lowest of all is taken to assign rates.
the relevant risk category. The Bank complies with all the qualitative
requirements stipulated by the CBB for the recognition process As per current business strategy, the Bank does not maintain an
and eligibility criteria of ECAI rating in the credit risk management active trading book and all Ithmaar’s market risk exposures primarily
policy of the Bank. ECAI ratings are applied, where applicable, to all is foreign exchange risk stemming from net open currency positions
financing exposures with counterparty credit risks. (NOP) in the balance sheet.

Credit Risk Mitigation Market risk activities are governed by the market risk policy of the
Bank. Implementation of the policy, procedures and regulatory
The Bank uses a variety of tools to mitigate its credit risk, the
and internal limits for the Bank is the responsibility of the relevant
primary one being that of securing the exposure by suitable
business units with oversight by the Asset Liability Committee
collaterals. While existence of collaterals is not a precondition for
(ALCO) and the Risk Policy Committee.
financing, exposures are fully or partially collateralised as a second
line of defense. The Bank has clear policies on types of assets that The key market risk factors the Bank is exposed to are discussed
can be accepted as collateral and the mode of valuation of these below:
assets. In general all collaterals are valued periodically depending
on the collateral type. The legal validity and enforceability of the Foreign Exchange Risk
documents used for collateral have been established by qualified Foreign exchange risk is the risk to earnings and value caused by a
personnel, including lawyers and Sharia scholars. change in foreign exchange rates. At Ithmaar, foreign exchange risk
is the risk that an exposure denominated in any foreign currency
The Bank’s credit portfolio is supported by various types of collateral
may be adversely affected due to volatility in foreign exchange rates
such as real estate, listed equity, cash and guarantees. The Bank
compared to the base currency of the Bank. Foreign exchange risk
prefers liquid and marketable credit collateral, however other
management at the Bank is ensured through regular measurement
types of collateral are accepted provided that such collateral can be
and monitoring of net open foreign exchange positions vis-à-vis
reasonably valued. Only unconditional and irrevocable third party
appropriate NOP limits. The Bank also utilises appropriate Sharia
guarantees are acceptable after analyzing the financial strength of
compliant hedging instruments wherever feasible. For more details,
the guarantors as per policy.
please refer to Section 26 of the Basel II disclosures.

The essence of effective risk management is to enhance shareholder

and investment account holders’ value through business profits
commensurate with the risk appetite of the Bank.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 45

Liquidity Risk
Liquidity risk is the risk that the Bank is unable to meet its financial The Bank has in place Policies and Procedures which provide
obligations as they fall due, which could arise due to mismatches detailed guidelines for management of Operational Risks in the
in cash flows. Funding and liquidity management is performed Bank. The approach to Operational Risk includes emphasis on:
centrally by the Treasury, with oversight from ALCO and Risk Policy
Committee. The Bank liquidity policies are designed to ensure it • Establishment of an effective governance structure with clear
will meet its obligations as and when they fall due, by ensuring it reporting lines and segregation of duties.
is able to generate funds on an unsecured basis from the market, • Maintenance of an effective internal control environment,
or has sufficient high quality liquid assets (HQLAs) to sell and raise • Escalation and resolution of risk and control incidents and issues.
immediate funds without incurring unacceptable costs and losses.
A workflow process for reporting of Operational Risk events and
The liquidity policy also sets out the minimum acceptable standards maintaining a database of all internal Risk events is in place. Bank
for the management of Ithmaar Bank’s assets and liabilities has also implemented a Risk Control Self- assessment (RCSA)
including maintenance of high quality liquid assets, prudent process whereby the risk in a process is identified and evaluated
assets and liabilities maturity mismatch limits, and mechanism taking into consideration the residual risk. The Risk Register which
of monitoring liquidity risk in the Bank. The RMD independently enables the RCSA process is prepared jointly by the risk and line
monitors liquidity risk, including liquidity mismatch limits, managers.
maintenance of regulatory and internal liquidity ratios and the
funding maturity profile on a regular basis. The Bank has also established Bank-wide Key Risk Indicators (KRI)
which are constantly monitored to assess the overall operational risk
A liquidity contingency policy is in place and provides the profile of the Bank.
mechanism for management of liquidity in adverse market
conditions. The Operational Risk management process through RCSA, KRI and
loss reporting is complemented by the department level procedures
Profit Rate Risk in the Banking Book which ensure that concerned staff are well aware of their
Profit rate risk in the Bank’s banking book is the risk of adverse responsibilities and processes associated with their responsibilities.
changes in expected net earnings and economic value of the
balance sheet resulting from the impact of changes in profit rates The Bank has Board approved policies and procedures for various
on mismatched assets and liabilities in the banking book. The Bank departments including the Financial Control Department which is
measures and manages profit rate risk in the banking book by responsible for budget formulation, monitoring and management
setting internal limits for assets and liability mismatch gaps. reporting. The Bank has in place a Business Continuity Policy which
deals with policy initiatives to ensure that the Bank continues its
The measurement methods for profit rate sensitivity analysis are risk critical activities following a disastrous event. Policies addressing the
sensitive assets and liabilities maturity gap analysis (to measure the effective management of Human Resources, including improving
profit rate sensitivity of earnings) and duration (to measure profit the skill-set of the employees, is in place.
rate sensitivity of capital).
Detailed procedures are in place which enhance the internal
Profit rate risk is regularly monitored by the ALCO and the Risk Policy controls, as well as provide guidelines for conduct of business
Committee. process.

Operational Risk Reputation Risk

Operational risk is the risk of loss resulting from inadequate or failed Reputation risk is the risk that an event will adversely affect Ithmaar
internal processes, people and systems or from external events Bank’s reputation in the market, which, in turn, may adversely
which includes but not limited to legal risk and Sharia compliance impact its ability to effectively undertake its activities.
risk. This definition excludes strategic and reputational risks.
46 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

RISK MANAGEMENT
CONTINUED

Sound corporate governance is a cornerstone in managing any un-expected losses arising due to Pillar 2 risks. The adequacy
reputation risk. The Bank has in place a Corporate Governance and sufficiency of capital ratio is also tested with a mechanism of
Policy and a Code of Ethics and Business Conduct for the members stress scenario across various risk dimensions on a periodic basis. A
of the Board, management and staff. This Code helps to build an comprehensive risk assessment of the Business and Budget Plans
atmosphere of professionalism, integrity and ethical behaviour are independently performed by RMD, which inter alia, assesses the
within the Bank. It will also help in preventing any reputation risks. capital requirement of the Bank both for current and future activities
under normal and stressed scenarios. Overseas subsidiaries manage
RISK MANAGEMENT REPORTING AND CONTROL their own capital as prescribed by host regulatory requirements.
Effective measurement, reporting and control of risk are vital However, the input is taken from the material subsidiary entities of
to ensure that Ithmaar Bank’s business activities are managed the Bank for capital planning purposes.
in accordance with its overall strategies and risk management
objectives. The risk management, reporting and control framework Ithmaar Bank’s capital position is monitored on a regular basis and
ensures quantifications of credit, market and liquidity risks and its reported to the ALCO, the Audit and Governance Committee, the
aggregation. The Bank is currently upgrading its IT and Management Risk Policy Committee, and the Board. The Pillar 3 disclosure section
Information Systems which will further support its risk management covers the capital management reports as of 31 December 2014.
processes.
RISK MANAGEMENT OF SUBSIDIARIES
RISK MANAGEMENT POLICIES AND PROCEDURES Each operating subsidiary has a dedicated Risk Management and
Compliance functions for implementing policies and supervising
Ithmaar has developed a comprehensive framework of policies and appropriate management of overall risks of the subsidiary including
procedures to identify, measure, monitor and report the key risks assessment, mitigation and monitoring of risks, and reporting on the
the Bank is exposed to. The policy has various chapters divided into risk status.
four volumes, each addressing a specific risk area, namely, High
Level Controls, Credit Risk Management, Market Risk Management Effective oversight controls over the performance of the subsidiaries
and Operations Risk Management. are ensured with the guidelines of subsidiary governance policy
of the Bank. RMD is also mandated to receive, independently
CAPITAL RISK MANAGEMENT review periodic risk reports from all material subsidiaries for RPC
Ithmaar’s capital management policy is to ensure that it meets the submission. Non-operating subsidiaries are subject to relevant and
capital requirements as mandated by the Central Bank of Bahrain applicable risk principles applicable at Ithmaar Bank.
(CBB) and is able to estimate an appropriate capital level in order to
support its business growth. Capital management also ensures that RELATED PARTY TRANSACTIONS
shareholder value is protected and enhanced. Business transactions with persons and companies connected with
the Bank (which include, inter alia, Directors, their immediate
Regulatory capital is the minimum capital that is required by family members, major shareholders, associates and subsidiaries)
regulatory authority, to be maintained by the Bank commensurate are termed as Related Party Transactions. For avoidance of
to the underlying risks. The Bank has adopted the capital charge any possibility of conflicts of interest, the Bank treats all these
computations and adequacy ratios as per Pillar 1 as per the CBB transactions at arms’ length and are approved by the Board of
Capital Adequacy and Prudential Consolidation & Deduction (“PCD”). Directors with the interested party being refrained from voting.
The Bank complies with relevant rules issued by the regulatory
Capital management is a coordinated effort by the business authorities in this respect and all transactions are appropriately
divisions, Risk Management, and Financial Control and is a part of disclosed in the Report of the Directors.
a broader Internal Capital Adequacy Assessment Process (ICAAP).
ICAAP covers the capital charge for all material risks in the pillar
1 and 2. ICAAP also recommends an internal capital adequacy
ratio target over and above the regulatory requirement to absorb
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 47

COMPLIANCE, ANTI-MONEY LAUNDERING

AND INTERNAL CONTROLS

COMPLIANCE The Bank has adopted specific initiatives and measures to facilitate
Compliance risk is the risk of legal or regulatory sanctions, material implementation of these policies and procedures. These include
financial loss, or loss of reputation that the Bank may suffer as a the appointment of a Money Laundering Reporting Officer (MLRO),
result of its failure to comply with the requirements of relevant who is empowered with sufficient mandate to implement the
laws and regulations. By the terms of its license and listing rules, Bank’s Anti-Money Laundering (AML) programmes. The MLRO
the Bank is subject to compliance with the requirements stipulated independently enforces the AML policies and reports any incidents
by CBB, Bahrain Bourse, Kuwait Stock Exchange (KSE), Bahrain to the Board of Directors and/or the applicable regulatory
Commercial Companies Law and FAS issued by AAOIFI, Sharia authorities. All employees undergo compulsory AML trainings with
Standards and SSB Fatwas. regular refresher courses.

Compliance risk is managed through the Compliance Policy which The Bank’s AML and Know Your Customer (KYC) framework
provides for the assessment of compliance risks, implementation incorporates the following four key elements: customer acceptance,
of controls, monitoring and testing of framework effectiveness, customer identification procedures, transaction monitoring and risk
the escalation, remediation of compliance incidents and control management.
weaknesses.
INTERNAL CONTROLS
The Bank’s management ensures that business is conducted in The Board of Directors of the Bank places significant emphasis
conformity with high ethical standards and is in compliance with on efficient internal control systems to ensure shareholders’
all applicable laws and regulations. The Bank has appointed a and investment account holders’ interest and Bank’s assets are
compliance officer in accordance with CBB directives to ensure safeguarded.
that the Bank’s operations achieve a consistently high level
of compliance with all relevant laws and regulations. Each of This internal control mechanism is delineated with appropriate
Ithmaar Bank’s subsidiaries also employs local compliance officers, policies, procedures, control manuals, and regular management
if applicable, to ensure adherence to local requirements and reporting system. The Board has approved the organizational
regulatory issues. Consolidated reports are prepared for the Board’s structure of the Bank to enhance efficient functioning of
review. management and to avoid any conflict of interest. The organization
structure clearly defines the lines of responsibility, approval authority
CUSTOMER COMPLAINT PROCEDURES and accountability aligned to business and operations requirements
The Bank has in place a formal customer complaints procedure that which support the maintenance of a strong control environment.
complies with the Code of Best Practice on Consumer Credit and Appropriate processes such as authorisation of limits, segregation
Charging issued by the Bankers Association of Bahrain. A dedicated of duties, reconciliation of accounts and the valuation of assets
customer complaints officer is responsible for handling and resolving and positions are robustly operational. Well established budgeting
complaints. Contact details of this Officer are published at all and forecasting procedures are in place and reports are regularly
branches. All customer complaints are promptly resolved up to the presented to the Board detailing:
best satisfaction of the customers.
• Business plans and strategies;
ANTI-MONEY LAUNDERING • Results of operations;
It is the Bank’s policy to prohibit and actively prevent money • Key risk areas;
laundering and any activity that facilitates money laundering or the • Variances against budget; and
funding of terrorist or criminal activities.
• Other performance data.
For this purpose, the Bank has defined strict policies and procedures
in compliance with the Financial Crimes Regulations issued by the
CBB. These policies and procedures apply to all employees, branches
and offices of the Bank.
48 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

FUNDS UNDER MANAGEMENT

As a commercial financial institution, a fundamental objective of As of December 2014, the Bank operated the following RIAs:
Ithmaar Bank is to act as a financial intermediary, channeling funds
between deficit and surplus agents, for economic benefits. This is • Dilmunia Development Fund
usually done through pooling monetary resources from Investment • Shamil Bosphorus Modaraba
Accountholders (IAH), investing them in the market, and sharing the • European Real Estate Fund
profits with IAHs at predetermined rates and conditions set out in
• US Development Opportunities Fund 1.
the agreements. This activity is known as Funds Under Management
(FUM). The funds managed by the Bank are mainly in Real Estate and
Private Equity. These are subject to various risks including:
STRUCTURE OF THE FUNDS
The Bank provides three types of FUMs, namely, Un-restricted • Foreign Exchange risk as a result of fluctuating currency exchange
Investments Accounts (URIA), Restricted Investments Accounts (RIA), rates.
and Collective Investment Undertakings (CIU). • Liquidity risk due to the nature of the holdings in those funds
being non-marketable nor listed on any security exchange
I. Un-restricted Funds (URIA)
platforms.
In the case of URIA accounts, the Bank as Mudarib (investment
• Market risk as a result of changing market conditions, including
manager) is authorised by the Investment Account Holders (IAHs)
demand and price changes.
to invest their funds in any manner which the Bank deems
appropriate, without laying down restrictions as to where, how, and • Economic risk due to changes in the economic climate.
for what purpose their contribution amounts should be invested. • Credit risk of parties with whom the Fund conducts business and
All URIA funds are accounted for as ‘on’ balance sheet items. These may also bear the risk of settlement default.
funds are open for the public (natural persons and corporates • Risks of changes in government policy, including issuing necessary
including financial institutions) provided they satisfy the Bank’s KYC approvals.
requirements.
• The value of Investments in real estate and/or the rental income
As of 31 December 2014, the Bank operated URIA funds are as derived from them will fluctuate as property values and rental
follows: incomes rise and fall.
• Investments in real estate may be affected by changes in
• General Mudaraba the general economic climate, competition on rental rates,
• Special Mudaraba the financial standing of tenants, the quality of maintenance,
insurance and management services and changes in operation
II. Restricted Funds (RIA) costs.
Under this, the Bank as the Mudarib is restricted by the IAHs with • Investments in real estate which require development or
regard to the use of their funds - where, how, for what period, refurbishment works may also entail risks associated with
and for what purpose their contribution amounts are invested. construction delays, cost overruns and an inability to rent either
Such features are required to be agreed between the parties at at all or at satisfactory rental levels following completion of the
the time of contracting (such as signing the Mudaraba and/or development or refurbishment works.
Agency agreements) so as to formalise the relationship. RIAs funds
• The value of the Investments may be affected by uncertainties,
are accounted for as ‘off’ balance sheet items as the Bank has no
such as political developments, changes in governmental policies,
discretion on the utilisation of funds in case of RIA funds. As per
taxation, currency repatriation restrictions, and restrictions on
CBB’s instructions, all future RIA funds shall be structured as CIUs.
foreign investment in some or all of the countries in which the
Fund may be directly or indirectly invested.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 49

• The regulatory supervision, legal infrastructure and accounting, The profit or loss of a FUM is determined using the accounting
auditing and reporting standards in emerging markets may not policies normally applied by the Bank. The distribution of the profit
provide the same degree of protection or information as would or loss may either be on a limited or continuous basis as follows:
generally exist in more mature or developed markets.
Specific Term
• Risks from uncertainties such as political or diplomatic
developments, social and religious instability, changes in The IAH invests for a specific term, and profits/losses are accounted
government policies, taxation, and interest rates and other for at the time the fund is liquidated (or staged liquidation) and the
political and economic developments in legislation, in particular capital is returned to the IAHs along with any profits/losses.
changes in legislation relating to the right of, and level of, foreign
Open Term
ownership.
The IAH invests for an unspecified terms (such as Savings Accounts),
• Risks outside control of funds, including labour unrest, civil
and profits are accounted for on a periodical basis during the
disorder, war, subversive activities, sabotage, fires, floods, acts of
Mudaraba period.
God, explosions or catastrophes.
The specific risks for each fund is detailed in the respective In case of RIA and CIU, specific expenses that may arise in relation
prospectus. Ithmaar Bank discloses regular updates related to to the launching of a Mudaraba fund and in employment of funds
individual funds on its corporate website www.ithmaarbank.com may be charged against the gross revenue of that Mudaraba,
provided this is set out in the related Mudaraba agreement. Audit
III. Collective Investment Undertakings (CIU). and legal fees, documentation and printing charges are all examples
CIU have the following features: of expenses that may be charged to the Mudaraba. Distributable
profit is calculated after all permitted expenses have been deducted.
The collective capital raised from the public or through private URIA funds are not subject to administration fees.
placement, including investments seeded by the operator, is
invested in financial instruments and other assets which operate The Bank applies appropriate income smoothening techniques to
on the basis of risk-spreading as appropriate, the holdings of which ensure that profits are fairly distributed to the IAHs, both current and
may be repurchased or redeemed. future. These include Profit Equalisation Reserves and Investment
Risk Reserves.
These funds are structured in accordance with relevant CIU rules
issued by CBB and are offered to the following: REDEMPTIONS
All funds are redeemed on their respective maturities. In special
As of 31 December 2014, the Bank operated one CIU fund (Aldar
circumstances, the Bank may allow early withdrawals by either
Private Equity Fund - under liquidation). This is given on page 62 of
finding a purchaser for the contribution, or by purchasing the IAH’s
this report.
contribution at prevailing market prices and provided such exposure
All Investors are required to meet the KYC requirements as per CBB does not cause any violations of regulatory or internal limits.
rules.

RISK AND REWARD

In accordance with the principles of Islamic Sharia, all FUMs are
managed on profit and loss sharing basis with the IAH bearing all
risks except for gross negligence and misconduct.
50 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014

FUNDS UNDER MANAGEMENT

CONTINUED

FIDUCIARY OBLIGATIONS GOVERNANCE OF FUNDS UNDER MANAGEMENT

Although the IAH is fully responsible for risks associated with his/ The Board of Directors is responsible for ensuring that the Funds
her investments in an FUM, the Bank is bound by its fiduciary Investment Objectives are adhered to. The Board has established
obligation and duty of care to safeguard the assets of the IAHs. In an Audit and Governance Committee commissioned, amongst other
this respect, the Bank subscribes to the following guiding principles responsibilities, to look after the interests of the IAHs. The Asset-
issued by the Islamic Financial Services Board (IFSB): Liability Committee (ALCO) and Investment and Credit Committee
(ICC) play a pivotal role in monitoring the performance of funds.
• Aspire to the highest standards of truthfulness, honesty and The Asset Management Department is responsible for the effective
fairness in all its statements and dealings, and treat its customers management of RIA and CIU funds. Customer affairs are handled by
fairly various business units including Private Banking, Corporate Banking,
• Exercise due care and diligence in all its operations, including International Banking, and Retail Banking departments.
the way it structures and offers its products and provides
financing, with particular regard to Sharia compliance, and to the RIA and CIU funds are launched after comprehensive due diligence
thoroughness of research and risk management of the market and the needs and risk appetite of investors. A
comprehensive policy is in place which outlines processes for
• Ensure that it has in place the necessary systems and procedures,
managing funds. All funds are reviewed independently by the Risk
and that its employees have the necessary knowledge and
Management Department and the Compliance Department prior to
skills, to manage FUMs in accordance with this policy and other
their approval and launch. Once approved, these funds are utilised
regulatory rules
strictly in accordance with the fund’s prospectus and terms of
• Take steps to ensure that it understands the nature and approval.
circumstances of its IAHs so that it offers those products most
suitable for their needs, as well as offering financing only for URIA Funds are primarily used for retail and commercial financings.
Sharia- compliant projects The Bank diversifies the portfolio through establishing prudent
• Provide clear and truthful information both in any public limits determined by geographical areas, industry sectors,
document issued as well as to its actual and prospective clients, tenors, customer type, etc. The composition, characteristics and
both during the sales process and in subsequent communications diversification of the Bank’s funding structure is recorded in various
and reports risk policies.
• Recognise the conflicts of interest between it and its clients that All funds are reviewed periodically, at least annually, to assess their
arise from the type of products it offers, and either avoid or performance. These reviews are submitted to ICC for its review and
disclose and manage them, bearing in mind its fiduciary duties to approval. In case of adverse change in the risk profile of the Fund,
Investment Accountholders as well as shareholders the review is raised to the authority which originally approved the
• Ensure that its operations are governed by an effective system of initial proposal.
Sharia governance and that it conducts its business in a socially
responsible manner

INVESTMENT OBJECTIVES
The investment objective of the funds is to provide maximum
returns to both the IAHs and the Bank in a manner that is
consistent with the Mudaraba agreement of the specific fund and
Sharia guidelines while at the same time managing risks within
predetermined levels.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 51

The Profit Distribution Sheet (Mudaraba Account) provides details on investment period and the Bank’s share of investments in 2014 as
shown below:

Period Bank’s share (%)

Undetermined term (savings account) 60
1 month 50
3 months 45
6 months 40
9 months 38
1 year 35
18 months 33
2 years 30
30 months 28
3 years 25

The average benchmark and declared rate of return or profit rate on Profit Sharing Investment Accounts (PSIA) by maturity in percentage
terms paid annually in 2014:

BD or 1 7 1 3 6 9 1 18 2 30 3
US$ day days month months months months year months years months years
Savings 0.15
General
Mudaraba - 0.15 1.10 1.60 2.00 2.10 2.50 2.55 2.60 2.60 2.70
Special
Mudaraba - - 1.30 1.80 2.20 2.30 2.75 2.80 2.85 2.85 2.95
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014

Report of the Sharia Supervisory Board 53-54

Report of the Directors 55-56
Independent Auditor’s Report 57
Consolidated Statement of Financial Position 58
Consolidated Income Statement 59
Consolidated Statement of Changes in Owners’ Equity 60
Consolidated Statement of Cash Flows 61
Consolidated Statement of Changes in Restricted Investment Accounts 62
Notes to the Consolidated Financial Statements 63-99
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 53

REPORT OF THE SHARIA SUPERVISORY BOARD

In the Name of Allah, the Beneficent, the Merciful

Report of the Sharia Supervisory Board on the activities of Ithmaar Bank B.S.C. for the Financial Year from 1 January 2014 until 31
December 2014, corresponding to the Period from 29 Safar 1435 H until 9 Rabeea’ Alawal 1436 H.
Praise be to Allah, the Lord of the worlds, and peace and blessings be upon our Master, Mohammed, the leader of Prophets and
Messengers, and upon his scion and companions, and upon those who follow his guidance until the Day of Judgment.
The Sharia Supervisory Board of Ithmaar Bank B.S.C. performed the following acts during the financial year from 1 January 2014 until 31
December 2014:
1. Issued fatwas and Sharia resolutions related to the Bank’s products and activities and followed them up through the Bank’s internal
Sharia Audit Department while also guiding the management towards Sharia-compliant transactions.
2. Studied different mechanisms of financing and prepare its documents with the concerned departments in order to develop products.
3. Examined the books, records and transactions through the Sharia Compliance Department and auditing some of their samples as per
established auditing standards.
4. Examined the statement of financial position, income statement and the Bank’s overall banking activities through it.
5. Reviewed and concurred with periodic reports issued by the Sharia Compliance Department.
We have reviewed the principles and contracts relating to transactions and products launched by the Bank during the period from 1 January
2014 to 31 December 2014. We have also conducted the required inspection to provide our opinion on whether the Bank had complied
with the provisions and principles of Islamic Sharia, as well as fatwas, resolutions and specific guidance that was issued by us.
The management is responsible for ensuring that the Bank operates in accordance with the provisions and principles of Islamic Sharia and
accounting standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Our responsibility is to
express an independent opinion based on our observation of the Bank’s operations, and prepare a report.

In view of the above the Sharia Supervisory Board hereby resolves as follows:

i: With regard to the Bank’s business in general:

a The Bank’s overall investment activities and banking services were conducted in full compliance with the principles and provisions of
Islamic Sharia and in accordance with the Sharia Supervisory Board-approved standard contracts.
b Gains made from sources prohibited by Sharia were identified and transferred to the Charity Fund.
c All the amounts collected as customers’ donations and commitments on late payments were posted to the Charity Fund.
d Zakat is calculated in accordance to Sharia Standard on Zakat issued by the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI). Shareholders are responsible for payment of Zakat on their shares.
ii: Conventional assets and liabilities:
The Sharia Supervisory Board identified and reviewed the conventional assets and liabilities that existed before Ithmaar Bank converted to
an Islamic retail bank in April 2010 and issued a Fatwa that allows the Bank to convert these assets and liabilities into Islamic alternatives,
or dispose them, in an agreed time period, provided that the Bank appropriately discloses to its shareholders in its annual report all
amounts of income and expenses associated with these conventional assets and liabilities. This Fatwa conforms to the provisions of Sharia
Standard – 6 “Conversion of a Conventional Bank to an Islamic Bank” of AAOIFI Sharia Standards. The Sharia Supervisory Board confirms that
the Management, with the grace of Allah, has resolved all sharia issues pertaining to 14 assets.
54 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

REPORT OF THE SHARIA SUPERVISORY BOARD

CONTINUED
Report of the Sharia Supervisory Board on the activities of Ithmaar Bank B.S.C. for the Financial Year from 1 January 2014 until 31
December 2014, corresponding to the Period from 29 Safar 1435 H until 09 Rabi Al-Awwal 1436 H.. (continued)

As the period fixed by the Sharia Supervisory Board to dispose of these assets and liabilities expired by the end of the financial year 2014,
and noting the serious and continuous efforts taken by the new Management to dispose of these assets and resolve this issues, the Sharia
Supervisory Board is of the opinion that the period is to be extended for another new year up to 31st December 2015 during which the
Bank will attempt to sell these assets or convert them to Islamic alternatives. The Sharia Supervisory Board is continuously and periodically
reviews progresses on these assets and guides the Bank’s Management on solutions and appropriate actions to be taken in this respect.
To ensure compliance with its Fatwa and directions, the Sharia Supervisory Board has reviewed the income statement of the Bank for
the year end 31 December 2014 and has satisfied itself that the Bank has appropriately disclosed the income and expense arising from
the conventional assets and liabilities. Accordingly, the Sharia Supervisory Board guides the shareholders of the Bank to dispose of
impermissible earnings which has been calculated, in the current year’s financial statements, at 1.13 US cents per share.
We pray to Almighty Allah to grant success to the Bank and its employees and guide them in developing Islamic products and continue
to comply with the Sharia principles and to grant them success for everything He pleases. May peace and blessings be upon our Master,
Mohammed, and upon his scion and companions.

His Eminence Shaikh Abdulla Al Manee’a

Chairman

His Eminence Shaikh Mohsin Al-Asfoor His Eminence Shaikh Nizam Yacooby
Member Member

His Eminence Shaikh Dr. Osama Bahar
Member


Manama - Kingdom of Bahrain
23 February 2015

 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 55

REPORT OF THE DIRECTORS

The Directors submit their report dealing with the activities of Ithmaar Bank B.S.C (the “Bank”) for the year ended 31 December 2014,
together with the audited consolidated financial statements of the Bank and its subsidiaries (“the Group”) for the year then ended.

PRINCIPAL ACTIVITIES
The Bank holds an Islamic retail banking licence issued by the Central Bank of Bahrain.
The principal activities of the Bank and its subsidiaries (collectively the “Group”) are a wide range of financial services, including retail,
commercial, asset management, private banking, takaful, equipment leasing and real estate development.
CONSOLIDATED FINANCIAL POSITION AND RESULTS
The consolidated financial position of the Group as at 31 December 2014, together with the consolidated results for the year then ended is
set out in the accompanying consolidated financial statements.
The Group has reported a net loss of $15.0 million for 2014 attributable to the equity shareholders of the Bank, as compared to a net loss of
$80.4 million for 2013. Total assets at 31 December 2014 amounted to $7,861 million (31 December 2013: $7,403 million).
The Bank’s consolidated Capital adequacy ratio under Basel II as at 31 December 2014 was 12.11% (31 December 2013: 12.77%) as
compared to a minimum regulatory requirement of 12%. The Bank’s risk weighted exposures and eligible capital are set out in note 39 to
the accompanying consolidated financial statements.
DIRECTORS
The following served as Directors of the Bank during the year ended 31 December 2014:

HRH Prince Amr Mohamed Al Faisal (Chairman)

Mr. Khalid Abdulla-Janahi
Tunku Dato’ Ya’acob Bin Tunku Abdullah
Mr. Abdelhamid Mohamed Aboumousa
Sheikha Hissah Bint Saad Al-Sabah
Sheikh Zamil Abdullah Al-Zamil
Mr. Nabeel Khaled Mohamed Kanoo
Mr. Mohammed A. Rahman Bucheerei
Mr. Abdulellah Ebrahim Al-Qassimi
Mr. Imtiaz Ahmad Pervez
Mr. Omar Abdi Ali
Mr. Graham R. Walker

DIRECTORS’ SITTING FEES
Directors’ sitting fees for 2014 amounted to $348,000 (2013: $213,500).
56 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

REPORT OF THE DIRECTORS

CONTINUED
Interests of Directors
The interests of the Directors in the shares of the Bank are disclosed below:

Name 31 December 2014 31 December 2013

HRH Prince Amr Mohamed Al Faisal 106,100 106,100

Mr. Khalid Abdulla-Janahi 20,749,693 20,749,693
Tunku Dato’ Ya’acob Bin Tunku Abdullah 106,100 106,100
Mr. Abdelhamid Mohamed Aboumousa 106,100 106,100
Sheikha Hissah Bint Saad Al-Sabah 106,100 106,100
Sheikh Zamil Abdullah Al-Zamil 205,000 205,000
Mr. Nabeel Khaled Mohamed Kanoo 106,100 106,100
Mr. Mohammed A. Rahman Bucheerei 105,600 105,600
Mr. Abdulellah Ebrahim Al-Qassimi 106,100 106,100
Mr. Imtiaz Ahmad Pervez - -
Mr. Omar Abdi Ali - -
Mr. Graham R. Walker 1,056,000 1,056,000

Dividend
No dividend has been proposed for 2014 (2013: Nil).

Auditors
The auditors, PricewaterhouseCoopers ME Limited, have expressed their willingness to be reappointed as auditors of the Bank for the year
ending 31 December 2015.

By order of the Board of Directors

HRH Prince Amr Mohamed Al Faisal

Chairman
7 March 2015
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 57

INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF ITHMAAR BANK B.S.C.

Report on the financial statements

We have audited the accompanying consolidated financial statements of Ithmaar Bank B.S.C. (the “Bank”) and its subsidiaries (the “Group”)
which comprise the consolidated statement of financial position as at 31 December 2014 and the related consolidated statements of
income, changes in owners’ equity, cash flows, and changes in restricted investment accounts for the year then ended, and a summary of
significant accounting policies and other explanatory notes.
Directors’ responsibility for the financial statements
Directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the Financial
Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions and to operate in accordance with
Islamic Shari’a rules and principles. This responsibility includes: designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in
accordance with the Auditing Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions. 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 consolidated financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December
2014 and the results of its operations, its cash flows, changes in owners’ equity and changes in restricted investment accounts for the year
then ended in accordance with Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial
Institutions.
Report on regulatory requirements and other matters
As required by the Bahrain Commercial Companies Law and the Central Bank of Bahrain (CBB) Rule Book (Volume 2), we report that:
(i) the Bank has maintained proper accounting records and the consolidated financial statements are in agreement therewith;
(ii) the financial information contained in the directors’ report is consistent with the consolidated financial statements;
(iii) we are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial Institutions
Law, the CBB Rule Book (Volume 2 and applicable provisions of Volume 6) and CBB directives, rules and procedures of the Bahrain
Bourse or the terms of the Bank’s memorandum and articles of association, having occurred during the year that might have had a
material adverse effect on the business of the Bank or on its financial position; and
(iv) satisfactory explanations and information have been provided to us by the management in response to all our requests.
The Bank has also complied with the Islamic Shari’a Rules and Principles as determined by the Shari’a Supervisory Board of the Group.

Partner’s Registration No. 134

7 March 2015
Manama, Kingdom of Bahrain
58 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

At 31 December At 31 December
2014 2013
Notes (Audited) (Audited)
ASSETS
Cash and balances with banks and central banks 3 559,394 595,671
Commodity and other placements with banks, financial and other institutions 4 330,371 498,321
Murabaha and other financings 5 3,331,337 3,153,644
Musharaka financing 90,150 62,101
Investment in mudaraba 6 17,434 20,801
Investment in associates 7 684,821 665,066
Investment securities 8 1,767,618 1,306,080
Restricted investment accounts 9 69,869 77,958
Assets acquired for leasing 10 74,243 64,286
Investment in real estate 11 332,599 353,308
Other assets 12 273,196 267,191
Fixed assets 13 113,278 115,164
Intangible assets 14 216,594 223,544
Total assets 7,860,904 7,403,135

LIABILITIES, EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS, MINORITY

INTEREST AND OWNERS’ EQUITY
Customers’ current accounts 15 1,372,653 1,270,562
Due to banks, financial and other institutions 16 1,473,298 1,301,523
Due to investors 17 1,995,345 1,855,769
Other liabilities 18 274,090 236,324
Total liabilities 5,115,386 4,664,178

Equity of unrestricted investment accountholders 19 2,001,949 1,985,469

Minority interest 20 220,183 221,920

Total liabilities, equity of unrestricted investment accountholders and minority interest 7,337,518 6,871,567

Share capital 21 757,690 757,690

Treasury shares 21 (30,149) (30,149)
Reserves 259,260 252,430
Accumulated losses )463,415( (448,403)
Total owners’ equity 523,386 531,568
Total liabilities, equity of unrestricted investment accountholders, minority interest
and owners’ equity 7,860,904 7,403,135
These consolidated financial statements were approved by the Board of Directors on 7 March 2015 and signed on their behalf by:

HRH Prince Amr Mohamed Al Faisal Mohammed Bucheerei Ahmed Abdul Rahim
Chairman Director CEO
The notes 1 to 42 on pages 63 to 99 form an integral part of the consolidated financial statements.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 59

CONSOLIDATED INCOME STATEMENT

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

Year ended
31 December 2014 31 December 2013
Notes (Audited) (Audited)

INCOME
Income from unrestricted investment accounts 100,500 100,796
Less: return to unrestricted investment accounts and impairment provisions 29 (76,793) (77,133)
Group’s share of income from unrestricted investment accounts as a Mudarib 23,707 23,663
Group’s share of income from restricted investment accounts as a Mudarib 23 208 599
Income from murabaha and other financings 24 222,209 211,324
Share of profit after tax from associates 7 22,317 38,469
Income from other investments 25 126,744 97,326
Other income 26 54,996 40,793
Total income 450,181 412,174
Less: profit paid to banks, financial and other institutions - net (222,421) (212,276)
Operating income 227,760 199,898

EXPENSES
Administrative and general expenses 27 (167,868) (163,785)
Depreciation and amortization 7,13,14 (30,930) (31,308)
Total expenses (198,798) (195,093)

Net income before provision for impairment and overseas taxation 28,962 4,805
Provision for impairment - net 29 )26,125( (82,199)
Net income/(loss) before overseas taxation 2,837 (77,394)
Overseas taxation 30 (11,684) (1,933)
NET LOSS FOR THE YEAR )8,847( (79,327)

Attributable to:
Equity holders of the Bank )15,012( (80,372)
Minority interests 20 6,165 1,045
)8,847( (79,327)
Basic and diluted earnings per share 22 US Cts (0.52) US Cts (2.76)

These consolidated financial statements were approved by the Board of Directors on 7 March 2015 and signed on their behalf by:

HRH Prince Amr Mohamed Al Faisal Mohammed Bucheerei Ahmed Abdul Rahim
Chairman Director CEO
The notes 1 to 42 on pages 63 to 99 form an integral part of the consolidated financial statements.
60 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY

FOR THE YEAR ENDED 31 DECEMBER
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

Reserves
Investment
in real
Investments estate Foreign Total
Share Treasury Share Statutory General fair value fair value currency Total Accumulated owners’
2014 capital shares premium reserve reserve reserve reserve translation reserves losses equity

At 1 January 2014 (Audited) 757,690 (30,149) 149,692 38,090 50,727 29,027 1,103 (16,209) 252,430 (448,403) 531,568
Net loss for the year - - - - - - - - - (15,012) (15,012)
Movement in fair value of investment
securities - - - - - 1,371 - - 1,371 - 1,371
Movement in fair value of associates - - - - 16,713 - - 16,713 - 16,713
Movement in deferred tax relating to
investment securities - - - - - (234) (11) - (245) - (245)
Transfer to income statement due
to impairment of investment
securities - - - - - 306 - 306 - 306
Transfer to income statement due to
disposal of investment securities - - - - - (1,794) - - (1,794) - (1,794)
Movement in fair value of investment
in real estate - - - - - - (654) - (654) - (654)
Foreign currency translation
adjustments - - - - - 47 19 (8,933) (8,867) - (8,867)
At 31 December 2014 (Audited) 757,690 (30,149) 149,692 38,090 50,727 45,436 457 (25,142) 259,260 (463,415) 523,386

Reserves
Investment
Investments in real estate Foreign Total
Share Treasury Share Statutory General fair value fair value currency Total Accumulated owners’
2013 capital shares premium reserve reserve reserve reserve translation reserves losses equity

At 1 January 2013 (Audited) 701,011 (30,149) 149,692 38,090 50,727 41,782 1,032 (1,883) 279,440 (361,188) 589,114
Increase in share capital (note 21) 56,679 - - - - - - - - - 56,679
Net loss for the year - - - - - - - - - (80,371) (80,371)
Movement in fair value of
investment securities - - - - - (6,167) - - (6,167) - (6,167)
Movement in fair value of associates - - - - - (4,737) - - (4,737) - (4,737)
Movement in deferred tax relating
to investment securities - - - - - (578) - - (578) - (578)
Transfer to income statement due
to impairment of investment
securities - - - - - (1,382) - - (1,382) - (1,382)
Transfer to income statement due to
disposal of investment securities - - - - - 77 - - 77 - 77
Movement in fair value of
investment in real estate - - - - - - 95 - 95 - 95
Foreign currency translation
adjustments - - - - - 32 (24) (14,326) (14,318) (6,844) (21,162)
At 31 December 2013 (Audited) 757,690 (30,149) 149,692 38,090 50,727 29,027 1,103 (16,209) 252,430 (448,403) 531,568

The notes 1 to 42 on pages 63 to 99 form an integral part of the consolidated financial statements.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 61

CONSOLIDATED STATEMENT OF CASH FLOWS

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

Year ended
31 December 2014 31 December 2013
Notes (Audited) (Audited)
OPERATING ACTIVITIES
Net income/(loss) before overseas taxation 2,837 (77,394)
Adjustments for:
Depreciation and amortization 7,13,14 30,930 31,308
Share of profit after tax from associates 7 (22,317) (38,469)
Provision for impairment - net 29 26,125 82,199
Gain on sale of fixed assets 26 (1,611) (1,188)
Operating income/(loss) before changes in operating assets and liabilities 35,964 (3,544)
(Increase)/decrease in balances with banks maturing after ninety days and
including with central banks relating to minimum reserve requirement (45,589) 29,005
(Increase)/decrease in operating assets:
Murabaha and other financings (117,373) (174,995)
Musharaka financing (25,088) (20,284)
Other assets 1,306 (8,342)
Increase/(decrease) in operating liabilities:
Customers’ current accounts 67,142 133,003
Due to banks, financial and other institutions 151,173 30,260
Due to investors 56,024 99,162
Other liabilities 34,551 33,374
Increase in equity of unrestricted investment accountholders 16,480 277,000
Net cash provided by operating activities 174,590 394,639

INVESTING ACTIVITIES
Net (increase)/decrease:
Investment in mudaraba 2,513 854
Investment in associates 1,440 -
Investment in restricted investment accounts 750 20,538
Assets acquired for leasing (9,957) 7,833
Investment securities (425,368) (216,804)
Dividend received from associates 7 6,304 5,732
Purchase of fixed assets (3,528) 2,966
Investment in real estate 3,460 (634)
Net cash used in investing activities (424,386) (179,515)
FINANCING ACTIVITIES
Taxes paid (12,724) (12,528)
Net cash used in financing activities (12,724) (12,528)
Foreign currency translation adjustments 12,958 (72,150)
Net increase/(decrease) in cash and cash equivalents (249,562) 130,446
Cash and cash equivalents at the beginning of the year 901,804 771,358
Cash and cash equivalents at the end of the year 4 652,242 901,804

The notes 1 to 42 on pages 63 to 99 form an integral part of the consolidated financial statements.
62 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED INVESTMENT ACCOUNTS

FOR THE YEAR ENDED 31 DECEMBER
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

At 1 January Net Deposits / Income/ Mudarib’s Fair value At 31 December

2014 2014 (Withdrawals) (Expenses) Fee movements 2014

Dilmunia Development Fund I L.P.* 172,066 (10,799) (454) - - 160,813

Shamil Bosphorus Modaraba* 62,499 - - - (56,249) 6,250
European Real Estate Portfolio* 21,003 - - - (2,489) 18,514
US Development Opportunities Fund* 12,952 (9,684) - - - 3,268
European Real Estate Placements* 23,239 - 142 (34) (2,932) 20,415
US Real Estate Placements* 79,979 (27,714) - (100) (4,300) 47,865
Trade Finance Placements 390 (228) - - (162) -
Listed and non-listed equities 36,512 - 614 (74) 20,287 57,339
TOTAL 408,640 (48,425) 302 (208) (45,845) 314,464
FUNDS MANAGED ON AGENCY BASIS 70,671 (5,424) - - - 65,247
479,311 (53,849) 302 (208) (45,845) 379,711

* Income/(loss) will be recognised and distributed at the time of disposal of the underlying investments

At 1 January Net Deposits / Income / Fair value At 31 December

2013 2013 (Withdrawals) (Expenses) Mudarib’s Fee movements 2013

Aldar Private Equity Fund** 206,820 (206,820) - - - -

Dilmunia Development Fund I L.P.* 170,209 - 1,857 - - 172,066
Shamil Bosphorus Modaraba* 102,435 - - - (39,936) 62,499
European Real Estate Portfolio* 20,085 - - - 918 21,003
US Development Opportunities Fund* 18,019 (5,067) - - - 12,952
European Real Estate Placements* 102,178 (79,114) 244 (69) - 23,239
US Real Estate Placements* 86,292 (7,234) 1,384 (463) - 79,979
PPSC Placements 47,430 (47,419) 16 (27) - -
Trade Finance Placements 14,546 (14,238) 90 (8) - 390
Listed and non-listed equities 23,149 12,719 676 (32) - 36,512
Investment in Sukuk 528 (539) 11 - - -
TOTAL 791,691 (347,712) 4,278 (599) (39,018) 408,640
FUNDS MANAGED ON AGENCY BASIS 70,671 - - - - 70,671
862,362 (347,712) 4,278 (599) (39,018) 479,311

* Income/(loss) will be recognised and distributed at the time of disposal of the underlying investments
**Fund distributed its entire shareholding to its unitholders during 2013

The notes 1 to 42 on pages 63 to 99 form an integral part of the consolidated financial statements.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 63

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

1. INCORPORATION AND ACTIVITIES

Ithmaar Bank B.S.C. (the “Bank”) was incorporated in the Kingdom of Bahrain on 13 August 1984 and was licensed as an investment
bank regulated by the Central Bank of Bahrain (the “CBB”). On 14 April 2010 the CBB approved the reorganisation of the Bank and
its wholly owned subsidiary Shamil Bank of Bahrain B.S.C. (C) (the “Shamil Bank”) into one entity under Ithmaar Bank B.S.C. with an
Islamic retail banking license. As a result, Shamil Bank has transferred its entire business, assets and liabilities to Ithmaar Bank B.S.C.
effective 21 April 2010. On 17 February 2013, the CBB approved the Transfer of Business from First Leasing Bank B.S.C. (c) (“FLB”) to the
Bank and the related share swap transaction (note 21), and this was completed in March 2013.
Dar Al-Maal Al-Islami Trust (“DMIT”), a Trust incorporated in the commonwealth of Bahamas is the ultimate parent company of the
Bank.
The principal activities of the Bank and its subsidiaries (collectively the “Group”) are a wide range of financial services, including retail,
commercial, investment banking, private banking, takaful and real estate development.
The Bank’s activities are supervised by the CBB and are subject to the supervision of Shari’a Supervisory Board.
The Bank’s shares are listed for trading on the Bahrain Bourse and Kuwait Stock Exchange.
The Group’s activities also include acting as a Mudarib (manager, on a trustee basis), of funds deposited for investment in accordance
with Islamic laws and principles particularly with regard to the prohibition of receiving or paying interest. These funds are included in
the consolidated financial statements as equity of unrestricted investment accountholders and restricted investment accounts. In respect
of equity of unrestricted investment accountholders, the investment account holder authorises the Group to invest the accountholders’
funds in a manner which the Group deems appropriate without laying down any restrictions as to where, how and for what purpose the
funds should be invested. In respect of restricted investment accounts, the investment accountholders impose certain restrictions as to
where, how and for what purpose the funds are to be invested. Further, the Group may be restricted from commingling its own funds
with the funds of restricted investment accounts.
The Group carries out its business activities through the Bank’s head office, 17 commercial branches in Bahrain and its following principal
subsidiary companies:

% owned
Voting Economic Country of Principal business
Incorporation activity
Faysal Bank Limited 67 67 Pakistan Banking
Faisal Private Bureau (Switzerland) S.A. (formerly Faisal Private Bank 100 100 Switzerland Wealth and asset
(Switzerland) S.A.) management
Ithmaar Development Company Limited 100 100 Cayman Islands Real estate
City View Real Estate Development Co. B.S.C. (C) 51 51 Kingdom of Real estate
Bahrain
Health Island B.S.C. (C) 50 50 Kingdom of Real estate
Bahrain
Sakana Holistic Housing Solutions B.S.C. (C) (Sakana) 63 50 Kingdom of Mortgage finance
Bahrain
Cantara (Switzerland) S.A. 100 100 Switzerland Investment holding
DMI Administrative Services S.A. 100 100 Switzerland Management
services
Faisal Finance (Luxembourg) S.A. 100 100 Luxembourg Investment holding
Shamil Finance (Luxembourg) S.A. 100 100 Luxembourg Investment holding
Faisal Finance (Netherlands Antilles) NV 100 100 Netherlands Investment holding
Antilles
Islamic Investment Company of the Gulf (Bahamas) Limited (IICG), a company incorporated in the Commonwealth of Bahamas and
owned 100% by DMIT, is an affiliate of the Bank.
64 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

1. INCORPORATION AND ACTIVITIES (Continued)

The Bank has voluntarily surrendered Faisal Private Bank (Switzerland) S.A.’s banking license effective 30 June 2013. Effective, 1 July
2013 Faisal Private Bank adopted a new name “Faisal Private Bureau (Switzerland) S.A.”. Faisal Private Bureau now provides advice and
wealth management services to investors in the existing funds managed by erstwhile Faisal Private Bank. The financial statements of
Faisal Private Bureau have been prepared on a going concern basis as at 31 December 2014.
During January 2013, the Bank decided to exit from its 50% investment in Sakana together with the other 50% shareholder. The
shareholders approved the company’s voluntary liquidation in the EGM held in September 2013. Approval from the CBB was also
obtained in this regard. Liquidation committee appointed by Sakana is overseeing the liquidation.
During March 2013, the Bank exited from its 51% investment in Marina Reef Real Estate Development Co. B.S.C.(C).

2. SIGNIFICANT GROUP ACCOUNTING POLICIES

Effective 30 June 2010, the Bank adopted Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for
Islamic Financial Institutions (AAOIFI).
The Group has certain assets, liabilities and related income and expenses which are not Sharia compliant as these existed before
Ithmaar Bank converted to an Islamic retail bank in April 2010. These are currently presented in accordance with AAOIFI standards in the
consolidated financial statements for the year ended 31 December 2014 as appropriate.
The Sharia Supervisory Board has approved the Sharia Compliance Plan (“Plan”) for assets and liabilities which are not Sharia Compliant.
The Sharia Supervisory Board is monitoring the implementation of this Plan. The income and expenses attributable to non-Sharia
compliant assets and liabilities is disclosed under note 41.
The consolidated financial statements comprise the financial information of the Group for the year ended 31 December 2014.
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below:

(i) New accounting standard: Issued and effective

There are no new AAOIFI accounting standards, amendments to standards and interpretations that are effective for the first time for
the financial year beginning on or after 1 January 2014 that would be expected to have material impact on the Group.
The following new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1
January 2015 and are expected to be relevant to the Group.
FAS27 - Investment Accounts
FAS 27 Investment accounts was issued in December 2014 replacing FAS5 - Disclosures of Bases for Profit Allocation between
Owner’s equity and Investment Account Holders’ and FAS 6 - ‘Equity of Investment Account Holders and their Equivalent’. This
standard is effective for financial periods beginning 1 January 2016. The adoption of this standard would not have any significant
impact on the financial statements of the Group.
The Bank has not early adopted any new standards during 2014.

(ii) Basis of preparation

The consolidated financial statements are prepared on a historical cost convention except for investments carried at fair value
through income statement and equity and investment in real estate.

(iii) Statement of compliance

The consolidated financial statements have been prepared in accordance with the Financial Accounting Standards issued by the
Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the Shari’a rules and principles as determined by
the Shari’a Supervisory Board of the Bank, the Bahrain Commercial Companies Law, the CBB and the Financial Institutional Law. In
accordance with the requirement of AAOIFI, for matters where no AAOIFI standards exist, the Group uses the relevant International
Financial Reporting Standards (IFRS).
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 65

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies

(a) Basis of consolidation
Subsidiaries
Subsidiaries are companies in which the Group holds 50% or more of equity shares and as such exercises significant control over
such companies. Subsidiaries, including Special Purpose entities that are controlled by the Bank, are consolidated from the date
on which the Group obtains control and continue to be so consolidated until the date such control ceases.
Associates
Associates are companies in which the Group has significant influence, but not control over the management of affairs, and
which are neither subsidiaries nor joint ventures. The Group’s investments in associates are accounted for under the equity
method of accounting. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus
post-acquisition changes in the Group’s share of net assets of the associate. The consolidated income statement reflects the
Group’s share of the results of operations of the associate. Where there has been a change recognised directly in the equity of
the associate, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement
of changes in owners equity.
In case of associates where audited financial statements are not available, the Group’s share of profit or loss is arrived at by
using the latest available management accounts.
Intra-Group balances and minority interest
The consolidated financial statements include the assets, liabilities and results of operations of the Bank, its subsidiary
companies after adjustment for minority interest and equity of unrestricted investment accountholders managed by the Group.
All significant intra-group balances and transactions have been eliminated. The financial statements of the subsidiaries are
prepared on the same reporting periods as the Bank, using consistent accounting policies.
(b) Foreign currency transactions and balances
Functional and presentation currency
Items included in the consolidated financial statements of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates, which is Bahraini Dinars (the functional currency). The Annual General
Meeting of the Bank held on 30 March 2014 approved the change of the presentation currency of the Bank from Bahraini
Dinars to United States Dollars effective 1 January 2014. Considering that the Bahraini Dinar is pegged to United States Dollars,
the changes in presentation currency will have no impact on the consolidated statement of financial position, consolidated
income statement, consolidated statement of changes in owners’ equity, consolidated statement of cash flow and consolidated
statement of changes in restricted investment accounts.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation
at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
consolidated income statement. Translation differences on non-monetary items carried at their fair value, such as certain
investment securities are included in investments fair value reserve.
66 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies (Continued)
(b) Foreign currency transactions and balances (Continued)

The results and financial position of all the Group entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
1. Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of
statement of financial position;
2. Income and expenses for each income statement are translated at average exchange rates; and
3. All resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of
borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity.
Translation losses arising in the case of severe devaluation or depreciation (other than temporary) of the currency of the net
investment in a foreign operation when the latter is translated at the spot exchange rate at the date of consolidated statement
of financial position, are recognised in the first place as a charge against any credit balance on the separate component of the
shareholders equity and any remaining amount is recognised as a loss in the consolidated income statement. When a foreign
operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the consolidated
income statement as part of the gain or loss on sale.
Goodwill, and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
(c) Accounting estimates and judgements
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial
year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectation of future events that are believed to be reasonable under the circumstances.
1. Classification of investments
In the process of applying the Group’s accounting policies, management decides upon acquisition of an investment, whether
it should be classified as investments carried at fair value through income statement, held at amortised cost or investments
carried at fair value through equity. The classification of each investment reflects the management’s intention in relation to
each investment and is subject to different accounting treatments based on such classification.
2. Special purpose entities
The Group sponsors the formation of special purpose entities (SPEs) primarily for the purpose of allowing clients to hold
investments. The Group does not consolidate SPEs that it does not have the power to control. In determining whether the
Group has the power to control an SPE, judgements are made about the objectives of the SPEs activities, Group’s exposure to
the risks and rewards, as well as its ability to make operational decisions of the SPEs.
3. Impairment on financing assets and investments
Each financing and investment exposure is evaluated individually for impairment. Management makes judgements about
counterparty’s financial situation and the net realisable value of any underlying assets. Each impaired asset is assessed on its
merits, and the workout strategy and estimate of cash flows considered recoverable.
4. Liquidity mismatch
The Group constantly monitors the liquidity mismatch arising in the normal course of the business. Periodic stress tests
are carried out on liquidity position to assess the ability of the Bank to meet its liquidity mismatch. The stress testing also
incorporates judgement based behavioural approach for various sources of funding, estimated inflows from disposal of assets.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 67

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies (Continued)
(d) Cash and cash equivalents
Cash and cash equivalents as referred to in the consolidated statement of cash flows comprise cash on hand, non-restricted
balance with central banks and other banks, and short term liquid investments on demand or with an original maturity of three
months or less.
(e) Murabaha and other financings
Murabaha financing is stated at cost less allowance for doubtful receivables.
The Group considers the promise made in Murabaha to the purchase orderer as obligatory.
Other financings represent conventional loans and advances, which are non-derivative financial assets with fixed or
determinable payments. These are initially recorded at fair value and are subsequently carried at amortised cost using the
effective yield method.
The Group receives collateral in the form of cash or other securities including bank guarantees, mortgage over property or
shares and securities for Murabaha and other financings where deemed necessary. The Group’s policy is to obtain collateral
where appropriate, with a market value equal to or in excess of the principal amount financed under the respective financing
agreement. To ensure that the market value of the underlying collateral remains sufficient, collateral is valued periodically.
Specific provision is made when the management consider that there is impairment in the carrying amount of Murabaha and
other financings.
In addition to specific provision, the Group also assess impairment collectively for losses on financing facilities that are not
indiviually significant and where there is not yet objective evidence of individual impairment. General provision is evaluated at
each reporting date.
(f) Musharaka financing
Musharaka financing is stated at cost less provision for impairment.
Specific provision is made when the management consider that there is impairment in the carrying amount of Musharaka
financing.
(g) Investments
1. Investments carried at amortised cost
Debt-type instruments are carried at amortised cost where the investment is managed on a contractual yield basis and their
performance evaluated on the basis of contractual cash flows. These investments are measured at initial recognition minus
capital/redemption payments and minus any reduction for impairment.
2. Investments carried at fair value through equity
Equity-type instruments are investments that do not exhibit the feature of debt type instruments and include instruments that
evidence a residual interest in the assets of an entity after deducting all its liabilities.
Equity-type investments carried at fair value through equity are those equity instruments which are intended to be held for
an indefinite period of time, which may be sold in response to needs for liquidity; these are designated as such at inception.
Regular-way purchases and sales of these investments are recognised on the trade date which is the date on which the Group
commits to purchase or sell the asset.
These investments are initially recognised at cost plus transaction costs. These investments are subsequently re-measured
at fair value and the resulting unrealised gains or losses are recognised in the consolidated statement of changes in equity
or equity of unrestricted investment accountholders under “Investments fair value reserve”, until the financial asset is
derecognized or impaired. At this time, the cumulative gain or loss previously recognised in equity is recognised in the
consolidated income statement.
68 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies (Continued)
(g) Investments (Continued)
The fair value of quoted investments in active market is based on current bid price. If there is no active market for such
financial assets, the Group establishes fair values using valuation techniques. These include the use of recent arm’s length
transactions and other valuation techniques used by other participants. The Group also refers to valuations carried out by
investment managers in determining fair value of certain unquoted financial assets.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial
assets is impaired. In case of equity investments classified as financial assets carried at fair value through equity, a significant
or prolonged decline in fair value of the security below the cost is considered in determining whether the assets are impaired.
If any evidence exists of significant impairment for the investment carried at fair value through equity, the cumulative
loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the
financial asset previously recognised in the consolidated income statement is removed from the equity and recognised in the
consolidated income statement. Impairment losses on equity instruments previously recognised in the consolidated income
statement are not subsequently reversed through the consolidated income statement.
3. Investments carried at fair value through income statement
An investment is classified as investment carried at fair value through income statement if acquired or originated principally
for the purpose of generating a profit from short term fluctuations in price or dealers margin. These investments are
recognised on the acquisition date at cost including the direct expenses related to the acquisition. At the end of each reporting
period, investments are re-measured at their fair value and the gain/loss is recognised in the consolidated income statement.
4. Restricted investment accounts
Investment in restricted investment accounts is initially recorded at cost and subsequently re-measured at fair value.
Unrealised losses are recognised in equity to the extent of the available balance, taking into consideration the portion related
to owner’s equity and equity of unrestricted investment accountholders. In case cumulative losses exceed the available
balance under equity, the excess is recognised in the consolidated income statement.
5. Investment in real estate
All properties held for rental income or for capital appreciation purposes or both are classified as investment in real estate.
Investment in real estate held for capital appreciation are initially recognised at cost and subsequently re-measured at fair
value in accordance with the fair value model with the resulting unrealised gains being recognised in the consolidated
statement of changes in owner’s equity under investment in real estate fair value reserves. Any unrealised losses resulting
from re-measurement at fair value of investment in real estate carried at fair value are adjusted in equity against the
investment in real estate fair value reserve, taking into consideration the split between the portion related to owners’ equity
and equity of investment accountholders, to the extent of the available credit balance of this reserve. In case such losses
exceed the available balance, the unrealised losses are recognised in the consolidated income statement. In case there are
unrealised losses relating to investment in real estate that have been recognised in the consolidated income statement in a
previous financial period, the unrealised gains relating to the current financial period are recognised to the extent of crediting
back such previous losses in the consolidated income statement. The realised profits or losses resulting from the sale of any
investment in real estate are measured as the difference between the book value (or carrying amount) and the net cash or
cash equivalent proceeds from the sale for each investment separately. The resulting profit or loss together with the available
balance on the investment in real estate fair value reserve account is recognised in the consolidated income statement for the
current financial period.
Investment in real estate held for rental purposes are stated at cost less accumulated depreciation.
6. Investment in mudaraba
Mudaraba investments are recorded at cost. Decline in the value of investment which is not temporary is charged directly to
the consolidated income statement.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 69

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies (Continued)
(g) Investments (Continued)
7. Fair value
For investments traded in organised financial markets, fair value is determined by reference to quoted market bid prices.
For investments where there are no quoted market prices, a reasonable estimate of the fair value is determined by reference
to the current market value of another instrument, which is substantially the same or is based on the assessment of future
cash flows or at net asset value. The cash equivalent values are determined by the Group at current profit rates for contracts
with similar term and risk characteristics.
(h) Assets acquired for leasing (Ijarah)
Assets acquired for leasing are stated at cost and are depreciated according to the Group’s depreciation policy for fixed assets or
lease term, whichever is lower.
A provision for doubtful receivable is made if, in the opinion of the management, the recovery of outstanding rentals are
doubtful.
(i) Fixed assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line method to write off
the cost of each asset over its estimated useful life as follows:
Buildings 50 years
Leasehold improvements over the period of the lease
Furniture, equipment and motor vehicles 3-10 years
Depreciation is calculated separately for each significant part of an asset category. Where the carrying amount of an asset is
greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. The asset’s residual
value and useful life are reviewed, and adjusted if appropriate, at each date of the statement of financial position.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably.
All other repairs and renewals are charged to the consolidated income statement during the financial period in which they are
incurred.
Gains and losses on disposal of fixed assets are determined by comparing proceeds with carrying amounts.
(j) Intangible assets
1. Goodwill
Goodwill acquired at the time of acquisitions of subsidiaries is reported in the consolidated statement of the financial position
as an asset. Goodwill is initially measured at cost being the excess of the cost of acquisition over the fair value of the Group’s
share of the net assets of the acquired subsidiary undertaking at the date of acquisition. Subsequently, the goodwill is tested
for impairment on annual basis. At the end of the financial period, the goodwill is reported in the consolidated statement of
financial position at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated
to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units.
70 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies (Continued)
(j) Intangible assets (Continued)
Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates.
Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.
Negative goodwill resulting from the acquisition of business is reported in the consolidated income statement.
Acquisition of minority interest is accounted using the Economic Entity Method. Under the Economic Entity Method, the
purchase of a minority interest is a transaction with a shareholder. As such, any excess consideration over the Group’s share of
net assets is recorded in owners’ equity.
2. Computer software
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. These costs are amortised on the basis of the expected useful lives (three to five years). Costs associated with
developing or maintaining computer software programs are recognised as an expense as incurred.
Costs that are directly associated with the production of identifiable and unique software products controlled by the Group,
and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets.
Direct costs include software development employee costs and an appropriate portion of relevant overheads. Computer
software development costs recognised as assets are amortised using the straight line method over their expected useful
lives.
3. Other acquired intangible assets
Other acquired intangible assets determined to have finite lives, such as core deposits and customer relationships, are
amortised on a straight line basis over their estimated useful lives of up to twenty years. The original carrying amount of core
deposits and customer relationships has been determined by independent appraisers, based on the profit rate differential on
the expected deposit duration method.
Other acquired intangible assets are tested annually or more often if indicators exist for impairment and carried at cost less
accumulated amortization.
(k) Current taxation
There is no tax on corporate income in the Kingdom of Bahrain. However, the subsidiaries incorporated in tax jurisdictions pay
tax as per local regulations.
(l) Deferred taxation
Deferred taxation is provided using the liability method for all temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
A deferred tax asset is recognised for all deductible temporary differences and carry forward of unused tax losses and tax credits
to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences
and unused tax losses and tax credits can be utilised. Enacted tax rates are used to determine deferred income tax.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies (Continued)
(m)Provision for staff benefits
Staff benefits and entitlements to annual leave, holiday air passage and other short-term benefits are recognised when they
accrue to employees. The Group’s contributions to defined contribution plans are charged to the consolidated income statement
in the period to which they relate. In respect of these plans, the Group has a legal and constructive obligation to pay the
contributions as they fall due and no obligation exists to pay future benefits.
In respect of end of service benefits, to which certain employees of the Group are eligible, costs are assessed in accordance with
the labour law requirements of the applicable jurisdiction or by using the projected unit credit method as appropriate. Costs to
be recognised under the projected unit credit method are estimated based on the advice of qualified actuaries. Actuarial gains
and losses are spread over the average remaining service lives of the employees until the benefits become vested.
(n) Due to investors
Funds received from depositors who take the corporate risk of the Bank or its subsidiaries are classified as “Due to investors”
(o) Equity of unrestricted investment accountholders
Under the equity of unrestricted investment accountholders (URIA), the investment account holder authorizes the Group to invest
the accountholders’ funds in a manner which the Group deems appropriate without laying down any restrictions as to where,
how and for what purpose the funds should be invested.
The assets included in the equity of unrestricted investment accountholders are measured on the same basis of various category
of the assets as set out above. The amount appropriated to investment risk reserve are out of the total income from URIA assets
before charging any expense relating to the management fee, mudarib share of profit, profit equalization reserve and profit
to investment accountholders. Profit equalisation reserve is created to maintain a certain level of return on investments for
investment accountholders.
(p) Restricted investment accounts
Under the restricted investment accounts (RIA), the investment accountholders impose certain restrictions as to where, how
and for that purpose the funds are to be invested. The assets included in the restricted investment accounts are recorded at Net
Asset Value (NAV).
(q) Treasury shares
These shares are treated as a deduction from the owners’ equity. Gains and losses on sale of own shares are included in owners’
equity.
(r) Statutory reserve
In accordance with the Bahrain Commercial Companies Law 10% of the Bank’s net income for the year is transferred to a
statutory reserve until such time as reserve reaches 50% of the paid up share capital. The reserve is not distributable, but can be
utilized as stipulated in the Bahrain Commercial Companies Law and other applicable statutory regulations.
72 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014

2. SIGNIFICANT GROUP ACCOUNTING POLICIES (Continued)

(iv) Summary of significant accounting policies (Continued)
(s) Revenue recognition
1. Profit participation and management fees
Income from profit participation and management fees charged to funds managed by the Group is recognised on the basis
of the Group’s entitlement to receive such revenue from restricted and unrestricted investment accounts as defined in the
Mudaraba agreement (trust deed), except when the Group temporarily waives its entitlement.
2. Profit on Murabaha and other financings
Profit on Murabaha transactions is recognised by proportionately allocating the attributable profits over the period of the
transaction where each financial period carries its portion of profits irrespective of whether or not cash is received. However,
profit accrual is suspended on Murabaha transactions in respect of which repayment instalments are past due for more than
ninety days, unless, in the opinion of the management of the Bank, the accrual is justified.
Income from other financings is accrued based on the effective yield method over the period of the transaction. Where income
is not contractually determined or quantifiable, it is recognised when reasonably certain of realisation or when realised.
3. Income from assets acquired for leasing
Lease rental revenue is recognised on a time-apportioned basis over the lease term.
4. Income from Mudaraba contracts
Income from Mudaraba contracts are recognised when the Mudarib distributes profits. Any share of losses for the period are
recognized to the extent such losses are being deducted from the Mudaraba capital.
5. Profit on Musharaka contracts
In respect of Musharaka contracts that continue for more than one financial period, the Group’s share of profits are recognised
when a partial or final settlement takes place and its share of the losses are recognised to the extent that such losses are
deducted from the Group’s share of Musharaka capital. However, in respect of diminishing Musharaka transactions, profits
or losses are recognised after considering the decline in the Group’s share of the Musharaka capital and, consequently, its
proportionate share of the profits or losses.
6. Dividend income
Dividend income is recognised when the right to receive payment is established.
7. Fees and commissions
Fees and commissions (including banking services) are recognised when earned.
Commissions on letters of credit and letters of guarantee are recognised as income over the period of the transaction.
Fees for structuring and arrangement of financing transactions for and on behalf of other parties are recognised when
the Bank has fulfilled all its obligations in connection with the related transaction.
(t) Profit allocation between group and investment accountholders
The Group maintains separate books for assets financed by owners, unrestricted and restricted investment accounts. All income
generated from the assets financed by the investment accounts are allocated to the customers after deducting impairment
provisions, profit equalization reserves, mudarib’s share of profit and management fees.
Administrative expenses incurred in connection with the management of the funds are borne directly by the Group.
Impairment provision is made when the management considers that there is impairment in the carrying amount of assets
financed by the investment account.
(u) Assets transfer between Owner’s equity, Unrestricted Investment Accounts and Restricted Investment Accounts
Assets are transferred between Owner’s equity, Unrestricted Investment Accounts and Restricted Investment Accounts at
fair value.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 73

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

3. CASH AND BALANCES WITH BANKS AND CENTRAL BANKS

31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Cash reserve with central banks 154,082 - 154,082 163,432 - 163,432
Cash and balances with banks and central banks 405,312 - 405,312 432,239 - 432,239
559,394 - 559,394 595,671 - 595,671

4. COMMODITY AND OTHER PLACEMENTS WITH BANKS, FINANCIAL AND OTHER INSTITUTIONS
31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total

Commodity placements 312,147 25,003 337,150 479,841 25,005 504,846

Less: Provision (6,779) - (6,779) (6,525) - (6,525)
305,368 25,003 330,371 473,316 25,005 498,321

Cash and cash equivalents for the purpose of cash flow statement are as under:

31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total

Cash and balances with banks and central banks 559,394 - 559,394 595,671 - 595,671
Commodity and other placements with banks, financial
and other institutions -net 305,368 25,003 330,371 473,316 25,005 498,321
Less: Placement maturing after ninety days (58,438) (25,003) (83,441) (3,751) (25,005) (28,756)
Less: Balances with central bank relating to minimum
reserve requirement (154,082) - (154,082) (163,432) - (163,432)
652,242 - 652,242 901,804 - 901,804

The movement in provisions is as follows:

31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January 6,525 - 6,525 6,525 - 6,525
Exchange differences and other movements 254 - 254 - - -
At 31 December 6,779 - 6,779 6,525 - 6,525
74 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

5. MURABAHA AND OTHER FINANCINGS

31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Murabaha and other financings 2,333,591 1,320,655 3,654,246 2,275,016 1,170,562 3,445,578
Less: Provisions (268,357) (54,552) (322,909) (242,561) (49,373) (291,934)
2,065,234 1,266,103 3,331,337 2,032,455 1,121,189 3,153,644

Other financings represents conventional loans and advances totalling $1,715.6 million (31 December 2013: $1,709.5 million) made by
a subsidiary of the Bank.
The movement in provisions is as follows:
31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January 242,561 49,373 291,934 241,894 38,188 280,082
Charge for the year 24,531 4,892 29,423 41,584 6,496 48,080
Write back during the year (9,165) - (9,165) (18,228) - (18,228)
Utilised during the year - (623) (623) (5,477) (305) (5,782)
Transfer from Investment Risk Reserve - 835 835 - - -
Exchange differences and other movements 10,430 75 10,505 (17,212) 4,994 (12,218)
At 31 December 268,357 54,552 322,909 242,561 49,373 291,934

Total provision of $322.9 million (31 December 2013: $291.9 million) includes general provision of $3.6 million (31 December 2013:
$3.6 million).
6. INVESTMENT IN MUDARABA
31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Mudaraba investments 973 32,103 33,076 1,196 34,393 35,589
Less : provisions (854) (14,788) (15,642) - (14,788) (14,788)
119 17,315 17,434 1,196 19,605 20,801

Certain assets totalling $17.4 million included above are held by third parties as nominee on behalf of the Group.
The movement in provisions is as follows:
31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January - 14,788 14,788 - 14,788 14,788
Exchange differences and other movements 854 - 854 - - -
At 31 December 854 14,788 15,642 - 14,788 14,788
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 75

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

7. INVESTMENT IN ASSOCIATES
Investment in associated companies, as adjusted for the Bank’s share of their results comprise:
% of Share- % of Share-
Name of company 2014 holding 2013 holding Country Activity

Unlisted:
Solidarity Group Holding B.S.C. (C) 79,480 34 88,737 34 Bahrain Takaful
Citic International Assets Management Limited 69,595 20 67,939 20 Hong Kong Asset management
Sanpak Engineering 448 31 398 31 Pakistan Manufacturing
Islamic Company for Production, Printing and
Packing Materials “Icopack” - note (i) - - 2,687 23 Egypt Trading
Misr Company for Packing Materials“Egywrap” 4,351 23 4,074 23 Egypt Trading
Faysal Asset Management Limited 573 30 552 30 Pakistan Asset management
Ithraa Capital 4,263 23 4,475 23 Saudi Arabia Investment company
Naseej B.S.C. (C) 97,133 30 94,846 30 Bahrain Infrastructure
Chase Manara B.S.C. (C) 1,781 40 2,149 40 Bahrain Real estate
Islamic Trading Company E.C 534 24 1,973 24 Bahrain Trading
Listed:
BBK B.S.C 426,663 25 397,236 25 Bahrain Banking
684,821 665,066

Note (i) - During the period, Icopack increased its issued and fully paid share capital. The Bank did not participate in the increase,
resulting in dilution of the Bank’s shareholding in Icopack from 23% to 7%.
Investment in associates include conventional investments totalling $593 million (31 December 2013: $560 million).
The Bank’s share of net assets of its associated companies includes the following movements analysed as follows:
31 December 31 December
2014 2013
At 1 January 665,066 682,488
Share of profit before tax 22,681 38,488
Share of tax (364) (19)
Dividends received (6,304) (5,732)
Share of fair value reserve 16,713 (4,737)
Disposals (3,812) (32,660)
Amortisation of intangibles (6,748) (6,748)
Exchange differences (2,411) (6,014)
At 31 December 684,821 665,066
Investment in associates includes $261.8 million (31 December 2013: $258.8 million) pledged as collateral against borrowings (note 16)
with the terms and conditions in the ordinary course of business.
Certain assets totalling $38.4 million included above are held by third parties as nominee on behalf of the Group.
76 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

7. INVESTMENT IN ASSOCIATES (Continued)

Included in investment in associates at 31 December 2014 is $76.9 million (31 December 2013: $76.9 million) of goodwill.
The movement is as follows:
31 December 31 December
2014 2013
At 1 January 76,939 76,939
Provision - -
At 31 December 76,939 76,939
Amortisation charge for the intangible assets for the year ended 31 December 2014 amounted to $6.7 million (31 December 2013: $6.7 million)
Summarised financial position of associates that have been equity accounted:
31 December 31 December
2014 2013
Total assets 10,404,796 9,766,244
Total liabilities 8,477,618 7,896,793
Total revenues 523,500 406,724
Total net profit 111,126 126,682

8. INVESTMENT SECURITIES
31 December 2014 31 December 2013
Relating Relating to unrestricted Relating to Relating to unrestricted
to owners investment accounts Total owners investment accounts Total

Investment securities at fair value

through income statement
Held for trading
Debt-type instruments - unlisted 270,441 - 270,441 78,199 - 78,199
Equity-type securities - listed 2,615 - 2,615 4,281 - 4,281
273,056 - 273,056 82,480 - 82,480
Investment securities at fair value
through equity
Equity-type securities - listed 41,084 - 41,084 33,069 - 33,069
Equity-type securities - unlisted 226,771 85,217 311,988 229,695 88,592 318,287
267,855 85,217 353,072 262,764 88,592 351,356
Provision for impairment (103,550) (5,756) (109,306) (110,584) (5,756) (116,340)
164,305 79,461 243,766 152,180 82,836 235,016
Investment securities carried at
amortised cost
Sukuk - unlisted 216,454 - 216,454 177,135 - 177,135
Other debt-type instruments - listed 2,259 - 2,259 7,647 - 7,647
Other debt-type instruments - unlisted 1,050,219 - 1,050,219 817,377 - 817,377
1,268,932 - 1,268,932 1,002,159 - 1,002,159
Provision for impairment (18,136) - (18,136) (13,575) - (13,575)
1,250,796 - 1,250,796 988,584 - 988,584
1,688,157 79,461 1,767,618 1,223,244 82,836 1,306,080
Investment securities include conventional investments totalling $1,346.9 million (31 December 2013: $1,094.8 million) made by a
subsidiary of the Bank.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 77

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

8. INVESTMENT SECURITIES (Continued)

The fair value of investment securities carried at amortised cost was $1,269.5 million (31 December 2013: $983.3 million)
Certain assets totalling $86.1 million included above are held by third parties as nominee on behalf of the Group.
The movement in provisions relating to investment securities is as follows:

31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January 124,159 5,756 129,915 115,559 5,756 121,315
Charge for the year 13,882 - 13,882 27,016 - 27,016
Write back during the year (7,406) - (7,406) (4,053) - (4,053)
Addition due to acquisition of associate (note 21) - - - 4,639 - 4,639
Utilised during the year (2,876) - (2,876) (10,074) - (10,074)
Exchange differences and other movements (6,073) - (6,073) (8,928) - (8,928)
At 31 December 121,686 5,756 127,442 124,159 5,756 129,915

FAS 25 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or
unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market
assumptions. These two types of inputs have created the following fair value hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical investments.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the investments, either directly (that is, as
prices) or indirectly (that is, derived from prices).
Level 3 - inputs for the investments that are not based on observable market data (unobservable inputs).
This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in
its valuations where possible.
Investments measured at fair value
Level 1 Level 2 Level 3 Total

At 31 December 2014
Investment securities at fair value through income statement
Debt-type instruments - 270,441 - 270,441
Equity securities 2,615 - - 2,615
Investment securities at fair value through equity
Equity securities 35,835 1,990 205,941 243,766
38,450 272,431 205,941 516,822
At 31 December 2013
Investment securities at fair value through income statement
Debt-type instruments - 78,199 - 78,199
Equity securities 4,281 - - 4,281
Investment securities at fair value through equity
Equity securities 28,310 2,082 204,624 235,016
32,591 80,281 204,624 317,496
78 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

8. INVESTMENT SECURITIES (Continued)

Reconciliation of Level 3 Items

Investment securities at fair value

through equity
2014 2013
At 1 January 204,624 136,467

Total gains/(losses) recognised in

- Income statement (1,358) (16,822)
- Equity (1,584) (8,032)

Purchases 5 100,780
Sales (1,797) (7,769)
Reallocation 6,051 -
At 31 December 205,941 204,624
Total gains/(losses) for the year included in consolidated income statement for 31 December 4,382 (1,538)

9. RESTRICTED INVESTMENT ACCOUNTS

31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Investment in restricted investment accounts 91,798 45,206 137,004 91,799 46,480 138,279
Less: provisions (58,509) (8,626) (67,135) (51,695) (8,626) (60,321)
33,289 36,580 69,869 40,104 37,854 77,958
The movement in provisions is as follows:
31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January 51,695 8,626 60,321 23,329 1,931 25,260
Charge for the year 6,250 - 6,250 28,276 - 28,276
Transfer from Profit Equalisation Reserve - - - - 6,695 6,695
Exchange differences and other movements 564 - 564 90 - 90
At 31 December 58,509 8,626 67,135 51,695 8,626 60,321
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 79

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

10. ASSETS ACQUIRED FOR LEASING

31 December 2014 31 December 2013
Accumulated Net book Accumulated Net book
Cost depreciation amount Cost depreciation amount
Property & Equipment 156,811 (82,568) 74,243 129,507 (65,221) 64,286

The net book amount of assets acquired for leasing is further analysed as follows:

31 December 31 December
2014 2013
Relating to owners 22,036 36,986
Relating to unrestricted investment accounts 52,207 27,300
74,243 64,286

11. INVESTMENT IN REAL ESTATE

31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Investment properties 355,857 - 355,857 378,981 - 378,981
Less: provisions (23,258) - (23,258) (25,673) - (25,673)
332,599 - 332,599 353,308 - 353,308
Fair value of investment properties at the year end approximates their carrying value.
Certain assets totalling $109.4 million included above are held by third parties as nominee on behalf of the Group.
The movement in provisions for investment in real estate is as follows:

31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January 25,673 - 25,673 20,045 - 20,045
Charge for the year - - - - - -
Write back during the year (2,182) - (2,182) - - -
Utilised during the year - - - (5,454) - (5,454)
Addition due to acquisition of associate (note 21) - - - 5,170 - 5,170
Exchange differences and other movements (233) - (233) 5,912 - 5,912
At 31 December 23,258 - 23,258 25,673 - 25,673
80 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

12. OTHER ASSETS

31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Account receivable 172,148 38,137 210,285 172,719 33,329 206,048
Due from related parties 76,606 - 76,606 71,308 - 71,308
Taxes - deferred 37,295 - 37,295 37,904 - 37,904
Taxes - current 35,814 - 35,814 31,552 - 31,552
Assets acquired against claims 18,081 - 18,081 21,032 - 21,032
339,944 38,137 378,081 334,515 33,329 367,844
Provision for impairment (77,763) (27,122) (104,885) (73,454) (27,199) (100,653)
262,181 11,015 273,196 261,061 6,130 267,191

The movement in provisions is as follows:

31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January 73,454 27,199 100,653 45,080 26,188 71,268
Charge for the year 4,168 - 4,168 11,305 - 11,305
Write back during the year (3,953) - (3,953) (6,501) - (6,501)
Utilised during the year - - - (1,682) - (1,682)
Addition due to acquisition of associate (note 21) - - - 22,512 - 22,512
Exchange differences and other movements 4,094 (77) 4,017 2,740 1,011 3,751
At 31 December 77,763 27,122 104,885 73,454 27,199 100,653

13. FIXED ASSETS

Relating to owners
31 December 2014 31 December 2013
Accumulated Provision for Net book Accumulated Provision for Net book
Cost depreciation impairment amount Cost depreciation impairment amount
Land and building 113,433 (13,309) (2,804) 97,320 110,066 (10,491) (2,804) 96,771
Leasehold improvements 25,099 (19,794) - 5,305 24,836 (17,894) - 6,942
Furniture and equipment 71,845 (62,989) - 8,856 68,462 (58,536) - 9,926
Motor vehicles 3,637 (1,840) - 1,797 3,215 (1,690) - 1,525
214,014 (97,932) (2,804) 113,278 206,579 (88,611) (2,804) 115,164
Depreciation charge for the year ended 31 December 2014 amounted to $7.4 million (31 December 2013: $8.5 million)
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

14. INTANGIBLE ASSETS

Relating to owners
31 December 2014
Accumulated Exchange Net book
Cost amortisation differences amount
Goodwill 87,830 - (8,702) 79,128
Customer relations 113,565 (43,455) (10,645) 59,465
Core deposits 155,546 (65,138) (20,964) 69,444
Others 26,431 (17,874) - 8,557
383,372 (126,467) (40,311) 216,594

Relating to owners
31 December 2013
Accumulated Exchange Net book
Cost amortisation differences amount
Goodwill 87,830 - (9,262) 78,568
Customer relations 113,565 (37,374) (12,464) 63,727
Core deposits 155,546 (57,361) (24,230) 73,955
Others 22,294 (15,000) - 7,294
379,235 (109,735) (45,956) 223,544

Amortisation charge for the year ended 31 December 2014 amounted to $16.7 million (31 December 2013: $16 million)
The carrying amount of goodwill has been allocated to cash-generating units as follows:

31 December 31 December
2014 2013
Business units of ex-Shamil Bank of Bahrain B.S.C. (C) 66,070 66,070
Faysal Bank Limited 13,058 12,498
79,128 78,568
The recoverable amount of the cash-generating units were determined based on Value-in-Use (VIU) calculation using cash flow
projections from financial budgets approved by the Group’s senior management covering a three year period and Fair Value Less Cost to
Sell (FVLCTS). The discount rate applied to cash flow projections represent the cost of capital adjusted for an appropriate risk premium for
these cash-generating units. The key assumptions used in estimating the recoverable amounts of cash-generating units were assessed
to ensure reasonableness of the VIU and FVLCTS and resulting adjustment, if any, is recorded in the consolidated income statement.

15. CUSTOMERS’ CURRENT ACCOUNTS

Customers’ current accounts include balances relating to a counterparty amounting to $218.4 million (31 December 2013: $247.8
million) which is subject to freeze and originating from jurisdiction under US and UN sanctions.
82 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

16. DUE TO BANKS, FINANCIAL AND OTHER INSTITUTIONS

31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Due to Banks 1,232,663 - 1,232,663 1,045,547 - 1,045,547
Due to financial and other institutions 240,635 - 240,635 255,976 - 255,976
1,473,298 - 1,473,298 1,301,523 - 1,301,523

Due to banks, financial and other institutions include balances totalling $657.6 million (31 December 2013: $685.7 million) from two
counterparties having contractual maturity ranging from up to one month to 3 years. Out of these, balances totalling $417 million (31
December 2013: $429.9 million) is from one counterparty which is subject to freeze and originating from jurisdiction under US and UN
sanctions.
Due to banks include short and medium term borrowings by the Group under bilateral and multilateral arrangement with maturities
ranging from one year to five years.
Due to banks, financial and other institutions include conventional deposits totalling $576.7 million (31 December 2013: $435.7 million),
accepted by a subsidiary of the Bank.
At 31 December 2014, there were collateralized borrowings in aggregate $167.8 million (31 December 2013: $134.2 million).
Cash dividends amounting to $6.1 million (31 December 2013: $5.8 million) on certain shares pledged as collateral was directly
received by the lender (as per agreed terms and conditions) during the year and adjusted against the outstanding facility amount as per
the agreed terms.
Assets which are pledged as collateral are conducted under terms that are usual and customary to standard lending and securities
borrowing and lending activities.

17. DUE TO INVESTORS

Relating to owners
31 December 31 December
2014 2013
Due to corporate institutions 1,047,431 976,881
Due to individuals 875,178 811,448
Due to financial institutions 72,736 67,440
1,995,345 1,855,769
Due to investors represent conventional deposits accepted by a subsidiary of the Bank.
Due to investors include floating rate unsecured term finance certificates issued by a subsidiary.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

18. OTHER LIABILITIES

31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Accounts payable 206,522 52,550 259,072 176,714 43,538 220,252
Due to related parties 10,567 - 10,567 10,867 - 10,867
Provision for taxation - current 259 - 259 133 - 133
Provision for taxation - deferred 4,192 - 4,192 5,072 - 5,072
221,540 52,550 274,090 192,786 43,538 236,324

19. EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS

The funds received from Unrestricted Investment Accountholders (URIA) are invested on their behalf without recourse to the Group as
follows:

31 December 31 December
Notes 2014 2013
Commodity and other placements with banks, financial and other institutions 4 25,003 25,005
Murabaha and other financings 5 1,266,103 1,121,189
Investment in mudaraba 6 17,315 19,605
Investment in associates 7 4,340 4,340
Investment securities 8 79,461 82,836
Restricted investment accounts 9 36,580 37,854
Assets acquired for leasing 10 52,207 27,300
Other assets 12 11,015 6,130
Due from the Bank 562,475 704,748
2,054,499 2,029,007

Other liabilities 18 (52,550) (43,538)

Equity of unrestricted investment accountholders 2,001,949 1,985,469

The movement in investments fair value reserve (included in URIA) is as follows:

31 December 31 December
2014 2013
At 1 January 9,647 11,960
Net movement during the year (355) (2,313)
At 31 December 9,292 9,647

The assets attributable to unrestricted investment accountholders have been disclosed net of impairment provisions amounting to $110
million (31 December 2013: $105.8 million). The movement of impairment provisions relating to unrestricted investment accountholders
has been disclosed in note 29.
84 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

19. EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS (Continued)

Other liabilities include profit equalization reserve and the movement is as follows:

31 December 31 December
2014 2013
At 1 January 2,546 10,061
Net transfer to impairment provisions (note 29) - (12,698)
Net addition during the year 5,002 5,183
At 31 December 7,548 2,546

Other liabilities include investment risk reserve and the movement is as follows:

31 December 31 December
2014 2013
At 1 January - -
Net addition during the year 3,750 -
Net transfer to impairment provisions (note 29) (835) -
At 31 December 2,915 -

The average gross rate of return in respect of unrestricted investment accounts was 7.82% for 31 December 2014 (31 December 2013:
7.09%) of which 5.03% (31 December 2013: 4.72%) was distributed to the investors and the balance was either set aside as provisions
and/or retained by the Bank as share of profits in its capacity as a Mudarib.
The Bank earned a management fee up to 1% of the total invested amount per annum to cover its administration and other expenses
related to the management of such funds

20. MINORITY INTEREST

The consolidated financial statements include 100% of the assets, liabilities and earnings of subsidiaries. The ownership interests of the
other shareholders in the subsidiaries are called minority interests.
The following table summarises the minority shareholders’ interests in the equity of consolidated subsidiaries.

31 December 2014 31 December 2013

Minority % Minority %

Faysal Bank Limited 33 102,727 33 83,146

Health Island B.S.C. (C) 50 100,766 50 110,382
Cityview Real Estate Development B.S.C. (C) 49 1,663 49 1,663
Sakana Holistic Housing Solutions B.S.C. (C) 50 15,027 50 26,729
220,183 221,920

Minority interest in the consolidated income statement of $6.2 million (31 December 2013: $1 million) represents the minority
shareholders’ share of the earnings of these subsidiaries for the respective years.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 85

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

21. SHARE CAPITAL

Number of shares
(thousands) Share capital

Authorised 8,000,000 2,000,000

Issued and fully paid

Total outstanding 2,804,050 701,013
Treasury shares (120,595) (30,149)
At 1 January 2013 2,683,455 670,864
Increase in share capital 226,705 56,677
At 31 December 2013 (Audited) 2,910,160 727,541

Issued and fully paid

Total outstanding as at 1 January 2014 3,030,755 757,690
Treasury shares (120,595) (30,149)
At 31 December 2014 (Audited) 2,910,160 727,541

The Bank’s total issued and fully paid share capital at 31 December 2014 comprises 3,030,755,027 shares at $0.25 per share amounting
to $757,688,757. The share capital of the Bank is denominated in United States Dollars and these shares are traded on Bahrain Bourse
in United States dollars and on Kuwait Stock Exchange in Kuwaiti Dinars.
The Bank owned 120,594,984 of its own shares at 31 December 2014 (31 December 2013: 120,594,984). The shares are held as
treasury shares and the Bank has the right to reissue these shares at a later date.
The shareholders of the Bank and FLB in their Extraordinary General Meetings held on 21 October 2012 approved the Transfer of
Business from FLB to the Bank and the share swap involving issuance of four ordinary shares of the Bank for one ordinary share of FLB
directly to the shareholders of FLB (other than for FLB shares held by or on behalf of the Bank). On 17 February 2013, the CBB approved
the Transfer of Business from First Leasing Bank B.S.C. (c) (“FLB”) to the Bank and the share swap involving issuance of four ordinary
shares of the Bank for one ordinary share of FLB directly to the shareholders of FLB (other than for FLB shares held by or on behalf of
the Bank). The Transfer of Business from FLB and share swap was completed in March 2013.

22. EARNINGS PER SHARE (BASIC & DILUTED)

Earnings per share (Basic & Diluted) are calculated by dividing the net income attributable to shareholders by the weighted average
number of issued and fully paid up ordinary shares during the year.

December 31 December 31
2014 2013
Net loss attributable to shareholders ($ ’000) (15,012) (80,372)
Weighted average number of issued and fully paid up ordinary shares (’000) 2,910,160 2,910,160
Earnings per share (Basic & Diluted) - US Cents (0.52) (2.76)

Earnings per share on non-sharia compliant income and expenses is included under note 41.
86 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

23. INCOME FROM RESTRICTED INVESTMENT ACCOUNTS AS A MUDARIB

Income from restricted investment accounts comprises profit participation as a Mudarib and investment management fees net of
contribution made to certain restricted funds.

24. INCOME FROM MURABAHA AND OTHER FINANCINGS

Relating to owners
31 December 31 December
2014 2013
Income from murabaha financing 22,505 16,637
Income from other financings 199,704 194,687
222,209 211,324

25. INCOME FROM OTHER INVESTMENTS

Relating to owners
31 December 31 December
2014 2013
Income from investment securities at amortised cost 101,508 69,994
Income from investment securities at fair value through equity 6,841 5,886
Income from investment securities at fair value through income statement 15,574 17,650
Rental income from investment in real estate 2,821 3,796
126,744 97,326

26. OTHER INCOME

Relating to owners
31 December 31 December
2014 2013
Income from banking services 38,051 37,364
Foreign exchange income/(loss) 12,871 (3,226)
Gain on disposal of fixed assets 1,611 1,188
Others 2,463 5,467
54,996 40,793

27. ADMINISTRATIVE AND GENERAL EXPENSES

Relating to owners
31 December 31 December
2014 2013
Salaries and other benefits 84,904 89,140
Office expenses 50,296 48,934
Professional fees 8,658 6,013
Other administrative expenses 24,010 19,698
167,868 163,785
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

28. SOCIAL RESPONSIBILITY

The Group discharges its social responsibilities through donations to charitable causes and organizations.
29. PROVISIONS
31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
At 1 January 597,399 105,742 703,141 526,639 88,363 615,002
Charge for the year 48,831 4,892 53,723 110,979 6,496 117,475
Write back during the year (22,706) - (22,706) (28,780) - (28,780)
Addition due to acquisition of associate (note 21) - - - 32,318 - 32,318
Transfer from Investment Risk Reserve (note 19) - 835 835 - - -
Transfer from Profit Equalization Reserve (note 19) - - - - 12,698 12,698
Utilised during the year (2,876) (625) (3,501) (26,366) (1,815) (28,181)
Exchange differences 9,890 - 9,890 (17,391) - (17,391)
At 31 December 630,538 110,844 741,382 597,399 105,742 703,141

The allocation of the provision to the respective assets is as follows:

31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total
Commodity and other placements with banks, financial
and other institutions 6,779 - 6,779 6,525 - 6,525
Murabaha and other financings 268,357 54,552 322,909 242,561 49,373 291,934
Investment in mudaraba 854 14,788 15,642 - 14,788 14,788
Investment in associates 70,528 - 70,528 70,528 - 70,528
Investments securities 121,686 5,756 127,442 124,159 5,756 129,915
Restricted investment accounts 58,509 8,626 67,135 51,695 8,626 60,321
Fixed assets 2,804 - 2,804 2,804 - 2,804
Investment in real estate 23,258 - 23,258 25,673 - 25,673
Other assets 77,763 27,122 104,885 73,454 27,199 100,653
630,538 110,844 741,382 597,399 105,742 703,141
88 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

29. PROVISIONS (Continued)

Total provisions of $741.4 million (31 December 2013: $703.1 million) includes $6.5 million (31 December 2013: $54.9 million) held as
general provisions. The movement in general provision is as follows:
Relating to owners
31 December 31 December
2014 2013
At 1 January 54,931 24,244
Charge for the year - 46,037
Write back during the year - (2,668)
Utilised during the year - (8,507)
Allocated to specific provision (48,407) (3,735)
Exchange differences (15) (440)
At 31 December 6,509 54,931

General provision of $6.5 million (31 December 2013: $54.9 million) includes $3.6 million (31 December 2013: $3.6 million) in respect
of Murabaha and other financings.
30. OVERSEAS TAXATION
Relating to owners
31 December 31 December
2014 2013
Current taxes 10,138 (5,184)
Deferred taxes 1,546 7,117
11,684 1,933

The Group is subject to income taxes in some jurisdictions. Estimates are required in determining the provision for income taxes. There
are some transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these
matters is different from the amounts that were initially recorded, such differences impact the income tax and deferred tax provisions in
the period in which such determination is made.
Current tax receivable/(payable)
31 December 31 December
2014 2013
At 1 January 31,419 14,729
Reversal/(charge) for the year (10,138) 5,184
Payments made 12,724 12,528
Exchange differences and other movements 1,550 (1,022)
At 31 December 35,555 31,419

Deferred tax asset/(liability)

31 December 31 December
2014 2013
At 1 January 32,832 44,509
Charge for the year (1,546) (7,117)
Charges due to fair value reserve (370) -
Exchange differences and other movements 2,187 (4,560)
At 31 December 33,103 32,832
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 89

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

31. SEGMENTAL INFORMATION

The Group constitutes of three main business segments, namely;
(i) Retail and Corporate banking, in which the Group receives customer funds and deposits and extends financing to its retail and
corporate clients.
(ii) Trading Portfolio, where the Group trades in equity deals, foreign exchange and other transactions with the objective of realizing
short-term gains.
(iii) Asset Management/Investment Banking, in which the Group directly participates in investment opportunities.
31 December 2014 31 December 2013
Asset Man- Asset Man-
Retail & agement / Retail & agement /
Corporate Trading Investment Corporate Trading Investment
banking Portfolio Banking Others Total banking Portfolio Banking Others Total
Operating income 207,503 46,165 (29,937) 4,029 227,760 181,422 29,106 (13,778) 3,148 199,898
Total expenses (177,899) (1,523) (19,118) (258) (198,798) (172,058) (425) (22,451) (159) (195,093)
Net income/(loss) before
provision and overseas taxation 29,604 44,642 (49,055) 3,771 28,962 9,364 28,681 (36,229) 2,989 4,805
Provision and overseas taxation )20,035( )18,479( 772 )67( (37,809) 1,379 (31,622) (53,849) (40) (84,132)
Net income/(loss) for the year 9,569 26,163 )48,283( 3,704 (8,847) 10,743 (2,941) (90,078) 2,949 (79,327)
Attributable to:
Equity holders of the Bank 9,569 19,435 )47,720( 3,704 (15,012) 10,743 (6,634) (87,430) 2,949 (80,372)
Minority interests - 6,728 )563( - 6,165 - 3,693 (2,648) - 1,045
9,569 26,163 (48,283) 3,704 (8,847) 10,743 (2,941) (90,078) 2,949 (79,327)
Total assets 5,027,889 1,482,691 1,341,952 8,372 7,860,904 5,087,071 946,805 1,361,883 7,376 7,403,135
Total liabilities and equity of unrestricted
investment account holders 6,612,550 422,633 82,086 66 7,117,335 6,268,906 285,847 94,758 136 6,649,647

The Group constitutes of four geographical segments which are Europe, North America, Middle East & Africa, Asia and others

Middle Middle
North East & North East &
Europe America Africa Asia Others Total Europe America Africa Asia Others Total
Operating income 1,160 5,413 42,279 176,742 2,166 227,760 2,703 3,220 34,851 155,764 3,360 199,898
Total expenses (13,298) - (62,639) (123,105) 244 (198,798) (15,679) - (66,997) (112,509) 92 (195,093)
Net income/(loss) before
provision and overseas
taxation (12,138) 5,413 (20,360) 53,637 2,410 28,962 (12,976) 3,220 (32,146) 43,255 3,452 4,805
Provision and overseas taxation )896( )1,048( )5,484( )30,381( (37,809) (34,544) (53) (10,671) (38,864) - (84,132)
Net income/(loss) for the year )13,034( 4,365 )25,844( 23,256 2,410 (8,847) (47,520) 3,167 (42,817) 4,391 3,452 (79,327)
Attributable to:
Equity holders of the Bank )13,034( 4,365 )25,281( 16,528 2,410 (15,012) (47,520) 3,167 (40,167) 696 3,452 (80,372)
Minority interests - - )563( 6,728 - 6,165 - - (2,650) 3,695 - 1,045
)13,034( 4,365 )25,844( 23,256 2,410 (8,847) (47,520) 3,167 (42,817) 4,391 3,452 (79,327)
Total assets 492,269 62,820 3,217,504 3,972,811 115,500 7,860,904 581,812 108,151 3,075,363 3,515,703 122,106 7,403,135
Total liabilities and equity of
unrestricted investment
account holders 230,500 26,597 3,257,222 3,592,220 10,796 7,117,335 263,851 48,820 3,138,042 3,167,287 31,647 6,649,647
90 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

32. ZAKAH
Zakah is directly borne by the owners and investors in restricted and equity of unrestricted investment accountholders. The Bank does
not collect or pay Zakah on behalf of its owners and its investment accountholders.

33. CONTINGENT LIABILITIES AND COMMITMENTS

Contingent liabilities
31 December 31 December
2014 2013
Acceptances and endorsements 103,910 125,326
Guarantees and irrevocable letters of credit 749,748 826,249
Customer and other claims 434,488 404,607
1,288,146 1,356,182

Commitments
31 December 31 December
2014 2013
Undrawn facilities, financing lines and other commitments to finance 2,520,901 2,249,034

Customer and other claims include a net claim amounting to $59.2 million (31 December 2013: $55.2 million) for which litigation has
been filed against the Bank and the counter claim and litigation filed by the Bank against the counterparty in connection with a real
estate transaction. The case is currently under court proceedings and the ultimate outcome cannot presently be determined. The Bank’s
management is vigorously contesting the litigation and based on the advice received from its external legal counsel, the Bank believes
that it has strong grounds to successfully defend against this claim. Accordingly, no provision for this claim has been made in the
consolidated financial statements.

34. CURRENCY RISK

Assuming that all other variables held constant, the impact of currency risk on the consolidated income statement/equity based on
reasonable shift is summarized below:
PKR EUR USD PLN

As at 31 December 2014
Total currency exposure 96,816 93,456 89,475 45,096
Reasonable shift 3.68% 0.19% 0.09% 0.66%
Total effect on income/equity 3,563 178 81 298

As at 31 December 2013
Total currency exposure 92,223 119,631 118,393 49,770
Reasonable shift 5.36% 0.07% 0.12% 2.18%
Total effect on income/equity 4,943 84 142 1,085
The basis for calculation of the reasonable shift is arrived at by comparing the foreign exchange spot rate as at 31 December as
compared to the one year forward rate for the same period.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 91

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

34. CURRENCY RISK (Continued)

The currency exposure of the assets and liabilities, of the Group, including equity of unrestricted investment accountholders, is as
follows:
United Hong
States Pakistan Swiss Bahraini UAE Kong
31 December 2014 Dollar Rupee Franc Dinar Euro Dirham Dollar Other Total
Cash and balances with banks and
central banks 98,072 142,129 1,320 196,471 95,994 4,041 28 21,339 559,394
Commodity and other placements with
banks, financial and other institutions 177,823 - - 34,485 113,327 4,736 - - 330,371
Murabaha and other financings 403,983 1,727,070 - 1,034,425 38,023 46,552 - 81,284 3,331,337
Musharaka financing - 90,150 - - - - - - 90,150
Investment in mudaraba 17,434 - - - - - - - 17,434
Investment in associates - 1,021 - 605,590 - - 69,595 8,615 684,821
Investment securities 200,557 1,555,094 718 1,662 6,474 - - 3,113 1,767,618
Restricted investment accounts 60,393 - - - 9,476 - - - 69,869
Assets acquired for leasing 22,037 - - 52,206 - - - - 74,243
Investment in real estate 4,862 7,618 45,195 229,828 - - - 45,096 332,599
Other assets 71,326 140,143 1,934 16,797 31,543 - - 11,453 273,196
Fixed assets 4,014 53,568 86 55,598 12 - - - 113,278
Intangible assets 193,552 23,042 - - - - - - 216,594
Total assets 1,254,053 3,739,835 49,253 2,227,062 294,849 55,329 69,623 170,900 7,860,904
Customer current accounts 97,633 783,835 - 248,757 224,111 1,364 - 16,953 1,372,653
Due to banks, financial and other
institutions 193,602 598,026 - 244,381 108,001 328,432 - 856 1,473,298
Due to investors 158,279 1,777,577 - - 40,455 - - 19,034 1,995,345
Other liabilities 6,960 119,809 8,672 90,707 45,460 1,723 - 759 274,090
Total liabilities 456,474 3,279,247 8,672 583,845 418,027 331,519 - 37,602 5,115,386
Equity of unrestricted investment
accountholders 363,668 - - 1,584,165 54,116 - - - 2,001,949
Total liabilities and equity
of unrestricted investment
accountholders 820,142 3,279,247 8,672 2,168,010 472,143 331,519 - 37,602 7,117,335
Contingent liabilities and
commitments 1,165,847 1,833,903 20,130 565,511 70,520 70,538 - 82,598 3,809,047
31 December 2013
Total assets 1,372,189 3,293,522 57,644 2,056,936 331,900 43,239 67,968 179,737 7,403,135

Total liabilities and equity

of unrestricted investment
accountholders 722,228 2,913,507 8,257 2,189,236 451,531 326,525 - 38,363 6,649,647
Contingent liabilities and commitments 850,894 1,940,586 15,196 639,984 39,005 57,618 - 61,933 3,605,216
92 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

35. MATURITY PROFILE

The maturity profile of the assets and liabilities of the Group, including equity of unrestricted investment accountholders, is as follows:

Up to 1 1 to 3 3 months 1 to 5 Over 5
31 December 2014 month months to 1 year years years Total

Cash and balances with banks and central banks 559,394 - - - - 559,394
Commodity and other placements with banks,
financial and other institutions 246,930 - 83,441 - - 330,371
Murabaha and other financings 501,048 501,911 448,319 1,079,571 800,488 3,331,337
Musharaka financing 8,392 14,059 14,574 23,886 29,239 90,150
Investment in mudaraba 2,885 - - - 14,549 17,434
Investment in associates - - - - 684,821 684,821
Investment securities 290,493 451,972 540,169 347,337 137,647 1,767,618
Restricted investment accounts - - - - 69,869 69,869
Assets acquired for leasing 682 - 1,564 23,582 48,415 74,243
Investment in real estate - - - 260,611 71,988 332,599
Other assets 114,164 18,046 98,124 17,702 25,160 273,196
Fixed assets 4,954 33 2,070 10,677 95,544 113,278
Intangible assets - - - 8,553 208,041 216,594
Total assets 1,728,942 986,021 1,188,261 1,771,919 2,185,761 7,860,904
Customer current accounts 1,372,653 - - - - 1,372,653
Due to banks, financial and other institutions 879,918 166,128 351,074 54,214 21,964 1,473,298
Due to investors 1,369,745 187,705 367,558 53,057 17,280 1,995,345
Other liabilities 185,410 498 41,084 30,578 16,520 274,090
Total liabilities 3,807,726 354,331 759,716 137,849 55,764 5,115,386

Equity of unrestricted investment accountholders 746,495 230,429 678,138 346,801 86 2,001,949

Total liabilities and equity of unrestricted

investment accountholders 4,554,221 584,760 1,437,854 484,650 55,850 7,117,335

Contingent liabilities and commitments 1,988,472 656,015 490,447 641,110 33,003 3,809,047

31 December 2013

Total assets 1,833,424 983,541 934,453 1,729,584 1,922,133 7,403,135

Total liabilities and equity of unrestricted

investment accountholders 3,920,411 521,008 1,160,035 1,029,029 19,164 6,649,647

Contingent liabilities and commitments 645,074 680,551 519,533 1,559,228 200,830 3,605,216
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 93

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

36. CONCENTRATION OF ASSETS, LIABILITIES AND LETTERS OF CREDIT AND GUARANTEE

Assets and liabilities of the Group, including equity of unrestricted investment accountholders, and letters of credit and guarantee are
distributed over the following industry sectors and geographical regions:

Banks and Trading

Financial and Manu- Property and Private
31 December 2014 Institutions facturing Construction Services individuals Textile Other Total
Cash and balances with banks and
central banks 559,394 - - - - - - 559,394
Commodity and other placements
with banks, financial and other
institutions 330,371 - - - - - - 330,371
Murabaha and other financings 486,844 1,254,233 155,068 137,555 934,100 106,069 257,468 3,331,337
Musharaka financing - 62,698 91 18,492 8,836 33 - 90,150
Investment in mudaraba - - 17,434 - - - - 17,434
Investment in associates 501,093 5,334 98,914 79,480 - - - 684,821
Investment securities 1,621,531 68,943 55,594 19,638 - 1,195 717 1,767,618
Restricted investment accounts - - 69,869 - - - - 69,869
Assets acquired for leasing - 8,609 19,235 675 45,724 - - 74,243
Investment in real estate 7,617 - 324,982 - - - - 332,599
Other assets 191,672 9,337 29,223 402 33,725 126 8,711 273,196
Fixed assets 53,568 - 59,710 - - - - 113,278
Intangible assets 216,594 - - - - - - 216,594
Total assets 3,968,684 1,409,154 830,120 256,242 1,022,385 107,423 266,896 7,860,904
Customer current accounts 17,873 431,703 71,557 129,238 398,224 4,953 319,105 1,372,653
Due to banks, financial and other
institutions 1,470,363 - - - - - 2,935 1,473,298
Due to investors 218,108 373,102 44,218 176,839 849,085 3,590 330,403 1,995,345
Other liabilities 54,146 12,037 28,854 4,117 124,379 467 50,090 274,090
Total liabilities 1,760,490 816,842 144,629 310,194 1,371,688 9,010 702,533 5,115,386
Equity of unrestricted investment
account holders 266,496 352,120 61,798 166,011 1,114,697 - 40,827 2,001,949
Total liabilities and equity
of unrestricted investment
accountholders 2,026,986 1,168,962 206,427 476,205 2,486,385 9,010 743,360 7,117,335

Contingent liabilities and

commitments 1,458,619 1,338,219 533,533 44,243 31,770 31,015 371,648 3,809,047
.

31 December 2013

Total assets 3,674,825 1,461,772 855,504 245,162 804,307 109,279 252,286 7,403,135
Total liabilities and equity
of unrestricted investment
accountholders 1,730,008 809,307 140,135 408,618 2,827,154 12,719 721,706 6,649,647
Contingent liabilities and commitments 1,298,090 1,286,795 534,262 35,377 83,920 10,316 356,456 3,605,216
94 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

36. CONCENTRATION OF ASSETS, LIABILITIES AND LETTERS OF CREDIT AND GUARANTEE (Continued)

North
31 December 2014 Asia / Pacific Middle East Europe America Others Total

Cash and balances with banks and central banks 215,814 220,923 99,913 22,744 - 559,394
Commodity and other placements with banks,
financial and other institutions - 296,506 28,703 - 5,162 330,371
Murabaha and other financings 1,795,581 1,200,655 224,636 127 110,338 3,331,337
Musharaka financing 90,150 - - - - 90,150
Investment in mudaraba - - - 17,434 - 17,434
Investment in associates 70,616 614,205 - - - 684,821
Investment securities 1,572,545 180,305 7,813 6,955 - 1,767,618
Restricted investment accounts - 69,869 - - - 69,869
Assets acquired for leasing - 74,243 - - - 74,243
Investment in real estate 11,243 231,066 90,290 - - 332,599
Other assets 140,252 80,626 36,758 15,560 - 273,196
Fixed assets 53,568 59,613 97 - - 113,278
Intangible assets 23,042 189,493 4,059 - - 216,594
Total assets 3,972,811 3,217,504 492,269 62,820 115,500 7,860,904

Customer current accounts 868,162 271,846 218,821 12,389 1,435 1,372,653

Due to banks, financial and other institutions 608,383 855,611 - - 9,304 1,473,298
Due to investors 1,995,345 - - - - 1,995,345
Other liabilities 120,163 134,545 9,473 9,909 - 274,090
Total liabilities 3,592,053 1,262,002 228,294 22,298 10,739 5,115,386

Equity of unrestricted investment accountholders 167 1,995,220 2,206 4,299 57 2,001,949

Total liabilities and equity of unrestricted investment

accountholders accountholders 3,592,220 3,257,222 230,500 26,597 10,796 7,117,335

Contingent liabilities and commitments 3,122,776 650,708 22,775 - 12,788 3,809,047

.
31 December 2013

Total assets 3,515,703 3,075,363 581,812 108,151 122,106 7,403,135

Total liabilities and equity of unrestricted

investment accountholders 3,167,287 3,138,042 263,851 48,820 31,647 6,649,647

Contingent liabilities and commitments 2,855,527 719,480 27,997 - 2,212 3,605,216

 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

37. RISK MANAGEMENT

Credit risk
The significant concentration of credit risk at 31 December is set out in note 36.
Non performing financing exposures are conservatively considered as financing exposures which have been past due beyond 90 days
and the profit on these assets is not recognized in the consolidated income statement. Following are the details of non performing
financing exposures relating to the Bank and its unrestricted investment accountholders:

31 December 2014 31 December 2013

Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts Total owners accounts Total

Gross exposure
Past due but performing financing exposures 24,522 45,714 70,236 15,088 12,427 27,515
Non performing financing exposures 457,090 294,590 751,680 380,918 238,883 619,801
481,612 340,304 821,916 396,006 251,310 647,316

Fair value of collateral

Past due but performing financing exposures 41,969 35,951 77,920 9,976 43,119 53,095
Non performing financing exposures 110,941 208,933 319,874 364,268 203,981 568,249
152,910 244,884 397,794 374,244 247,100 621,344

Included in the performing financing exposures of the Group are facilities which have been restructured during the year which are as
follows:
31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating investment Relating investment
to owners accounts Total to owners accounts Total

Restructured financings 209,139 3,517 212,656 216,552 8,602 225,154

96 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

37. RISK MANAGEMENT (Continued)

Profit rate risk

The table below summarises the Group’s exposure to profit rate risk. It includes the Group’s financial instruments at carrying amounts,
categorised by the earlier of contractual repricing or maturity dates.
Three-
Up to one One-three twelve One-five Over five Non rate
31 December 2014 month months months years years sensitive Total

Cash and balances with banks and central banks 342,541 - - - - 216,853 559,394
Commodity and other placements with banks,
financial and other institutions 246,930 34,103 49,338 - - - 330,371
Murabaha and other financings 519,438 853,628 666,524 571,186 651,747 68,814 3,331,337
Musharaka financing 1,301 323 4,953 54,399 29,174 - 90,150
Investment securities 36,008 186,207 599,727 542,463 157,966 245,247 1,767,618
Assets acquired for leasing 19,748 - 2,042 5,525 46,928 - 74,243
Other assets 118 3,527 1,899 18,126 - 249,526 273,196
Total financial assets 1,166,084 1,077,788 1,324,483 1,191,699 885,815 780,440 6,426,309

Customer current accounts - - - - - 1,372,653 1,372,653

Due to banks, financial and other institutions 849,683 58,083 310,013 91,447 164,072 - 1,473,298
Due to investors 381,239 172,624 1,374,810 65,283 1,383 6 1,995,345
Other liabilities 2,221 541 212 2,689 9,453 258,974 274,090
Total financial liabilities 1,233,143 231,248 1,685,035 159,419 174,908 1,631,633 5,115,386

Equity of unrestricted investment accountholders 836,005 132,719 659,959 373,158 108 - 2,001,949
Total financial liabilities and equity of unrestricted
investment accountholders 2,069,148 363,967 2,344,994 532,577 175,016 1,631,633 7,117,335

Total repricing gap (903,064) 713,821 (1,020,511) 659,122 710,799 (851,193) (691,026)

31 December 2013
Total financial assets 2,248,262 726,854 722,443 697,637 713,005 839,093 5,947,294

Total financial liabilities and equity of unrestricted

investment accountholders 2,041,509 360,191 2,299,210 436,822 18,875 1,493,040 6,649,647
Total repricing gap 206,753 366,663 (1,576,767) 260,815 694,130 (653,947) (702,353)

USD EUR PKR BHD AED

As at 31 December 2014
Total profit rate exposure 154,359 186,781 374,639 831,964 276,183
Reasonable shift 0.33% 0.09% 0.42% 0.57% 0.06%
Total effect on income 509 168 1,573 4,742 166

As at 31 December 2013
Total profit rate exposure 511,172 161,647 187,475 1,017,151 283,297
Reasonable shift 0.21% 0.21% 0.90% 0.30% 0.01%
Total effect on income 1,073 339 1,687 3,051 28
The basis for calculation of the reasonable shift is arrived at by comparing the interbank lending rate at the beginning and the end of
the year.
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 97

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

37. RISK MANAGEMENT (Continued)

Price risk
The table below summarises the impact of increase/decrease of equity indices on the Group’s post tax profit for the year and on other
components of equity. The analysis is based on the assumptions that equity indices increased/decreased by 10% (31 December 2013:
10%) with all other variables held constant and all the Group’s equity instruments moved according to the historical correlation with the
indices:

Impact on other components of equity

Index 2014 2013

Karachi stock exchange (+/-10%) 2,197 2,382

38. RELATED PARTY TRANSACTIONS AND BALANCES

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence or joint
control over the other party in making financial and operating decisions.
Related parties include:
(a) Directors and major shareholders of the Bank and companies in which they have an ownership interest.
(b) Corporate, whose ownership and management is common with the Bank.
(c) DMIT and companies in which DMIT has ownership interest and subsidiaries of such companies.
(d) Associated companies of the Bank.
A related party transaction is a transfer of resources, services, or obligations between related parties, regardless of whether a price is
charged.
Significant balances with related parties comprise:
31 December 2014 31 December 2013
Relating to Relating to
unrestricted unrestricted
Relating to investment Relating to investment
owners accounts owners accounts

Assets
Commodity and other placements with banks, financial and other institutions - note (i) 131,472 25,003 128,082 25,005
Murabaha and other financings 204,201 12,809 205,050 12,809
Investment securities - 9,778 - 9,777
Other assets - note (i) 76,606 - 71,308 -

Liabilities
Customers’ current accounts 3,512 - 4,366 -
Due to banks, financial and other institutions 240,635 - 255,976 -
Equity of unrestricted investment accounts - 64,413 - 73,703
Other liabilities 10,567 - 10,867 -

Funds managed by related parties - 17,384 - 17,902

Note (i) - The Group has obtained pledge of specific assets totalling $234.5 million (31 December 2013: $232.5 million) against the
outstanding exposure.
98 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

38. RELATED PARTY TRANSACTIONS AND BALANCES (Continued)

The Group entered into the following significant transactions with related parties during the year:

31 December 31 December
2014 2013

Income from financings and short-term liquid funds 2,260 3,512

Dividends received 6,304 5,732
Expense recovery 8,570 8,531
Profit paid 120 95

39. CAPITAL MANAGEMENT

The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:
• To comply with the capital requirements set by the regulators of the banking markets where the entities within the Group operate;
• To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits
for other stakeholders; and
• To maintain a strong capital base to support the development of its business.
The table below summarises the composition of regulatory capital and the ratios of the Group for the years ended (computed under
Basel II regulations as prescribed by the CBB). The minimum regulatory requirement is 12%.

31 December 31 December
2014 2013

Tier 1 605,955 666,395

Tier 2 41,859 27,286
Total Capital Base 647,814 693,681

Total Risk-Weighted Exposures 5,350,292 5,430,517

Capital Adequacy Ratio 12.11% 12.77%

40. PROPOSED DIVIDEND

The Board of Directors has not proposed any dividend for the year ended 31 December 2014 (31 December 2013: Nil).
 ITHMAAR BANK B.S.C. ANNUAL REPORT 2014 99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

41. NON-SHARIA COMPLIANT INCOME AND EXPENSES

The Group has earned certain income and incurred certain expenses from conventional assets and liabilities. These conventional assets
and liabilities are covered by the Sharia Compliance Plan. The details of the total income and total expenses are as follows:

Year ended
31 December 31 December
2014 2013

INCOME
Group’s share of income from funds under management 208 599
Income from other financings 199,704 194,687
Share of profit after tax from associates - note (i) 37,691 33,300
Income from investments 107,959 95,011
Other income 26,339 33,584
Gross income 371,901 357,181

Less: profit paid to banks, financial and other institutions (net) - note (ii) (166,946) (165,188)
Total income 204,955 191,993

EXPENSES
Administrative and general expenses - note (ii) (108,766) (109,191)
Depreciation and amortisation (22,300) (23,326)
Total expenses (131,066) (132,517)

Net income before provision for impairment and overseas taxation 73,889 59,476
Provision for impairment (net) (27,137) (22,879)
Net income before overseas taxation 46,752 36,597
Overseas taxation (11,178) (1,236)
NET INCOME FOR THE YEAR 35,574 35,361

Attributable to:
Equity holders of the Bank 32,987 33,639
Minority interests 2,587 1,722
35,574 35,361
Basic and diluted earnings per share USCts1.13 USCts1.16
Note (i) - The share of profit attributable to non-sharia compliant associates is based on their accounting policies which are different
from the Group accounting policies. Since the non-sharia income is already disclosed separately and hence no adjustment is made on
impact of dissimilar accounting policies.
Note (ii) - Expenses relate to entities which are consolidated line by line and exclude associates.
Note (iii) - One of the subsidiaries presently operating as a conventional bank has increased the number of its Islamic branches during
the year to 58 (2013: 53 branches) out of total 274 branches (2013: 269 branches).

42. COMPARATIVES
Certain comparatives figures have been reclassified to conform to the current year presentation.
BASEL II PILLAR III QUANTITATIVE DISCLOSURES
FOR THE YEAR ENDED 31 DECEMBER 2014

S. No. Description Page No.

1 Background 101
2 Basel II Framework 101
3 Methodology 101
4 Approaches adopted for determining regulatory capital requirements 101
5 Group structure 101
6 Consolidated Capital Structure for capital adequacy purpose 102
7 Disclosure of the regulatory capital requirements
for credit risk under standardized approach 103
8 Gross credit exposures 104
9 Geographical distribution of credit exposures 105
10 Industrial distribution of credit exposures 105
11 Maturity breakdown of credit exposures 106
12 Related-party balances under credit exposure 106
13 Past due and impaired financings and related provisions for impairment 107
14 Past due and impaired financings by geographical areas 108
15 Details of credit facilities outstanding that have
been restructured during the year 108
16 Credit exposures which are covered by eligible financial collateral 108
17 Disclosure of regulatory capital requirements
for market risk under the standardized approach 109
18 Disclosure of regulatory capital requirements for
operational risk under the basic indicator approach 109
19 Tier one capital ratios and Total capital ratios 109
20 Equity position in Banking book 109
21 Gross income from Mudaraba and profit paid to
Unrestricted Investment Accountholders 110
22 Movement in Profit Equalization Reserve and Provisions – URIA 110
23 Gross return from Restricted Investment Accounts (RIA) 111
24 Average declared rate of return on General Mudaraba deposits 111
25 Profit rate risk 111
26 Currency risk 112
27 Liquidity ratios 112
28 Legal contingencies and compliance 112
 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 101

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

1. Background
The Public Disclosure (PD) module of the Central Bank of Bahrain (CBB) rulebook was introduced with effect from January 2008. The
disclosures in this report are in addition to the disclosures set out in the Group’s consolidated financial statements for the year ended 31
December 2014, presented in accordance with Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation
for Islamic Financial Institutions (AAOIFI). These disclosures are mainly related to compliance with the Basel II Pillar III Quantitative
disclosure requirements and should be read in conjunction with the Group’s consolidated financial information for the year ended 31
December 2014.

2. Basel II Framework
CBB has issued Basel II guidelines for the implementation of Basel II capital adequacy framework for Banks incorporated in the Kingdom
of Bahrain.
The Basel II framework provides a risk based approach for calculation of regulatory capital. The Basel II framework is expected to
strengthen the risk management practices across the financial institutions.
The Basel II framework is based on three pillars as follows:-
- Pillar I: Minimum capital requirements including calculation of the capital adequacy ratio
- Pillar II: Supervisory review process which includes the Internal Capital Adequacy Assessment Process
- Pillar III: Market discipline which includes the disclosure of risk management and capital adequacy information.

3. Methodology
As per the requirements of CBB’s Basel II capital adequacy framework, the method for calculating the consolidated capital adequacy
ratio for the Group is summarized as follows:
- Line by line consolidation is performed for the risk exposures and eligible capital of all the subsidiaries within the Group with the
exception of Ithmaar’s banking subsidiaries incorporated outside Kingdom of Bahrain which are operating under Basel II compliant
jurisdictions, where full aggregation is performed of the risk weighted exposures and eligible capital as required under Prudential
Consolidation and Deduction module (PCD).
- Pro-rata aggregation of risk weighted exposures and eligible capital of Ithmaar’s significant investments (20% – 50%) in banking
and other financial entities as required under PCD module.

4. Approaches adopted for determining regulatory capital requirements

The approach adopted for determining regulatory capital requirements under CBB’s Basel II guidelines is summarised as follows:
Credit Risk Standardised approach
Market Risk Standardised approach
Operational Risk Basic Indicator approach

5. Group Structure
The Group’s consolidated financial information are prepared and published on a full consolidation basis, with all subsidiaries being
consolidated in accordance with AAOIFI. However, the CBB’s consolidated capital adequacy methodology accommodates both line-by-
line and aggregation forms of consolidation.
102 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

5. Group Structure (Continued)

Line by line consolidation is performed for the risk exposures and eligible capital of all the subsidiaries within the Group except for
the following:
Subsidiary Country of Incorporation Ownership Approach
Faysal Bank Limited Pakistan 66.6 per cent Full Aggregation

6. Consolidated Capital Structure for capital adequacy purpose

A Tier 1 Capital
Issued and fully paid-up ordinary capital 727,541
Reserves
General reserves 56,725
Statutory reserve 38,090
Share Premium 149,614
Others (36,599)
Accumulated losses (412,681)
Minority interest in the equity of subsidiaries 74,461
Aggregation 195,311
Sub-Total 792,462

Regulatory deductions:
Goodwill (13,058)
Loss for the year (28,410)
Total Tier 1 capital before PCD deductions 750,994

B Tier 2 Capital
General Provision 6,509
Profit Equalization Reserves 7,547
Investment risk reserve 2,915
Unrealized gains arising from fair valuations (45%) 25,091
Aggregation 41,859
Total Tier 2 capital before PCD deductions 83,921

C Total Available Capital (A+B) 834,915

D General deductions from Tier 1 & 2 under PCD Module
“Deduction of unconsolidated financial subsidiaries which are aggregated or deducted“ (99,634)
“Deduction of unconsolidated financial associates which are aggregated or deducted” (4,263)
Excess over maximum permitted large exposure limit (83,199)
Total Deductible Items (187,096)

E Total Eligible Capital (C-D) 647,819

 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 103

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

7. Disclosure of the regulatory capital requirements for credit risk under standardized approach
Exposure funded by Self Finance
Risk weighted assets Capital requirement
Claims on sovereign 83,683 10,042
Banks 105,357 12,643
Corporate portfolio 429,708 51,565
Investments in securities 1,041,864 125,024
Holding of real estate 825,042 99,005
Regulatory retail 1,666 200
Past due financings 117,630 14,116
Other assets 206,272 24,753
Aggregation 1,466,211 175,945
Total 4,277,433 513,293

Exposure funded by Unrestricted Investment Accounts (URIA)

Risk weighted assets Capital requirement
Corporate portfolio 71,604 8,592
Equity portfolio 15,951 1,914
Holding of real estate 30,544 3,665
Regulatory retail 194,820 23,378
Past due financings 72,635 8,716
Total 385,554 46,265
104 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

8. Gross credit exposures

Gross credit Average gross
exposure credit exposure

Credit risk exposure relating to on balance sheet assets are as follows:

Cash and balances with banks and central banks 559,394 577,533
Commodity and other placements with banks, financial and other institutions 330,371 414,346
Murabaha and other financings 3,331,337 3,242,491
Musharaka financing 90,150 76,126
Investments 2,946,584 2,717,042
Other assets 273,196 270,194
Fixed assets 113,278 114,221
Intangible assets 216,594 220,069
Total on balance sheet credit exposure 7,860,904 7,632,022

Credit risk exposure relating to off balance sheet items are as follows:
Financial guarantees and irrevocable letters of credit 853,658 902,817
Financing commitments, Undrawn facilities and other credit related liabilities 2,955,389 2,804,515
Total off balance sheet credit exposure 3,809,047 3,707,332
Total credit exposure 11,669,951 11,339,354
Total credit exposure financed by URIA 2,054,499 2,041,754
Total credit exposure financed by URIA (%) 17.61% 18.01%

Average gross credit exposures have been calculated based on the average of balances outstanding during the year ended 31 December 2014.
 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 105

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

9. Geographical distribution of credit exposures

Asia/ North
Pacific Middle East Europe America Others Total
On-balance sheet items
Cash and balances with banks and central banks 215,814 220,923 99,913 22,744 - 559,394
Commodity and other placements with banks,
financial and other institutions - 296,506 28,703 - 5,162 330,371
Murabaha and other financings 1,795,581 1,200,655 224,636 127 110,338 3,331,337
Musharaka financing 90,150 - - - - 90,150
Investments 1,654,404 1,169,688 98,103 24,389 - 2,946,584
Other assets 140,252 80,626 36,758 15,560 - 273,196
Fixed assets 53,568 59,613 97 - - 113,278
Intangible assets 23,042 189,493 4,059 - - 216,594
Total on balance sheet items 3,972,811 3,217,504 492,269 62,820 115,500 7,860,904
Off balance sheet items 3,122,776 650,708 22,775 - 12,788 3,809,047
Total credit exposure 7,095,587 3,868,212 515,044 62,820 128,288 11,669,951
The Group uses the geographical location of the credit exposures as the basis to allocate to the respective geographical region as
shown above.

10. Industrial distribution of credit exposures

Banks and
financial Trading and Property and Private
institutions manufacturing construction Services Individuals Textile Others Total
On-balance sheet items
Cash and balances with banks and
central banks 559,394 - - - - - - 559,394
Commodity and other placements with
banks, financial and other institutions 330,371 - - - - - - 330,371
Murabaha and other financings 486,844 1,254,233 155,068 137,555 934,100 106,069 257,468 3,331,337
Musharaka financing - 62,698 91 18,492 8,836 33 - 90,150
Investments 2,130,241 82,886 586,028 99,793 45,724 1,195 717 2,946,584
Other assets 191,672 9,337 29,223 402 33,725 126 8,711 273,196
Fixed assets 53,568 - 59,710 - - - - 113,278
Intangible assets 216,594 - - - - - - 216,594
Total on balance sheet items 3,968,684 1,409,154 830,120 256,242 1,022,385 107,423 266,896 7,860,904
Off balance sheet items 1,458,619 1,338,219 533,533 44,243 31,770 31,015 371,648 3,809,047
Total credit exposure 5,427,303 2,747,373 1,363,653 300,485 1,054,155 138,438 638,544 11,669,951
106 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

11. Maturity breakdown of credit exposures

Up to 1 1-3 3-12 1-5 5-10 10-20 Over 20
Month Months Months Years Years Years Years Total
On-balance sheet items
Cash and balances with banks and central
banks 559,394 - - - - - - 559,394
Commodity and other placements
with banks, financial and other institutions 246,930 - 83,441 - - - - 330,371
Murabaha and other financings 501,048 501,911 448,319 1,079,571 723,927 68,581 7,980 3,331,337
Musharaka financing 8,392 14,059 14,574 23,886 13,429 15,810 - 90,150
Investments 294,060 451,972 541,733 631,530 159,282 64,745 803,262 2,946,584
Other assets 114,164 18,046 98,124 17,702 4,181 20,979 273,196
Fixed assets 4,954 33 2,070 10,677 11,800 35,845 47,899 113,278
Intangible assets - - - 8,553 17,295 111,618 79,128 216,594
Total on balance sheet items 1,728,942 986,021 1,188,261 1,771,919 929,914 317,578 938,269 7,860,904
Off balance sheet items 1,988,472 656,015 490,447 641,110 33,003 - - 3,809,047
Total credit exposure 3,717,414 1,642,036 1,678,708 2,413,029 962,917 317,578 938,269 11,669,951

12. Related-party balances under credit exposure

A number of banking transactions are entered into with related parties in the normal course of business. The related party balances
included under credit exposure at 31 December 2014 were as follows:

Affiliated companies 447,021

Directors & key management 12,848
Total 459,869

Concentration of risk to individual counterparties where the credit exposure is in excess of the 15% individual obligor limit:
Non-banks 158,682
Total 158,682
 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 107

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

13. Past due and impaired financings and related provisions for impairment
Gross expo- Impairment Net
sure provisions exposure

Analysis by industry
Manufacturing 252,769 214,068 38,701
Agriculture 14,300 6,873 7,427
Construction 84,838 20,164 64,674
Finance 8,088 1,117 6,971
Trade 196,353 34,095 162,258
Personal 113,989 35,947 78,042
Real estate 33,868 21,177 12,691
Transportation 2,570 2,146 424
Other sectors 44,905 29,706 15,199
Total 751,680 365,293 386,387

Ageing analysis
Over 3 months up to 1 year 169,321 7,926 161,395
Over 1 year up to 3 years 110,698 18,355 92,343
Over 3 years 471,661 339,012 132,649
Total 751,680 365,293 386,387

Relating to
unrestricted
Relating to investment
Movement in impairment provisions owners accounts Total

At 1 January 2014 264,114 67,186 331,300

Charge for the year 25,733 4,892 30,625
Write back during the year (9,165) - (9,165)
Utilised during the year - (623) (623)
Transfer from Investment Risk Reserve - 834 834
Exchange differences and other movements 12,322 - 12,322
At 31 December 2014 293,004 72,289 365,293
108 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

14. Past due and impaired financings by geographical areas

Gross Impairment Net
Analysis by Geography exposure Provisions exposure
Asia / Pacific 357,879 245,798 112,081
Middle East 381,931 112,313 269,618
Europe 11,870 7,182 4,688
Total 751,680 365,293 386,387

15. Details of credit facilities outstanding that have been restructured during the year
Restructured financings during the year ended 31 December 2014 aggregated to $212.6 million. This restructuring had an impact of $2.5
million on present earnings during the year ended 31 December 2014. Further, this restructuring is expected to have positive impact
of $12.7 million on the Group’s future earnings in 2015. Extension of maturity dates was the basic nature of concessions given to all the
restructured facilities.

16. Credit exposures which are covered by eligible financial collateral

Exposure funded by Self Finance
Eligible
Gross Financial
Exposure Collateral
Corporate portfolio 1,453,050 193,746
Retail Portfolio 48,599 -
Past due financings 136,429 5,244
Total 1,638,078 198,990

Exposure funded by Unrestricted Investment Accounts

Eligible
Gross Financial
Exposure Collateral
Corporate portfolio 296,302 57,621
Retail Portfolio 192,973 18,218
Past due financings 866,281 414
Total 1,355,556 76,253

Counterparty Credit Risk (CCR)

Gross
Positive Fair Net Value Risk
Value of Netting Credit Risk Exposure at Weighted
Contracts Benefit Mitigation Default Assets
Profit Rate Contracts 7 - - 7 7
Foreign Exchange Contracts 7,920 - - 7,920 4,762
Total 7,927 - - 7,927 4,769
 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 109

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

17. Disclosure of regulatory capital requirements for market risk under the standardized approach
Risk weighted assets Capital requirement
31 December Maximum Minimum 31 December Maximum Minimum
2014 Value Value 2014 Value Value

Foreign exchange risk 134,227 145,789 145,592 16,107 17,495 17,471

Aggregation
Foreign exchange risk 1,231 4,746 13,951 148 570 1,674
Profit Rate Risk (Trading Book) 45,114 27,792 9,785 5,414 3,335 1,174
Equity Position Risk 33,651 40,698 36,934 4,038 4,884 4,432
sub total 79,996 73,236 60,670 9,600 8,788 7,280
Total 214,223 219,025 206,262 25,707 26,283 24,751

18. Disclosure of regulatory capital requirements for operational risk under the basic indicator approach
For regulatory reporting, the capital requirement for operational risk is calculated based on basic indicator approach. According to this
approach, the Bank’s average gross income over the preceding three financial years is multiplied by a fixed alpha coefficient.
The alpha coefficient has been set at 15% under CBB Basel II guidelines. The capital requirement for operational risk at 31 December
2014 aggregated to $56.8 million.

19. Tier one capital ratios and Total capital ratios

Tier One Total
Capital Capital
Ratio Ratio
Ithmaar consolidated 10.54% 12.11%

Significant Bank subsidiaries whose regulatory capital amounts to over 5% of group consolidated regulatory
capital whether on a stand-alone or sub-consolidated basis are as follows:
Faysal Bank Limited 10.59% 12.86%

20. Equity position in Banking book

At 31 December 2014, the Group’s investment securities aggregated to $1,767.6 million. Out of the total investment securities, $39.1
million were listed investment securities and the remaining $1,728.5 million represented unlisted investment securities.
Cumulative realized income from sale of investment securities during the year amounted to $4.4 million. Total unrealized income
recognized in the consolidated statement of changes in owners’ equity amounted to $1.4 million.
At 31 December 2014, capital requirements using standardized approach aggregated to $51.6 million for listed investment securities
and $76.7 million for unlisted investment securities excluding capital charge of investment securities classified as real estate holdings.
110 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

21. Gross income from Mudaraba and profit paid to Unrestricted Investment Accountholders
31 December
2014 2013 2012 2011 2010

Income from unrestricted investment accounts 100,500 100,796 93,207 67,926 61,546
Less: return to unrestricted investment accounts (76,793) (77,133) (70,785) (65,018) (56,395)
Group’s share of income from unrestricted investment accounts as a Mudarib 23,707 23,663 22,422 2,908 5,151
For the year ended 31 December 2014 the return to unrestricted investment accountholders based on the average balance outstanding
during year stood at 5.03%. The Group’s share of income from unrestricted investment account (Mudarib) including management fee for
the year ended 31 December 2014 as a percentage of gross income from unrestricted investment accounts stood at 2.79%.
22. Movement in Profit Equalization Reserve and Provisions – URIA
31 December
2014 2013 2012 2011 2010

Profit Equalization Reserve

As at 1 January 2,546 10,061 18,607 8,154 3,099
Net addition 5,002 5,183 5,443 10,453 6,011
Transfer to impairment provisions - (12,698) (13,989) - -
Net utilization - - - - (956)
As at 31 December 7,548 2,546 10,061 18,607 8,154
Amount appropriated as a percentage of gross profit 5% 5% 6% 15% 10%

Provisions
As at 1 January 105,743 88,363 68,854 69,767 64,427
Net addition 4,892 6,496 6,406 1,456 5,464
Transfer from Investment Risk Reserve 835 - - - -
Transfer from Profit Equalization Reserve - 12,698 13,989 - -
Net utilization (625) (1,814) (886) - (124)
Reclassification - - - (2,369) -
As at 31 December 110,845 105,743 88,363 68,854 69,767
At 31 December 2014, the ratio of profit equalization reserve and provisions to equity of unrestricted investment accountholders stood
at 0.38% and 5.54% respectively.
At 31 December 2014, the ratio of financings to URIA stood at 65.9%.
At 31 December 2014, the Investment Risk Reserve (IRR) amounted to $2.9 million.
 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 111

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

22. Movement in Profit Equalization Reserve and Provisions – URIA (Continued)

The following table summarizes the breakdown of URIA and impairment provisions

31 December
2014 2013 2012 2011 2010
URIA : Banks 266,496 119,655 35,178 58,260 83,584
URIA : Non-Banks 1,735,453 1,865,814 1,715,944 1,418,374 1,112,379
Provisions : Banks 14,755 6,373 1,775 2,717 4,876
Provisions : Non-Banks 96,090 99,370 86,588 66,137 64,891

23. Gross return from Restricted Investment Accounts (RIA)

31 December
2014 2013 2012 2011 2010
Gross income 302 4,278 268 2,408 7,523
Mudarib fee 208 599 809 2,814 12,249

24. Average declared rate of return on General Mudaraba deposits

31 December
2014 2013 2012 2011 2010

Percentage
7 Days 0.20 0.25 0.25 0.30 0.50
30 Days 1.17 1.49 1.90 2.31 3.00
90 Days 1.69 1.99 2.48 2.90 3.25
180 Days 2.14 2.49 2.90 3.25 3.50
360 Days 2.60 2.97 3.40 3.50 3.70

25. Profit rate risk

Profit rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market profit rates.

USD EUR PKR BHD AED

Total profit rate exposure 154,359 186,781 374,639 831,964 276,183

Rate shock (assumed) (+/-) 0.33% 0.09% 0.42% 0.57% 0.06%
Total estimated impact (+/-) 509 168 1,573 4,742 166
112 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

BASEL II PILLAR III QUANTITATIVE DISCLOSURES

AT 31 DECEMBER 2014
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

26. Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Substantial
portion of the Group’s assets and liabilities are denominated in US Dollars, Bahraini Dinars and Pakistani Rupee. Bahraini Dinars and
Saudi Riyal are pegged to US Dollars and as such currency risk is minimal. The Bank’s investment in FBL is in Pak Rupees (PKR) and
exposes the Bank to foreign exchange risk. The cumulative foreign exchange loss as of 31 December 2014 amounted to US$ 17.4
million (included in the foreign exchange translation reserve statement of changes in equity).
The significant net foreign currency positions at 31 December 2014 were as follows:

Long/(Short)
Equiv US$ 000
Pakistani Rupee 96,816
Euro (93,456)
United States Dollars 89,475
Polish Zloty 45,096
UAE Dirham (276,190)
Hong Kong Dollar 69,623

27. Liquidity ratios

31 December
2014 2013 2012 2011 2010
Liquid assets to total assets 11.32% 14.78% 13.74% 12.80% 13.48%
Short term assets to short term liabilities 59.35% 66.97% 56.98% 63.80% 63.44%

28. Legal contingencies and compliance

At 31 December 2014, the Group had contingent liabilities towards customer and other claims aggregating to $434.5 million. The
management is of the view that these claims are not likely to result into potential liabilities. During the year 2014, the Bank paid
penalty of $16 thousand imposed by the CBB due to delay in compliance of regulatory submission requirement.
 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 113

SHARE INFORMATION

SHAREHOLDING STRUCTURE
31-Dec-14 31-Dec-13
No. of No. of No. of No. of
shareholders shares % shareholders shares %

1-10,000 132 661,480 0.02 135 736,015 0.02

100,000 - 10,001 2212 49,065,248 1.62 2273 50,977,744 1.68
1,000,000 - 100,001 449 148,525,739 4.90 441 147,806,445 4.88
10,000,000 - 1,000,001 143 439,382,847 14.50 145 468,829,280 15.47
over 10,000,000 36 2,393,119,713 78.96 34 2,362,405,543 77.95
Total 2972 3,030,755,027 100.00 3028 3,030,755,027 100.00

SHAREHOLDING BY NATIONALITY
31-Dec-14 31-Dec-13
No. of No. of No. of No. of
Country Shareholders shares % Shareholders shares %

Bahamas 2 959,467,864 31.66 2 1,384,545,224 45.68

Bahrain 826 320,483,303 10.57 830 288,931,050 9.53
KSA 881 763,413,373 25.19 889 382,277,726 12.61
Kuwait 628 704,233,467 23.24 646 641,933,156 21.18
Other GCC Countries 232 129,218,865 4.26 240 128,829,080 4.26
Other Countries 403 153,938,155 5.08 421 204,238,791 6.74
Total 2972 3,030,755,027 100.00 3028 3,030,755,027 100.00

SHARES OWNED BY GOVERNMENT - DEC 2014

No. of shares

Ministry of Finance, Kingdom of Bahrain 40,881,210

114 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

SHARE INFORMATION
CONTINUED

ITHMR’S TRADING ACTIVITY

ITHMR's Closing Price Bahrain All Share Index

0.250 1,495

1,445
0.220

1,395

Points
US$ 0.190
1,345

0.160
1,295

0.130 1,245

ITHMR’s Closing Price Bahrain All Share Index

MAJOR SHAREHOLDERS OF ITHMAAR BANK - DEC 2014

Shareholder no. of shares %

Dar Al-Maal Al-Islami Trust 790,416,000 26.08

Islamic Inv. Co. of the Gulf 594,129,224 19.60
Nizar A.Razaq Al-Qurtas & Co. 193,674,671 6.39
Others 1,452,535,132 47.93
TOTAL 3,030,755,027 100.00

PERFORMANCE IN THE BAHRAIN BOURSE

Stock Code: ITHMR
Share Price Relative to Indices 2014
Open High Low Close % Change in 2014

ITHMR’s Share Price ($) 0.230 0.240 0.135 0.160 (30.43)

Commercial Banks Sector’s Index 2,456.44 2,966.39 2,446.01 2,721.17 10.78
Bahrain All Share Index 1,248.86 1,494.03 1,247.98 1,426.57 14.23
Esterad Index 1,270.28 1,535.72 1,272.39 1,503.57 18.37
 ITHMAR BANK B.S.C. ANNUAL REPORT 2014 115

ITHMR’S SHARE TRADING (BAHRAIN)

2014 2013

Volume, No. of shares 88,356,452 251,334,462

Value, US$ 16,161,392 57,593,273

RANKING

ITHMR’s ranking in 2014 out of the 42 local listed companies in the Bahrain Bourse.

Ranking
Value of Shares Traded 10
Volume of Shares Traded 3
Number of Transactions 7
Market capitalization 11
Number of trading days 7
116 ITHMAR BANK B.S.C. ANNUAL REPORT 2014

CORPORATE INFORMATION

NAME OF COMPANY: Ithmaar Bank B.S.C.

LEGAL FORM: Ithmaar Bank B.S.C. is a Bahrain-based licensed Islamic retail bank regulated by the Central Bank of
Bahrain.
Formerly an investment bank, it completed a comprehensive reorganisation with its then wholly-
owned subsidiary, Shamil Bank of Bahrain B.S.C. (c) in April 2010.
Ithmaar Bank B.S.C. is incorporated as a Bahrain shareholding company under Bahrain Commercial
Companies Law (Law No. 21 of 2001) with its shares listed on the Bahrain Bourse and the Kuwait
Stock Exchange.
COMPANY REGISTRATION NUMBER: CR 15210
STOCK EXCHANGE LISTINGS: Bahrain Bourse and Kuwait Stock Exchange
STOCK CODE “ITHMR”
REGISTERED OFFICE: Seef Tower, Building 2080, Road 2825, Al Seef District 428
P.O. Box 2820, Manama, Kingdom of Bahrain
Telephone:+973 1758 4000, +973 1758 5000
Facsimile: +973 1758 4017, +973 1758 5151
Swift Code: FIBHBHBM
E-mail: [email protected]
Website: www.ithmaarbank.com
HEAD OFFICE: Seef Tower, Building 2080, Road 2825, Al Seef District 428
P.O. Box 2820, Manama, Kingdom of Bahrain
ACCOUNTING YEAR END: 31 December
COMPLIANCE OFFICER Hana Ahmed Al Murran
Head, Compliance and AML
COMPANY SECRETARY Dana Aqeel Raees
Executive Senior Manager - Legal Department
AUDITORS PricewaterhouseCoopers ME Limited
P.O. Box 21144, Manama, Kingdom of Bahrain