10 ALINMA BANK
A Saudi Joint Stock Company)
CONSOLIDATED STATEMENT OF INCOME For the year ended December 31
2019 SAR’000
11 ALINMA BANK
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31
13 ALINMA BANK
ALINMA BANK
15 ALINMA BANK
16 ALINMA BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2020 and 2019
Basis of preparation
These consolidated financial statements are presented in Saudi Arabian Riyals (“SAR”), the Bank's functional currency. However, the Government of the Kingdom of Saudi Arabia (“the Government”) has so far managed to contain the outbreak, mainly due to the unprecedented but effective measures taken by the Government, following which the Government ended the lockdowns and has taken phased measures. towards normalization.
19 e) Going concern
Summary of significant accounting policies
Any adjustments are made to the annual accounts of the subsidiaries to bring them into line with the consolidated annual accounts of the Bank. All regular purchases and sales of financial assets are initially recognized and derecognised on the transaction date (i.e. the date on which the Bank becomes a party to the contractual terms of the instrument).
22 e) Offsetting
23 Income / (loss) from FVSI financial instruments, net
- Classification and measurement of financial assets
- Classification and measurement of financial liabilities
- De-recognition of financial assets and financial liabilities Financial assets
- Modifications of financial assets and financial liabilities Financial assets
- Fair value measurement
- Sale and repurchase agreements
If the terms of a financial asset are amended, the Bank evaluates whether the cash flow of the amended asset is materially different. The Bank measures financial instruments, such as financial assets measured against FVSI and FVOCI, at fair value at each reporting date.
32 m) Provisions
33. the amount expected to be paid under a residual value guarantee, or if the Bank changes its assessment as to whether it will make use of a purchase, extension or termination option. The Bank has chosen not to recognize right-of-use assets and lease liabilities for short-term leases with a lease term of twelve months or less and leases for low-value assets, including IT equipment. The Bank recognizes the lease payments related to these lease agreements as an expense on a straight-line basis over the lease term. o) Cash and cash equivalents. For the purposes of the consolidated cash flow statement, “cash and cash equivalents” are defined as amounts included in cash, balances with SAMA other than statutory deposits, and receivables from banks and other financial institutions with an original maturity of three months or less the acquisition date and that are not at significant risk of changes in their fair value. p) Short-term employee benefits.
A liability is recognized for the amount expected to be paid under short-term cash bonus or share-based plans if the Bank has a present legal or constructive obligation to pay this amount as a result of past service rendered to the Bank and the liability may is appreciated. reliably. The benefits payable to the employees of the Bank at the end of their services are calculated on the basis of actuarial valuation in accordance with the labor laws of Saudi Arabia. The Bank is subject to Zakat in accordance with the regulations of the General Authority of Zakat and Taxes (“GAZT”).
34 s) Treasury shares
35 v) Share based payments
Due from banks and other financial institutions, net
Investments
- Investments held at FVSI
Investment in an associate
Investment in a joint venture
Analysis of investments by type and location Domestic
40 6.8 Analysis of investments by composition
Analysis of investments by credit quality
- Movement in gross exposure and allowance for impairment of financing
- Charge for impairment of financing, net of recoveries
- Property, equipment and right of use assets, net
- Due to SAMA, banks and other financial institutions
- This balance represents interest free deposits received during the year from SAMA with gross amount of SAR 6.6 billion with varying maturities in order to support the Bank in its implementation of various
- This balance represents Murabaha, Mudaraba and Wakala with banks
- Customers’ deposits
- It represents Murabaha and Mudaraba with customers
- Others represent cash margins for letters of credit and guarantees
- Amount due to Mutual Funds’ unitholders
- Other liabilities
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. At 31 December 2020, the contractual amount outstanding on financial assets that have been written off and are still subject to enforcement activity is SAR 1,011.5 million (2019: SAR 441.5 million). Right-of-use assets mainly relate to leases of the Bank's head office, branches and ATM kiosks.
During the year ended 31 December 2020, properties acquired for settlement of financial claims are nil (2019: SR 45.1 million). As a result, the Bank's "Investment and financing income" for the year ended December 31, 2020 included a fair value benefit of SAR 96.1 million arising from interest-free deposits. The amount owed to unitholders of Mutual Funds represents the non-controlling interest in two mutual funds (Alinma Sukuk ETF and Alinma IPO Fund) consolidated in these financial statements.
48 13.1 Lease liability and lease-related expenses
Share capital
- Issuance of bonus shares
Statutory reserve
Treasury shares and other reserves a) Treasury shares
49 b) Other reserves
Commitments and contingencies a) Legal proceedings
50 c) Credit related commitments and contingencies
53 20. Salaries and employee related expenses
Salient features of Compensation Policy
The variable remuneration at the Bank is purely performance-oriented and consists of the annual performance bonus. The Bank has adopted a Board-approved framework to establish a clear link between variable remuneration and performance. The NRC demonstrates that its decisions are consistent with an assessment of the Bank's financial condition and future prospects.
The Bank uses a formalized and transparent process to adjust the bonus pool for quality of earnings. As a minimum requirement, the Bank's policy is that cash-based awards are subject to an appropriate retention policy. The quality and long-term commitment of all employees is fundamental to the success of the Bank.
56 20.2 Employee share-based plans
- Earnings per share
- Proposed issue of bonus shares
- Zakat
- Cash and cash equivalents
- Employee benefit obligations
- 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
- Principal actuarial assumptions (in respect of the end of service benefit plan)
- Sensitivity of actuarial assumptions
- Expected maturity
- Defined contribution plan
- Operating segments
Basic and diluted earnings per share for the year ended 31 December 2019 has been adjusted to take into account the issuance of fund shares. The bank operates an End of Service Benefit Plan for its employees based on the applicable Saudi labor laws. The assumptions about future mortality have been determined on the basis of actuarial advice in accordance with the published statistics and experience in the region.
The sensitivity analysis above is based on a change in assumption, with all other assumptions unchanged. The Bank pays contributions to a defined contribution pension plan to the General Social Security Organization for its Saudi employees. Business segments are identified on the basis of internal reports on the bank's activities, which are regularly reviewed by key decision-makers, including the CEO and the Balance Sheet Management Committee (ALCO), in order to allocate resources to the segments and assess their performance.
Credit risk
- Expected credit Loss (ECL) Credit Risk Grades
Risk Management owns and controls the policies established for funding and is tasked with regularly reviewing and revising the Bank's credit policies, guidelines and processes to ensure that credit risk is managed and controlled within the Bank's risk appetite and credit criteria. the associated losses are kept to a minimum. The bank assigns a rating on a 10-point rating scale, from 1 as the best to 10 as the worst. According to the bank's policy, only borrowers with a risk rating of -6 or higher are eligible for new loans.
The Bank reviews and validates the MRA rating system on a regular basis, calibrating the score ranges with rating grades and associated PDs. The Bank compares the risk of default on the reporting date with the risk of default on the date of origination. The Bank groups its credit risks based on shared credit risk characteristics with the aim of facilitating analyzes intended to identify significant increases in credit risk in a timely manner.
64 c) Collateral type
65 Credit Losses (CL)
Month Expected credit losses
66 Sensitivity analysis
Due from banks and other financial institutions by risk rating
Sukuk and Murabaha investments by risk rating
68 Murabahas with SAMA and Sukuk investments - Total
Financing to customers by risk rating
The rating scale (1 – 4) represents: Essentially no credit risk, Extremely strong credit quality, Excellent credit risk quality, Very good credit risk quality.
- Commitments and contingencies by risk rating
- Economic sectors risk concentration for financing and allowance for impairment are as follows
- Collateral
- 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
- Market risk
- Profit rate risk
- months
- years
The Bank's policy regarding the acquisition of security did not change significantly during the year and there was no significant change in the overall quality of the securities held by the Bank. The Bank classifies market risk exposures in either trading or non-trading (or banking) books. The following table shows the sensitivity on the Bank's consolidated statement of income or shareholders' equity due to reasonably possible changes in profit rates, with other variables held constant.
The Bank manages its exposure to the impact of various risks related to fluctuations in prevailing market profit rates on its financial position and cash flows. The Bank charges profit rates based on the term of loans (long-term loans generally require a higher profit rate) based on the marginal cost of funds. The table shows the Bank's financial instruments at book value, categorized based on the earliest contractual price revision or maturity date.
77 Liabilities & shareholders’ equity
78 Liabilities & shareholders’ equity
- Currency risk
- Equity price risk
- Liquidity risk
- Reputational risk
- Fair values of financial assets and liabilities
The following table shows the currencies to which the Bank has a significant exposure on December 31: The Bank has a market risk management team under the Risk Management Group that regularly monitors the Bank's liquidity risk. Being an Islamic bank, the Bank is exposed to the risk of Shariah non-compliance.
The bank has also established a Sharia'a Board and a Sharia'a Compliance Audit Unit to monitor such risks. The bank has introduced controls around reputational risk to mitigate and avoid such risks. To value unlisted sukuk investments, the bank uses valuation techniques such as discounted cash flows. a) Fair values of financial assets and liabilities listed at fair value.
Capital adequacy
These ratios measure capital adequacy by comparing the bank's eligible capital with its statement of financial assets and liabilities at a weighted amount that reflects their relative risk. In accordance with SAMA's guidance on the accounting and regulatory treatment of COVID-19 extraordinary support measures issued on 26 April 2020, SAMA allowed the banks to add back up to 100% of the Day 1 impact of the IFRS-9 transition adjustment amount to the Common Equity Tier 1 (CET1) for the two-year period covering 2020 and 2021. The additional amount must then be phased out on a straight-line basis over the following 3 years.
The Bank has applied the aforementioned transitional arrangement in the calculation of the Bank's capital adequacy ratios effective March 31, 2020. Previously, the Bank was applying the transitional ECL accounting arrangement for regulatory capital that allowed banks to bypass the impact of IFRS Day 1 9 (applicable from January 1, 2018) on regulatory capital over (5) years using the dynamic approach to reflect the impact of the transition in accordance with SAMA Circular no.
Investment management and brokerage services
SAMA support programs and initiatives
- Private Sector Financing Support Program (“PSFSP”)
As part of the deferred payment program launched by SAMA, the Bank was required to defer payments for a total of nine months (original deferral for six months was followed by a further extension of three months) on lending facilities to eligible MMOs. The Bank achieved the payment relief without charging additional costs to customers by postponing the installments due within the period from 15 December 2020 to 31 March 2021 without increasing the facility term. As a result of the above program and related extensions, the Bank deferred total repayments of SAR 2.15 billion on MSME portfolio and accordingly recognized a total of SAR 44.5 million of adjustment losses of which SAR 22.5 million was redeemed.
The Bank has booked SAR 170 million total ECL for the MSME portfolio with a total exposure of SAR 4,441 million. The Bank has also reviewed certain inputs and assumptions used for the determination of expected credit losses (“ECL”). Adjustment of macroeconomic factors/inputs used by the Bank in its ECL model, including observed default rates;.
88 Facility Guarantee Program
SAMA liquidity support for the Saudi banking sector amounting to SAR 50 billion
Bank’s initiative - Health care sector support
Prospective changes in the International Financial Reporting Standards
Comparative figures
Approval of the consolidated financial statements
