A Saudi Joint Stock Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020
Basis of preparation
It also requires management to exercise judgment in the process of applying the bank's accounting policies. Any adjustments are made in the financial statements of the subsidiaries to reconcile them with the consolidated financial statements of the bank.
Classification and measurement of financial assets
The asset is held with a business model whose objectives are achieved by both collecting contractual cash flows and selling financial assets; and. Financial assets at FVSI are recognized in the consolidated statement of financial position at fair value.
Classification and measurement of financial liabilities
De-recognition of financial assets and financial liabilities Financial assets
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount divided into the portion of the derecognised asset) and the amount of (i) the amount received (including any new assets received minus any liabilities of new received) and (ii) any cumulative gain or loss that was recognized in OCI is recognized in the consolidated statement of income. However, the cumulative gain/loss recognized in OCI related to equity investments is not recognized in the consolidated income statement after derecognition of these investments.
Modifications of financial assets and financial liabilities Financial assets
In some transactions, the Bank retains the obligation to service the transferred financial asset for a fee. When changes were made to a financial asset or financial liability, other than changes in the basis for determining the contractual cash flows required by the standard interest rate reform, the Bank first updated the effective interest rate of the financial asset or financial liability to reflect the change required by the basic interest rate reform.
Fair value measurement
The bank's share of the result of an associated company and a joint venture appears in the consolidated income statement. The group's income statement reflects the bank's share of the associated company's result. Unrealized profits on transactions are eliminated in proportion to the bank's interest in the company invested in.
The bank's share of an associated company's result appears in the consolidated income statement. The associated company's accounts are prepared for the same accounting period as the bank.
Cash and balances with Saudi Central Bank (SAMA)
The cost of the scheme is recognized over the period during which the service conditions are met, ending on the date on which the relevant employees become fully entitled to the shares ('vesting date'). The cumulative expenses recognized for the schemes at each reporting date up to the vesting date reflect the extent to which the vesting period has expired and the Bank's best estimate of the number of equity instruments that will ultimately vest. At the maturity of each vesting period, the Bank delivers the allocated basic shares to the employee.
The Bank recognizes a government grant related to income if there is reasonable assurance that it will be received and the Bank will comply with the conditions attached to the grant. Government subsidies are recognized in the profit and loss account on a systematic basis over the periods in which the bank recognizes as expenses the associated costs for which the subsidy is intended.
Due from banks and other financial institutions, net
- Investments held at FVSI
- Investments held at FVOCI
- Investment in an associate
- Analysis of investments by type and location Domestic
- Analysis of investments by composition Quoted
- Analysis of investments by asset quality
If the customer is the ultimate beneficiary, the Bank only records the respective amounts to be received and to be paid. In addition, instruments with a principal amount of SAR 37.5 million matured/redeemed from the Bank's FVOCI sukuk portfolio during the year (2020: SAR 135.3 million). In connection with this, the Bank has transferred SAR 0.2 million unrealized gains related to FVOCI sukuk instruments of OCI to the consolidated income statement (2020: SAR 0.9 million).
Investment in an associate represents the Bank's share of investment in Alinma Tokio Marine Company (a cooperative insurance company). The Bank invested SAR 25 million (50%) in ERSAL Financial Remittance Company (a joint venture between Alinma Bank and Saudi Post).
Derivative financial instruments
- Movement in gross exposure and allowance for impairment of financing
Investment grade includes exposures in the range of "substantially credit risk free to very good credit risk quality". The loss allowance in these tables includes ECL on loan commitments where the Bank cannot identify the ECL on the loan commitment component separately from that on the financial instrument component. For better presentation, the Bank has reclassified the presentation of adjustment loss arising from the deferral of financing of micro, small and medium-sized entities (MSME) by deducting the adjustment loss directly against the gross financing instead of adding it to the allowance for impairment to add.
As of December 31, 2021, the contractual outstanding amount on financial assets that have been written off and are still subject to enforcement activities is SAR 1,489.4 million (2020: SAR 1,011.5 million).
Property, equipment and right of use assets, net
Right-of-use assets primarily relate to leases for the Bank's headquarters, branches and ATM kiosks. During the year ended December 31, 2021, properties were acquired to settle financing claims amounting to SAR 2.2 million (2020: nil).
Due to SAMA, banks and other financial institutions
- This balance represents interest free deposits received from SAMA with gross amount of SAR 7.2 billion with varying maturities in order to support the Bank in its implementation of various regulatory relief
- This balance represents Murabaha, Mudaraba and Wakala with banks
Accordingly, the Bank's 'Income from investments and financing' for the year ended 31 December 2021 included the fair value benefit of SAR 158.2 million (2020: SAR 96.1 million) arising from the interest-free deposits.
Customers’ deposits
- These represent Murabaha and Mudaraba with customers
- Others represent cash margins for letters of credit and guarantees
Amount due to Mutual Funds’ unitholders
Other liabilities
Rental and premises-related costs include payments for leases excluded from the lease liability calculation (i.e. short-term leases and leases of low-value assets) of SAR 2.4 million (2020: SAR 1.5 million).
Share capital
- Issuance of bonus shares
- Dividends
Statutory reserve
The issuance was approved by regulatory authorities and the Bank's Board of Directors. These Sukuk are perpetual securities in respect of which there are no fixed maturity dates and represent an undivided ownership interest of the Sukuk holders in the Sukuk assets, each Sakk constituting an unsecured, contingent and subordinated obligation of the Bank classified in equity. However, the Bank shall have the exclusive right to redeem or call the Sukuk over a specified period of time, subject to the terms and conditions set forth in the Sukuk Agreement.
These securities also allow the Bank to reduce (in whole or in part) any amount due to the holders in the event of unenforceability with the approval of SAMA. The interest applicable to the Sukuks is payable quarterly in arrears on each periodic distribution date, except upon the occurrence of an Event of Default or the Bank's election of default, where the Bank may in its sole discretion (subject to certain terms and conditions) elect do not make any distribution.
Commitments and contingencies a) Legal proceedings
- Fees from banking services, net
Such event of default or election of default shall not be considered an event of default and amounts unpaid in respect thereof shall not be cumulative or aggregated with any future distributions.
Salaries and employees’ related expenses
- Salient features of Compensation Policy
The variable remuneration in the bank is exclusively performance-based and consists of the annual performance bonus. The bank has adopted a board-approved framework to develop a clear connection between variable remuneration and results. The NRC demonstrates that its decisions are consistent with an assessment of the bank's financial situation and future prospects.
As a minimum requirement, the Bank's cash/share based rewards policy is subject to an appropriate retention policy. The quality and long-term commitment of all employees is the foundation of the bank's success.
Earnings per share
Zakat liability
Cash and cash equivalents
- General description of Defined Benefit Plan
- The amounts recognized in the consolidated statement of financial position and movement in the obligation during the year based on its present value are as follows
- Expected maturity
- Defined contribution plan
The total amount of expenses recognized in the consolidated income statement in respect of these schemes in the year ended December 31, 2021 was SAR 25 million (2020: SAR 22.2 million). The Bank applies an End-of-Service Benefit Plan for its employees, based on the applicable Saudi labor laws. The assumptions regarding future mortality have been determined based on actuarial advice in accordance with published statistics and experience in the region.
The above sensitivity analyzes are based on a change in one assumption holding all other assumptions constant. The Bank makes contributions to a defined contribution retirement benefit plan with the General Social Security Organization in respect of its Saudi employees.
Operating segments
Profit is debited or credited to operating segments using internally developed Fund Transfer Pricing (FTP) rates that approximate the marginal cost of funds. Credit exposure includes the accounting value of assets on the balance sheet, excluding liquid stocks, tangible and intangible assets as well as right-of-use assets, capital shares and other assets.
Credit risk
As part of the bank's policy, only borrowers with a risk rating of -6 or better are eligible for new financing facilities. The bank compares the risk of default on the reporting date with the risk of default on the start date. The bank recognizes impairment corresponding to expected credit losses using a lifetime PD (an estimate of the probability of default over the lifetime of the asset).
The write-off does not dilute the Bank's recovery and collection efforts, including legal assistance. The Bank recognizes impairment on an ongoing basis by calculating the expected credit loss (ECL) at each reporting period.
Month Expected credit losses
- Due from banks and other financial institutions by risk rating
- Sukuk and Murabaha investments by risk rating
- Economic sectors risk concentration for financing and allowance for impairment are as follows
- Geographical concentration of financial assets, financial liabilities, commitments and contingencies are as follows
- The distribution by geographical concentration of non-performing financing and allowances for impairment on financing is as follows
Credit loss, simply defined, is the difference between all contractual cash flows due to the Bank and the present value of the expected reduced cash flows, discounted at the applicable effective rate, in view of certain circumstances affecting the ability of the borrower to repay his original credit. obligations. The Bank currently uses the weightings of 50% for downturn, 40% for baseline and 10% for uptrend. The exercise of the deferral option is not in itself considered by the Bank to be a trigger for SICR and as a result the impact on the expected credit losses for these customers has been determined based on their existing phasing.
The Bank has considered the probability weights to provide the best estimate of possible loss outcomes and, in determining these, has analyzed the interrelationships and correlations (both short and long term) within the Bank's loan portfolios. The Bank's policy on obtaining collateral has not changed significantly during the year and there has been no significant change in the overall quality of the collateral held by the Bank.
Market risk
- Profit rate risk
Due to the insignificant currency exposures of financial assets and financial liabilities with profit in the banking book, all exposures of the banking book are monitored only in the reporting currency.
- Currency risk
- Equity price risk
- Liquidity risk
- Reputational risk
- Fair values of financial assets and liabilities
- Related party balances and transactions
- Capital adequacy
- SAMA support programs and initiatives
- Private Sector Financing Support Program (“PSFSP”)
- Prospective changes in the International Financial Reporting Standards
- Comparative figures
- Approval of the consolidated financial statements
The table below shows the currencies to which the Bank has a significant exposure on 31 December:. The Bank has a Market Risk Management Team under the Risk Management Group which regularly monitors the liquidity risk of the Bank. Since the Bank is an Islamic bank, the Bank is exposed to the risk of non-compliance with Sharia'a.
The Bank has applied the above transitional arrangement when calculating the Bank's solvency ratios with effect from March 31, 2020. The Bank has chosen not to adopt these statements early and they do not have a significant impact on the Bank's consolidated annual accounts.
