Annual Report 2012 - GBCORP A Report 2012.pdf · the ‘Leader in Islamic Investments - 2010’ award during the Arab Investment Summit in Ras Al Khaimah, UAE. Vision GBCORP’s vision

Annual Report 2012

New thinking

Section 1

01 Profile, Vision, Mission

02 Board of Directors

04 Shari’a Supervisory Board

06 Board of Director’s Report

Section 2

12 Management Team

14 Investment Banking Review

18 Funds Under Management

Section 3

20 Departments

22 Risk Management, Compliance and Anti-Money Laundering

23 Corporate Governance and Transparency Disclosures

27 Organization Chart

30 Subsidiaries and Associates

33 Financial Highlights

34 Report of the Shari’a Supervisory Board

Section 4

35 Consolidated Financial Statements

64 Risk and Capital Management Disclosures (Basel II – Pillar III)

Contents

GBCORP’s shareholders and Board members are leading personalities and business families within the region. Together, they bring strong market insight, strategic positioning and access to liquidity within the GCC.

GBCORP’s strategy is aimed at capturing a meaningful share of the global Islamic banking market and leveraging its regional expertise and experience to establish a strong presence, linking the region to international markets and actively facilitating global investment opportunities through partnerships for mutual development.

In a short span of five years, GBCORP has received global acknowledgments from industry leaders. First in 2008, GBCORP was voted the ‘Best New Bank’ by Islamic Finance News (IFN), Malaysia, and won the ‘Best New Bank’ award from CPI Financial and the GCC Europe Expo Award for ‘Best Business Innovation of the Year’. The following year GBCORP was awarded ‘Best Islamic Bank in Bahrain’ and then in 2010, GBCORP was honored with the ‘Leader in Islamic Investments - 2010’ award during the Arab Investment Summit in Ras Al Khaimah, UAE.

VisionGBCORP’s vision is to be a leading investment bank in the GCC with a global reach and the ability to merge international investment excellence with local expertise and with a commitment to deliver consistent returns to shareholders and investors alike.

MissionOur mission is to create long-term profitable growth and maximum return on investments for our shareholders, partners and investors. We envision being one of the leading investment banks providing banking services and operating to recognized and accepted international standards. We invest in banking professionals of the highest caliber and will grow the business through regional and international ventures which utilize the expertise of our investment bankers. GBCORP achieves its financial goals based on sound judgment, objective advice and service excellence.

Profile, Vision and Mission

ProfileGlobal Banking Corporation B.S.C. (c) (GBCORP) commenced operations in the Kingdom of Bahrain in June 2007, with an underlying commitment to provide Shari’a compliant investment banking services to high net worth individuals, institutional and government clients. GBCORP pursues a dynamic business model focused on corporate finance advisory, private equity, asset and wealth management, structured finance and investment placements.

1 GBCORP Annual Report 2012

Saleh Al Ali Al RashedChairman of the Board (Non-Executive)

Sh. Al Rashed is a member of one of the most esteemed business families in Saudi Arabia. He is recognized as one of the most successful businessmen in the region and he has more than 35 years of experience. Sh. Al Rashed has held many prestigious positions in financial institutions in the region and in Europe. Currently he is Chairman of a number of corporations such as Trade Union Cooperative Insurance & Reinsurance Co., National Amlak Investment Co., Al Rashed & Al Thunayyan Automotive Co., and Al Kumasiya for Feed and Animal Production Co. He is also a Board Member of Masraf Al Rayan in Qatar. Sh. Al Rashed holds a Diploma in Business Administration from Berkeley University of California.

A. Rahman Mohammed Al JasmiVice Chairman (Non-Executive) Chairman of the Executive Committee

Mr. Al Jasmi is a banking and finance professional with more than 22 years’ experience in both commercial and investment banking. As the Vice Chairman, Mr. Al Jasmi provides strategic direction to the GBCORP's global investment initiatives across the MENA region and global markets. Mr. Al Jasmi holds a BA (Honours) in Business Administration and an advanced Diploma in Banking studies from the University of Bahrain and continued his professional development at Cranfield Management School in the United Kingdom.

Salah Saleh AsheerDirector (Non-Executive)Member of the Executive Committee

Mr. Asheer is the Chief Executive Officer of a number of Bahrain-based, privately held investment companies. Mr. Asheer is an investment banker with more than 18 years of experience and has served as a Director of several local, regional and international subsidiaries that own and manage a diversified range of investments in the financial services industry, amongst others. Mr. Asheer is a Certified Public Accountant and holds a Bachelor’s degree in Accounting.

Talal Mohammed Al MutawaDirector (Non-Executive)Member of the Audit Committee

Mr. Al Mutawa is the Vice-Chairman and Chief Executive Officer of Manafae Investment Co. KSC(C) in Kuwait, a company specializing in asset management and investment services. He has over 18 years of experience in the stock markets and in the financial sector. He is recognized for setting high benchmarks for profitability, introducing new clients, setting up a structure for the local services department and training dealers to improve their technical skills. Previously, Mr. Al Mutawa was the Manager of Trading and Portfolio Management in Kuwait Asset Management Co (KAMCO), a subsidiary of Kuwait Investment Project Co. (KIPCO). He was responsible for several public subscriptions and private placements. Mr. Al Mutawa holds a Bachelor’s degree in Business Administration.

Saleh Al Ali Al Rashed Salah Saleh Asheer Talal Mohammed Al MutawaAbdul Rahman Mohammed Al Jasmi

2 GBCORP Annual Report 2012 3 GBCORP Annual Report 2012Board of Directors

Khalid Abdullah Al-AnkaryDirector (Non-Executive and Independent) Chairman of the Audit Committee Member of the Nomination, Remuneration & Corporate Governance Committee

Mr. Al-Ankary is the General Manager of Bathel Al Khair Establishment for Trading & Real Estate in Saudi Arabia. Mr. Al-Ankary started his career in 1990 as Internal Auditor in the Saudi Industrial Development Fund (SIDF). In an illustrious career spanning more than 20 years, Mr. Al-Ankary has gained in-depth experience across market sectors covering financial, oil and gas, manufacturing, retail, insurance, telecommunication and the hospitality industries. Previously, Mr. Al-Ankary was the Internal Auditor in the Internal Audit Division of Samba Financial Group where he participated in various audits within the group. He has also attended several audit training courses organized by the Citibank group in New York and London. Mr. Al-Ankary holds a Bachelor’s degree in Accounting from King Saud University in Saudi Arabia.

Dr. Saud Al-AmmariDirector (Non-Executive and Independent)Chairman of the Nomination, Remuneration & Corporate Governance CommitteeMember of the Risk Management Committee

Dr. Al-Ammari is the Managing Partner of Blakes offices in Saudi Arabia and the Gulf Region. Over the past two decades, he has built a prominent and impressive legal career as well as an extensive network of business and professional contacts throughout the Gulf Region, Europe and North America. He has experience in a wide variety of corporate and commercial legal matters both inside and outside the gulf region. Dr. Al-Ammari holds Master in Law degree from Harvard Law School, Cambridge, Massachusetts and PhD form South Texas College of Law Houston - Texas.

Dr. Zakaria Ahmed HejresDirector (Non-Executive)Member of the Audit CommitteeMember of the Risk Management CommitteeMember of Nomination, Remuneration & Corporate Governance Committee

Dr. Zakaria joined the Bank as a Board Member on 6th of November 2012 and subsequently appointed as a Chief Executive Officer effectively from 1st of February 2013 and accordingly left his positions as a Board Member and Member of the Board Sub-Committees.

Prior to joining the Bank, Dr. Zakaria was associated with some of the leading institutions in Bahrain. He was the Deputy Chief Executive of the Economic Development Board (EDB). He was also at the Ministry of Finance and National Economy, the Assistant Undersecretary for Economic Affairs.

Dr. Zakaria is a Director at Bahrain Telecommunication Company (BATELCO), a Director at Gulf Investment Corporation & a Director at Tamkeen.

Dr. Zakaria holds a Ph.D. in Economic Development from the University of Durham, United Kingdom. He also obtained a Master's Degree in Economic Development from the University of Strathclyde, UK in 1985.

Raed Mohammed Al SalehDirector (Non-Executive) Chairman of the Risk Management CommitteeMember of the Executive Committee

Mr. Raed Al Saleh is the Chief Executive Officer of CapCorp Investment Company KSC(C). Mr. Al Saleh held directorship in several companies and currently he is director at Zak Solutions Company KSC(C). He has more than 27 years’ experience in managing diversified investment portfolio. Mr. Al Saleh holds bachelor’s degree in Business Administration from Eckerd College in United States.

Dr. Zakaria Ahmed Hejres Raed Mohammed Al SalehKhalid Abdullah Al-Ankary Dr. Saud Al-Ammari

2 GBCORP Annual Report 2012 3 GBCORP Annual Report 2012

His Eminence Sheikh Dr. Mohammed Ali Elgari

Chairman

Sheikh Dr. Mohammed Ali Elgari is a Professor of Islamic Economics at King Abdulaziz University, Jeddah, Saudi Arabia and former Director of the Center for Research in Islamic Economics at the same University. He is an expert at the Islamic Jurisprudence Academy of the OIC and the Islamic Jurisprudence Academy of the International Association Islamic World League and a member of the Shari’a Council of AAOIFI.

Sheikh Elgari is a member of the editorial board of several academic publications in the field of Islamic Finance and Jurisprudence, including Journal of the Jurisprudence Academy (of the IWL), Journal of International Association Islamic Economic Studies (IDB), Journal of Islamic Economics (IAIE, London) and the Advisory Board of Harvard Series in Islamic Law, Harvard Law School.

His Eminence Sheikh Nizam Mohammed Yaquby

Member

Sheikh Nizam Mohammed Yaquby is an internationally acclaimed Shari’a scholar in the Islamic banking industry. He has a background in both traditional Islamic sciences with senior scholars from different parts of the Muslim world and also a Master’s degree in Economics from McGill University in Canada. Sheikh Nizam has taught Islamic subjects in Bahrain and lectured all over the world. He is a member of many International Boards including the Shari’a Council of AAOIFI, Dow Jones Islamic Index, Central Bank of Bahrain Shari’a Committee and IIFM Shari’a Council. Sheikh Nizam has edited several Arabic manuscripts and has more than 500 audio-visual lectures and lessons in both Arabic and English.

His Eminence Sheikh Dr. Osama Mohammed Bahar

Member

Sheikh Dr. Osama Mohammed Bahar is a recognized Shari’a scholar in Islamic banking and financing. He has extensive experience in the structuring of financial and Islamic products and Islamic contracts, in addition to his contributions to a number of research papers on Islamic finance and banking. Sheikh Dr. Osama holds a Bachelor’s degree from Prince Abdul Qader University for Islamic Studies in Algeria and a Master’s degree in Islamic Economy from Al Awzai University and Doctorate from Lahaye International University-Netherlands. He is also a member of many Shari’a Supervisory Boards.

His Eminence Sheikh Dr. Mohammed Ali Elgari

His Eminence Sheikh Dr. Osama Mohammed Bahar

His Eminence Sheikh Nizam Mohammed Yaquby

Shari’a Supervisory Board4 GBCORP Annual Report 2012

Saleh Al Ali Al RashedChairman

6 GBCORP Annual Report 2012 7 GBCORP Annual Report 2012Director's Report

In the name of Allah, the Beneficent, the Merciful, Prayers and Peace upon the Last Apostle and Messenger, Our Prophet Muhammad.

On behalf of the Board of Directors of Global Banking Corporation B.S.C. (c) (GBCORP), I am pleased to present to you the financial statement of GBCORP for the Financial Year Ended 31st December 2012.

In 2012, the global economy was still recovering from the aftermath of nearly three consecutive years of financial instability. The

2008-2009 global financial crisis coupled with the European Debt crisis in 2011 have both slowed down global growth to almost 3

per cent in 2012. Despite encouraging signs that some mature economies have overcome the global financial and the European Debt

crises, the global economy is likely to continue bearing some of the scars of the financial crisis.

Our financial results are an indication of the difficult year that we faced in 2012 and challenges that await us in 2013. We are taking

necessary strategic initiatives to understand and put in place measures to reduce the risks of future instability.

Our total operating income for the financial year ended 31 December, 2012 was USD4.1million. We reduced operating expenses

compared to 2011 from USD18.7million to USD13.2million. Our loss for the year was USD17million including impairment allowance

of USD8million. Our total assets stand at USD119.9million, compared to USD141million in 2011. Our total liabilities have decreased

from USD12.4million to USD8.4million in 2012.

Whilst the market is still feeling the aftershocks of the decline in the real estate sector, we are pleased to announce that the Bank

has exited from one of its real estate funds. The transaction will be finalized in 2013 and will have a positive impact on the financial

results of the Bank and our investors.

The Bank is also focusing on strengthening the Corporate Governance environment which is essential for safeguarding and

protecting shareholder capital.

We aim to turn the challenges into opportunities despite the difficult times ahead and of the past. The need of the time is to look

forward with a positive vision.

The Board would like to take this opportunity to express its sincere appreciation to our shareholders, clients and strategic partners

for their continued support, trust and faith in our management and staff. This is immensely encouraging in helping us build towards

long-term success.


Diverse thinking

Monaim Mohamed Al BastakiActing Chief Executive Officer & Chief Operating Officer

Mr. Al Bastaki is a member of the executive, human resources, planning, investment and financial committees, and Chairman of Diyafa Holdings WLL. He has more than 30 years of experience in the financial services industry. Prior to joining the Bank, Mr. Al Bastaki was the Head of the International Banking Division at a leading Islamic financial institution in the UAE. Mr. Al Bastaki was the Acting Chief Executive Officer from 7th of June 2012 until 31st of January 2013.

Ahmed Hassan AamerHead of Operations

Mr. Aamer’s responsibilities include managing operations and other administration activities. He has over 35 years of experience in banking, and previously worked at Citibank. He has in-depth experience in banking products with specific expertise in Treasury products, including risks, accounting and controls associated to these products.

Dr Raid Eid Al-Zude Head of Legal & Corporate Secretary

Dr AI-Zude is the Head of Legal Department and the Corporate Secretary. He is responsible for providing legal advice on the structuring and execution of transactions, developing and maintaining the organization’s legal framework and coordinating external legal support, focusing on the Legal Department’s strategies and operations. He is also the focal point of communication between the Board of Directors, senior management and shareholders as well as providing legal advice to the Bank’s Board of Directors, senior management and shareholders on Corporate Governance Principles, best practices and compliance to regulations. Dr AI-Zude has a PhD in Commercial Law from Bristol University, England, a Master’s Degree in Commercial Law from Aberdeen University, Scotland, and a Bachelor’s Degree in Law from the University of Jordan

Monaim Mohamed Al Bastaki Dr Raid Eid Al-ZudeAhmed Hassan Aamer

12 GBCORP Annual Report 2012 13 GBCORP Annual Report 2012Management Team

Khalid Ahmed Al JaberHead of Compliance

Mr AI Jaber is responsible for the daily operations of the compliance function, to ensure full compliance with requirements of the Central Bank of Bahrain’s Laws and Regulations. Mr Al Jaber has more than 25 years of experience in the banking field and as regulator with the CBB. He holds a Bachelor’s degree in Business Administration from North Texas State University - USA.

Fatema KamalActing Head of Investment Banking

Mrs Kamal is an Executive Director in the Investment Banking Department. She has in depth field experience of 13 years in the financial sector specializing in investment structuring, strategic and organizational planning, tax structuring oversight, Shari’a product structuring, joint venture negotiation, business development and project management. Prior to joining the Bank, she worked as a Project Manager at Gulf Finance House and as an auditor at KPMG.Mrs Kamal holds a Bachelor of Science Degree in Accounting from the University of Bahrain. She has also qualified as a Certified Public Accountant and Certified Internal Auditor.

Arshad AbdullahHead of Information Technology & Acting Head of HR

Mr. Abdullah has over 15 years of experience in the IT industry, providing consultancy and solutions to blue-chip clients in the Middle East region. Mr. Abdullah has designed and managed complete IT and communications strategies to create the smart enterprise, with highly secure and reliable ICT infrastructure, to enhance efficiency, improve employee productivity and reduce operating costs within the organization.

Farrukh ZareefHead of Risk

Mr Zareef joined the Bank in 2011, adding to the team his valuable experience of 15 years in a broad range of financial services areas, including risk management, compliance and audit, having worked in Pakistan, London and Middle East. Before moving to Bahrain, Mr Zareef was Partner in Risk Advisory Services at Ernst & Young Pakistan, focusing on the financial sector. He is a member of The Institute of Chartered Accountants of Pakistan (ICAP).

Khalid Ahmed Al Jaber Arshad AbdullahFatema Kamal Farrukh Zareef


Executive Management Review

Strategy

GBCORP’s leaner and stronger operations, combined with a business model resilient to economic shock, positions the bank ideally for

long-term sustainable growth. GBCORP aims to distinguish itself from competitors by offering diverse global deals and transactions to

its clients. GBCORP is targeting to offer unique mid-size off-market transactions, packaged to yield superior, risk-adjusted returns for its

clients.

1. Corporate Finance

GBCORP has continued its efforts in diversifying its revenue streams by focusing more on non-capital intensive service offerings such

as providing corporate finance advisory services to its clients and investors alike. The vision of the management has been to pursue

opportunities regionally and globally in defensive sectors such as healthcare, food and beverages, and retail. As a result, GBCORP has

pursued and won several advisory mandates and is looking to win further assignments. This, along with other initiatives, will help build

GBCORP’s track record in its intended sectors, differentiating it from its regional peers and establishing a platform for corporate finance

advisory growth in the coming years.

The GBCORP Corporate Finance team provides advisory, origination, structuring, execution and distribution services, so clients can access

markets and diversify their sources of funding effectively. GBCORP works with expanding institutions to help realize their growth plans

by identifying capital requirements, structuring the appropriate equity and debt raising packages and managing the underwiting and

placement process.

With its wide distribution network, GBCORP is well equipped to ensure a successful placement of a client’s offering. GBCORP’s

comprehensive capital markets services include acting as financial advisor, placement agent, underwriter and manager of equity or debt

transactions in private and public placements.

GBCORP enters into a transaction only after thorough due diligence of the promoter or issuer, the underlying asset or instrument and

after assessing potential investors’ appetite and market conditions at the time.

The Corporate Finance team ia equipped to work closely with clients to assist and advise them in all aspects of business valuations, M&A

advisory, documentation, feasibility studies, financial modeling, due diligence, divestitures and privatization advice.

The team offers growing institutions, including start-ups, advisory services on effective management of their capital structures (equity

and debt), to maximize shareholder value and fund their growth. The Corporate Finance team is also involved in project financing

mandates for mid-tier projects and syndicated finance. Target advisory sectors include healthcare, food and beverage, transport,

communications, energy, financial services, tourism, real estate and construction.

2. Private Equity

The current market conditions have opened up a window of opportunity in the private equity field, with mature companies being

offered at prices below start up cost.

Target private equity sectors of primary interest include healthcare, food and beverages, agriculture, retail, infrastructure, telecoms,

financial and business services, education and real estate. GBCORP’s regional focus is on the GCC, as well as selective global markets.

As a secondary focus and for diversification purposes, GBCORP considers opportunistic investments in other sectors with different

parameter sets. To ensure that businesses adhere to Shari’a, GBCORP looks for buyout or board representation as well as co-investment

opportunities.

14 GBCORP Annual Report 2012 15 GBCORP Annual Report 2012Investment Banking Review

3. Asset Management

Given the liquidity enjoyed by the region, the GCC asset management industry offers promising growth potential and presents an

opportunity for significant development and innovation. Along with a ready client base of strategic shareholders and high net worth

individuals, GBCORP is building its platform, to structure products for Islamic banks, private offices, investment companies, sovereign

authorities, Takaful operators and pension funds.

GBCORP is aiming for competitive long-term performance, taking advantage of opportunities as they arise, while minimizing risk to

clients through prudent diversification. GBCORP’s main objective is to achieve optimal returns for its clients over relevant benchmarks,

utilizing market-proven selection techniques. GBCORP follows a rigorous due deligene process ensuring a careful selection of

investments that are firmly underpinned by valuation studies.

GBCORP makes investment choices only after a thorough macro analysis of global and regional economic trends, industry developments,

market fundamentals and valuation.

4. Wealth Management

GBCORP is in the process of rolling out its Wealth Management service and is aming to develop a strong and rewarding relationship

with institutional investors and high net worth individuals in the GCC, and forging strategic business alliances with leading financial

institutions in the Middle East, Europe and Asia.

The ongoing economic crisis has emphasized the added importance of highly professional wealth management services. At GBCORP,

the investment and risk management professionals monitor global financial markets closely and have the expertise and experience to

structure and monitor diverse and intricate financial plans effectively for its clients.

While providing proactive advisory services, GBCORP’s Wealth Management team aim to maintain the highest standards of personal

integrity and professional ethics, combining international experience with local knowledge to provide GBCORP’s clients with innovative

and attractive investment opportunities that match their objectives and risk profiles.

GBCORP’s Wealth Management team aims to work with professional investment advisors, to provide clients with in-depth investment

advice, both in protecting and safeguarding their assets, as well as providing the right infrastructure to service their accounts.

5. Investment placement

The Investment Placement team has focused on maintaining a close professional relationship with all clients and investors, providing

them with regular feedback on the performance of their investments, and understanding their investment needs, to be able to identify

potential investment opportunities tailored to these needs.

14 GBCORP Annual Report 2012 15 GBCORP Annual Report 2012 Investment Banking Review

Broad based investment portfolio

The Marsa Al Seef concept is the ultimate maritime lifestyle destination, a waterfront residential leisure city and one of the most exclusive waterfront developments in the Kingdom of Bahrain and the Middle East.The proposed development was aimed to be a self-contained waterfront city with extensive residential and leisure components and complementary commercial opportunities. Marsa Al Seef, located on the northern coast of the Kingdom of Bahrain, will cover almost 26 million square feet. Reclamation of 45% of the total project land is completed, with infrastructure development set to begin in a phased manner.

Highlights

• The US$2.5 billion development will be a unique mixed use, waterfront city designed with an emphasis on exclusive lifestyle.

• The northern coast of Bahrain which fringes a beautiful, tranquil sea, is a focus for major superior quality developments. Marsa Al Seef is aimed to be the nation’s most prominent, sophisticated new city, standing tall among the world’s best.

• The project’s strategic location, close to business districts, Bahrain International Airport and the Saudi Causeway, provides swift, efficient access for residents and visitors.

GBCORP is the fund manager and financial advisor of the project and GREDCO was the project development manager up to end of June2011. Currently the project development is being handled by Marsa Al Seef Real Estate Company WLL (the “Project Company”), Currently the management of the Project Company are exploring different options to reinstate Marsa Al Seef project and offer its investor with timely exits while a achieving a reasonable return.

Project: Makkah HillsLocation: Kingdom of Saudi Arabia

The Makkah Hills project is GBCORP’s pioneering real estate development project within the Emirate of Holy Makkah, Kingdom of Saudi Arabia. The project was aimed to comprise state-of-the-art commercial, residential and mixed-use development areas, while maintaining its individuality through themed designs and unique features. The Makkah Hills project is set to benefit greatly from the Saudi Government’s decision to build a railway linking the holy cities of Makkah and Madinah via Jeddah.

The Makkah Hills project is located on the highway between Jeddah and Makkah, only 6 km from the Holy Mosque (Al Masjid Al Haram) and positioned between the third and proposed fourth ring road. Recent initiatives to expand the North and Northwestern courtyards of Al Masjid Al Haram in Makkah, are dramatically increasing real estate prices in the central area of the Holy City.

GBCORP was the lead placement agent, Fund manager and financial advisor for this unique project. The bank is currently in the process of exiting from this project, and the transaction is expected to be completed in 2013.

Project: Marsa Al SeefLocation: Kingdom of Bahrain

18 GBCORP Annual Report 2012 19 GBCORP Annual Report 2012Funds under Management

Marsa Al Seef

Makkah Hills


Operations

The key differentiator, one which distinguishes GBCORP from other investment banks, is its people. The Bank’s experienced Board of Directors and senior management professionals bring a wealth of banking and finance expertise at regional and international level, with the professionalism and strategic thinking to exploit the growing global demand for Shari’a- compliant investment banking services.

The GBCORP team is characterized by its unique ability to merge international investment excellence with local expertise, and its underlying commitment to achieve consistent returns for shareholders and investors. The team is supported by a corporate culture that places the highest value on leadership, professionalism, integrity and honesty, while recognizing and rewarding performance.

GBCORP has put in place an organizational structure that divides activities into key areas, supported by relevant policies, processes and procedures. Corporate functions comprise strategic planning, Internal Audit, Compliance, Risk Management and Corporate Communications. Support functions include Human Resources, Information Technology, Administration, Operations, Financial Control and Treasury.

Over the years, GBCORP continues recruiting a number of high calibers banking professionals whom exceed 30 years in banking sectors to fill key positions. Attracting, developing and retaining the best people in the business remains a top priority for the Bank. Above all, it is the Bank’s human capital that will enable GBCORP to achieve its challenging vision and mission, and ensure business success.

Human Resources

GBCORP’s HR department aims to be a strategic asset to the Bank’s management, helping achieve the Bank’s business goals. The HR department has focused extensively on restructuring its human capital and continuing key HR initiatives, including KPIs and core competencies for managers, an annual performance appraisal system for all staff, and completing an analysis of training needs.

Senior management approved the HR Focus Group program in 2012 as a platform for interaction between the HR department and employees. This creates the opportunity for suggestions and improvements, aiming to increase and maintain employee motivation and productivity. The HR department is also working on automating its key processes, to enhance efficiency and provide higher levels of service to staff.

As the quality of human capital is fundamental to the success if any institution, the Bank’s remuneration policy is to attract, retain and aestivates the benefit talent. In line with this strategy employees remuneration and benefits are reviewed and revised annually in context of performance, industry and local practices.

Employee remuneration consists of monthly fixed salaries and allowances, along with several other benefits like medical, life insurance cover, retirement benefit as per local law. The Bank also has performance based discretionary bonus benefit for all its employees against predefined objectives comprising both financial and non-financial parameters. Presently, the Bank does not have any share based incentive schemes.

Information Technology

GBCORP IT Department continued its primary function of providing infrastructure support and application development services to the various business units of the Bank. In 2012 the Microsoft GP ERP system was successfully upgraded to its latest version. Multiple new reports were developed to meet the needs of business users.

A case management module was implemented using the Customer Relationship Management system in order to support the Bank’s complaints management policy. This module now logs all investor issues and complaints and allows the Bank’s compliance officer to escalate any unresolved issues to senior management or the regulator. Other systems such as time and attendance reporting, GBCORP tower invoicing and payment logging system have also been enhanced in the past year.

20 GBCORP Annual Report 2012 21 GBCORP Annual Report 2012Departments

Corporate Communications

GBCORP maintains an effective communications policy that advocates transparency and trust in enabling both the Board of Directors and the Management to communicate effectively with shareholders, the public and all other parties. The Corporate Communications Department (CCD) plays a critical role in managing reputation, building and sustaining corporate culture, developing and promoting its corporate identity and presenting a consistent and coherent corporate image for enhanced credibility. CCD also places great emphasis on external and internal PR, strategically positioning GBCORP’s key spokespersons in the media and public forums through effective PR positioning. In addition, it keeps employees informed, educated and motivated to become active contributors towards the success of GBCORP, as part of our employee engagement program.

Internal Audit

Internal Audit reports directly to the Board Audit Committee, to provide independent and objective assurance on the adequacy, sustainability and effectiveness of GBCORP’s governance, internal controls and risk management processes. Through a systematic and disciplined approach, Internal Audit helps GBCORP accomplish its objectives. All key operational, business and management processes are audited according to risk based methodologies and Audit Plans. The purpose of GBCORP’s Internal Audit Plan is to identify the priorities of Internal Audit based on an assessment of risk and potential exposure that may affect GBCORP’s ability to accomplish its objectives. Further, considering today’s dynamic business environment, which creates the potential for new risks or increased exposure from existing risks, Internal Audit refreshes the risk assessment and Internal Audit Plan regularly.

Internal Audit also examines the strategies of GBCORP and the adequacy and effectiveness of the relevant policies, procedures and regulatory guidelines. Internal Audit discusses the results of all assessments with management and reports its findings, recommendations and opinions to the Board Audit Committee.

20 GBCORP Annual Report 2012 21 GBCORP Annual Report 2012 Departments

Risk Management

GBCORP pursues clear risk management objectives and has an established risk management policy and processes to achieve them.

GBCORP pursues clear risk management objectives and has an established risk management policy and processes to achieve them.

The Bank’s risk management objectives are to:

• Identify the Group’s significant risks.

• Set the Group’s risk appetite and related limits, and ensure the business profile and plans are consistent with it.

• Maximize risk and return decisions by taking them as closely as possible to the business, while establishing a strong and independent

review process.

• Ensure that business plans and new businesses are properly supported by an effective risk infrastructure.

• Help executives improve the control and co-ordination of risk-taking across the business.

To achieve the above objectives, we break the process down into five steps: identify, assess, control, report, and manage or challenge.

We break each of these down further, to establish end-to-end activities within the risk management processes and procedures approved

by the Bank's Board.

The responsibility for managing risk lies at all levels of the Group, from the Board, Board Risk Management Committee and the

Investment Committee to each departmental head. The responsibility for effective review and challenge lies with the Investment

Committee, Board Risk Management Committee, (ALCO) and the independent Group Risk function and, ultimately, the Board.

The Board is responsible for approving risk appetite and related limits, which is the level of risk the Group chooses to take in pursuit

of its business objectives. The head of risk management periodically presents a report to the Board, summarizing developments in the

risk environment, the Group’s risk profile, and deviations from risk limits, investment updates including the key issues affecting each

investment, and forward risk trends.

GBCORP adheres to the regulatory guidelines issued by the Central Bank of Bahrain and other applicable laws and regulations. Shari’a

principles prescribed by the Bank’s Shari’a Supervisory Board are fundamental to our investment and operations policies.

More details on risk management process are given in Note 31 to the consolidated financial statements for the year ended 31st

December, 2012 and Risk and Capital Management Disclosures (Basel II – Pillar III) for the year ended 31st December, 2012.

Compliance

The Compliance Department plays a critical role in ensuring that GBCORP conducts its business in compliance with the Central Bank of Bahrain (CBB), as well as internal policies and procedures. Details of GBCORP’s internal control framework are set out in internal manuals. The Board of Directors has the overall responsibility for ensuring that GBCORP conducts all its activities in full compliance with applicable laws and regulations. The Board approves and periodically reviews the Bank’s compliance policies and strategies. The Audit Committee of the Board exercises a pivotal role in this regard. During the period, a penalty of BD 20,050 was imposed by the CBB for delay in submission of the year end Consolidated financial statement and agreed upon procedure report by external auditors on the prudential returns for the period ended 31st December 2011.

Anti-Money Laundering

GBCORP has adopted detailed policies and procedures in line with the CBB directives to combat money laundering, financing of terrorism and other financial crimes. The Compliance Department requires all staff members to train regularly in Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) procedures. It is a firm policy of GBCORP not to permit it to be directly or indirectly used by any elements for unlawful activities.

22 GBCORP Annual Report 2012 23 GBCORP Annual Report 2012Risk Management, Compliance and Anti-Money Laundering

The Bank is committed to applying the highest international standards and global best practices in corporate governance. Having developed a strong corporate governance framework which aims to protect the interests of all stakeholders, ensure compliance with regulatory requirements and enhance organizational efficiency, the Bank has succeeded in imbibing a culture of corporate governance.

Governance Structure

In order to effect corporate governance, a solid structure had to be devised. The Bank achieved this by structuring the organization, such that functions and responsibilities are clearly divided, mirroring the division of roles and responsibilities of the Board, Board Sub Committees, the Shari’a Supervisory Board, executive management as well as executive management committees.

Board of Directors

The Bank’s Board is ultimately responsible for providing strategic leadership, direction and monitoring of business strategy, risk management, internal control environment and transparent corporate governance framework. In addition to the above, the Board is also responsible for the preparation of financial statements including the full compliance with all applicable accounting and regulatory requirements. The Board has delegated certain responsibilities to Board Sub-Committees in line with corporate governance standards of the CBB. Decision making at the Board level is based on financial information and investment updates presented by the management periodically. The Bank’s strategic vision and financial performance is closely monitored by the Board in line with business strategy and approved budgets. The Board is also overseeing the implementation of the Bank’s corporate governance guidelines in compliance with the CBB’s High Level Control Module as well as the Code of Corporate Governance.

The Board Members are entitled to an annual fee which is subject to an achievement of profitability by the bank in accordance with the Bahrain Commercial Companies Law. Moreover, each Board Member is entitled to a fixed fee for attending the meetings of the Board as well as it Sub-Committees. The Board Members were re-elected for another term of three years commencing from 25 June 2010 at the Annual General Meeting held on 21 March 2010.

Appointment Process of the Board of Directors

All Board Members will be appointed at the Ordinary General Assembly by secret ballot in accordance with the provisions of the relevant Laws and subject to the CBB’s approval. The Nomination, Remuneration and Corporate Governance Committee of the Board recommend the eligible individual(s) to the Board for the appointment as Director(s). After the Approval of the Board, the appointment needs final approval of Shareholders in the General Assembly Meeting. The General Assembly may terminate the membership of the entire Board or any Director.

Induction, Education and Orientation of new Directors

The Chairman of the Board, in liaison with the Secretary of the Board, shall ensure that each new Director receives a formal and tailored induction pack to ensure his/her contribution to the Board from the beginning of his/her term. The induction must include meetings with senior management, visits to the Bank, presentations regarding strategic plans, significant financial, accounting, compliance and risk management issues, meeting with internal and external auditors and legal counsel of the Bank. When a new director is inducted, the Chairman of the Board, assisted by the Compliance Officer, should review the Board’s role and duties with that person, particularly covering legal and regulatory requirements and High-Level Controls Module of CBB Rulebook.

Board Performance Evaluation

The Bank has developed a policy to govern the annual self-review of the Board, the Board’s sub-Committees and each individual director. The review evaluates the performance of the Board, the Board’s Sub-Committees and individual directors, including the Chairman of the Board.

22 GBCORP Annual Report 2012 23 GBCORP Annual Report 2012 Corporate Governance and Transparency Disclosures

Conflict of Interest And Related Party Transactions

The Board has adopted a disciplined approach for identifying transactions involving “conflict of interest” of any members of the Board and related party transaction.

In the event of Board considering any issue involving a conflict of interest or related party transaction, the matters are discussed during the Board meeting and the interested director(s) will be abstained from taking part in discussion, decision making and voting for resolution of the matter. These matters will be recorded in the minutes of meetings.

As per code of conduct of Directors, the Directors are required to inform the entire Board of (potential) conflicts of interest in their activities with, and commitments to, other organisations as they arise and abstain from voting on the matter. This disclosure includes all material facts in the case of a contract or transaction involving the Director.

Furthermore, any such transaction needs additional approval in the Annual General Meeting of the Shareholders of the Bank.

Type of Material Transactions that Require Board Approval

The direction and control of the Bank is steered by the Board of the Bank. The Board address matters of high importance including but not limited to the approval of strategic and business plans, major investment decisions, exit strategies, capital expenditure, review and approval of financial results, annual budget, placement limits and review of overall internal control environment of the Bank.

Board Committees

Nomination, Remuneration and Corporate Governance Committee

The Nomination, Remuneration and Corporate Governance Committee oversees matters related to the nomination of new Directors, assessment of the Board, its Sub-Committees, Chief Executive Officer and Senior Management as well as the remuneration of Directors and Senior Management. It is also responsible for all corporate governance matters.

Executive Committee

The Executive Committee is a Sub-Committee of the Board, entrusted to oversee the Executive Management, implement business plans, take major administrative and budgetary decisions and approve all forms of risk, underwritings, direct investments and new products of the Bank, including but not limited to real estate, private equity, asset management, advisory services (corporate finance and capital markets) and portfolio management.

Audit Committee

The Audit Committee has oversight responsibilities pertaining to financial reporting, internal control, risk management, internal audit, external audit, compliance, Shari’a rules and principles and other relevant matters.

Shari’a Supervisory Board

Being an Islamic Bank, the Bank has appointed a Shari’a Supervisory Board to direct, review and supervise the Bank’s activities, to ensure full compliance with the rules and principles of Islamic Shari’a. The Bank conducts internal Shari’a reviews which ensure that all the business activities are in compliance with Shari’a principles and applicable AAOIFI standards. The members of the Shari’a Board are entitled to a fixed fee payable on quarterly basis and are not linked to the performance indicators of the Bank.

As mentioned in the report of the Shari’a Supervisory Board, during the year 2012, the Bank was in full compliance with principles of Shari’a and other applicable laws.

24 GBCORP Annual Report 2012 25 GBCORP Annual Report 2012Corporate Governance and Transparency Disclosures

Executive Management

The Chief Executive Officer is responsible for day-today management of the Bank as set out in the Organization Chart.

Executive Management Committees

Management Committee (MANCOM)

MANCOM is the principal management committee which is responsible for the day-to-day general oversight of the Bank’s business, including but not limited to the following issues: budgetary, strategy, investment, personnel, audit, and compliance.

Asset & Liability Management Committee (ALCO)

The primary role of ALCO is to manage the Bank’s balance sheet profile and in the process, manage the liquidity and profit rate risks faced by the Bank.

Risk Management Committee (RMC)

RMC acts to ensure that the Bank has an effective risk management framework in place, meets regulatory requirements and is in line with best practice methodologies.

Strategy

The Bank’s ‘Way Forward’ strategy is to leverage its regional experience and expertise to establish a strong presence at a global level. The Bank aims to be an investment bridge for its clients by actively facilitating rewarding investment opportunities from within the GCC to other market.

Code of Conduct

The Bank has developed a Code of Conduct the (“Code”) that governs the professional and personal behaviour of the directors, management and staff. The Code outlines the principles, policies and laws to the Members of the Board must adhere in order to fulfil their responsibilities.

The Code has documented the standards and principles to promote ethical business practices and to avoid conflicts of interest among Members of the Board. The ultimate objective of the Code is to reasonably deter the possibility of wrongdoing and illegal acts. The approved Code addresses the principles of confidentiality, integrity, impartiality and independence.

Corporate Communications Policy

The Bank maintains an effective communications policy that enables both the Board and executive management to communicate properly with its shareholders, stakeholders and the public generally. Main communications channels include the Annual General Meetings, annual report and accounts, corporate website and corporate brochure and regular announcements in the appropriate local press. It is the duty of the Board to ensure that the annual general meeting is conducted in an efficient manner and serves as a key mechanism in shareholder communications. Shareholders are supplied with comprehensive, timely information and encouraged to participate actively in the Annual General Meetings.

A Disclosure Policy has been developed as part of the Bank’s commitment to adopt the highest standards of transparency and fairness in disclosing information for the benefit of all stakeholders. The Bank is committed to disclosing information to the public in a manner consistent with guidelines provided by CBB and in line with Basel II Pillar III requirements.

24 GBCORP Annual Report 2012 25 GBCORP Annual Report 2012 Corporate Governance and Transparency Disclosures

Corporate Responsibility

The Bank as an Islamic investment bank that operates in accordance with rules and guidelines of Islamic Shari’a and adopts strong ethical business principles. Since its inception in June 2007, the Bank has met its corporate social responsibility through various activities that support the local community, contribute to the development of Islamic banking and promote Bahrain’s reputation as the financial hub of the Middle East and an attractive destination for foreign investment.

At the outset of our existence, the Bank made a major endowment to Bahrain’s Waqf Fund to facilitate the establishment of a dedicated Islamic Training Centre at the Bahrain Institute of Banking & Finance, designed to prepare young professionals for a career in the Islamic financial services industry.

The Bank also conducts an annual summer internship program for Bahraini students from universities around the world to develop our prospective banking executives of the future. This year, six young interns gained hands-on experience and enhance their skills and knowledge in different aspects of Islamic investment banking. The Bank is developing a skilled pool of finance professionals while providing the platform for aspiring Bahrainis to gain deeper insight and develop career- oriented expertise.

Corporate Governance and Transparency Disclosures

26 GBCORP Annual Report 2012

Shari’a ReviewerInternal Audit

RiskManagement

Board of Directors

Risk ManagementCommittee

AuditCommitteeCompliance

General Counsel/Secretary to Board

Shari’a Board

ChiefOperating Officer

AssetManagement

Corporate Finance

HR & Government Relations

Finance Control

Support Functions

Investment Banking

Real Estate

Distribution

Business Development

Chief Executive Officer

Nomination,Remuneration and GovernanceCommittee

Executive Committee

Organization Chart27 GBCORP Annual Report 2012

Diyafa Holding Company (Diyafa)

Diyafa’s business strategy is to make direct investments in low capital intensive but high return businesses.

It aims to be a key player in the franchise market segments for some of the leading international food and hospitality brands as well as creating and developing its own brands in specific market segments.

Diyafa’s first foray into the business services segment was through Global Executive Offices (GEO). GEO offers elegantly designed, luxury offices, suitable for hospitality, blending professionalism with comfort and high quality services located in the GBCORP Tower. Companies renting office space receive a complete range of support services including high speed broadband, video conferencing, receptionist, concierge, driver, courier services, secretarial services, conference and meeting facilities.

The Abdel wahab is one of the most reputed Lebanese restaurant brands, owned and operated by Ghia Holdings Lebanon. They offer true Lebanese hospitality, with unique oriental décor featuring damascene walls, brass ornaments and blown glass elements. In the Kingdom of Bahrain Abdel wahab restaurants are located at the Moda Mall, Bahrain World Trade Centre and Durrat Al Bahrain.

Diyafa has identified several niche segments in the market, as well as existing areas that continue to have great potential. Diyafa’s strategy is to acquire new concepts to create a powerhouse portfolio of truly diverse brands, unmatched by any other organization in the region.

GEFSCO’s mission is to advise GBCORP in originating and structuring direct investments in companies and projects in the energy sector.

GEFSCO works with investee companies and projects to structure investments to meet investors’ requirements, including Shari’a compliance, while maintaining the integrity of the investee’s business model.

GEFSCO offers a complete range of industry-related advisory services to GBCORP’s projects, identifying and capitalizing on investment opportunities in the oil & gas and power sectors throughout the hydrocarbon value chain - from upstream oil exploration and production, to natural gas, refining, petrochemicals, marketing of refined products and power generation.

The energy industry continues to grow strongly and it has been forecast that the world’s total energy demand will grow 40% by 2030.

The vast majority of this increase will happen in developing countries, where economies and populations are expanding rapidly and modern energy supplies are still a rarity for millions of people.

This has led to a growth in energy infrastructure companies, creating a strong market for well-structured private equity deals.

Global Energy Financial Services Company (GEFSCO)

30 GBCORP Annual Report 2012 31 GBCORP Annual Report 2012Subsidiaries and Associates


Global Energy Financial Services Company (GEFSCO)

Diyafa Holding Company (Diyafa)

Subsidiaries and Associates

Subsidiaries and Associates

Global Real Estate Development Company (GREDCO)

Global Real Estate Development Company (GREDCO)

GREDCO’s portfolio of integrated services encompasses Real Estate Development, Project Management, Real Estate Asset and Facilities Management, Acquisitions and Technical Due Diligence, Master Planning and Design, Financial Analysis and Modeling, Project Marketing, Leasing and Sales/Divestment.

It is this holistic approach to real estate development that makes GREDCO a strategic, value-adding partner in every endeavor it undertakes. Initially, GREDCO commenced operations by providing services to Marsa Al Seef Project, in line with its strategy of focusing on the GCC and the MENA region. GREDCO will also work towards realizing its international aspirations, by progressively building its presence in certain selected countries.

Striving to be a value-driven organization, GREDCO is focused on cultivating a strong team which possesses the necessary expertise and experience to provide and promote a culture of excellence.


2012 2011 2010 2009 2008

USD 000 USD 000 USD 000 USD 000 USD 000

Total assets 181,388 119,956 141,026 181,388 197,655 455,868

Total liabilities 8,412 12,412 26,139 36,120 274,808

Total equity 111,544 128,614 155,249 161,535 181,060

Share capital 200,000 200,000 200,000 173,750 156,250

Fund under management 676,702 701,402 701,402 689,767 722,900

Net Profit / (loss) (17,070) (26,635) (32,536) (18,843) 21,216

Total income 4,144 3,094 5,929 9,340 53,193

Total expenses 13,214 18,717 19,422 23,655 31,977

Total provisions 8,000 11,012 19,043 4,528 -

Liquid assets as a percentage of total assets - % 4.34% 9.10% 21.70% 22.58% 65.58%Liquid assets to liquid liabilities (ratio) 0.9 1.4 2.4 2.2 1.4

Return on average equity -14.22% -18.77% -20.54% -11.00% 12.41%

Return on paid up capital -8.54% -13.32% -16.27% -10.84% 13.58%

Return on average assets -13.08% -16.52% -17.17% -5.77% 6.13%

Earning per share (cents) (8.54) -13.32 -13.47 -7.53 8.49

Capital Adequacy Ratio 52.61% 51.29% 40.87 35.37% 30.29%

Net income margin -411.92% -860.86% -548.76% -201.75% 39.88%

Paid up value per share - $ 1.000 1.000 1.000 0.695 0.625

Book value per share 0.558 0.643 0.775 0.645 0.724

Total cost to gross income 318.87% 604.95% 253.27% 60.12% 27.08%

In 2012, the global economy was still recovering from the aftermath of nearly three consecutive years of financial instability. The 2008-2009 global financial crisis coupled with the European Debt crisis in 2011 have both slowed down global growth to almost 3 per cent in 2012.

Despite encouraging signs that some mature economies have overcome the global financial and the European Debt crises, the global economy is likely to continue bearing some of the scars of the financial crisis.

The Bank’s financial results are an indication of the difficult year that the Bank faced in 2012 and challenges that await us in 2013. The bank is taking necessary strategic initiatives to understand and put in place measures to reduce the risks of future instability.

The Bank’s total operating income for the financial year ended 31 December 2012 was USD4.1million. The operating expenses were reduced compared to 2011 from USD18.7million to USD13.2million. The loss for this year was USD17million including impairment allowance of USD8million. The total assets stand at USD119.9million compared to USD141million in 2011. The total liabilities have decreased from USD12.4million to USD8.4million in 2012.

Whilst the market is still feeling the aftershocks of the decline in the real estate sector, the Bank is pleased to announce that it has exited from one of its real estate funds. The transaction will be finalized in 2013 and will have a positive impact on the financial results of the Bank and our investors.

32 GBCORP Annual Report 2012 33 GBCORP Annual Report 2012 Financial Highlights

In the name of Allah, the Beneficent, the Merciful. All Praise is due to Allah, Prayers and Peace upon the Last Apostle and Messenger, Our Prophet Muhammad.

The Shari’a Supervisory Board Report on the Activities of the Global Banking Corporation B.S.C (C) [GBCORP] for the fiscal year ended December 31, 2012.

Dear Global Banking Corporation [GBCORP] Shareholders,

Peace and Mercy of God be Upon You,

With reference to the mandate assigned to us, we are pleased to present the following report:

We have reviewed the principles and contracts related to transactions carried out by GBCORP (“The Bank”) during the fiscal year ended December 31, 2012. The review was conducted to render an opinion on whether the bank had followed the principles and provisions of Islamic regulations, specific guidance and Fatwas issued by the Shari’a Supervisory Board. While the bank holds the responsibility to ensure that its operations are completed in accordance with Shari’a regulations that emanate from us, our responsibility is limited to state and express an opinion on the Bank’s operations and submit it to the shareholders.

We conducted our review which included examining, on a test basis of each type of transaction, the relevant documentation and procedure adopted by the Global Banking Corporation and Shari’a reviewer reports. In our opinion:

1. The contracts and operations of the bank are in compliance with the provisions and principles of Shari’a for the year ended December 31, 2012.

2. The Bank’s distribution of profits and the transfer of losses related to investment accounts are compatible with the provisions and principles of the Islamic regulations.

3. There are no proceeds from sources that are not compatible with the principles and provisions of Islamic law.

4. Zakah calculations are in accordance with the regulations and standards of Shari’a.

And Allah is the source of strength.

His Eminence Sheikh Dr. Mohammed Ali Elgari Chairman

22 Rajab 1433 H12 June 2012

His Eminence Sheikh Dr. Osama Mohammed Bahar Member

His Eminence Sheikh Nizam Mohammed Yaquby Member

Report of the Shari’a Supervisory Board34 GBCORP Annual Report 2012 PB GBCORP Annual Report 2012

Contents

Consolidated FinanCial statements

35 independent auditors’ Report to the shareholders

36 Consolidated statement of Financial Position

37 Consolidated income statement

38 Consolidated statement of Changes in equity

39 Consolidated statement of Cash Flows

40 Consolidated statement of Changes in Restricted investment accounts

41 notes to the Consolidated Financial statements

41 Risk and Capital management disclosures (Basel ii - Pillar iii)

34 GBCoRP annual Report 2012 Consolidated Financial Statements

35 GBCoRP annual Report 2012 Independent Auditors’ Report to the Shareholders

GLOBAL BANKING CORPORATION B.S.C. (c) Manama, Kingdom of Bahrain

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of Global Banking Corporation BsC (c) (the “Bank”) and its subsidiaries (together the “Group”), which comprise the consolidated statement of financial position as at 31 december 2012, and the consolidated statements of income, changes in 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.

Respective responsibilities of board of directors and auditors

these consolidated financial statements and the Group’s undertaking to operate in accordance with islamic shari’a rules and principles are the responsibility of the board of directors of the Bank. our responsibility is to express an opinion on these consolidated financial statements based on our audit.

Basis of opinion

We conducted our audit in accordance with auditing standards for islamic Financial institutions issued by 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 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 2012, and of the results of its operations, its consolidated cash flows, consolidated changes in equity and consolidated 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 and the shari’a rules and principles as determined by the shari’a supervisory Board of the Bank.

Report on other regulatory requirements

as required by the Bahrain Commercial Companies law and the Central Bank of Bahrain (CBB) Rule Book (Volume 2), we report that: the Bank has maintained proper accounting records and the consolidated financial statements are in agreement therewith; the financial information contained in the Board of directors report is consistent with the consolidated financial statements; 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, applicable provisions of Volume 6 and CBB directives) 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 satisfactory explanations and information have been provided to us by the management in response to all our requests..

KPMGManama, Kingdom of Bahrain28 February 2013

36 GBCoRP annual Report 2012

As at 31 December 2012(Expressed in US Dollars 000’s)

Consolidated Statement of Financial Position

note31 December

201231 december

2011

ASSETS

Cash and bank balances 4 93 79

Placements with financial institutions 5 4,821 8,025

investment securities 6 43,021 56,751

investment property 7 46,550 47,802

investment in joint ventures 8 586 737

Property and equipment 9 15,743 17,862

other assets 10 9,142 9,770

Total assets 119,956 141,026

LIABILITIES AND EQUITY

LIABILITIES

investors’ funds 11 3,155 3,139

Bank financing 12 - 3,326

accruals and other liabilities 13 5,257 5,947

Total liabilities 8,412 12,412

EQUITY

share capital 14 200,000 200,000

statutory reserve 5,801 5,801

accumulated losses (94,434) (77,397)

Total equity attributable to shareholders of the Bank 111,367 128,404

Non-controlling interests 177 210

Total equity (page 6) 111,544 128,614

Total liabilities and equity 119,956 141,026

the consolidated financial statements, which consist of pages 4 to 36, were approved by the Board of directors on 28 February 2013 and signed on its behalf by:

Saleh Al Ali Al Rashed A. Rahman M. Al JasmiChairman Vice Chairman

the accompanying notes 1 to 32 form an integral part of these consolidated financial statements.

For the year ended 31 December 2012(Expressed in US Dollars 000’s)

37 GBCoRP annual Report 2012 Consolidated Income Statement

note 2012 2011

income from advisory services - 626

income from placements with financial institutions 18 73 235

income from investment securities 15 14 (667)

Rental income from investment property 2,520 2,566

share of loss from joint ventures 8 (46) (701)

other income 1,583 1,035

Total income 4,144 3,094

staff cost 16 5,727 7,817

Professional and travel expenses 918 2,549

marketing and corporate communication expenses 103 369

Finance expense 18 37 468

depreciation and amortisation 7,9,10 3,620 4,249

other operating expenses 17 2,809 3,265

Total expenses 13,214 18,717

Loss for the year before impairment allowances (9,070) (15,623)

impairment allowance on investment securities 6 (a) (8,000) (11,012)

Loss for the year (17,070) (26,635)

Attributable to:

shareholders of the Bank (17,037) (26,537)

non-controlling interests (33) (98)

(17,070) (26,635)



38 GBCoRP annual Report 2012 Consolidated Statement of Changes in Equity

Attributable to shareholders of the Bank

Non-controlling interests

Totalequity2012

ShareCapital

Statutory reserve

Accumulated losses Total

at 1 January 2012 200,000 5,801 (77,397) 128,404 210 128,614

loss for the year (page 5) - - (17,037) (17,037) (33) (17,070)

At 31 December 2012 200,000 5,801 (94,434) 111,367 177 111,544

attributable to shareholders of the Bank

non-controlling interests

totalequity2011

share capital

statutory reserve

accumulated losses total

at 1 January 2011 200,000 5,801 (50,860) 154,941 308 155,249

loss for the year (page 5) - - (26,537) (26,537) (98) (26,635)

at 31 december 2011 200,000 5,801 (77,397) 128,404 210 128,614



39 GBCoRP annual Report 2012 Consolidated Statement of Cash Flows

2012 2011

OPERATING ACTIVITIES

income from advisory services received - 626

investors’ funds received - 18

investors’ funds paid - (4,358)

Rental income from investment property received 2,777 2,294

Payments for expenses and project costs (9,590) (17,420)

other income received 1,211 1,010

security deposit received - 154

income from placements with financial institutions received 73 235

Cash flows used in operating activities (5,529) (17,441)

INVESTING ACTIVITIES

Payments for acquisition of property and equipment (19) (100)

Proceeds from sale of investments at fair value through income statements 4,404 -

Proceeds from available-for-sale investments 1,300 -

dividend and other income received 17 14

Cash flows generated from /(used in) investing activities 5,702 (86)

FINANCING ACTIVITIES

Bank financing repaid (3,326) (13,262)

Finance cost paid (37) (464)Cash flows used in financing activities (3,363) (13,726)

Decrease in cash and cash equivalents (3,190) (31,253)

Cash and cash equivalents at beginning of the year 8,104 39,357

Cash and cash equivalents at end of the year 4,914 8,104

Represented by:

Cash and bank balances 93 79

Placements with financial and other institutions 4,821 8,025

4,914 8,104


40 GBCoRP annual Report 2012 Consolidated Statement of Changes in Restricted Investment Accounts

2012 Balance at 1 January 2012 Movements during the year Balance at 31 December 2012

Company

no of units (000)

average value

per share Us$

total Us$

000’s

investment/ redemption

Us$ 000’s

Gross income

Us$ 000’s

dividends paidUs$

000’s

Bank’s fees as an agent Us$

000’s

admin-istrat-ion expenses

Us$ 000’s

no of units (000)

average value per

share Us$

total Us$

000’stotal %

ownership

makkah Hills – Cayman islands - - 190,000 (24,700) - - - - - - 165,300 n/a

190,000 (24,700) - - - - 165,300

2011 Balance at 1 January 2011 movements during the year Balance at 31 december 2011

Company

no of units (000)

average value

per share Us$

total Us$

000’s

investment/ redemption

Us$ 000’s

Gross income

Us$ 000’s

dividends paidUs$

000’s

Bank’s fees as an agent Us$

000’s

admin-istrat-ion expenses

Us$ 000’s

no of units (000)

average value per

share Us$

total Us$

000’stotal %

ownership

makkah Hills – Cayman islands - - 190,000 - - - - - - - 190,000 n/a

190,000 - - - - - 190,000




41 GBCoRP annual Report 2012 Notes to the Consolidated Financial Statements

1 INCORPORATION AND PRINCIPAL ACTIVITYGlobal Banking Corporation B.s.C. (c) (the “Bank”) was incorporated on 25 June 2007 in the Kingdom of Bahrain under Commercial Registration no.65708. the Bank operates as an islamic Wholesale Bank under a license granted by the Central Bank of Bahrain (“CBB”).

the Bank’s activities are regulated by the CBB and supervised by a shari’a supervisory Board. the principal activities of the Bank include investment banking services that comply with islamic shari’a rules and principles as determined by the Bank’s shari’a supervisory Board.

Consolidated financial statements

the consolidated financial statements comprise the financial statements of the Bank and its subsidiaries (together, “the Group”).

the significant subsidiaries consolidated during the year include:

Name of the entity% of holding

Place of incorporation

Date of incorporation

Nature of business

Global energy Financial services Company sPC

100% Kingdom of Bahrain 18 may2008

Financial investment and financial planning consultancy services

Global Real estate development Company Wll

100% Kingdom of Bahrain 26 February2008

Real estate development and management

diyafa Holdings Company Wll 90% Kingdom of Bahrain 20 may2009

Virtual offices and hospitality services

2 SIGNIFICANT ACCOUNTING POLICIESthe significant accounting polices applied in the preparation of these consolidated financial statements are set out below. these accounting policies have been applied consistently to all periods presented in the consolidated financial statements, and have been consistently applied by Group entities.

(a) Statement of compliancethe consolidated financial statements have been prepared in accordance with the Financial accounting standards (‘Fas’) issued by the accounting and auditing organisation for islamic Financial institutions. in line with the requirement of aaoiFi and the CBB Rule Book, for matters that are not covered by Fas, the Group uses guidance from the relevant international Financial Reporting standard (iFRs).

(b) Basis of preparationthe consolidated financial statements are presented in Us dollars, being the principal currency of the Group’s operations. the consolidated financial statements are prepared on the historical cost basis except for the measurement at fair value of trading securities and investments in managed funds.

the Group classifies its expenses in the income statement by the nature of expense method.

the preparation of the consolidated financial statements requires the use of certain critical accounting estimates. it also requires management to exercise judgement in the process of applying the Group’s accounting policies. estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. management believes that the underlying assumptions are appropriate and the Group’s consolidated financial statements therefore present the financial position and results fairly. the areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

Going concern

the Group has an accumulated losses of Us$ 94.43 million (31 december 2011: Us$ 77.40 million) and as of that date, the Group’s liabilities of Us$ 8.41 million exceeded its liquid assets of Us$ 4.9 million. to improve the liquidity position, subsequent to the year end, the Group has taken a number of steps including exit its investment in a real estate fund and securing financing commitment from shareholder when needed. the Group also has the option of mortgaging / or sell the investment property to generate liquidity. the Board has also evaluated the business plan of the Bank that would generate the required operating cash flows.

these steps are expected to improve the Group’s liquidity position. the Board of directors have reviewed the Group’s future plans and are satisfied with the appropriateness of the going concern assumption used in the preparation of the consolidated financial statements and accordingly, the consolidated financial statements have been prepared on a going concern basis.



2 SIGNIFICANT ACCOUNTING POLICIES

(c) Basis of consolidation

(i) Subsidiariesthe consolidated financial statements of the Group comprise the financial statements of the Bank and its subsidiaries. subsidiaries are those enterprises (including special purpose entities) controlled by the Bank. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. subsidiaries are consolidated from the date on which control is transferred to the Group and de-consolidated from the date that control ceases.

(ii) Transactions eliminated on consolidationintra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. intra-group gains on transactions between the Group and its equity accounted investees are eliminated o the extent of the Group’s interest in the investees. Unrealised losses are also eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. accounting policies of the subsidiaries and joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

(iii) Special purpose entitiesspecial purpose entities (sPes) are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of particular assets, or the execution of a specific borrowing or investment transaction. an sPe is consolidated if, based on an evaluation of the substance of its relationship with the Group and the sPe’s risks and rewards, the Group concludes that it controls the sPe. the assessment of whether the Group has control over an sPe is carried out at inception and normally no further reassessment of control is carried out in the absence of changes in the structure or terms of the sPe, or additional transactions between the Group and the sPe. Where the Group’s voluntary actions, such as lending amounts in excess of existing liquidity facilities or extending terms beyond those established originally, change the relationship between the Group and an sPe, the Group performs a reassessment of control over the sPe.

the Group in its fiduciary capacity manages and administers assets held in trust and other investment vehicles on behalf of investors. the financial statements of these entities are not included in these consolidated financial statements except when the Group controls the entity so as to obtain benefits from its activities. information about the Group’s fiduciary assets under management is set out in note 19.

(iv) Investment in joint venturesJoint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.

investments in joint ventures are accounted for using the equity method (equity-accounted investees). investments in joint ventures are initially recognised at cost and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. distributions received from an investee reduce the carrying amount of the investment. adjustments to the carrying amount may also be necessary for changes in the investor’s proportionate interest in the investee arising from changes in the investee’s equity. When the Group’s share of losses exceeds its interest in a joint venture, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

(d) Foreign currency transactions(i) Functional and presentation currency

items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency). the consolidated financial statements are presented in Us dollars, which is the Bank’s functional and presentation currency.

(ii) Transactions and balancesForeign 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 year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(iii) Group companiesthe other Group companies functional currencies are either denominated in Us dollars or currencies that are effectively pegged to the Us dollars, and hence, the translation of the financial statements of the group companies that have a functional currency different from the presentation currency do not result in exchange differences.



2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(e) Investment securitiesinvestment securities comprise trading and strategic investments in equity instruments, but exclude investment in subsidiaries and investment in joint ventures (note 2 (c)).

(i) Classification

Equity-type instruments:

equity-type instruments are investments that do not exhibit features of debt-type instruments and include instruments that evidence a residual interest in the assets of an entity after deducting all its liabilities. investments in equity type instruments are classified in the following categories:

At fair value through income statement (FVTIS)

equity-type instruments classified and measured at FVtis include investments held-for-trading or designated on initial recognition at FVtis.

investments are classified as held-for-trading if acquired or originated principally for the purpose of generating a profit from short-term fluctuations in price or dealers margin or that form part of a portfolio where there is an actual pattern of short-term profit taking. those include investments in quoted equities and managed fund.

on initial recognition, an equity-type instrument is designated as FVtis only if the investment is managed and its performance is evaluated and reported on internally by the management on a fair value basis. Currently, the Bank does not have any instruments managed funds.

At fair value through equity (FVte)

equity-type instruments other than those designated at fair value through income statement are classified as at fair value through equity. these include investments in certain unquoted equity securities.

(ii) Recognition and de-recognitioninvestment securities are recognised at the trade date i.e. the date that the Group contracts to purchase or sell the asset, at which date the Group becomes party to the contractual provisions of the instrument. investment securities are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risk and rewards of ownership.

(iii) Measurementinvestment securities are measured initially at fair value, which is the value of the consideration given. For investments carried at FVtis transaction costs are expensed in the income statement. For other investment securities, transaction costs are included as a part of the initial recognition.

subsequent to initial recognition, investments carried at FVtis and FVte are re-measured to fair value. Gains and losses arising from a change in the fair value of investments carried at FVtis are recognised in the consolidated income statement in the period in which they arise. Gains and losses arising from a change in the fair value of investments carried at FVte are recognised in the consolidated statement of changes in equity and presented in a separate fair value reserve within equity. When the investments carried at FVte are sold, impaired, collected or otherwise disposed of, the cumulative gain or loss previously recognised in the statement of changes in equity is transferred to the consolidated income statement.

investments carried at FVte where the entity is unable to determine a reliable measure of fair value on a continuing basis, such as investments that do not have a quoted market price or where there are no other appropriate methods from which to derive reliable fair values, are stated at cost less impairment allowances.

subsequent to initial recognition, debt-type investments other than those carried at FVtis are measured at amortised cost using the effective profit method less any impairment allowances.

(iv) Measurement principles

Amortised cost measurement

the amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus capital repayments, plus or minus the cumulative amortisation using the effective profit method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. the calculation of the effective profit rate includes all fees and points paid or received that are an integral part of the effective profit rate.




(e) Investment securities (continued)

Fair value measurement

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.

the Group measures the fair value of quoted investments using the market bid-prices in an active market for that instrument. a market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. if a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), discounted cash flow analyses and other valuation models with accepted economic methodologies for pricing financial instruments.

(f) Placements with financial institutionsthese comprise interbank placements made under shari’a compliant contracts. Placements are usually short-term in nature and are stated at their amortised cost.

(g) Cash and cash equivalentsFor the purpose of statement of cash flows, cash and cash equivalents comprise cash, bank balances and short-term highly liquid assets (placements with financial and other institutions) with maturities of three months or less when acquired which are subject to insignificant risk of changes in fair value and are used by the Group in the management of its short-term commitments.

(h) Investment propertyinvestment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the course of business, use in the production or supply of goods or services or for administrative purposes. the Group follows the cost model to measure its investment property and carries it at cost less accumulated depreciation and impairment losses, if any. Cost includes expenditure that is directly attributable to the acquisition of the investment property. the cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. land is not depreciated. Building is depreciated over a period of 30 years. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

(i) Property and equipmentProperty and equipment comprise land, building and equipment held for own use. Property and equipment are stated at cost, less accumulated depreciation and impairment losses (if any). Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. depreciation on equipment is computed using the straight-line method to write off the cost of the assets over their estimated useful lives ranging from three to five years. land is not depreciated. self occupied portion of the building is depreciated over a period 30 years. the assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

(j) Intangible assetsintangible assets comprise computer software acquired by the Group and are stated at cost less accumulated amortisation and accumulated impairment losses, if any. the intangible assets are amortised on a straight-line basis over 3 years, being the estimated useful life of the assets.

(k) Impairment of assetsthe Bank assesses at each reporting date whether there is objective evidence that an asset is impaired. objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. in addition, for an investment in quoted equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.




(k) Impairment of assets (continued)

Financial assets carried at amortised cost

For financial assets carried at amortised cost impairment is measured as the difference between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the assets’ original effective profit rate. losses are recognised in the income statement and reflected in an allowance account. When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through the income statement.

Unquoted equity securities

For unquoted equity securities carried at cost, the Group makes an assessment of whether there is an objective evidence of impairment for each investment by assessment of financial and other operating and economic indicators. impairment is recognised if the estimated recoverable amount is assessed to be below the cost of the investment.

Other non-financial assets

the carrying amount of the Group’s other non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. if any such indication exists, the asset’s recoverable amount is estimated. the recoverable amount of an asset is the greater of its value in use or fair value less costs to sell. an impairment loss is recognised whenever the carrying amount of an asset exceeds its estimated recoverable amount. impairment losses are recognised in the income statement. impairment losses are reversed only if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount.

in assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit. an impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its estimated recoverable amount. impairment losses are recognised in the income statement. impairment losses are reversed only if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. separately recognised goodwill is not amortised and is tested annually for impairment and carried at cost less accumulated impairment losses. impairment losses on separately recognised goodwill are not reversed.

(l) Bank financingBank financing comprise murabaha financing from a financial institution for acquisition of property. Bank financing is initially measured at fair value plus transaction costs, and subsequently measured at its amortised cost using the effective profit rate method.

(m) Finance expensesFinance expenses are capitalised if they are directly attributable to the acquisition of a qualifying asset. Capitalisation of finance expenses commences when the activities to prepare the asset are in progress and expenditures and finance expenses are incurred. Finance expenses are capitalised until the assets are substantially ready for their intended use and allocated between the investment property and self-occupied property based on their determined usage. other finance expenses are recognised in the income statement.

(n) Dividends and board remunerationdividends to shareholders and board remuneration are recognised as liabilities in the period in which they are declared.

(o) Share capital and reserves ordinary shares are classified as equity. the Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. equity instruments of the group comprise ordinary shares.

Statutory reserve

the Bahrain Commercial Companies law 2001 requires that 10 percent of the annual net profit be appropriated to a statutory reserve after adjustment of accumulated losses which is normally distributable only on dissolution. appropriations may cease when the reserve reaches 50 percent of the paid up share capital.




(p) Restricted investment accountsRestricted investment accounts represents assets acquired by funds provided by holders of restricted investment accounts and their equivalent and managed by the Group as an investment manager based on either a mudaraba contract or an agency contract. the restricted investment accounts are exclusively restricted for investment in specified projects as directed by the investments account holders. assets that are held in such capacity are not included as assets of the Bank in the consolidated financial statements.

(q) Revenue recognition Income from advisory services is recognised when the service is provided and income is earned. this is usually when the Bank has performed all significant acts in relation to a transaction and it is highly probable that the economic benefits from the transaction will flow to the Bank. significant acts in relation to a transaction are determined based on the terms agreed in the private placement memorandum/ contracts for each transaction. Placement, arrangement and management fees are recognised when services are performed and income is earned.

Income from placements with financial and other institutions is recognised on a time-apportioned basis over the period of the related contract.

Dividend income from investment securities is recognised when the right to receive is established. this is usually the ex-dividend date for equity securities.Rental income from investment property leased out under operating lease is recognised in the income statement on a straight-line basis over the term of the lease.

(r) Earnings prohibited by Shari’athe Group is committed to avoid recognising any income generated from non-islamic sources. accordingly, all non-islamic income is credited to a charity account where the Bank uses these funds for charitable means.

(s) Zakahthe Group is not required to pay Zakah on behalf of its shareholders on its undistributed profits. However, the Group is required to calculate and notify, under a separate report, individual shareholders of their pro-rata share of the Zakah payable by them on distributed profits. these calculations are approved by the Group’s shari’a supervisory Board.

(t) Employee benefits

(i) Short-term benefitsshort-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. a provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

(ii) Post employment benefits Pensions and other social benefits for Bahraini employees are covered by the General organisation for social insurance scheme, which is a “defined contribution scheme” in nature under ias 19 ‘employee Benefits’, and to which employees and employers contribute monthly on a fixed-percentage-of-salaries basis. Contributions by the Bank are recognised as an expense in income statement when they are due.

Certain employees on fixed contracts are also entitled to leaving indemnities payable, based on length of service and final remuneration. Provision for this unfunded commitment has been made by calculating the notional liability had all employees left at the reporting date. these benefits are in the nature of “defined benefit scheme” and any increase or decrease in the benefit obligation is recognised in the consolidated income statement.

(u) Provisionsa provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.



3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIESthe 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.

Judgements

(i) Classification of investmentsin the process of applying the Group’s accounting policies, management decides on acquisition of an investment whether it should be classified as investments designated at fair value through profit or loss or held-to-maturity or available-for-sale investment securities. 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 [refer note 2 (e)].

(ii) Special purpose entitiesthe Group sponsors the formation of special purpose entities (sPe’s) primarily for the purpose of allowing clients to hold investments. the Group provides corporate administration, investment management and advisory services to these sPe’s, which involve the Group making decisions on behalf of such entities. the Group administers and manages these entities on behalf of its clients, who are by and large third parties and are the economic beneficiaries of the underlying investments. the Group does not consolidate sPe’s 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 sPe’s activities, its exposure to the risks and rewards, as well as about the Group intention and ability to make operational decisions for the sPe and whether the Group derives benefits from such decisions.

Estimations

(i) Impairment on unquoted equity securities (at cost)the unquoted equity securities where fair values are not readily available and are carried at cost, the recoverable amount of such investment is estimated to test for impairment. a significant portion of the Group’s unquoted equity securities comprise of investments in long-term real estate development projects. in making a judgement of impairment, the Group evaluates among other factors, evidence of deterioration in the financial health of the project, impacts of delays in execution, industry and sector performance, changes in technology, and operational and financing cash flows. it is reasonably possible, based on existing knowledge, that the current assessment of impairment could require a material adjustment to the carrying amount of the investments within the next financial year due to significant changes in the assumptions underlying such assessments. during the year, the Bank recognised Us$ 8,000 (2011: Us$ 11,012) impairment on its unquoted equity investments (note 6 a).

(ii) Impairment on receivableseach counterparty exposure is evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. in estimating these cash flows, management makes judgements about counterparty’s financial situation, level of subordination available to the Bank and the net realisable value of any underlying assets. each asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently evaluated by the Chief operating officer, Head of investment Banking and Financial Controller and approved by the Board of directors.

(iii) Impairment on investment propertythe impairment assessment of the investment property was based on determination of value in use of the cash generating unit principally using average of built-up and land comparable method and discounted cash flow projections by an external valuer based on estimates of future cash flows, supported by the terms of any existing lease and other contracts and by external evidence such as current (at the date of the statement of financial position) market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

the future rental rates were estimated depending on the actual location, type and quality of the properties, and taking into account market data and projections at the valuation date. Were the market rentals assumed in the discounted cash flow analysis to increase or decrease by 6% from the management’s estimates, the impairment on investment properties that are based on the discounted cash flow method (dCF) would be an estimated Us$ 1,985 thousand higher or Us$ 51 thousand lower, respectively.

the average occupancy following expiry of existing lease agreements was assumed to be in the range of 86% per annum, depending on management’s expectation for the particular properties. Were the length of vacant periods to increase or decrease by 5% from management’s estimates, the carrying amount of investment properties that are valued by the dCF method would be an estimated Us$ 1,486 thousand or Us$ 31 thousand lower, respectively.



3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES (continued)

the discount rate was assumed to be 8.5% for the properties valued by the dCF method. Were the discount rate used in the dCF analysis to increase or decrease by 0.5%, the carrying amount of investment properties would be an estimated Us$ 2,393 thousand higher or Us$ 308 thousand lower, respectively.

(iv) Performance obligationsduring the ordinary course of business, the Group may enter into performance obligations in respect of its infrastructure development projects. the Group assess its fiduciary responsibilities at each reporting date whether there exists a constructive obligation that can be estimated reliably, and probable that an outflow of economic benefits will be required to settle the obligation. if any such conditions exist, then a provision is recognised in the consolidated income statements.

4 CASH AND BANK BALANCES

31 December 2012

(U$ 000’s)

31 december2011

(Us$ 000’s)

Cash on hand 2 4

Bank balances 91 75

93 79

5 PLACEMENTS WITH FINANCIAL INSTITUTIONS

31 December 2012

(U$ 000’s)

31 december2011

(Us$ 000’s)

Wakala contracts 4,821 8,025

4,821 8,025

6 INVESTMENT SECURITIESinvestment securities comprise:

31 December 2012

(U$ 000’s)

31 december2011

(Us$ 000’s)

Equity type instruments:

Fair value through income statement:

trading securities (listed) 297 268

investment in managed funds (open ended) - 4,459

Fair value through equity:

Unquoted equity securities (at cost) 42,724 52,024

43,021 56,751



a) UNQUOTED EQUITY SECURITIES (AT COST)

31 December 2012

(U$ 000’s)

31 december2011

(Us$ 000’s)

at 1 January 52,024 59,002

acquisitions during the year - 4,034

disposal at carrying value (1,300) -

impairment allowance on unquoted equity securities (8,000) (11,012)

At 31 December 42,724 52,024

Unquoted equity securities are private equity investments in projects promoted by the Group. Unquoted equity securities of Us$ 42,724 thousand (31 december 2011: Us$ 52,024 thousand) are carried at cost less impairment allowance in the absence of reliable measure of fair value. the Group intends to exit these investments principally by means of strategic sell outs, sale of underlying assets or at the time of initial public offerings.

during the year, the Bank recognised Us$ 8,000 (2011: Us$ 11,012 thousand) impairment allowance on its unquoted equity securities. the impairment allowances has been established based on management’s assessment of the current market conditions, the marketability of the investments and the assessment of recoverable amounts.

7 INVESTMENT PROPERTYinvestment property comprises that portion of land and building let out under operating leases. the carrying value of the investment property is given below:

Land (Us$ 000’s)

Building(Us$ 000’s)

2012Total

(Us$ 000’s)

2011total

(Us$ 000’s)

Cost

at 1 January 15,701 37,523 53,224 53,224

additions during the year - - -

At 31 December 15,701 37,523 53,224 53,224

Depreciation

at 1 January - 4,272 4,272 3,022

Charge for year - 1,252 1,252 1,250

At 31 December - 5,524 5,524 4,272

impairment allowance (339) (811) (1,150) (1,150)

Net book value at 31 December 15,362 31,188 46,550 47,802

the fair value of the investment property at 31 december 2012 was Us$ 47,514 thousand (2011: Us$ 48,155 thousand). the fair value is determined by an external, independent valuation company having an appropriate recognised professional qualification and recent experience in the location and category of property being valued. the investment property was mortgaged to a financial institution against financing, the financing was repaid in February 2012 (refer note 12).



8 INVESTMENT IN JOINT VENTURESthe movement in investment in joint ventures during the year is as given below:

2012(US$ 000’s)

2011(Us$ 000’s)

at 1 January 737 1,438

additions during the year - -

share of loss for the year (46) (701)

Reclassification / distribution received during the year (105) -

At 31 December 586 737

investment in joint ventures comprise:

NameCountry of

incorporation % holdingNature of

business

abdelwahab Restaurant Co. Wll Bahrain 50% Hospitality

Summarised financial information of joint ventures that have been equity accounted not adjusted for the percentage ownership held by the Group (based on their most recent audited / unaudited management accounts)

2012(US$ 000’s)

2011(Us$ 000’s)

total assets 1,479 2,106

total liabilities 364 827

total revenues 1,752 1,318

total (losses)/ profits (92) (1,398)

9 PROPERTY AND EQUIPMENT

Land BuildingFixture and equipment Furniture

Motor vehicles

2012 Total

2011 total

(US$ 000’s) (US$ 000’s) (US$ 000’s) (US$ 000’s) (US$ 000’s) (US$ 000’s) (Us$ 000’s)

Cost

at 1 January 4,399 10,512 9,826 1,336 70 26,143 26,043

additions during the year - - 205 - 205 100

Write-off - - - - - - -

At 31 December 4,399 10,512 10,031 1,336 70 26,348 26,143

Depreciation

at 1 January - 1,197 6,170 868 60 8,295 5,692

Charge for the year - 350 1,698 266 10 2,324 2,603

disposals during the year - - - - - - -

At 31 December - 1,547 7,868 1,134 70 10,619 8,295

Net book value at 31 December 4,399 8,965 2,163 202 - 15,729 17,848

Capital work-in-progress - - - - - 14 14

Total 4,399 8,965 2,163 202 - 15,743 17,862

the land and building was mortgaged to a financial institution against bank financing, the financing was repaid in February 2012. (refer note 12).



10 OTHER ASSETS

31 December 2012

(U$ 000’s)

31 december2011

(Us$ 000’s)

Prepayment for car park spaces 3,632 4,184

Computer software and licenses, net - 44

Project costs recoverable, net 4,378 4,257

Prepayments and other receivables 1,132 1,285

9,142 9,770

Computer software and licenses amortised during the year of Us$ 44 (2011: Us$ 395).

11 INVESTORS’ FUNDSthese represent funds of projects set-up or promoted by the Bank which are placed with the Bank pending utilisation by the projects concerned.

12 BANK FINANCINGBank financing comprise murabaha financing obtained from a financial institution in 2008 for the purpose of acquisition of a property (refer note 7 and note 9). the financing was carried at a profit rate of 2.50% over the bench mark rate (BiBoR) and was repayable in quarterly instalments over 4 years. the financing has been repaid in February 2012.

13 ACCRUALS AND OTHER LIABILITIES

31 December 2012

(U$ 000’s)

31 december2011

(Us$ 000’s)

employee related accruals 3,030 3,776

accrued expenses 1,737 1,726

other payables 490 445

5,257 5,947

14 SHARE CAPITAL

31 December 2012

(U$ 000’s)

31 december2011

(Us$ 000’s)

Authorised: 500,000,000 ordinary shares of Us$ 1 each 500,000 500,000

Issued and subscribed: 200,000,000 ordinary shares of Us$ 1 each 200,000 200,000

Paid up: 200,000,000 ordinary shares fully paid Us$ 1 each 200,000 200,000

15 INCOME FROM INVESTMENT SECURITIES

2012(US$ 000’s)

2011(Us$ 000’s)

Changes in fair value of investment in managed funds (33) (674)

Gain / (loss) on trading securities 30 (8)

dividends received on trading securities 17 15

14 (667)



16 STAFF COST

2012(US$ 000’s)

2011(Us$ 000’s)

salaries and benefits 5,226 6,941

social insurance expenses 289 382

indemnity expense 108 180

other staff expenses 104 314

5,727 7,817

17 OTHER OPERATING EXPENSES

2012(US$ 000’s)

2011(Us$ 000’s)

Premises costs 1,331 1,568

other expenses 1,478 1,697

2,809 3,265

18 TOTAL FINANCE INCOME AND EXPENSE

2012(US$ 000’s)

2011(Us$ 000’s)

income from placements with financial and other institutions 73 235

Finance expenses (37) (468)

Net finance Income 36 (233)

19 FUNDS UNDER MANAGEMENTthe Group provides corporate administration, investment management and advisory services to its investor vehicles, which involve the Group making decisions on behalf of such entities. assets that are held in such capacity are not included in these consolidated financial statements. at the reporting date, the Group had assets under management of Us$ 676,702 thousand (31 december 2011: Us$ 701,402 thousand). during the year, the Bank has distributed Us$ 24,700 thousand (2011: nil) for makkah Hills – Cayman islands and the Bank has not charged any management fees for activities related to management of assets (2011: nil).

20 RELATED PARTY TRANSACTIONSParties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include entities over which the Group exercises significant influence, major shareholders, directors and executive management of the Group.

the Group’s income from investment banking services is from entities over which the Group exercises influence. although the entity is considered a related party, the Group administers and manages the entity on behalf of its clients, who are by and large third parties and are the economic beneficiaries of the underlying investment. the transactions with these entities are based on agreed terms in the private placement memorandum.



20 RELATED PARTY TRANSACTIONS (continued)the significant related party balances and transactions (excluding compensation to key management personnel) included in these consolidated financial statements are as follows:

31 December 2012Joint ventures

(US$ 000’s)

Assets under management

including special purpose entities

(US$ 000’s)Shareholders

(US$ 000’s)Total

(US$ 000’s)

Assets

investment in joint ventures 586 - - 586investment securities - 42,724 - 42,724other assets - 379 4,000 4,379

Liabilities

investors’ funds - 3,155 - 3,155

Income

Rental income from investment property - 201 - 201share of loss from joint ventures (46) - - (46)other income - 51 - 51

Expenses

Professional and travel expenses - 119 - 119other operating expenses - 8 - 8impairment allowances - 8,000 - 8,000

31 december 2011Joint ventures

(Us$ 000’s)

assets under management

including special purpose entities

(Us$ 000’s)shareholders

(Us$ 000’s)total

(Us$ 000’s)

assets

investment in joint ventures 737 - - 747

investment securities - 52,023 - 52,023

other assets 160 278 4,000 4,438

liabilities


income

Rental income from investment property 133 233 - 366

share of loss from joint ventures (701) - - (701)

other income 74 80 - 154

expenses

Professional and travel expenses - 938 - 938

impairment allowances - 5,500 - 5,500



20 RELATED PARTY TRANSACTIONS (continued)

Key management personnel of the Group comprise the Board of directors and key members of management having authority and responsibility for planning, directing and controlling the activities of the Group. the key management personnel compensation is as follows:

2012(US$ 000’s)

2011(Us$ 000’s)

Board member fees 42 38

salaries and other short-term benefits 1,305 1,848

Post employment benefits 88 199

22 ZAKAHZakah is directly borne by the shareholders on distributed profits and investors in restricted investment accounts. the Bank does not collect or pay Zakah on behalf of its shareholders and investors in restricted investment accounts. Zakah payable by the shareholders is computed by the Bank on the basis of the method prescribed by the Bank’s shari’a supervisory Board and notified to shareholders annually. Zakah payable by the shareholders for the year ended 31 december 2012 is Us cents 0.034 (2011: Us cents 0.002) for every share held.

23 EARNINGS PROHIBITED BY SHARI’Aduring the year, there were no earnings from non-islamic transactions that are prohibited by shari’a (2011: nil).

24 SHARI’A SUPERVISORY BOARDthe Group’s shari’a supervisory Board consists of three islamic scholars who review the Group’s compliance with general shari’a principles and specific fatwas, rulings and guidelines issued. their review includes examination of evidence relating to the documentation and procedures adopted by the Group to ensure that its activities are conducted in accordance with islamic shari’a principles.

25 SOCIAL RESPONSIBILITYthe Group discharges its social responsibilities through donations to charitable causes and social organisations.

26 MATURITY PROFILEthe table below shows the maturity profile of the Group’s assets and liabilities and unrecognised commitments on the basis of their expected realisation/ payment.

31 December 2012

Up to 3 months

(US$ 000’s)

3 months to 6 months(US$ 000’s)

6 months to 1 year

(US$ 000’s)

1 year to 3 years

(US$ 000’s)

Over 3 years

(US$ 000’s)Total

(US$ 000’s)

Assets

Cash and bank balances 93 - - - - 93Placements with financial and other institutions 4,821 - - - - 4,821investment securities 298 1,200 - 41,523 - 43,021investment property - - - - 46,550 46,550investment in joint ventures - - - - 586 586Property and equipment - - - - 15,743 15,743other assets 762 - 4,748 - 3,632 9,142

Total assets 5,974 1,200 4,748 41,523 66,511 119,956



26 MATURITY PROFILE (continued)

Liabilities

Up to 3 months

(US$ 000’s)

3 months to 6 months(US$ 000’s)

6 months to 1 year

(US$ 000’s)

1 year to 3 years

(US$ 000’s)

Over 3 years

(US$ 000’s)Total

(US$ 000’s)

investors’ funds 95 - 3,060 - - 3,155Bank financing - - - - - -accruals and other liabilities 1,790 121 - 3,346 - 5,257

Total liabilities 1,885 121 3,060 3,346 - 8,412

Off-balance sheet items

Restricted investment accounts - - 165,300 - - 165,300

31 december 2011

Up to 3 months

(Us$ 000’s)

3 months to 6 months(Us$ 000’s)

6 months to 1 year

(Us$ 000’s)

1 year to 3 years

(Us$ 000’s)

over 3 years

(Us$ 000’s)total

(Us$ 000’s)

assets

Cash and bank balances 79 - - - - 79

Placements with financial and other institutions 8,025 - - - - 8,025

investment securities 7,227 - - 49,524 - 56,751

investment property - - - - 47,802 47,802

investment in joint ventures - - - - 737 737

Property and equipment - - - - 17,862 17,862

other assets 942 - 4,600 - 4,228 9,770

total assets 16,273 - 4,600 49,524 70,629 141,026

liabilities

investors’ funds 95 - 3,044 - - 3,139

Bank financing 3,326 - - - - 3,326

accruals and other liabilities 1,866 63 - 4,018 - 5,947

total liabilities 5,287 63 3,044 4,018 - 12,412

off-balance sheet items

Restricted investment accounts - - 190,000 - - 190,000



27 CONCENTRATION OF ASSETS, LIABILITIES AND RESTRICTED INVESTMENT ACCOUNTS

a) Industry sector

31 December 2012

Banks and financial institutions(US$ 000’s)

Real estate(US$ 000’s)

Others(US$ 000’s)

Total(US$ 000’s)

Assets

Cash and bank balances 92 - 1 93Placements with financial and other institutions 4,821 - - 4,821investment securities - 42,723 298 43,021investment property - 46,550 - 46,550investment in joint ventures - - 586 586Property and equipment - 13,377 2,366 15,743other assets - 3,632 5,510 9,142

Total assets 4,913 106,282 8,761 119,956

Liabilities

investors’ funds - 3,155 - 3,155accruals and other liabilities 9 - 5,248 5,257

Total liabilities 9 3,155 5,248 8,412

Off-balance sheet items

Restricted investment accounts - 165,300 - 165,300

31 december 2011

Banks and financial institutions(Us$ 000’s)

Real estate(Us$ 000’s)

others(Us$ 000’s)

total(Us$ 000’s)

assets

Cash and bank balances 75 - 4 79

Placements with financial and other institutions 8,025 - - 8,025

investment securities - 52,024 4,727 56,751

investment property - 47,802 - 47,802

investment in joint ventures - - 737 737

Property and equipment - 13,727 4,135 17,862

other assets - 4,184 5,586 9,770

total assets 8,100 117,737 15,189 141,026

liabilities


Bank financing 3,326 - - 3,326

accruals and other liabilities 9 - 5,938 5,947

total liabilities 3,335 3,139 5,938 12,412

off-balance sheet items

Restricted investment accounts - 190,000 - 190,000



b) Geographic regionConcentration is measured based on the location of the underlying operating assets and not based on the location of the investments. the Group’s concentration exposure as at 31 december 2012 and 31 december 2011 is limited to GCC countries.

28 COMMITMENTS AND CONTINGENCIES

Performance obligations

during the ordinary course of business, the Group may enter into performance obligations in respect of its infrastructure development projects. it is the usual practice of the Group to pass these performance obligations, wherever possible, on to the companies that own the projects.

in the opinion of the management, no additional liabilities are expected to materialise on the Group at 31 december 2012 due to the performance of any of its projects.

29 OPERATING SEGMENTSthe Group has two distinct operating segments, investment banking and Property management, which are the Group’s strategic business units. the strategic business units offer different products and services, and are managed separately because they require different strategies for management and resource allocation within the Group. For each of the strategic business units, the Group’s Board of directors (chief operating decision makers) review internal management reports on a quarterly basis.

the following summary describes the operations in each of the Group’s operating reportable segments:

· Investment banking: the investment banking segment of the Group focuses on providing structuring opportunities in islamic asset-backed and equity capital markets, islamic financial advisory and mid-sized mergers and acquisition transactions; and

· Property management: this business unit primarily involved in management of property and related assets.

the performance of each operating segment is measured based on segment results and are reviewed by the management committee and the Board of directors on a quarterly basis. segment results is used to measure performance as management believes that such information is most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. inter-segment pricing, if any is determined on an arm’s length basis.

the Bank classifies directly attributable revenue and cost relating to transactions originating from respective segments as segment revenue and segment expenses respectively. the internal management reports are designed to reflect revenue and cost for respective segments which are measured against the budgeted figures. the unallocated revenues, expenses, assets and liabilities relate to entity-wide corporate activities and treasury activities at the Group level.

the Group has primary operations in Bahrain and the Bank does not have any overseas branches/divisions. the geographic concentration of assets and liabilities is disclosed in note 26 to the consolidated financial statements.



29 OPERATING SEGMENTS (continued)

information regarding the results of each reportable segment is included below:

2012

Investment banking

(US$ 000’s)

Property management

(US$ 000’s)Unallocated(US$ 000’s)

Total(US$ 000’s)

external revenue 408 2,900 836 4,144segment result (13,026) (1,087) (2,957) (17,070)segment assets 43,607 46,550 29,799 119,956segment liabilities 3,155 406 4,851 8,412

Other material items:

Finance income - - 73 73Finance expenses - 21 16 37depreciation and amortisation - 1,601 2,019 3,620Restricted investment accounts 165,300 - - 165,300

2011investment banking

(Us$ 000’s)

Property management

(Us$ 000’s)Unallocated(Us$ 000’s)

total(Us$ 000’s)

external revenue (743) 3,509 328 3,094

segment result (24,142) 622 (3,115) (26,635)

segment assets 61,744 48,678 30,604 141,026

segment liabilities 3,139 3,575 5,698 12,412

other material items:

Finance income - - 235 235

Finance expenses 18 450 - 468

depreciation and amortisation - 1,250 2,999 4,249

impairment allowance on investment securities 11,012 - - 11,012

Restricted investment accounts 190,000 - - 190,000

30 FAIR VALUEFair value is an amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. other than fair value through equity investments of Us$ 42,724 thousand (2011: Us$ 52,024 thousand) (note 6 (a)), the estimated fair values of the Group’s other financial instruments are not significantly different from their carrying values.

31 RISK MANAGEMENT

Overview

Financial assets of the Group comprise bank balances, placements with financial and other institutions, unquoted equity securities, investments carried at fair value through income statement, receivable from investment banking services and other receivable balances. Financial liabilities of the Group comprise investors’ funds, bank financing and other payable balances. accounting policies for financial assets and liabilities are set out in note 2.

the Group has exposure to the following risks from its use of financial instruments:

· credit risk;

· liquidity risk;

· market risks; and

· operational risk

this note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.



31 RISK MANAGEMENT (continued)

Risk management framework

the Board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. Risk management is integral part of Groups decision making process.

the Board has established risk management policies and procedures to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. the Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

the RaC is responsible for monitoring compliance with the Group’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group.

the RaC submits a quarterly Risk overview Report along with a detailed liquidity Risk Report to the Board of directors. the Risk overview Report describes the potential issues for a wide range of risk factors and classifies the risk factors from low to high. the report also provides comments as to how risk factors are being addressed by the Group and the change in risk rating from the previous quarter. the liquidity Risk Report measure the Bank’s liquidity risk profile against policy guidelines.

a. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s balances with banks, placements with financial and other institutions and other receivables from project companies. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).

Management of credit risk

the Board of directors has delegated responsibility for the management of credit risk to the Risk and audit Committee which is also responsible for oversight of the limits and guidelines set by the Board.

Risk is assessed on an individual basis for each receivable and is reviewed at least once a year. the Group does not perform a collective assessment of impairment for its credit exposures as the credit characteristics of each exposure is considered to be different. Credit exposures are subject to regular reviews by the Risk management department.

Exposure to credit risk

the carrying values of bank balances, placements with financial and other institutions and other receivables represent the maximum credit risk.

the Group’s credit risk on bank balances and placements with financial and other institutions is limited as these are placed with banks in GCC having good credit ratings. the other credit exposures have been evaluated on a case-by-case basis and the management has assessed that the exposures are currently performing and not impaired.

Impaired receivables

impaired receivables are those for which the Group determines that it is probable that it will be unable to collect all payments due according to the contractual terms of the receivables agreement(s). there are no significant past due or impaired exposures as at 31 december 2012 and 31 december 2011.

Concentration risk

Concentration risk arises when a number of counterparties are engaged in similar economic activities or activities in the same geographic region or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. the Group seeks to manage its concentration risk by establishing and constantly monitoring geographic and industry wise concentration limits.

the geographical and industry wise distribution of assets and liabilities are set out in note 26.

b. Liquidity riskliquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.




Management of liquidity risk

the Board of directors approves significant policies and strategies related to the management of liquidity. the management reviews the liquidity profile of the Group on a regular basis and any material change in the Bank’s current or prospective liquidity position is notified to the Board.

the alCo supports the Board in managing liquidity by recommending policies, setting limits and guidelines and monitoring the risk and liquidity profile of the Group on a regular basis. the alCo provides guidance for day-to-day management of liquidity, oversees the establishment of effective internal controls and ensures that the Group has adequate liquidity at all times.

the day-to-day management of the Group’s liquidity is the responsibility of the treasury department. the department ensures that adequate funds are available to meet the maturing obligations and growth in assets while cost is minimised. the department ensures that all limits and guidelines set by the Board and alCo are complied with and any adverse development is reported to the alCo. the department also obtains the exceptional approvals when required as per this policy and manages the relationship with other banks and financial institutions.

the table below shows the undiscounted cash flows on the Group’s financial liabilities, including issued financial guarantee contracts, and unrecognised financing commitments on the basis of their earliest possible contractual maturity. Refer note 25 for the expected maturity profile of assets and liabilities.

the Bank has obtained liquidity support arrangement from one of its major shareholder to meet its short-term liquidity requirements. the Bank also has an action plan including sales of assets, partial or full disposal of its investment property to generate additional liquidity. also refer note 2 on management plans to address the liquidity requirements.

Gross undiscounted cash flows

Carrying amount

(US$ 000’s)31 December 2012

Up to 3 months

(US$ 000’s)

3 to 6 months

(US$ 000’s)

6 months- 1 year

(US$ 000’s)

1 to 3 years

(US$ 000’s)

Over 3 years

(US$ 000’s)Total

(US$ 000’s)

Financial liabilities

investors’ funds 95 - 3,060 - - 3,155 3,155other financial liabilities 1,790 121 - 3,346 - 5,257 5,257Total financial liabilities 1,885 121 3,060 3,346 - 8,412 8,412

Restricted investment accounts - - 165,300 - - 165,300 165,300

Gross undiscounted cash flows

Carrying amount

(Us$ 000’s)31 december 2011

Up to 3 months

(Us$ 000’s)

3 to 6 months

(Us$ 000’s)

6 months- 1 year

(Us$ 000’s)

1 to 3 years

(Us$ 000’s)

over 3 years

(Us$ 000’s)total

(Us$ 000’s)

Financial liabilities

investors’ funds 95 - 3,044 - - 3,139 3,139

Bank financing 3,326 - - - - 3,326 3,326

other financial liabilities 1,866 63 - 4,018 - 5,947 5,947

total financial liabilities 5,287 63 3,044 4,018 - 12,412 12,412

Restricted investment accounts - - 190,000 - - 190,000 190,000

c. Market riskmarket risk is the risk that changes in market prices, such as profit rate, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s / issuer’s credit standing) will affect the Group’s income, future cash flows or the value of its holdings of financial instruments. the objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.




Exposure to profit rate risk

Profit rate risk arises due to differences in timing of re-pricing of the Group’s assets and liabilities. the Group’s profit rate sensitive assets are mainly placements with financial institutions. Profit rate risk is managed principally through monitoring profit rate gaps and by having pre-approved limits for repricing bands. the effective profit rates on the profit bearing financial instruments are given below:

2012 2011

Placements with financial institutions 1.00% 1.00%

Bank financing - 3.74%

the management of profit rate risk against profit rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial assets and liabilities to various standard and non-standard profit rate scenarios. standard scenarios that are considered on a monthly basis include a 100 basis point (bp) parallel fall or rise in all yield curves worldwide. an analysis of the Group’s sensitivity to an increase or decrease in market financing rates (assuming no asymmetrical movement in yield curves and a constant balance sheet position) is as follows:

2012(US$ 000’s)

2011(Us$ 000’s)

at 31 december 2012 ± 49 ± 48

average for the year ± 65 ± 128

maximum for the year ± 92 ± 225

minimum for the year ± 49 ± 48

Exposure to foreign exchange risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. the Group’s major exposure is in GCC currencies, which are primarily pegged to the Us dollars. the Group does not have significant net exposures denominated in other foreign currencies as at 31 december 2012 and 31 december 2011.

Exposure to other market risks

equity price risk is the risk that the fair value of equities decreases as a result of changes in the value of individual companies’ shares. the Group does not have significant exposure to listed equity instruments. the Group’s exposure is detailed in note 6 to these consolidated financial statements.

d. Operational riskoperational risk is the risk of loss arising from systems and control failures, fraud and human error, which can result in financial and reputation loss, and legal and regulatory consequences. the Group manages operational risk through appropriate controls, instituting segregation of duties and internal checks and balances, including internal audit and compliance. in addition the Bank is committed to the training of its staff.

32 CAPITAL MANAGEMENT

the Group’s regulator Central Bank of Bahrain (CBB) sets and monitors capital requirements for the Group as a whole. in implementing current capital requirements CBB requires the Group to maintain a prescribed ratio of total capital to total risk-weighted assets. the total regulatory capital base is net of prudential deductions for large exposures based on specific limits agreed with the regulator. Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures. the Bank does not have a trading book.

the Group aims to maintain strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business.

the Bank is required to comply with the provisions of the Capital adequacy module of the CBB (which is based on the Basel ii and iFsB framework) in respect of regulatory capital. the Bank has adopted the standardised approach to credit risk and market risk and basic indicator approach for operational risk management under the revised framework. during the year, the Bank was in compliance with the capital limits set by the regulator for the Bank.




the allocation of capital between specific operations and activities is primarily driven by regulatory requirements. the Bank’s capital management policy seeks to maximise return on risk adjusted capital while satisfying all the regulatory requirements. the Bank’s policy on capital allocation is subject to regular review by the Board of directors.

the Group’s regulatory capital position at 31 december was as follows:

Capital adequacy2012

(US$ 000’s)2011

(Us$ 000’s)

total risk weighted assets 94,291 124,761

tier 1 capital 51,443 63,989

tier 2 capital - -

total regulatory capital 51,443 63,989

Total regulatory capital expressed as a percentage of total risk weighted assets 54.56% 51.29%

32 COMPARATIVESCertain prior period amounts have been regrouped to conform to current year’s presentation. such regrouping did not affect previously reported profit or equity.

63 GBCoRP annual Report 2012 Risk and Capital Management Disclosures (BASEL II - PILLAR III)

These disclosures have been prepared in accordance with the CBB requirements outlined in its Public Disclosure Module (“PD”), Section PD-1.3: Disclosures in Annual Report under Volume 2 of the Rule Book issued by the CBB for Islamic Banks. To avoid any duplication, Information required under PD module but already disclosed in other sections of annual report has not been reproduced.

(Expressed in US Dollars 000’s)

64 GBCoRP annual Report 2012 Risk and Capital Management Disclosures No(BASEL II - PILLAR III)

1 Introduction ............................................................. 65

2 Executive summary ................................................... 65

3 Group Structure ........................................................ 65

4 Risk management framework ..................................... 66

4.1 Risks in Pillar i ........................................................... 66

4.1.1 Credit Risk ................................................................ 66

4.1.2 market Risks ............................................................. 66

4.1.2.1 Foreign exchange Risk .............................................. 67

4.1.2.2 equity Price Risk ........................................................ 67

4.1.2.3 Profit Rate Risk ......................................................... 67

4.1.2.4 operational Risk ....................................................... 67

4.2 Risks in Pillar ii .......................................................... 68

4.2.1 liquidity Risk ............................................................. 68

4.2.2 Concentration Risk ................................................... 68

4.2.3 Counterparty Credit Risk ........................................... 68

4.2.4 Profit Rate Risk in Banking Book ............................... 68

4.2.5 equity Risk in Banking Book ...................................... 68

4.2.6 displaced Commercial Risk ....................................... 69

4.2.7 Regulatory and shari’a compliance risk ..................... 69

4.2.8 legal Risk ................................................................. 69

4.2.9 other Risks ............................................................... 69

4.3 Pillar iii ...................................................................... 69

5 Capital Management And Internal Capital Adequacy Assessment Plan (“icaap”) ......................................... 70

5.1 Capital management ................................................ 70

5.2 internal Capital adequacy assessment Plan (“icaap”) 70

6 Regulatory Capital Requirements and Capital Base ...... 70

6.1 Capital adequacy Computations ............................... 70

6.2 Capital Base .............................................................. 71

6.3 Regulatory Capital Requirements For Credit Risk ....... 71

6.4 Regulatory Capital Requirements For market Risk ..... 72

6.5 Regulatory Capital Requirements For operational Risk ........................................................................... 72

7 Quantitative Disclosures for Credit Risk ...................... 73

7.1 Gross Credit exposures ............................................. 73

7.2 industry Concentration ............................................. 73

7.3 Geographic Concentration ........................................ 73

7.4 Credit exposure By internal Rating ............................ 74

7.5 Credit exposure by Residual maturity ........................ 74

7.6 Restructured/ Renegotiated exposures ...................... 74

7.7 exposure on Highly leveraged Counterparties .......... 74

7.8 Related Party transactions ........................................ 74

7.9 exposure in excess of 15% of Capital Base ............... 74

7.10 asset quality and Past due exposures ....................... 75

8 Additional Corporate Governance Disclosures ............. 75

8.1 other directorships held by Board members ............. 77

8.2 directors’ meeting and attendance during the Year 2012......................................................................... 79

8.3 shareholding more than 5% .................................... 79

8.4 distribution by size of shareholding ......................... 79

8.5 shareholding by nationality ...................................... 79

8.6 shareholding on individual Basis ............................... 80

8.7 others ...................................................................... 80

8.8 Changes in Governance structure ............................. 80

9 Other Disclosures ...................................................... 81

9.1 external Communication ........................................... 81

9.2 Complaint Handling .................................................. 81

9.3 Unrestricted investment accounts ............................. 81

9.4 Restricted investment accounts ................................. 81

10 Non Compliance with HC Module of CBB Rule Book 81

TABLE OF CONTENTS



1 INTRODUCTIONGlobal Banking Corporation B.s.C. (c) (the “Bank”) was incorporated on 25th of June 2007 under the commercial registration number 65708 in the Kingdom of Bahrain and licensed by the Central Bank of Bahrain (“CBB”) as an islamic wholesale bank. the Bank’s business model enables the Bank to offer a comprehensive range of investment banking products and services to high net worth individuals, corporate entities, and financial institutions in compliance with shari’a principles.

the Public disclosure (Pd) module section 1.3 of Volume 2 of the CBB rulebook governs the disclosure requirements to be made by islamic banks in their annual report. in april 2008, the CBB revised the Pd module to cover the detailed disclosure requirements to be followed by licensed banks in Bahrain to be in compliance with Pillar 3 of Basel ii and the islamic Financial services Board’s (iFsB) recommended disclosures for islamic banks. Under the current regulations, partial disclosure consisting mainly of quantitative analysis is required during half year reporting, whereas full disclosure is required to coincide with the financial year-end reporting.

the disclosures in this report are in addition to or in some cases, serve to clarify the disclosures set out in the consolidated financial statements for the year ended 31 december 2012, presented in accordance with the Financial accounting standards (Fas) issued by the accounting and auditing organisation for islamic Financial institutions (aaoiFi. to avoid any duplication, information required under Pd module but already disclosed in other sections of the annual report has not been reproduced in these disclosures. these disclosures should be read in conjunction with the Group’s consolidated financial statements for the year ended 31 december 2012.

2 EXECUTIVE SUMMARYthe Bank maintains an adequate capital base to cover risks inherent in the business. the adequacy of the Bank’s capital is monitored using, among other measures, the regulations and ratio established by the CBB in accordance with Basel ii capital adequacy framework. since incorporation, the Bank had complied with all the prescribed capital requirements.

the Bank’s capital adequacy ratio is well above the minimum capital requirement of 12% required by the CBB. the Bank’s capital adequacy ratio based on consolidated financial statements for the year ended 31 december 2012 was 54.56% compared with 51.29% as at 31 december 2011. the Bank ensures adherence to the CBB’s requirements by monitoring its capital adequacy against higher internal limits.

the prime objective of the Bank’s capital management is to ensure compliance with all the prudential requirements and to maintain healthy capital ratio in order to effectively support its business and to maximize shareholders’ value. to assess its capital adequacy requirements in accordance with the CBB requirements, the Bank adopts the standardized approaches for its Credit Risk and market Risk, and the Basic indicator approach for its operational Risk.

3 GROUP STRUCTUREthe Group’s consolidated financial statements comprises the financial statements of the Bank and its subsidiaries (together the “Group”) prepared in accordance with the Financial accounting standards (‘FAS’) issued by the accounting and auditing organization for islamic Financial institutions (‘AAOIFI’).

Following is the structure of the Group for prudential consolidation purposes:

Name of the entity% of holding

Place of incorporation Classification

Treatment for prudential consolidation purposes Nature of business

Subsidiaries

Global energy Financial services Company sPC

100% Kingdom of Bahrain

Commercial entity Full consolidation Financial investment and financial planning consultancy services

Global Real estate development Company Wll


Commercial entity Full consolidation Real estate development and management

diyafa Holdings Company Wll 90% Kingdom of Bahrain

Commercial entity Full consolidation Virtual offices and hospitality services

Joint Ventures

abdel Wahab Restaurant Co. W.l.l.


Commercial entity Risk Weighted Hospitality

all the above entities are incorporated in the Kingdom of Bahrain and there are no restrictions on the transfer of funds or regulatory capital within the Group.

the status of GRedCo has changed from Joint venture to subsidiary due to the acquisition of 50% equity on 01 november 2012.



4 RISK MANAGEMENT FRAMEWORKthe Bank perceives strong risk management capabilities to be the foundation in delivering results to customers, investors and shareholders. the Board has overall responsibility for establishing our risk culture and ensuring that an effective risk management framework is in place. an understanding of risk-taking and transparency in risk-taking are key elements in the Bank’s business strategy. the Bank maintains a prudent and disciplined approach towards risk taking, and embeds a structured risk management process as an integral part of its decision making practice. the Risk management department (“RMD”) is responsible for monitoring compliance with the Group’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group with overall guidance by the Bank’s Board.

the Board has established an audit Committee which is responsible for review and evaluation of effectiveness of the Bank’s procedures and internal control systems for assessing risks or exposures. it assists the Board in fulfilling its oversight duties by reviewing the financial information provided to shareholders and others.

Rmd is empowered to independently identify and assess risks that may arise from the Bank’s investing and operating activities as well as recommend directly to the investment Committee any prevention and mitigation measures as it deems fit. in addition, the internal audit department, which is also independent of both operations and the Bank’s investments units, also assists in the risk management process. the Rmd, together with the internal audit and Compliance departments, provide independent assurance that all types of risk are being measured and managed in accordance with the policies and guidelines set by the Board.

the Bank is exposed to various types of risks, such as credit, liquidity, market and operational, risks, all of which require comprehensive controls and ongoing oversight. the risk management framework encapsulates the spirit behind Basel ii, which includes management oversight and control, risk culture and ownership, risk recognition and assessment, control activities and segregation of duties, adequate information and communication channels, monitoring risk management activities and correcting deficiencies.

the Bank has established an adequate system for monitoring and reporting risk exposures and capital adequacy requirements. these reports include periodic risk reviews, quarterly risk reports etc. these reports aim to provide the Bank’s senior management with an up-to-date view of the risk profile of the Bank.

4.1 Risks In Pillar IBasel ii Pillar i prescribed three specific risks which are:

4.1.1 Credit RiskCredit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from its bank balances, placements with financial institutions and other receivables.

the Bank is not involved in the granting of credit facilities in the normal course of its business activities. the Bank is primarily exposed to credit risk from its own short term liquidity related to placements with financial institutions, and in respect of investment related funding or project receivables made (in the form short-term liquidity facility) to its projects. these exposures arise in the ordinary course of its investment banking activities and are generally transacted without any collateral or other credit risk mitigants.

the Bank has a strong internal process for assessing credit risk. this process takes into account the financial strength of the counterparty, the technical feasibility and economic viability of the business, the adequacy and quality of the cash flow available for repayment etc. the availability of collateral security by way of physical assets or guarantees to mitigate the credit risk is also taken into consideration.

each counterparty exposure is evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. in estimating these cash flows, management makes judgments about counterparty’s financial situation, level of subordination available to the Bank and the net realizable value of any underlying assets. each asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently evaluated by the Chief operating officer, Head of Risk management, Head of investment Banking and Financial Controller and approved by the Board.

the Bank relies on external ratings for rated counterparties. the Bank uses standard & poor’s, Fitch and moody’s to provide rating for such counterparties. in case of unrated counterparties, the Bank will assess the credit risk on the basis of defined parameters.

4.1.2 Market Risksmarket risk is the risk that movements in market risk factors, including foreign exchange rates, equity prices, profit rates and credit spreads will reduce the Bank’s income or the value of its portfolios. the objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

the Bank has a limited exposure to market risk which is primarily due to foreign currency risk. Given the nature of its activities, the Bank uses a simple measurement involving monitoring of open position.

the different types of risks with exposures, objectives, policies and processes to manage the risk have been detailed hereunder:



4 RISK MANAGEMENT FRAMEWORK (continued)

4.1 Risks In Pillar I (continued)

4.1.2.1 Foreign Exchange RiskForeign exchange risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. the Bank’s major exposures are in GCC currencies, which are primarily pegged to the Us dollars.

the Bank does not engage in any foreign exchange trading operations. the open position limits also take into account structural positions arising out of currency mismatch in assets and liabilities. Rmd performs sensitivity analysis on the open positions to assess the risk of loss from exchange rate movements to ensure that the risk is well under control.

4.1.2.2 Equity Price Riskequity price risk is the risk that the fair value of equities decreases as a result of changes in the value of individual companies’ shares. the Bank does not have significant exposure to listed equity instruments therefore to assess the market risk bank is not using any advanced approach. the Bank manages and monitors the positions using sensitivity analysis.

4.1.2.3 Profit Rate RiskProfit rate risk arises due to differences in timing of re-pricing of the Bank’s assets and liabilities. the Bank’s profit rate sensitive assets are mainly placements with financial and other institutions. Profit rate risk is managed principally through monitoring profit rate gaps and by having pre-approved limits for re-pricing bands.

standard scenarios that are considered on a monthly basis include a 200 basis point (bp) parallel fall or rise in all yield curves worldwide. an analysis of the Group’s sensitivity to an increase or decrease in market financing rates (assuming no asymmetrical movement in yield curves and a constant balance sheet position) is as follows:

2012

at 31 december 2012 ± 98average for the year ± 129maximum for the year ± 183minimum for the year ± 98

4.1.2.4 Operational Riskoperational risk is the risk of loss arising from systems and control failures, fraud and human error, which can result in financial and reputation loss, legal and regulatory consequences.

though operational risk cannot be entirely eliminated, however the Bank aims to minimise the risk by strengthening its internal control environment, continuing its efforts to identify, assess, measure and monitor its risks, evolving in its risk management sophistication and promoting a strong control culture within the Bank. the material operational risks of the Bank are:

· inappropriate design of processes for the appraisal of credit and investment projects;

· shortcomings in documentation and processes for monitoring and control of credit and investment exposures;

· absence of an efficient process to capture internal losses and near misses;

· inadequacies in the process for execution of projects including selection of consultants and contractors as well as monitoring time and cost overruns;

· legal risks arising from product documentation and faulty execution of transactions;

· loss from staff negligence or fraudulent transactions perpetrated by employees or customers; and

· delay in updating records and misreporting

the Bank manages operational risk through appropriate controls, instituting segregation of duties and internal checks and balances, appropriate controls to safeguard assets, monitoring of various risk limits, periodic accounts reconciliations, financial management and reporting, including internal audit and compliance functions. in addition to these controls, the Bank has developed a Business Continuity Plan based on risk review of the Bank’s activities and insurance is also in place to complement the associated controls.

moreover, the Bank has established a risk control and self-assessment process necessary for identifying and measuring its operational risks. this exercise covers the Bank’s business lines and associated critical activities, exposing the Bank to operational risks.




4.2 Risks In Pillar IIPillar ii covers key principles of supervisory review and evaluation process which intends not only to ensure that the Bank has adequate capital to support all the associated risks, but also requires Bank to develop an internal Capital adequacy assessment Plan (“ICAAP”) and setting internal capital targets that commensurate with the Bank’s risk profile and control environment. iCaaP requires assurance that the Bank has adequate capital to support its risks beyond the core minimum requirements which must not be limited to credit, market and operational risk charges.

4.2.1 Liquidity Risk liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash and another financial asset. this risk arises from mismatches in the timing of cash flows. Funding risk arises when the necessary liquidity to fund illiquid asset positions cannot be obtained at the expected terms and when required.

as an investment bank, the Bank’s operating model has insignificant reliance on short-term liabilities to fund its medium and long-term assets. this ensures against a sudden and unanticipated liquidity crisis.

the Bank as a matter of policy regularly reviews and monitors policy limits for its key liquidity ratios, future contractual cash flows and any mismatches between the cash flows of assets and liabilities, diversification of funding resources and available bank lines, cross currency cash flows requirements and strategy, availability of sufficient liquid assets in case of any unforeseeable event, monitoring of receivables and late payments etc. all of these factors are strictly monitored by Rmd and being further reviewed and discussed regularly by the Bank’s alCo.

maturity profile of assets and liabilities and key measures used for management of liquidity risk will be disclosed in consolidated financial statements for the year ended 31st december 2012.

4.2.2 Concentration RiskConcentration risk is the credit risk arising from not having a well-diversified credit portfolio, i.e. being overexposed to a single customer, industry sector or geographic region. as per CBB’s single obligor regulations, banks incorporated in Bahrain are required to obtain the CBB’s approval for any planned exposure to an individual counterparty, or group of closely related counterparties, exceeding 15% of the regulatory capital base.

in order to avoid excessive concentrations of risk, the Bank’s policies and procedures include geographical and country concentration limits and specific guidelines to focus on maintaining a diversified portfolio. identified concentrations of credit risks are controlled and managed accordingly.

4.2.3 Counterparty Credit RiskCounterparty credit risk is the risk that a counterparty to a contract in the profit rate, foreign exchange, equity and credit markets defaults prior to maturity of the contract. the Bank does not enter into any trading positions in foreign exchange contracts and also does not engage in proprietary trading of foreign exchange or profit rate derivatives. For other credit markets transactions (primarily inter-bank placements), the Bank has established a limit structure based on the credit quality (assessed based on external rating) of each counter party bank to avoid concentration of risks by counterparties. the Bank is constantly reviewing and monitoring the position to ensure proper adherence to the limits and defined policies of the Bank.

4.2.4 Profit Rate Risk In Banking BookProfit rate risk arises from the possibility that changes in profit rates will affect future profitability or the fair values of financial instruments.

Currently Bank’s assets and liabilities are benchmarked to floating rate indices. the Bank has set policy limits for such risk. Quarterly re-pricing gap analysis is being performed on the portfolio to ensure that the extent of such risk is measured and monitored.

the management of profit rate risk against profit rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and liabilities to various standard and non-standard profit rate scenarios. standard scenarios that are considered include a 100 basis point (bp) parallel fall or rise in all yield curves worldwide.

4.2.5 Equity Risk In Banking Bookthe equity risk in the banking book primarily arises from the banks unquoted available-for-sale investments. these investments comprise unquoted equity stake in the projects promoted by the Bank and are carried at cost and tested for impairment on a regular basis. the intent of such investments is a later stage exit along with the investors principally by means of strategic sell outs at the project level. Rmd works alongside the investment department at all stages of the deal cycle, from pre-investment due diligence to exit, and provides an independent review of every transaction. a quarterly investment update report is presented to the Board of directors by the investment department.




4.2 Risks In Pillar II (continued)

USD’000’

Fundedexpsoure

Averageexpsoure

Netexposure

Riskweighted

AssetsCapital

requirement

UnQuoted equity securities 42,724 51,249 26,007 52,014 6,242

42,724 51,249 26,007 52,014 6,242

4.2.6 Displaced Commercial Riskdisplaced Commercial Risk refers to the market pressure to pay returns that exceeds the rate that has been earned on the assets financed by the liabilities, when the return on assets is under performing as compared with competitor’s rates.

Currently the Bank is not exposed to any displaced commercial risk.

4.2.7 Regulatory and Shari’a compliance riskRegulatory and shari’a compliance risk is the risk arising from non-compliance with the regulatory guidelines issued by the CBB or the shari’a principles prescribed by the Bank’s shari’a supervisory Board (“SSB”) or other eminent scholars.

the Bank is taking due care to comply with all the regulations. the Bank has adequate internal controls in place which include but not limited to adequate training to staff, engagement of third party consultant wherever required, pre-approval from regulator wherever necessary, independent internal reviews by risk management department, compliance department and internal audit department etc.

the ssB is entrusted with the duty of directing, reviewing and supervising the activities of the Bank in order to ensure that they are in compliance with the rules and principles of islamic shari’a. the Bank also has a dedicated internal shari’a reviewer who performs an ongoing review of the compliance with the fatwas and rulings of the ssB on products and processes and also reviews compliance with the requirements of the shari’a standards prescribed by aaoiFi. the ssB reviews and approves all products and services before launching and offering to the customers and also conducts periodic reviews of the transactions of the Bank. an annual audit report is issued by the ssB confirming the Bank’s compliance with shari’a rules and principles.

4.2.8 Legal Risklegal risk includes the risk of non-compliance with applicable laws or regulations, the illegality or unenforceability of counterparty obligations under contracts and additional unintended exposure or liability resulting from the failure to structure transactions or contracts properly. the Bank has a dedicated legal department which is consulted on all major activities conducted by the Bank. all contracts, documents, etc., have to be reviewed by the legal department as well. as on the reporting date, the Bank had no material legal contingencies including pending legal actions.

4.2.9 Other Risksother risks include reputational, strategic, fiduciary risks etc., which are inherent in all business and are not easily measurable or quantifiable. However, the Bank has proper policies and procedure to mitigate and monitor these risks. the Bank’s Board has overall responsible for approving and reviewing the risk strategies and significant amendments to the risk policies. the Bank senior management is responsible for implementing the risk strategy approved by the Board to identify, measure, monitor and control the risks faced by the Bank.

the Bank as a matter of policy regularly reviews and monitors financial and marketing strategies, business performance, new legal and regulatory development and its potential impact on the Bank’s business, best corporate governance practices and implementation etc.

4.3 Pillar IIIPillar iii complements the other two pillars and focuses on enhanced transparency in disclosure of information by the banks to promote better market discipline. the information to be disclosed covers all areas including business performance, capital adequacy, risk management etc. the disclosures are designed to enable stakeholders and market participants to assess an institution’s risk appetite and risk exposures and to encourage all banks, via market pressures, to move toward more advanced forms of risk management.

in april 2008, the CBB published a paper covering the detailed disclosure requirements to be followed by licensed banks in Bahrain to be in compliance with Pillar iii under the Basel ii frame work.



5 CAPITAL MANAGEMENT AND INTERNAL CAPITAL ADEQUACY ASSESSMENT PLAN (“ICAAP”)

5.1 Capital Managementthe Bank’s policy is to maintain a strong capital base and also the minimum capital requirements imposed by the CBB, so as to maintain investor, creditor and market confidence and to sustain future development of the business. the impact of the level of capital on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

the allocation of capital between specific operations and activities is primarily driven by regulatory requirements. the Bank’s capital management policy seeks to maximise return on risk adjusted while satisfying all the regulatory requirements. the Bank’s policy on capital allocation is subject to regular review by the Board.

the Bank ensures that the capital adequacy requirements are met and complied with regulatory capital requirements throughout the period.

5.2 Internal Capital Adequacy Assessment Plan (“ICAAP”)“iCaaP” is a requirement under Pillar ii of Basel ii for capital management. the objective of the Bank’s iCaaP is to ensure that adequate capital is retained at all times to support the risks the Bank undertakes in the course of its business. the Bank’s iCaaP identifies risks that are material to the Bank’s business and the regulatory capital that is required to be set aside for such risks. the Bank has implemented iCaaP which is monitored on quarterly basis. However, the Bank intends to continue to be conservative and would maintain a reasonable buffer over 12% regulatory Capital requirement set by CBB.

the Bank recognizes that earnings are the first line of defence against losses arising from business risks and that capital is one of the tools to address such risks; also important are establishing and implementing documented procedures, defining and monitoring internal limits of the Bank’s activities/exposures, strong risk management, compliance and internal control processes as well as adequate provisions for credit, market and operational losses. However, since capital is vital to ensure continued solvency, the Bank’s objective is to maintain sufficient capital such that a buffer above regulatory capital adequacy requirements is available to meet risks arising from fluctuations in asset values, business cycles, expansion and future requirements.

the Bank seeks to achieve the following goals through the implementation of its iCaaP framework:

· meet the regulatory capital adequacy requirement and maintain a prudent buffer;

· Generate sufficient capital to support overall business strategy;

· integrate capital allocation decisions with the strategic and financial planning process;

· enhance the Board and senior management’s ability to understand how much capital flexibility exists to support the overall business strategy;

· enhance the Bank’s understanding on capital requirements under different economic and stress scenarios; and

· Build and support the link between risks and capital and align performance to these.

as an internal target ratio, the Bank will seek to maintain its internal capital adequacy computed under iCaaP (after considering all identified material risks, including those not considered under Pillar 1) at a minimum level of 100% of the minimum Basel ii Pillar 1 regulatory capital adequacy ratio stipulated by the CBB. Currently, the CBB has fixed a minimum Capital adequacy Ratio of 12% and a trigger ratio of 12.5% for all locally incorporated banks in Bahrain. the Bank will monitor the iCaaP capital adequacy ratio against an internal trigger ratio which will be higher than the minimum prescribed ratio based on additional risk charges for risks not addressed in Pillar i. if the iCaaP capital adequacy ratio reaches the internal trigger ratio, the Bank will initiate action to reduce its risk or increase capital before the target ratio is breached.

6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE

6.1 Capital Adequacy Computationsthe prime objective of the Bank’s capital management is to ensure compliance with all the prudential requirements and to maintain healthy capital ratios in order to effectively support its business and to maximize shareholders’ value.

the Bank’s regulator CBB sets and monitors capital requirements for the Bank as a whole (i.e. at a consolidated level). in implementing current capital requirements CBB requires the Bank to maintain a prescribed ratio of 12% of total capital to total risk-weighted assets. Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures. CBB also requires banks incorporated in Bahrain to maintain a buffer of 0.5 per cent above the minimum capital adequacy ratio.



6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE (continued)during 2012, the Bank was in compliance with the capital limits set by the regulator for the Bank. the Bank’s capital adequacy ratio as at 31 december 2012 was:

USD’000’

Total eligible capital

Credit risk weighted assets 85,421market risk weighted assets 641operational risk weighted assets 8,229

total risk weighted assets 94,291

eligible capital 51,443

Capital adequacy ratio 54.56%

the above capital adequacy ratio also represents tier 1 capital adequacy ratio.

6.2 Capital Basethe following table shows the breakdown of the total available capital for the as at 31 december 2012:

USD’000’

Tier 1 capital Tier 2 capital Total eligible capital

share capital 200,000 - 200,000

statutory reserves 5,801 - 5,801

accumulated losses (94,434) - (94,434)

Total Capital 111,367 - 111,367

deduction: excess amount over maximum permited large exposure limit (59,924) - (59,924)

Total Eligible Capital 51,443 - 51,443

Regulatory capital consists of tier 1 capital (core capital) and tier 2 capital (supplementary capital). tier 1 comprises share capital, share premium, retained earnings, statutory reserves and minority interests less goodwill. tier 2 capital includes current interim profits and assets revaluation reserves. in accordance with the CBB’s Basel ii capital adequacy framework, any exposure that exceeds 15% of the Capital Base of the Bank needs to be deducted from the eligible capital of the Bank. the Bank has accordingly deducted Usd 59.9 million from its eligible capital, being excess over 15% of the Capital Base invested in two large exposures.

6.3 Regulatory Capital Requirements For Credit Riskto assess its capital adequacy requirements in accordance with the capital adequacy module for islamic Banks, the Bank adopts the standardized approach for its Credit Risk. according to standardized approach, on and off balance sheet credit exposures are assigned to various defined categories based on the type of counterparty or underlying exposure. the main relevant categories are claims on banks, claims on investment firms, investment in equities, holdings in real estate, claims on corporate portfolio and other assets. Risk Weighted assets are calculated based on prescribed risk weights by CBB relevant to the standard categories and counterparty’s external credit ratings, where available. the Bank uses the ratings of different external rating agencies for such counterparties. However, preferential risk weight of 20% is used which is applicable to short term claims on locally incorporated banks where the original maturity of these claims are three months or less and these claims are in Bahraini dinar or Us dollar.



6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE (continued)

Following is the analysis for credit risk:

USD’000’

Fundedexpsoure

Unfundedexpsoure

Grossexposure

Riskweighted

AssetsCapital

requirement

Cash 2 - 2 - -

Claims on banks 4,953 - 4,953 1,000 120

Claims on Corporates 5,081 - 5,081 5,081 610

equity investments 585 - 585 878 105

Holding of Real estate (indirect holding) 29,349 - 29,349 58,698 7,044

Holding of Real estate (direct holding) 13,363 - 13,363 13,363 1,604

other assets 6,400 - 6,400 6,400 768

59,733 - 59,733 85,420 10,250

The classification of assets is in accordance with the Capital Adequacy Module of the CBB.

the Bank does not finance its assets using unrestricted investment accounts and hence all credit exposures are self-financed exposures.

the Bank’s concentration of funded and unfunded exposures is limited to GCC countries.

6.4 Regulatory Capital Requirements For Market Riskto assess its capital adequacy requirements in accordance with the CBB capital adequacy module for islamic Banks, the Bank adopts the standardized approach for its market Risk.

market risk charge consists of equity position risk and foreign exchange risk charges. specific market equity risk charge is computed at the rate of 8% on gross equity positions for each country or market. General market equity risk charge is computed based on 8% of the overall net position in each equity market.

Foreign exchange risk charge is computed based on 8% of overall net open foreign currency position of the Bank.

the market risk charge and foreign exchange risk charge is multiplied by 12.5 to evaluate market risk weighted assets.

Following is the computation of market risk charge:

USD’000’

Risk weighted assets Capital requirement

Maximum Minimum Closing Maximum Minimum Closing

Foreign exchange Risk Charge 132 32 47 16 4 6

market Risk Charge

specific 297 263 297 36 32 36General 297 263 297 36 32 36

726 558 641 87 67 77

6.5 Regulatory Capital Requirements For Operational Riskthe Bank adopts the Basic indicator approach to evaluate operational Risk Charge in accordance with the CBB capital adequacy module for islamic Banks. according to this approach, Bank’s average gross income for three past financial years is multiplied by a fixed coefficient alpha which is 15% set by CBB. the Bank has calculated the operational risk charge based on the audited results of the years 2010, 2011 and 2012.



6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE (continued)

the Bank’s operational risk weighted assets and operation capital requirement as at 31 december 2012 under Basic indicator approach was:

USD’000’

Amount

Gross income (average of three years) 4,389operational Risk Weighted assets 8,229

Capital Requirement 988

7 QUANTITATIVE DISCLOSURES FOR CREDIT RISK

7.1 Gross Credit Exposuresthe gross and average gross credit exposure are as follow:

USD’000’

Gross creditexposure

Average grosscredit exposure

On balance sheet items:

Bank balances 92 96

Placements with financial institutions 4,821 6,917

investments carried at fair value through equity 42,724 51,249

investment in joint ventures 586 691

other assets 5,121 5,261

53,344 64,214

the average balances are based on month end average balances during the year 2012.

7.2 Industry Concentrationthe industry concentration of credit exposures are as follows:

USD’000’

Financial institutions

Real estate and construction Others Total


Bank balances 92 - - 92

Placements with financial and other institutions 4,821 - - 4,821

investments carried at fair value through equity - 42,724 - 42,724

investment designated for fair value through profit and loss - - - -

investment in joint ventures - - 586 586

other assets 30 182 4,909 5,121

4,943 42,906 5,495 53,344

7.3 Geographic Concentrationthe Bank’s concentration exposure as at 31 december 2012 is limited to GCC countries.



7 QUANTITATIVE DISCLOSURES FOR CREDIT RISK (continued)

7.4 Credit Exposure By Internal Rating the analysis of credit exposures by internal rating is as follows:

USD’000’RatingA to B

RatingC to E

Rating F (Unrated) Total

on balance sheet items:

Financial institutions 4,847 77 19 4,943

Corporates - - 48,401 48,401

4,847 77 48,420 53,344

7.5 Credit Exposure by Residual Maturity the analysis of credit exposures by residual maturity is as follows:

USD’000’

Up to3 months

Over3 months to

6 months

Over6 months to

1 year

Over1 year to

3 yearsOver

3 years Total


Bank balances 93 - - - - 93

Placements with financial institutions 4,821 - - - - 4,821

investments carried at fair value through equity - 1,200 - 41,523 - 42,723

investment in joint ventures - - - - 586 586

other assets 743 - 4,378 - - 5,121

5,657 1,200 4,378 41,523 586 53,344

7.6 Restructured/ Renegotiated Exposuresthe Bank did not restructure or renegotiate any exposures as at 31 december 2012.

7.7 Exposure On Highly Leveraged Counterpartiesthe Bank has no exposure to highly leveraged and other high risk counterparties as per definition provided in the CBB rulebook Pd 1.3.24.

7.8 Related Party TransactionsRelated counterparties are those entities which are connected to the Bank through significant shareholding or control or both. the Bank has entered into business transactions with such counterparties, and all such transactions have been done on commercial terms that bring no disadvantage to the Bank. For the purpose of identification of related parties, the Bank follows the guidelines issued by CBB. For details on related party transactions and balances, refer note 20 to the consolidated financial statements.

7.9 Exposure in excess of 15% Of Capital Basesingle exposures in excess of 15% of the Bank’s capital base on individual counterparties require prior approval of CBB and are subject to prudential deduction treatment unless considered as exempt. as on date of balance sheet the Bank has a restricted investment account exposure amounting to Usd165.3million; this restricted investment account is specific in relation to a project promoted by the Bank and was part of the overall investment structure and is exempt as per CBB rules.

exposures exceeding single exposure limit as of 31 december 2012 were:

· to a corporate counterparty amounting to Usd 33.4 million for which Bank has obtained approval from CBB. the Bank has deducted Usd 16.7 million from its eligible capital, being excess over 15% of the Capital Base.

· against an investment property which has also been partly occupied by the Bank as an office premises amounting to Usd59.9million. the Bank has deducted Usd43.2million from its eligible capital, being excess over 15% of the Capital Base.



7 QUANTITATIVE DISCLOSURES FOR CREDIT RISK (continued)

7.10 Asset quality and Past Due Exposures the analysis of asset quality and past due exposures are as follows:

USD’000’

Banks and FinancialInstitutions

Other FinancialAssets

neither past due not impaired 4,914 -

Past due but not impaired - -

individually impaired - 42,724

4,914 42,724

8 ADDITIONAL CORPORATE GOVERNANCE DISCLOSURES

8.1 Other Directorships held by Board Members

Name of Director Directorship Held in 2012

Sh. Saleh Al Ali Al Rashed • national amlak investment Company;

• trade Union Cooperative insurance and Reinsurance Company;

• al Khumasiya for Feed and animal Production;

• masraf al Rayan; and

• al-Rashed and al-thunayan automotive Company.

Mr. Abdul Rahman Mohamed Al Jasmi

• al-marfa’a al-mali sukuk Co. B.s.C.

• enshaa development Real estate B.s.C.

• diyar al Bahrain Real estate Co. W.l.l.

• Ruf Bahrain Company W.l.l.

• diyar al Bahrain Holding Co. W.l.l.

• laurus Real estate W.l.l.

• 2 seas investment Co. W.l.l.

• daheyat al areen Real estate development W.l.l.

• okeanos development s.P.C.

• okeanos Views Real estate development s.P.C.

• Global Real estate development Co. W.l.l.

• al Jasmi Holding Company s.P.C.

• anab Real estate s.P.C.

• anab land sceep s.P.C.

• Global energy Financial services s.P.C.

• marsa al seef Real estate investment Company W.l.l.

• al Jasmi Constructions Co. W.l.l.

• south east Real estate s.P.C.



8 ADDITIONAL CORPORATE GOVERNANCE DISCLOSURES (continued)

8.1 Other Directorships held by Board Members (continued)

Mr. Salah Saleh Asheer • masaken Real estate development Co. W.l.l.

• Bmi Bank B.s.C. (C)

• Redwood investment s.P.C.

• Bahrain Bay development B.s.C. (C)

• diyar al muharraq W.l.l.

• albilad Real estate investment Co. W.l.l

• Kenaz al Kharanah Real estate investment W.l.l.

• Rayouf Holding Company W.l.l.

• amar Holding Company B.s.C (C)

• Raseem Real estate investment Company W.l.l.

• aradi salmabad Real estate investment Co. s.P.C.

• Whitewood Holdings s.P.C

• Bahrain Bay development ii B.s.C (C)

• al Kawthar First Real estate investment Co. s.P.C.

• marsa al seef Real estate investment Co. W.l.l.

• Golden meadows Real estate W.l.l.

• aspire Real estate investment i s.P.C.

• aspire Real estate investment iii s.P.C.

• al Retaj Holding W.l.l.

• al seela Corp Real estate investment Company s.P.C

• diyar Homes Company W.l.l.

Mr. Talal Mohammed Al Mutawa • manafae investment Company KsC (c).

• north star Holding – Bahrain.

Mr. Khalid Abdulla Al Ankary • international Company for services and Real estate investments –egypt.

• samba Capital a subsidiary of samba Financial Group – mutual Funds.

Mr. Raed Mohammed Al Saleh • Zak solutions KsC (c).

Dr. Saud Abdulla Al Ammari • none

Dr. Zakarya Hejres * • tamkeen

• Gulf investment Corporation

• Bahrain telecommunication Company

* dr. Zakaria joined the Bank as a Board member on 6th of november 2012 and subsequently appointed as a Chief executive officer effective from 1st of February 2013 and accordingly left his positions as a Board member and member of the Board sub-Committees.



8.2 Directors’ Meeting and Attendance During The Year 2012

the table presented below, summarize the data pertaining to meetings of the Board of directors and its Committees held during the year 2012.

Board MeetingsAudit Committee

MeetingsExecutive Committee

Meetings

Nomination, Remuneration and Corporate Governance

Committee Meetings

Board Members

No. of meetings attended

No. of meetings during the period of membership







saleh al ali al Rashed 2 4 n/a n/a n/a n/a 2* 2

a.Rahman mohamed al Jasmi 4 4 n/a n/a 2* 2 2 2

talal mohammed al mutawa 4 4 n/a n/a n/a n/a n/a n/a

salah saleh asheer 2 4 n/a n/a 2 2 n/a n/a

Fady Jan Bakhos** 2 2 1 1 n/a n/a n/a n/a

Khalid abdulla al ankary 4 4 2* 2 n/a n/a n/a n/a

terry a. newendorp** 0 2 0 1 n/a n/a 0 1

Zakaria Hejres*** 1 1 1 1

saud al ammari*** 1 1 n/a n/a

Raed al saleh*** 1 1 n/a n/a

minimum meetings during the year 4 4 4 4 4 4 2 2

Meeting Dates march 8, 2012 march 8, 2012 march 8, 2012 october 3, 2012

June 7, 2012 december 12, 2012

october 03, 2012 - december 13, 2012

december 13, 2012 december 13, 2012 - -

* Chairman of the Committee** Resigned on october 03, 2012*** Joined on november 06,2012

the meeting wise record of attendance is as follows:

- attended the meeting

- not attended the meeting n\a

n\a - Resigned




8.2 Directors’ Meeting and Attendance During The Year 2012 (continued)

Board Meetings Attendance

Board of Directors8th March

20127th June

20123rd October

201213th December

2012 Attendance

saleh al ali al Rashed 2 /4

a.Rahman mohamed al Jasmi 4 /4

talal mohammed al mutawa 4 /4

salah saleh asheer 2 /4

Fady Jan Bakhos** * n\a n\a 2 /2

Khalid abdulla al ankary 4 /4

terry a. newendorp** n\a n\a 0 /2

Zakaria Hejres*** n\a n\a n\a 1 /1

saud al ammari*** n\a n\a n\a 1 /1

Raed al saleh*** n\a n\a n\a 1 /1

* Attended through Phone/video link.** Resigned on october 03, 2012

*** Joined on november 06,2012

Audit Committee Meeting

Committee members 8th March 2012 13th December 2012 Attendance

*Fady Jan Bakhos n\a 1/ 1Khalid abdulla al ankary 2/ 2*terry a. newendorp 0/ 2**Zakaria Hejres n\a 1/ 1

* Resigned on october 03, 2012

** Joined on november 06, 2012

Executive Committee Meeting

Committee members 8th March 2012 12th December 2012 Attendance

a.Rahman mohamed al Jasmi 2/ 2salah saleh asheer 2/ 2

Nomination, Remuneration and Corporate Governance Committee Meeting

Committee members 03rd October 2012 13th December 2012 Attendance

saleh al ali al Rashed 2/ 2a.Rahman mohamed al Jasmi 2/ 2*terry a. newendorp n\a 0/ 1

* Resigned on october 03, 2012




8.2 Directors’ Meeting and Attendance During The Year 2012 (continued)

Below are explanations for the absences reported in the attendance of the Board and sub-Committees meetings.

· as per the Charter of the nomination, Remuneration & Corporate Governance Committee, the Committee has to meet at least two times a year. in the year 2012, the Committee had two meetings on 3 october 2012 and 13 december 2012.

· as a result of the short notice to hold a Board of directors meeting on 7 June 2012 to discuss the exit of makkah Hills, there was a difficulty to convene an audit and executive Committees meetings.

· as a result of the resignation of mr. Fady Bakhos and mr. terry newendorp on 3 october 2012, it was impossible for the audit Committee to hold a meeting on 3 october 2012 as previously planned. However, the Chairman of the audit Committee held a meeting with the Bank’s executive management to discuss the agenda items and a minute was prepared and signed by the Chairman of the audit Committee.

· the executive Committee consists from two members namely mr. a.Rahman al Jasmi and mr. salah asheer, as a result of the previous resignation of mr. talal al mutawa from the executive Committee last year. in compliance with the previous instructions of the CBB, it was impossible to reconstitute the executive Committee, since no Board member is allowed to be a member of the audit and a member of the executive Committee. as a result of the absent of salah asheer, the executive Committee was unable to hold a meeting on 3 october 2012 as previously planned.

8.3 Shareholding More Than 5%

information about major shareholders of the Bank is summarized below:

Shareholders No. of shares shareholding %

2 seas investment Co. W.l.l. 36,905,000 18.45%

oras investment Co. s.P.C. 26,062,500 13.03%

United Gulf Bank B.s.C. 25,000,000 12.50%

soura investment Co. s.P.C. 25,000,000 12.50%

special Projects Co. W.l.l. 17,375,000 8.68%

abu dhabi investment House 17,375,000 8.68%

abdul Rahman m. al Jasmi 12,500,000 6.25%

Total 200,000,000 100%

8.4 Distribution by Size of Shareholding

the current shareholding structure is as follows:

Category No. of shares No. of shareholders shareholding %

less than 1% 14,145,000 14 7.0725%

1.1% to 5% 25,637,500 6 12.8187%

5.1% to 10% 47,250,000 3 23.6250%

10.1% to 15% 76,062,500 3 38.0312%

15.1% and above 36,905,000 1 18.4530%

Total 200,000,000 27 100%

8.5 Shareholding by Nationality

the distributing of shareholding by nationality is given in the table below:

Nationality No. of shares No. of shareholders shareholding %

Kingdom of Bahrain 157,920,000 9 78.96%

Kingdom of saudi arabia 21,272,500 13 10.63%

state of Qatar 17,722,500 2 8.86%

United arab emirates 1,695,000 2 0.84%

Jordan 1,390,000 1 0.69%

Total 200,000,000 27 100%




8.6 Shareholding on Individual Basis

the number of shares held by a director as at 31 december 2012 was as follows:

· mr. abdul Rahman m. al Jasmi 6.25% of the issued share Capital of the Bank.

· mr. saleh al ali al Rashed (indirectly) holds 8.23% of the issued share Capital of the Bank.

· no director(s) or senior manager(s) other than mentioned above holds any shares in the Bank.

8.7 Others

· there is no ownership of any Government in the shareholding of the Bank.

8.8 Changes in Governance Structure

during the year 2012, the following Board members have resigned on 3rd of october 2012;

· Fady Jan Bakhos (non-executive) a Board member & a member of the audit Committee; and

· terry newendorp (non-executive) a Board member & a member of the audit Committee and a member of the nomination, Remuneration & Corporate Governance Committee

also, the following joined as Board members on 6th of november 2012:

· dr. Zakaria Hejres as a non-executive and independent Board member;*

· dr. saud al ammari as a non-executive and independent Board member; and

· mr. Raed al-saleh as a non-executive Board member.

the Bank Board of director in its meeting held on 13th of december 2012 has re-constructed the Board sub-Committees as follows

Executive Committee members:1. mr. a.Rahman al Jasmi – Chairman (non-executive);

2. mr. salah asheer – member (non-executive); and

3. mr. Raed al saleh – member (non-executive).

Nomination, Remuneration & Corporate Governance Committee members:1. dr. saud al ammari – Chairman (non-executive and independent);

2. mr. Khalid al ankary – member (non-executive and independent);

3. dr. Zakaria Hejres – member (non-executive and independent); and

4. dr. osama Bahar – ssB member.

Audit Committee members:1. mr. Khalid al ankary – Chairman (non-executive and independent);

2. mr. talal al mutawa – member (non-executive); and

3. dr. Zakaria Hejres – member (non-executive and independent).

Risk Committee members: 1. mr. Raed al saleh – Chairman (non-executive);

2. dr. saud al ammari – member (non-executive and independent); and

3. dr. Zakaria Hejres member (non-executive and independent).

* dr. Zakaria joined the Bank as a Board member on 6th of november 2012 and subsequently appointed as a Chief executive officer effective from 1st of February 2013 and accordingly left his positions as a Board member and member of the Board sub-Committees.



9 OTHER DISCLOSURES

9.1 External Communication

the Bank communicates with its customers and stakeholders through various channels. information on developments, financial results, new products or any updates of existing products are placed on the Bank’s website www.gbcorponline.com and/or published in the media as well. Product details are also disseminated to customers and other interested parties through prospectus, brochures, and/or periodic investment updates.

9.2 Complaint Handling

the Bank takes disputes and complaints from all customers very seriously. these have the potential for a breakdown in relationships and can adversely affect the Bank’s reputation. left unattended these can also lead to litigation and possible censure by the regulatory authorities. the Bank has a comprehensive policy on handling of external complaints, approved by the Board. all employees of the Bank are aware of and abide by this policy.

9.3 Unrestricted Investment accounts

Currently, the Bank does not offer any unrestricted investment accounts.

9.4 Restricted Investment accounts

the Bank does not currently offer Restricted investment accounts (“Rias”) as normal product offering. the Ria as at the reporting date is specific in relation to a project promoted by the Bank and was part of the overall investment structure. the bank has exited from this project & the transaction will be finalized in 2013. the Bank is aware of its fiduciary responsibilities in management of the Ria investments and has clear policies on discharge of these responsibilities. For further details on Ria balances and policies refer to the consolidated financial statements.

10 NON COMPLIANCE WITH HC MODULE OF CBB RULE BOOK

ministry of Commerce and Central Bank of Bahrain have jointly issued a new Code of Corporate Governance for all banks operating in the Kingdom of Bahrain. the CBB has incorporated the amendments in High-level Control module (HC module) of CBB’s Rulebook. the Bank is in compliance with all the rules/guidelines stipulated in HC module of CBB’s Rulebook except those mentioned below which are in the process of being complied with:

· all banks are required to have written appointment agreements with all members of the Board of directors. the Bank has finalized a written letter of appointment entailing responsibilities and authorities of individual members of Board of directors. the letter of appointment has been circulated to the members of the Board of directors. the letters of appointment is signed by all Board members except one.

· one-third of the Board of directors of the Bank should consist of independent directors. Prior to 1st of February 2013, the Bank was fully in compliance with this requirement, but due to the appointment of one of the independent directors as the Bank’s Ceo, the Bank currently has only two independent directors and is in the process of inducting the remaining one independent director.

· Performance related incentive plans need approval from the Bank’s shareholders, however, the Bank at present does not have any formal incentive plan other than the normal performance based discretionary bonus benefits for its all employees.

Documents

Annual Report 2012 - GBCORP A Report 2012.pdf · the ‘Leader in Islamic Investments - 2010’ award during the Arab Investment Summit in Ras Al Khaimah, UAE. Vision GBCORP’s vision