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1 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
57TH ANNUAL REPORT 2018ARAB BANK (SWITZERLAND) LTD.
SUMMARY
Board of Directors 6 CEO Message 10Executive Committee 1 2
CONSOLIDATED FINANCIAL STATEMENTS 2018 Consolidated Financial Highlights 1 8Comments on Consolidated Income Statement and Balance Sheet 1 9Consolidated Balance sheet and Off-Balance sheet Transactions 20Consolidated Income Statement 2 1Consolidated Cash Flow Statement 22Consolidated Statement of Changes in Equity 23
Notes to the Consolidated Financial statements 1 - Business Activities and Personnel 242 - Accounting Policies and Valuation Principles 263 - Information on the Consolidated Balance Sheet 304 - Information on Consolidated Off-Balance Sheet Transactions 425 - Information on the Consolidated Income Statement 436 - Consolidated Capital Adequacy and Liquidity Disclosure 45
Report of the Statutory Auditor on the Consolidated Financial Statements 47
FINANCIAL STATEMENTS 2018
Balance Sheet and Off-Balance sheet Transactions 50Income Statement 5 1Allocation of Earnings 52Statement of Changes in Equity 53
Notes to the Financial statements 1 - Business Activities and Personnel 542 - Accounting Policies and Valuation Principles 563 - Information on the Balance Sheet 604 - Information on Off-Balance Sheet Transactions 665 - Information on the Income Statement 676 - Capital Adequacy and Liquidity Disclosure 69
Report of the Statutory Auditor on the Financial Statements 71
ARAB BANK ANNUAL REPORT 2018
Arab Bank (Switzerland) Ltd. is an independent company founded in 1962 according to Swiss law, specialized in asset management and investment counselling for a sophisticated clientele, in addition to trade finance activities and treasury activities.
The Bank also operates via its subsidiary Arab Bank (Switzer-land) Lebanon S.A.L. and via its affiliate Ubhar Capital SAOC in Oman. Together with Arab Bank (Switzerland) Ltd., these
entities form the Arab Bank (Switzerland) Group.Arab Bank (Switzerland) Ltd. is a sister company of Arab Bank PLC, Amman (Jordan), a leading financial institution, which has a wide network in the Arab world and major financial centres.
Board of DirectorsWahbe A. Tamari Chairman Jean-Pierre Roth Vice-Chairman*Alessandro Bizzozero Member* Omar M. Kamal Member* Gérard Lohier Member*
*Reference of independent board member according to FINMA circular 2017/1
Executive ManagementSerge Robin CEO (as from 01.07.2018)Nicolas Chikhani CEO (until 30.06.2018) Jean-Pierre Daccache Head Wealth Management Deputy CEO Patrick Culliford Head of Commodities and Trade Finance (as from 10.04.2018) Mark de Snaijer COO Rani Jabban Head of Treasury Rachid Jami Head of Credit (as from 29.05.2018)Imed Khammari CRO (as from 10.04.2018)Patrick Pillon Head of Legal & ComplianceRichard Rochat CFO
Internal AuditMarie-Françoise Assar
AuditorsErnst & Young SA
Head Office Geneva10-12 Place de LongemalleP.O. Box 3575CH–1211 Geneva 3Phone : +41 22 715 12 11Fax : +41 22 715 13 11Swift : ARBSCHZZ
Branch ZurichNüschelerstrasse 1 P.O. Box 1065CH–8001 ZurichPhone : +41 44 265 71 11Fax : +41 44 265 73 30Swift : ARBSCHZZ
Subsidiary - LebanonArab Bank (Switzerland) Lebanon S.A.L.Allenby Street, Block 25Beirut, LebanonPhone : +961 1 999 366
Affiliate - OmanUbhar Capital SAOCP.O. Box 1137111 MuscatSultanate of OmanPhone : +968 24754 672
www.arabbank.ch
6 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
BOARD OF DIRECTORS
THE BOARD OF DIRECTORS IS COMPOSED OF FIVE NON-EXECUTIVE MEMBERS, CHAIRED BY MR WAHBE A. TAMARI.
Dear shareholders and clients,
It is with a great sense of pride that we look back on the achie-vements that have been made over the past year by Arab Bank (Switzerland) Ltd.
In a climate of economic uncertainty, we can reflect on our stead-fast commitment to all our stakeholders and the consistency with which we responsibly curate their wealth. And in a time where walls are as likely to be built as bridges, we can celebrate our vision to connect the Orient and Occident.
Indeed, the metaphor of a bridge is something that resonates profoundly with us at Arab Bank (Switzerland) Ltd.
As the first Arab banking institution in Switzerland and a sister organization of Arab Bank PLC, one of the oldest banks in the Middle East, we are culturally fluent in both markets we serve. This has enabled us to bring effective, customized financial so-lutions, crafted with the integrity and excellence of Swiss private banking culture, to our client base in the diaspora and MENA region.
We look toward 2019 with a strong sense of optimism. The appointment in July last year of industry leader, Monsieur S. Robin, as CEO reaffirms our commitment to the private banking industry and our wish to further develop this business line. But it also reinforces the culture of custodianship, ensuring we stay true to our core values as we seek to consolidate and expand our business.
One of the most exciting avenues is in Fintech. The recently launched Fintech Committee will help guide our program, positioning us at the cutting edge of banking innovation, and enabling us to reach a new, younger generation of investors.
Bridges are also being built by Arab Bank (Switzerland) Ltd. at another level. We believe that our promotion of art and culture is having a small but important role in showing another narrative of the Middle East. We also believe that our continued presence in the region will provide a bridge toward sustainable progress and economic development. We have a rich legacy in this area and are rightly proud of the contribution that Arab Bank PLC Group has made to the economic development of the Middle East over the years.
On behalf of the Board, I want to extend my thanks to you for your continued trust and confidence in Arab Bank (Switzerland) Ltd.
Wahbe A. TamariChairman of the Board of Directors
6 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 7 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
Wahbe A. Tamari Chairman of the Board of DirectorsChairman of the Remuneration CommitteeMember of the Board Credit Committee
Wahbe A. Tamari is a graduate of Webster University Geneva, with a bachelor’s Degree in Management and is a Harvard Business School Owner/President Management (OPM43) Program Alumni.
Mr Tamari started his career at Sucafina S.A., where he held several positions from trader to CEO and now sits on its board. He is also the founder and Vice-Chairman of W&P S.A. Geneva, a Swiss based asset management firm.
Mr Tamari has a large experience in conducting business in the Middle East. He is a Board Member of the Consolidated Contractors Company (CCC) and Solidere International Ltd. He is also Chairman and Executive General Manager of ATFO SAL, a real estate management and investment company based in Beirut. Currently, he is Chairman of Arab Bank (Switzerland) Ltd., Member of the Board of Arab Bank PLC, Vice Chairman of Oman Arab Bank and of Ubhar Capital SAOC, and Chairman of Arabia Insurance Company SAL.
Mr Tamari sits on the board of the Tamari Foundation and is a member of the Advisory Committee of the Hassib J. Sabbagh Foundation. He belongs to the Board of LIFE (Lebanese Interna-tional Finance Executives) and is a member of the Welfare As-sociation and YPO Gold (Young President Organization Gold).
Jean-Pierre Roth Vice-Chairman of the Board of Directors Vice-Chairman of the Remuneration CommitteeMember of the Board Audit & Risk Committee
Jean-Pierre Roth, completed his doctorate in economics in Geneva at the Graduate Institute of International Studies. In 2009, the University of Neuchâtel awarded him an honorary PhD in economics. He joined the Swiss National Bank in 1979. On 1 May 1996, the Federal Council appointed him Vice-Chair-man of the Governing Board and Chairman (Governor) on 1 January 2001.
Mr Roth represented Switzerland as Governor of the Washing-ton-based International Monetary Fund (IMF). From 1 March 2006 to the end of February 2009, he was Chairman of the Board of Directors of the Bank for International Settlements in Basel. At the end of March 2007, he was designated Swit-zerland’s representative in the Financial Stability Forum. He retired from the SNB on 31 December 2009.
Mr Roth is now member of the Board of Directors of important Swiss companies (Nestlé, Swatch Group, MKS Switzerland) and member of the Board of various Swiss Foundations. He is Vice-chairman of Arab Bank (Switzerland) Ltd and was designated Member of the Board of Directors of Arab Bank Switzerland (Lebanon) in 2018.
8 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
Alessandro BizzozeroMember of the Board of Directors Chairman of the Board Audit & Risk CommitteeMember of the Board FinTech Committee
Alessandro Bizzozero obtained his Doctorate in Law at the University of Fribourg.
Mr Bizzozero has more than 30 years of experience in the banking and regulatory field. He started his career at the Swiss Federal Banking Commission (today FINMA) where he was deputy Director of the Department of banking authorizations and mutual funds. He then joined one of the big four audit companies as Director in charge of the Regulatory Department. He was also Chief Group Compliance Officer of an important Banking Group in Geneva. Finally, he set up BRP Bizzozero & Partners S.A., one of the worldwide leaders in cross-border financial regulation.
Former Director of the CAS in Compliance Management and lecturer at the University of Geneva, Mr Bizzozero also teaches at the HEG ARC of Neuchâtel and at the Centro Studi Bancari of Lugano. He is also the author of several publications, including « Financial cross-border activities into and out of Switzerland ».
Mr Bizzozero is member of the Board of Directors of several Swiss banks (Cornèr Banca SA, Landolt & Cie SA, and GS Banque SA).
Gérard LohierMember of the Board of Directors Chairman of the Board Credit CommitteeMember of the Board Audit & Risk CommitteeMember of the Board FinTech Committee
Gérard Lohier joined in 1960 a French Banking Group which became through successive mergers BNP Paribas. He was gi-ven Commercial assignments in France and French Overseas Territories before being nominated Inspector and then Chief Inspector at Group level (1976).In this position, Mr Lohier acquired the International exposure and banking expertise that lead to further overseas assign-ments:Deputy General Manager, International Division UBA Lagos (1980),Deputy General Manager BNP Switzerland Basel (1982),Managing Director BNP International Financial Services Sin-gapore (1985),General Manager BICI de Côte d’Ivoire Abidjan (1988),Head of Territory BNP Paribas Switzerland Geneva (2000).
In the midst of his International career, Mr Lohier was nomi-nated in Paris, Deputy General Manager of BNP Intercontinental (1992), Secretary General of BNP Investment Banking (1994) and, as Group Head of Corporate Banking (1997), member of the Bank’s Group Executive Committee.Mr Lohier was thus involved operationally and through his various Board positions, in almost all aspects of banking. Currently, he is also member of W&P S.A. Geneva, a Swiss based asset management firm.
8 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 9 | ARAB BANK (SWITZERLAND) LTD.
Dr. Omar KamalMember of the Board of DirectorsChairman of the Board FinTech Committee Member of the Board Credit Committee
Omar Kamal has more than 20 years' experience in the field of financial services. He was first a partner with Ernst & Young on the advisory and consulting side and then one of the initial founders and the CIO of a regional bank in the Middle East. Until August 2015, he was the co-Group CEO of a business group owned by a prominent family with global reach based in Geneva, Switzerland.
Mr Kamal serves now on the board of a number of listed and unlisted companies amongst others, Tharisa mining (FTSE listed), Cambridge Scientific Innovation (CSI) and Cybsafe. In his various positions, he brings always a strategic contribution towards digital innovation and transformation.
Mr Kamal is a member of the Young President Organisation, previously under the Alpine Chapter in Switzerland, and cur-rently serves as the London Stars Chapter Membership Chair in the United Kingdom.
10 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
CEO MESSAGE
2018 will be remembered as a turning point in economic acti-vity. Sustained growth was replaced by a global downturn, particularly pronounced in Europe and Asia. The Federal Re-serve continued to raise the target rate and the US-China trade war became a major focus in the 4th quarter, which can be indicative of a shift away from globalization. Investors have grown accustomed to the fact that political turbulence – with its strong influence on markets – is the new normal. Brexit, and its still-uncertain outcome, is a perfect illustration of this new paradigm, as is the US government shutdown. Indeed, there are many signs that higher volatility is here to stay across all asset classes. As with every paradigm shift, however, we be-lieve it’s important to look at the positives and, going forward, to seize the many investment opportunities that will emerge. It’s all the more impressive that, despite this challenging macro and market environment, our bank delivered strong and ba-lanced results, with our three pillars – Wealth Management, Commodity Trade Finance (CTF), and Treasury – experiencing consistent growth. Total operating income reached CHF 79,6 million, representing an increase of 20% over 2017. Wealth Management and CTF grew by 17% and 12% as strong forex results enabled Treasury to deliver an increase of 31%. In short, our net profits amounted to CHF 17,1 million, representing growth of 21%.
Behind these excellent results were a range of initiatives and activities. Our Wealth Management business line delivered robust growth thanks to service model enhancements and a more focused approach to improving client service. Our In-vestment Advisory team was strengthened through the addi-tion of seasoned, dedicated specialists, which enabled us to reach out to our clients in a more optimized and structured way. These initiatives have translated into +CHF 250 million net new money bringing our Assets under Management to CHF 3’825 million. We have also restructured our Advisory mandates to better fulfill client needs. Active advisory, classic advisory and ad-hoc advisory mandates have been rolled out
and provide a tailored investment solution to each of our client profiles. In terms of investment solutions, we are now working in a full open architecture framework, which allows our customers to have access to large, best-in-class vehicles for each building block of a balanced portfolio. Large invest-ment menus, translated into focused model portfolios, and a strong franchise in Private Equity and Private Debt, with our Real Estate fund as a flagship offering, lie at the heart of our investment philosophy. Moving forward, we will also launch a Strategic Wealth Allocation Center of Competence in the first quarter of 2019, with a goal of helping our key rela-tionships to optimize their total wealth through customized investment solutions.
Commodities Trade Finance pursued the development of its Energy, Metals and Agri commodities portfolios as per the MENA strategic plans, by expanding its client base and diver-sifying both its geographical scope and product offering. CTF teams have been marketing a wide range of trade finance products and services, optimizing delivery and execution, enabling our bank to keep an edge over competition while simultaneously maintaining a strong risk control framework.
With higher US interest rates, a higher dollar, a number of emerging market currency crises, and a spike in volatility at the end of 2018, the Treasury department has been able to take advantage of fluctuations in currencies to generate more alpha for our portfolios. We have continued to modernize and optimize our service offering, with the launch of our FX plat-form on the Ipad. We also have further strengthened our expertise in complex OTC options structures.
Our bank continued to invest in its IT infrastructure in order to optimize and automate processes while maintaining high IT security standards and improving its technological platform. The digital banking service offering is also an important area in which we decided to invest in 2018 to improve the digital experience as well as the reactiveness and quality of the
10 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 11 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
services we offer. As an example, a new website was launched in the summer of 2018 and on-line payments are now pro-posed to clients through the e-banking system. Looking forward to 2019, our bank will further focus on improving operational efficiency in support of its strategy and prepare its business to meet upcoming regulatory requirements as well as execute digitalization initiatives and develop electro-nic service channels.
On behalf of our Executive Committee and myself, I would like to thank all our customers for their longstanding trust and business. It has been a privilege and a pleasure for me to have joined the Bank last year. We, as the management team, will continue to make every effort to satisfy our customers in the years ahead through the strategic developments in our pipe-line. Last but not least, I would also like to take this opportunity to thank our shareholders and the Board of Directors for their continuous support as well as all our colleagues for their hard work, dedication, and commitment to delivering results.
Serge Robin
12 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
EXECUTIVE COMMITTEE
Serge Robin Chief Executive Officer (CEO)
Graduate in Economics and Quantitative analysis, Serge has 35 years’ experience in Asset Management & Research, as well as client facing, and 25 years in management sizeable teams, including at CEO level.
After having spent a year as an auditor, Serge joined Lombard, Odier as a research analyst on the Japanese market. He became Head of Research in 1994 and Head of Asset Management & Research in 1999. He was in charge of more than 200 staffs located in Geneva, Zürich, Amsterdam, London, Montreal and Honk-Kong. His team was managing both institutional and pri-vate money across all type of mandates and asset classes, in-cluding sectorial specialized funds, notably in the life science and technology domains. He also opened the Tokyo office, a marketing hub to develop Private Clients.
Serge then join UBS in 2001 as Managing Director within a team whose mission statement had been to build the « Family Bu-siness Group », a center of competence taking care of UHNW clients worldwide, which was renamed key clients later on.
In 2005, he was appointed CEO of Merrill Lynch Bank (Suisse) S.A. His mandate was to design and implement a growth strate-gy for Institutional and Private Clients with a focus on the Swiss onshore market. He revamped the whole management func-tions, structure and organization to support the growth plans.
In 2010, he joined Gonet, a Swiss Private Bank, as a Managing Partner.
Jean-Pierre Daccache Head of Wealth Management (Deputy CEO)
Prior to joining Arab Bank (Switzerland) Ltd., Jean-Pierre was a Managing Director and Global Sector Head at HSBC Private Bank where he managed the Upper-Gulf, Levant and North Africa region. He served on various regional and local exe-cutive committees.
Prior to HSBC, he was a Principal at Capital E advisors in New York, a boutique private equity firm. Prior to Capital E, he served as co-head of the MENA and Western European wealth management division at The Bank of New York in New York.
Jean-Pierre is the holder of a Juris Doctor degree as well as an active member of the Bar of the State of Texas since 1991. He is currently an active member of LIFE and was previously elected for two terms on its Board of Directors. Jean-pierre is also involved with SEAL, a charitable organization registered as a 501 (C3) in the State of New York.
THE EXECUTIVE COMMITTEE IS COMPOSED OF NINE MEMBERS, CHAIRED BY MR SERGE ROBIN.
12 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 13 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
Rani Jabban Head of Treasury and Financial Institutions
Rani holds a Msc. in Economics and a graduate from Magis-tère Banque Finance from University Paris 2 Pantheon-Assas (1994).
In 1995, Rani worked as a Forex and Treasury dealer at BFO London (Credit Agricole group) and joined Credit Agricole (Suisse) S.A as senior manager FX advisory in 2000.
Since 2009, he is the Head of Treasury at Arab Bank (Swit-zerland) Ltd. Appointed to the Executive Committee in 2014, he is now in charge of Treasury, Trading, Financial Institutions, and Marketing.
Richard Rochat Chief Financial Officer
Richard holds an economic degree from the University of Geneva and from Swiss Certified Accountant institute. In 1994, Richard started his career as auditor at Ernst & Young. In 2009, he took the role of Head of Finance and Risks, member of the Executive Committee, in a newly implemented foreign bank branch in Switzerland. From 2009 to 2012, he was auditor in charge at KPMG and was authorized banking auditor by the Swiss Financial Market Supervisory Authority FINMA. Richard has been Chief Finan-cial Officer and a member of the Arab Bank (Switzerland) Ltd. Executive Committee since 1 August 2012. Since 2014, he also chairs the Pension Fund of Arab Bank (Switzerland) Ltd.
14 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
Patrick Culliford Head of Commodities and Trade Finance
Patrick holds a Bachelor of Science in Political Economy de-gree from the University of Geneva.
After starting his career in auditing with renown audit firm PricewaterhouseCoopers in 1992, he moved in 1995 to Banque Indosuez (subsequently Credit Agricole Indosuez) as a member of the Credit and risk Department.
In 1998, he moved to United European Bank which subse-quently became BNP Paribas (Suisse) SA, initially as a member of the Credit and Risk department, then joined in 2001 the front office as Senior Relationship Manager with a focus on soft commodities in the Black Sea and Middle East areas.
End of 2009, he joined Arab Bank (Switzerland) Ltd. to start the Commodities & Trade Finance division which has success-fully developed into a core business of the Bank.
Rachid Jami Head of Credit
Rachid joined Arab Bank (Switzerland) Ltd. in May 2011 as Head of Credit. He was appointed to the Executive Committee in May 2018. Additionally, he serves as Deputy Chairman of the Bank’s Credit Committees and acts as Secretary of the Board of Directors Credit Committee. He was Board Member of Arab Bank Pension Fund from 2014 to 2017 representing the Bank’s employees.
Prior to joining Arab Bank (Switzerland) Ltd., he began his financial career in 2000 in Switzerland at American Express Geneva, followed by Banque Migros SA. He then joined So-ciété Générale Suisse SA and BNP Paribas Suisse SA where he worked as a Senior Credit Analyst.
Rachid holds a MSc. in economics from the Hassan II Univer-sity of Casablanca.
Imed Khammari Chief Risk Officer
Imed holds a Master’s Degree in Banking and Finance from the University of Lausanne. Since June 2012, he occupies the position of Chief Risk Officer of Arab Bank (Switzerland) Ltd. and was appointed to the Executive Committee in April 2018. From 2006 to 2012, he occupied the position of deputy Chief Risk Officer at Tradition Group. Before that, he worked for EFG group as senior risk auditor from 2003 to 2006. From 1998 to 2003, he was risk manager at Ernst & Young.
14 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 15 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018
Patrick Pillon Head Legal & Compliance
Patrick holds a law degree from the University of Geneva and was admitted to the Geneva bar in 1997. After working several years as a partner in a law firm in Geneva (Woodtli & Asso-ciés), he joined an international financial institution based in Switzerland (BNP Paribas Suisse SA) in 2000 as member of the Management and senior legal counsel specialized in com-modity trade finance activities. In 2009, he joined Arab Bank (Switzerland) Ltd. where he was appointed to the Executive Committee in May 2012, as responsible for the Legal & Compliance function. In addition, he acts as Secretary of the Board Audit & Risk Committee.
Mark de Snaijer Chief Operating Officer
Mark holds a doctorate in economics, thesis in industrial eco-nomics, University of Berne. In 1992, he worked at the Credit department of Swiss Bank Corporation in Basel.
From 1993 until 2000, he worked as a researcher, first at the University of Berne at the newly founded Department of Eco-nomics, and finalized his doctoral thesis later at Credit Suisse Group in Zurich.
The year after, he worked at the Cantonal Bank of Basel Land in Liestal as Chief of Staff, and joined in 2001 its subsidiary ATAG Asset Management in Berne as Head Business Development for four years.
From 2006 until 2009, he worked for Bank CIC (Suisse) in Basle, first as Head Operations and Deputy COO and from 2007 as COO and member of the Executive Committee. Starting 2010, he joined Arab Bank (Switzerland) Ltd., first as deputy COO and Head Client Services & Logistics, and in 2012 as COO and member of the Executive Committee.
18 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL HIGHLIGHTS
CHF MILLION2018 2017 VARIANCE VARIANCE
%
Balance SheetBalance sheet total 3 857 3 454 403 12
Amounts due from customers 1 291 1 059 232 22
Trading portfolio and financial investments 451 436 15 3
Shareholders’ equity (before profit distribution) 560 536 24 4
Income StatementResults from interest operations 17 2 1 - 4 - 19
Results from commissions from business and services 29 28 1 4
Net income from trading operations 33 18 15 83
Other results from ordinary activities - 0.3 - 1 0.7 - 70
Operating expenses - 47 - 49 2 - 4
Gross Profit 32 17 15 88
Depreciation, provisions, value adjustments and losses - 4 9 - 13 - 144
Operating result 28 26 2 8
Net extraordinary results, and change in reserves for general banking risks 2 - 3 5 - 167
Taxes - 13 - 9 - 4 44
Consolidated profit for the period 17 14 3 21
18 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 19 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
COMMENTS ON CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET
Consolidated Income StatementThe consolidated net income increased from CHF 14.1 million in 2017 to CHF 17.1 million in 2018 (+21%). Despite the fact that the Bank is facing a challenging global environment and increa-sing competition for MENA clients, the three business lines, Commodity and Trade Finance, Private Banking and Treasury have strongly increased their activity volumes and their pro-fitability over 2018.
The negative interest rates applied by the SNB on deposits held with them had a major impact on our net interest income which ended at CHF 17.4 million in 2018 (CHF 21.1 million in 2017).
The result from commissions and service fees increased by 5 % to reach CHF 29.3 million, mostly attributable to the trade finance and private banking activities.
The results from trading operations increased by 80%.
The heavy extra costs incurred due to new requirements and regulations have been mitigated by very strong cost controls which led to an operating expense total of CHF 47.3 million.
The cost/income ratio dropped from 74% to 59% .
Consolidated Balance Sheet and Off-Balance SheetThe total consolidated Balance Sheet amounted to CHF 3.9 billion at the end of 2018. The consolidated balance sheet is very liquid as the Bank has maintained an average deposit with the Swiss National Bank of around CHF 1.0 billion over the course of the year.
Loans to customers were at CHF 1’291 million and mortgages at CHF 81 million.
Assets under Management amounted to CHF 3.8 billion as of 31st December, 2018.
20 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET AND OFF-BALANCE SHEETTRANSACTIONSAT DECEMBER 31, 2018
CHF 2018 2017 VARIANCE
AssetsLiquid assets 1 045 382 898 805 832 016 239 550 882
Amounts due from banks 827 781 846 906 31 8 055 - 78 536 209
Amounts due from customers 1 290 923 804 1 058 729 822 232 193 982
Mortgage loans 81 433 21 3 86 581 105 - 5 147 892
Trading portfolio 22 364 155 27 720 280 - 5 356 1 25
Positive replacement values of derivatives 20 158 437 9 747 872 10 410 565
Financial investments 428 203 328 408 280 953 19 922 375
Accrued income and prepaid expenses 53 809 330 48 386 80 1 5 422 529
Participations 50 006 184 65 934 1 56 - 1 5 927 972
Tangible fixed assets 32 097 586 33 784 737 - 1 687 1 5 1
Other assets 5 309 1 1 3 2 296 299 3 012 814
Total assets 3 857 469 894 3 453 612 096 403 857 798
Total subordinated claimsOf which with conversion obligation and / or debt waiver
123 6 13 774 0
1 22 376 679 0
1 237 095 0
LiabilitiesAmounts due to banks 2 139 575 735 1 659 777 878 479 797 857
Amounts due to customers 1 072 306 983 1 1 59 918 379 - 87 6 1 1 396
Negative replacement values of derivatives 22 553 144 1 5 541 065 7 01 2 079
Accrued expenses and deferred income 55 033 707 50 434 223 4 599 484
Other liabilities 1 226 063 772 49 1 453 572
Provisions 6 754 224 3 1 333 337 - 24 579 1 1 3
Reserves for general banking risks 98 6 13 36 1 84 446 048 14 1 67 3 1 3
Share capital 26 700 000 26 700 000 0
Reserves from capital contribution 0 7 309 950 - 7 309 950
Retained earnings 416 772 125 402 632 78 1 14 139 344
Reserves for currency translation 814 939 606 600 208 339
Consolidated profit for the period 17 1 1 9 6 13 14 139 344 2 980 269
Total liabilities 3 857 469 894 3 453 612 096 403 857 798
Off-balance sheet transactions Contingent liabilities 395 855 453 306 476 809 89 378 644
Irrevocable commitments 73 419 744 80 808 094 - 7 388 350
Credit commitments 4 727 624 2 1 7 1 5 658 - 1 6 988 034
20 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 21 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATEDINCOME STATEMENTAT DECEMBER 31, 2018
CHF 2018 2017 VARIANCE
Results from interest operations :Interest and discount income 43 589 934 30 382 906 13 207 028
Interest and dividend income from trading portfolio 355 455 266 045 89 410
Interest and dividend income from financial investments 8 469 787 7 245 155 1 224 632
Interest expense - 34 342 689 - 16 680 988 - 17 661 70 1
Gross results from interest operations 18 072 487 21 213 1 1 8 - 3 140 631
Change in value adjustments due to default risk as well as lossesfrom interest operations - 703 969 - 1 10 804 - 593 165
Subtotal net results from interest operations 17 368 51 8 21 102 314 - 3 733 796
Results from commissions from business and services :Commission income from securities trading and investment activities 14 523 240 13 266 7 12 1 256 528
Commission income from lending activities 15 567 8 1 7 14 539 81 7 1 028 000
Commission income from other services 952 335 1 002 009 - 49 674
Commission expense - 1 7 1 1 409 - 963 7 1 5 - 747 694
Subtotal results from commissions from business and services 29 331 983 27 844 823 1 487 160
Net income from trading operations 33 229 595 18 503 732 14 725 863
Other results from ordinary activities :
Results from the sale of financial investments 0 - 9 801 9 801
Income from participations - 872 999 - 1 438 889 565 890
of which participations valued according to the equity method - 872 999 - 1 438 889 565 890
Results from real estate 483 830 578 585 - 94 755
Other ordinary income 60 088 1 314 58 774
Other ordinary expenses - 7 681 0 - 7 681
Subtotal other results from ordinary activities - 336 762 - 868 791 532 029
Total income 79 593 334 66 582 078 13 011 256
Operating expenses : Personnel expenses - 31 610 1 33 - 32 1 1 4 925 504 792
General and administrative expenses - 1 5 704 5 1 7 - 1 7 236 272 1 531 755
Subtotal operating expenses - 47 3 14 650 - 49 351 197 2 036 547
Gross profit 32 278 684 17 230 881 15 047 803
Value adjustments on participations as well as depreciation on tangible fixed assets - 16 936 574 - 2 022 035 - 14 9 14 539
Changes in provisions and other value adjustments as well as losses 12 91 1 440 1 1 148 032 1 763 408
Operating result 28 253 550 26 356 878 1 896 672
Extraordinary income 15 870 369 510 971 15 359 398
Extraordinary expenses - 60 000 - 1 358 - 58 642
Change in reserves for general banking risks - 14 1 67 3 1 3 - 4 064 414 - 10 102 899
Taxes - 12 776 993 - 8 662 733 - 4 1 1 4 260
Consolidated profit for the period 17 1 1 9 613 14 139 344 2 980 269
22 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOWSTATEMENT
2018 2017
CHF 1 000SOURCE OF
FUNDSAPPLICATION
OF FUNDSSOURCE OF
FUNDSAPPLICATION
OF FUNDS
Cash flow from operating businessProfit for the period 17 120 14 139
Reserves for general banking risks 14 1 67 4 064
Value adjustments on participations as well as depreciation on tangible fixed assets 16 937 4 143
Provisions and other value adjustments 24 579 1 1 502
Accrued income and prepaid expenses 5 423 9 995
Accrued expenses and deferred income 4 599 6 603
Previous year dividend 7 310 7 310
Balance 15 5 1 1 142
Cash flow from transactions in participations and tangible fixed assetsParticipations 928 2 459
Reserves for currency translation 208 388
Real estate 584 584
Other tangible fixed assets 335 1 96
Balance 887 3 627
Cash flow from the banking businessMedium to long-term business (>1 year)Other liabilities 454 64
Amounts due from customers 3 033
Mortgages loans 5 148 8 140
Financial investments 30 131 47 545
Other receivables 3 013 124
Short-term businessAmounts due to banks 479 798 1 77 168
Liabilities from securities financing transactions 64 265
Amounts due to customers 87 61 1 310 25 1
Negative replacement values of derivatives 7 012 2 575
Amounts due from banks 78 536 92 7 1 1
Amounts due from customers 229 1 61 81 61 8
Amounts due arising from trading transactions 5 356 23 358
Positive replacement values of derivatives 10 4 1 1 229
Financial investments 10 209
LiquidityLiquid assets 239 551 38 545
Balance 16 398 3 485
Total source of funds 16 398 3 627
Total application of funds 16 398 3 627
22 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 23 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CHF 1 000 SHA
RE
CA
PITA
L
RES
ERV
ES F
ROM
C
API
TAL
CON
TRIB
UTI
ON
RES
ERV
ES F
OR
GEN
ERA
L BA
NKI
NG
RIS
KS
RET
AIN
ED E
AR
NIN
GS
RES
ERV
ES F
OR
CUR
REN
CY
TR
AN
SLAT
ION
CON
SOLI
DAT
ED P
ROFI
TFO
R TH
E PE
RIO
D
TOTA
L
Shareholders’ equity as at December 31, 2017 26 700 7 31 0 84 446 41 6 772 607 0 535 835Dividends and other distributions 0 0 0 - 7 310 0 0 - 7 31 0
Dissolution of reserves from capital contribution 0 - 7 31 0 0 7 31 0 0 0 0
Allocation to the reserves for general banking risks 0 0 14 1 67 0 0 0 14 1 67
Translation differences 0 0 0 0 208 0 208
Consolidated profit for the period 0 0 0 0 0 17 120 17 120
Shareholders’ equity as at December 31, 2018 26 700 0 98 613 41 6 772 815 17 120 560 020
24 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
Arab Bank (Switzerland) Ltd. (“Bank”) is the main and parent company of Arab Bank (Switzerland) Group (“ABS Group”). Arab Bank (Switzerland) Ltd. is constituted according to Swiss law as an independent company. It started operations in 1962 in Zug, then moved its operations to Zurich soon afterwards. It opened a branch in Geneva in June 1964. The Bank head-quarters were located in Zurich until their transfer to Geneva in 2012. The Bank has a branch in Zurich.
The focus of ABS Group services is on providing asset mana-gement and investment advisory as well as financial planning services for private and institutional clients, in addition to Commodity Trade Finance and other credit-related products and services for commercial and corporate clients.
ABS Group also operates via its subsidiary Arab Bank (Swit-zerland) Lebanon S.A.L., Lebanon and its associate company Ubhar Capital SAOC, Oman.
ABS Group employed 120 people, of which 14 people abroad, on a full-time equivalent basis at the end of 2018 (previous year: 120 people, of which 13 people abroad).
FINMA’s regime for banks of category 4 and 5 In 2018, the Swiss Financial Market Supervisory Authority FINMA has defined a new regime for banks of category 4 and 5 that have high levels of capital and liquidity. Participating institutions will be subject to a substantially less complex regu-latory regime. The regulatory requirements regarding the risk-weighted assets, the net stable funding ratio and disclosure are reduced to a minimum. FINMA, in its July 12th, 2018 letter, has accepted Arab Bank (Switzerland) Ltd in this new regime.
BUSINESS ACTIVITIES
Wealth Management Wealth Management caters and responds to the private banking needs of its predominantly Middle-Eastern cliente-le, providing it with tailor-made solutions and access to an open platform covering the full range of wealth management products, services, mainly investment management, such as advisory services and discretionary portfolio management as well as market research.
Commodities Trade FinanceThe Commodities Trade Finance division ABS Group created at the end of 2009 has become a reference name in the com-modities trade finance sector. ABS Group offers tailored made solutions to finance predominantly Commodities Trading com-panies active in the Soft Commodities, Ferrous and non-Fer-rous Metals and Energy fields with a particular focus on flows going to or originating from the MENA region.
Credit / Financing products and servicesABS Group provides a comprehensive range of credit ins-truments (various types of loans such as Lombard loans, mortgages and guarantees) to its private banking clients en-abling them to fund their commercial business or leverage their private portfolios. ABS Group also offers credit solutions including a comprehensive range of commercial loans and do-cumentary products to its Commodities Trade Finance clients base of commodities trading companies, local exporters and large corporates.
Treasury and Foreign ExchangeABS Group provides its clients with a wide range of products and services in Money Market, Foreign Exchange, Precious Metals and Securities Trading.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 - BUSINESS ACTIVITIESAND PERSONNEL
24 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 25 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
RISK MANAGEMENT & CONTROL
GeneralABS Group has established and implemented a comprehen-sive set of internal policies and procedures in order to manage and monitor the key risks to which it is exposed, and to ensure that Swiss laws and all the relevant guidelines and regulations issued by FINMA and Swiss Bankers Association, as well as the internal rules of ABS Group, are adhered to. Whenever risks are taken, they are identified, measured, monitored and mitigated accordingly.
In conformity with the Swiss Code of Obligations, the Board of Directors formally reviews annually the bank’s key risks and, whenever deemed necessary, takes appropriate measures.
Credit RisksCredits and loans are granted according to clear rules, regula-tions and competencies approved by the Board of Directors. Lending ratios for all categories of collateral have been de-fined. Credit risks are mitigated by strict monitoring of limits (counterparty, group, country) and quality collaterals are as-sessed and reviewed on a regular basis.
Market risksABS Group defines various limits regarding the nature, quality, currency and duration of investments for the Banking and the Trading Book. Beside the daily management of the market risks by Treasury, ABS Group’s Asset & Liability Committee monitors these risks and adherence to the limits on a conti-nuous basis.
As a rule, interest rate risk is minimized by funding loans with matching maturities. ABS Group optimizes asset and liability management in accordance with the anticipated interest rate variation and the limits granted. ABS Group defines limits for refinancing gaps for the Net Economic Value and monitors adherence to these limits on a regular basis.
Liquidity RisksABS Group monitors its liquidity in a way to ensure adequate levels at all times, in line with the regulatory requirements per-taining to the liquidity ratios. Operational RisksABS Group has clear policies, regulations and procedures in place, and maintains an overall control infrastructure that is re-gularly amended to factor-in changes occurring in ABS Group. The assessment of the control framework is reviewed and va-lidated on a regular basis by the Board of Directors upon the Audit Committee recommendation.
Legal & Compliance RisksABS Group implements comprehensive measures to ensure compliance with laws and regulations in order to mitigate legal and reputational risks. The Legal & Compliance department is responsible for supervising these aspects. AML-related risk is subject to Compliance’s continuous focus. Regulatory changes are followed-up upon and are duly and regularly reflected in the Group’s policies.
Compliance ensures appropriate training of the Group’s em-ployees on all relevant subjects.
26 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
General PrinciplesAccounting and valuation principles are governed by the Swiss Code of Obligations, the Federal Law on banks and savings banks, its ordinance and its execution by the Articles of Asso-ciation and the directives issued by the Swiss Financial Markets Supervisory Authority (FINMA).
The consolidated financial statements are presented in confor-mity with the FINMA circular 2015/1 – Accounting - Banks.
The consolidated financial statements are prepared in accor-dance with the rules applicable in Switzerland to consolidated financial statements, using the true and fair view principle.
Consolidation methodThe entities directly or indirectly controlled by ABS Group are consolidated using the global integration method. The share capital is consolidated using the purchase method.
The entities held between 20% and 50% are accounted for un-der the equity method. The net assets and net profit of those entities are reflecting in the consolidated financial statements in proportion to the Group’s percentage stake.
ABS Group’s internal transactions, as well as the intercompany profits, are reported as elimination entries when establishing the consolidated financial statements.
Holdings less than 20% are recognized in non-consolidated participations and are reported in the balance sheet at acqui-sition value, after deduction of any impairment required by the circumstances.
Scope of Consolidation The scope of the consolidation includes, as of 31 December 2018, the following entities :• Arab Bank (Switzerland) Ltd. (ABS), the parent company, • Arab Bank (Switzerland) Lebanon S.A.L., Lebanon, wholly owned by ABS, which activity is Private Banking. Share Capital is LBP 15’000 million.• Ubhar Capital SAOC, Oman, 34% owned by ABS, which provides investment services. Share Capital is OMR 14 million.
Recording of transactionsAll operations executed at the date of the balance sheet were accounted for and evaluated according to recognized prin-ciples. The results of all operations executed are included in the income statement. Recording in the balance sheet of spot transactions, concluded but not yet settled, is done following the trade date accounting principles.
Timeliness of recognitionIncome and expenses are booked as soon as they are acquired or accrued, or as they are incurred, and booked in the related year, and not on the date they are received or paid.
The most important valuation principles can be summarized as follows :
Foreign currency translationsAssets and liabilities denominated in foreign currencies are translated into Swiss francs at the exchange rates on the balance sheet closing date, except the participations which are translated at the historical rate. Income and expenses are converted at the exchange rate in force on the transaction date. Exchange gains and losses resulting from conversion into Swiss Francs of positions and operations denominated in foreign currencies are booked to Income from trading.
Translation of foreign currencies in ABS Group financial statementsFor consolidation purposes, in order to convert into CHF the annual financial statements denominated in foreign curren-cies, the following methods have been applied.
For the balance sheet, the closing rate has been used, except for equity which has been converted using historical rates.
For the income statement, the average rate has been applied.
The resulting foreign exchange differences have been ac-counted for in the reserves for currency translation (equity), without impacting the income statement.
2- ACCOUNTING POLICIES AND VALUATION PRINCIPLES
26 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 27 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
The rates applied for the conversion of the main currencies into Swiss francs are the following :
CLOSING AVERAGE 31.12.2018 2018USD 0.9843 0.9767EUR 1 . 1 266 1 . 15 19GBP 1.2545 1 .3006CAD 0.7266 0.7533
Liquid assets and amounts due to / from banks These balances are shown on the balance sheet at the nominal value after deduction of individual bad debt provisions, if any are required.
Claims and liabilities in respect of customers and mortgage loansThese amounts are recorded at their nominal value. Valuation adjustments are made for identifiable risks. General provisions exist for contingent risks. Lending against collateral is made within the generally accepted lending principles. These are stipulated in the internal rules and regulations. The valuation of real estate is based on market value, which is determined according to generally accepted valuation methods.
Impaired customer loans are subject to individual valuation and, should the case arise, to an individual value adjustment, directly deducted from this caption, equivalent to the part of the amount which is not secured by collateral, as soon as the loan is reported impaired.
Interest and commission income, which is overdue for more than 90 days, will only be booked after payment. Trading positions in securities and precious metalsTrading positions are valued at market prices on the balance sheet date.
Profits and losses on prices are booked to result from trading operations.
Replacement values of derivative financial instrumentsReplacement values of derivative financial instruments are calculated and accounted for in order to take into account the cost or the gain resulting from a potential counterparty delivery failure.
The positive replacement values are accounted for in the ba-lance sheet on the asset side, and the negative replacement values on the liability side, for all the derivative financial ins-truments outstanding at balance sheet date which would re-sult from own account or customer transactions, irrespective of the accounting treatment in the income statement.
Financial investmentsFinancial investments, acquired with the intent to be held un-til maturity, are carried in the balance sheet under “financial investments”. The difference between the nominal value and the acquisition cost is spread over the period remaining to maturity (accrual method) and booked to the “interest and dividend income on financial investments”.
Tangible Fixed AssetsFixed assets are stated in the balance sheet at their cost price and depreciated using the straight-line method over a period corresponding to the useful economic life of the different types of assets. The depreciation rates used are as follows::
• Bank building : maximum 50 years• Building improvement costs : maximum 10 years• Furniture and fixtures : maximum 5 years• Vehicles : maximum 5 years• Software : maximum 5 years• IT hardware : maximum 3 years
28 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
Intangible assetsAny goodwill or acquisition difference resulting from the pur-chase of activities or firms is reported in the balance sheet under intangible assets. ABS Group depreciates any goodwill over its estimated useful life using the straight line method.
Valuation Adjustments and ProvisionsValuation adjustments and specific provisions are made for all identifiable risks existing at the balance sheet date.
Reserves for general banking risksReserves for general banking risks are reserves constituted out of prudence with the objective to cover unforeseen and non-recurrent banking risks. The underlying tax charge is posted to deferred tax provisions and is determined on the basis of tax rates in force. CHF 80,381,634 are net of tax.
TaxesTaxes are calculated in accordance with relevant tax laws and are either paid or provisioned for.
The caption taxes in the consolidated income statement in-cludes current income taxes of ABS Group companies as well as deferred taxes. Deferred taxes are recorded in accordance with requirements. The tax effects arising from temporary differences between the carrying value and tax value of assets and liabilities are recorded as deferred taxes.
Current taxes are accrued for in the liability side of the balance sheet under accrued expenses, and deferred tax liabilities are reported under provisions. Deferred taxes are calculated based on the expected tax rates.
Policy applicable in respect of derivative financial instrumentsThe derivative financial instruments are mainly used in opera-tions for the account of customers. To avoid any exposure, ABS Group concludes back-to-back transactions on the financial markets.
ABS Group uses financial derivative instruments when dee-med adequate in order to hedge the foreign currency exposure on its revenues, an important proportion of which derives from underlying assets denominated in foreign currencies, particu-larly in USD and EUR.
Premiums paid or received in relation to these operations are recognized in the balance sheet within the lines positive and negative replacement values. They are reported prorata tem-poris in the income statement item which is subject to the hedge transaction until maturity.
The positive or negative replacement values are recognized in the balance sheet. Should a hedge transaction exceed the underlying amount to be covered (inefficiency), the amount resulting from the excess of hedge would be accounted for in the trading results. Definition Client Assets & Net Increase / (Decrease) of Client AssetsClient assets are asset values of clients, for which ABS Group renders investment and advisory services. Custody portfolios and asset values, which are held exclusively for transaction and custodian purposes, are not included in the client assets. The same applies for loans and purely commercial clients. The net increase / (decrease) of client assets consists of the sum of all individual money deposits and payments as well as security incoming and outgoing deliveries, whereby new loans and loan repayments are accounted for. Interest and dividends credited to clients as well as debit interest, commissions and charges debited for bank services, are excluded from the calculation of the net increase/(decrease) of client assets, as they form part of the client performance – the same is valid for variations in client assets due to market currency and security prices.
28 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
Pension PlanABS Group only operates pension plan for its employees in Switzerland.
Arab Bank (Switzerland) Ltd. maintains legally separated welfare schemes for its 104 active insured parties at the date of the balance sheet (2017 : 108) and 50 retired (2017 : 48). The pension plan is based on the Swiss defined contribution system (defined contribution plans in accordance with “Swiss GAAP FER 26”). The Bank carries approximately two thirds of the pension cost. The cost carried by the bank is shown under the information on the balance sheet (note “Information on payables to own employee pension fund”).The pension fund liabilities as well as the plan assets are le-gally separated from the Bank in fully funded independent foundations. Organization, management and financing of the pension plan are subject to Swiss Federal regulations and to the constitution of the foundations (trust deed) as well as the currently valid regulations of the pension plan.
Subsequent eventsThe participation Turkland Bank A.S. has been sold at the be-ginning of 2019. No further gain or loss raised from this tran-saction. This transaction is subject to the Turkish authorities’ approval.
30 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
3 - INFORMATION ON THECONSOLIDATED BALANCE SHEETAT DECEMBER 31, 2018
TYPE OF COLLATERALCOLLATERAL FOR LOANSAND OFF-BALANCE SHEETTRANSACTIONS, AS WELL ASDOUBTFUL RECEIVABLESCHF 1 000
MORTGAGE
2018
OTHER
2018
UNSECURED
2018
TOTAL
2018
Loans (before offsetting any value adjustments)
Amounts due from customers 5 372 593 158 707 278 1 305 808Mortgage loans
- Residential property 62 7 1 8 0 0 62 7 1 8
- Commercial property 13 800 0 0 13 800 - Commercial and industrial real estate 4 9 15 0 0 4 915
Total loans (before offsetting any value adjustments) 86 805 593 158 707 278 1 387 241
Previous year 88 215 546 852 524 302 1 159 369
Total loans (after offsetting any value adjustments) 86 805 578 274 707 278 1 372 357
Previous year 88 215 532 794 524 302 1 145 3 1 1
Off-balance sheet transactionsContingent liabilities 0 149 757 246 098 395 855Irrevocable commitments 0 8 407 65 0 13 73 420Credit commitments 0 2 704 2 024 4 728
Total off-balance sheet transactions 0 160 868 313 135 474 003
Previous year 0 82 1 9 1 326 810 409 001
Gross amount due
Estimated liquidation proceeds
of the collateral Net amount dueIndividual value
adjustments
CHF 1 000 2018 2018 2018 2018
Doubtful receivables 15 232 348 14 884 14 884
Previous year 14 484 426 14 058 14 058
30 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 31 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
TRADING PORTFOLIOCHF 1 000 2018 2017
Assets - Trading portfolio
Debt instruments, money-market instruments, money-market transactions 0 0
- of which listed 0 0
Equity securities 22 364 27 720
Total assets - Trading portfolio 22 364 27 720
- of which securities allowed for repos as per liquidity provisions 0 0
- of which determined using a valuation model 0 0
32 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
TRADING INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS AND LIABILITIES) PO
SITI
VE
REP
LACE
MEN
T VA
LUE
NEG
ATIV
E R
EPLA
CEM
ENT
VALU
E
CON
TRA
CT
VOLU
ME
CHF 1 000 2018 2018 2018
Interest rate instruments
- Swaps 0 0 0
Foreign exchange / precious metal
- Forward contracts 13 276 15 548 2 002 259
- Options (OTC) 1 890 1 880 180 269
Participations / indices
- Options (exchange-traded) 4 992 4 993 659 354
Total before netting agreements 20 1 58 22 421 2 841 882
Previous year 9 748 15 394 2 1 85 487
CHF 1 000
Positive replacement
value(cumulative)
2018
Negative replacement
value (cumulative)
2018
Total after netting agreements 20 158 22 553
Previous year 9 748 15 541
HEDGING INSTRUMENTS
POSI
TIV
E R
EPLA
CEM
ENT
VALU
E
NEG
ATIV
E R
EPLA
CEM
ENT
VALU
E
CON
TRA
CT
VOLU
ME
2018 2018 2018
0 132 3 764
0 0 0
0 0 0
0 0 0
0 132 3 764
0 147 3 955
BREAKDOWN ACCORDING TO COUNTERPARTIES CE
NTR
AL
CLEA
RIN
G P
ART
IES
BAN
KS A
ND
SE
CURI
TIES
DEA
LERS
OTH
ER C
LIEN
TS
TOTA
L
CHF 1 000 2018 2018 2018 2018
Positive replacement values (after netting agreements) 0 10 550 9 608 20 158
32 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 33 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
BOOK VALUE FAIR VALUEFINANCIAL INVESTMENTSCHF 1 000 2018 2017 2018 2017
Debt instruments 428 168 408 246 426 898 410 099
- of which held until maturity 428 168 408 246 426 898 410 099
Participations 35 35 40 37
Total 428 203 408 281 426 938 410 136
- of which securities allowed for repos as per liquidity provisions 264 1 53 1 10 291 262 246 1 1 1 204
2018
BREAKDOWN OF THE COUNTERPARTY ACCORDING TO RATING CHF 1 000
AAA TO AA-
A+ TO A-
BBB+ TOBBB-
BB+ TO B-
LOWER THAN
B- UNRATED TOTAL
Debt instruments : book value 172 374 90 769 20 321 1 325 0 143 379 428 168
The above mentioned ratings have been issued by Standard & Poor’s.
34 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
2018
PARTICIPATIONSCHF 1 000 A
CQU
ISIT
ION
VA
LUE
ACC
UM
ULA
TED
VA
LUE
AD
JUST
MEN
TS
BOO
K VA
LUE
AS
AT D
ECEM
BER
31,
2017
REC
LASS
IFIC
ATIO
NS
INV
ESTM
ENTS
DIS
INV
ESTM
ENTS
VALU
E A
DJU
STM
ENTS
BOO
K VA
LUE
AS
AT D
ECEM
BER
31, 2
018
Participations valued according to the equity method - with a market value 0 0 0 0 0 0 0 0 - with no market value 12 692 - 1 439 1 1 253 0 0 0 - 928 1 0 325
Other participations - with a market value 0 0 0 0 0 0 0 0 - with no market value 54 681 0 54 681 0 0 0 - 15 000 39 681
Total participations 67 373 - 1 439 65 934 0 0 0 - 15 928 50 006
COMPANIES IN WHICH ABS GROUP PERMANENTLY HOLDS DIRECT OR INDIRECT SIGNIFICANT PARTICIPATION DOMICILE
BUSINESS ACTIVITY
COMPANY CAPITAL
SHARE OF CAPITAL
IN%
DIRECT SHARE OF
VOTING RIGHTS
IN %CONSOLIDATION
METHOD
Arab Bank (Switzerland) Lebanon S.A.L. Lebanon Bank LBP 15 000 000 000 100.00 100.00
Global integration method
Ubhar Capital SAOC Oman Investment OMR 14 000 000 34.00 34.00 Equity method
Turkland Bank A.S. Turkey Bank TRI 650 000 000 1 6.67 16.67 Non-consolidated
Turkland Bank A.S. has not been consolidated because Arab Bank (Switzerland) Ltd. owns 16.67% and does not have otherwise the control of this company.The participation Turkland Bank A.S. has been sold at the beginning of 2019. No further gain or loss raised from this transaction. This transaction is subject to the Turkish authorities' approval.
34 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 35 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
2018
TANGIBLE FIXED ASSETSCHF 1 000 A
CQU
ISIT
ION
VA
LUE
ACC
UM
ULA
TED
D
EPR
ECIA
TIO
N
BOO
K VA
LUE
AS
AT D
ECEM
BER
31,
2017
REC
LASS
IFIC
ATIO
NS
INV
ESTM
ENTS
DIS
INV
ESTM
ENTS
WRI
TE-O
FFS
/ D
EPR
ECIA
TIO
N
BOO
K VA
LUE
AS
AT D
ECEM
BER
31, 2
018
Real estate (group building) 43 733 10 701 33 032 - 258 92 0 1 407 31 459Other real estate 14 228 14 228 0 258 5 0 35 228Software 539 294 245 0 100 0 1 69 176Other tangible fixed assets 1 915 1 407 508 0 52 0 325 235
Total tangible fixed assets 60 415 26 630 33 785 0 249 0 1 936 32 098
OTHER ASSETS OTHER LIABILITIESOTHER ASSETS AND OTHER LIABILITIESCHF 1 000 2018 2017 2018 2017
Compensation account 52 38 0 0
Indirect tax 432 359 420 438
Escrow account 2 749 0 0 0
Not paid dividends 0 0 144 65
Other 2 076 1 899 662 269
Total 5 309 2 296 1 226 772
INFORMATION ON PAYABLES TO OWN EMPLOYEE PENSION FUNDCHF 1 000 2018 2017
Due to own pension plan 6 804 6 043
ECONOMIC SITUATION OF OWN EMPLOYEE PENSION FUND
ABS Group only operates pension plan for its employees in Switzerland. Please refer to the section “Pension Plan” in the notes of the consolidated financial statements. As at December 31st 2018, there was no economic obligation to be booked in ABS Group's balance sheet or income statement.
36 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
2018
VALUE ADJUSTMENTS AND PROVISIONS AS WELL AS RESERVES FOR GENERAL BANKING RISKSCHF 1 000 BA
LAN
CE A
S AT
DEC
EMB
ER 3
1, 20
17
USE
IN C
ON
FOR
MIT
Y
WIT
H D
ESIG
NAT
ED
PUR
POSE
REC
LASS
IFIC
ATIO
NS
FOR
EIG
N E
XCH
AN
GE
DIF
FER
ENCE
S
OV
ERD
UE
INTE
RES
T,R
ECO
VER
IES
NEW
AD
JUST
MEN
TS
DEB
ITED
TO
INCO
ME
REL
EASE
S CR
EDIT
ED
TO IN
COM
E
BALA
NCE
AS
AT D
ECEM
BER
31, 2
018
Provisions for deferred taxes 1 869 0 0 0 0 4 463 0 6 332
Provisions for other business risks 10 0 0 0 0 0 0 10
Other provisions 29 454 0 0 8 0 4 1 -29 091* 41 2
Total provisions 31 333 0 0 8 0 4 504 -29 091 6 754
Reserves for general banking risks 84 446 0 0 0 0 14 1 67 0 98 61 3
Value adjustments for default risks and country risks 14 058 0 0 1 19 - 176 883 0 14 884
- of which value adjustments for default risks due to doubtful receivables 14 058 0 0 1 19 - 176 883 0 14 884
The amount of CHF 80'381'634 of reserves for general banking risks are free of taxes.* The releases credited to income of CHF 29.1 million mainly comprised the release of CHF 15.0 million in relation with a permanent participation accounted for under “Extraordinary income”, and the release of a prior year general provision to cover latent credit risk, which is not eligible to be considered as economically justified anymore. An allocation to the reserve for general banking risks has been created during the year.
AMOUNTS DUE FROM AMOUNTS DUE TO
AMOUNTS DUE FROM AND DUE TO RELATED PARTIESCHF 1 000 2018 2017 2018 2017
Associated companies 353 279 268 712 1 791 341 1 160 432
Transactions with members of governing bodies 8 1 767 62 204 19 838 0
The "Amounts due from" and "Amounts due to" associated companies represent the interbanks business concluded with Arab Bank PLC., Amman and its subsidiaries.The "Transactions with members of governing bodies" includes mortgages and contingent liabilities granted at market conditions.
36 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 37 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
2018
MATURITY STRUCTURE OF FINANCIAL INSTRUMENTSCHF 1 000 AT
SIG
HT
RED
EEM
AB
LE B
YN
OTI
CE
DU
E W
ITH
IN3
MO
NTH
S
DU
E W
ITH
IN
3 TO
12 M
ON
THS
DU
E W
ITH
IN
1 TO
5 Y
EARS
DU
E A
FTER
5 YE
ARS
TOTA
L
Asset / financial instrumentsLiquid assets 1 045 383 0 0 0 0 0 1 045 383Amounts due from banks 325 484 0 353 910 148 388 0 0 827 782Amounts due from customers 0 589 050 604 822 93 399 3 142 5 1 1 1 290 924Mortgages loans 0 46 595 1 223 0 7 569 26 046 81 433Trading portfolio 22 364 0 0 0 0 0 22 364Positive replacement values of derivatives 0 0 1 2 91 3 7 1 84 6 1 0 20 158Financial investments 0 0 16 858 42 980 1 27 1 1 9 241 246 428 203
Total reporting year 1 393 231 635 645 989 726 291 951 137 891 267 803 3 716 247
Previous year 1 227 596 437 628 972 355 292 878 164 446 208 307 3 303 210
Liabilities / financial instruments
Amounts due to banks 31 6 430 1 363 1 94 459 952 0 0 0 2 139 576Amounts due to customers 1 01 3 3 1 1 27 797 29 21 6 1 983 0 0 1 072 307
Negative replacement values of derivatives 0 0 15 278 7 082 193 0 22 553
Total reporting year 1 329 741 1 390 991 504 446 9 065 193 0 3 234 436
Previous year 1 454 1 1 5 100 237 1 201 078 79 660 147 0 2 835 237
38 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
2018 2017ASSETS AND LIABILITIES BY DOMESTIC AND FOREIGN ORIGINCHF 1 000 DOMESTIC FOREIGN DOMESTIC FOREIGN
AssetsLiquid assets 1 043 765 1 61 8 804 668 1 1 64
Amounts due from banks 228 453 599 329 204 622 701 696
Amounts due from customers 342 626 948 298 23 1 457 827 273
Mortgages loans 49 1 5 1 32 282 37 203 49 378
Trading portfolio 4 1 5 1 18 2 1 3 4 270 23 450
Positive replacement values of derivatives 5 759 14 399 3 575 6 1 73
Financial investments 76 343 351 861 39 883 368 398
Accrued income and prepaid expenses 48 067 5 742 43 324 5 063
Participations 0 50 006 0 65 934
Tangible fixed assets 31 773 325 33 380 405
Other assets 3 351 1 958 369 1 927
Total assets 1 833 439 2 024 031 1 402 751 2 050 861
Liabilities Amounts due to banks 90 102 2 049 474 74 139 1 585 639
Amounts due to customers 76 208 996 099 85 920 1 073 998
Negative replacement values of derivatives 10 955 1 1 598 9 996 5 545
Accrued expenses and deferred income 53 224 1 810 45 648 4 786
Other liabilities 1 123 103 685 88
Provisions 6 642 1 1 2 3 1 264 69
Reserves for general banking risks 98 6 13 0 84 446 0
Share capital 26 700 0 26 700 0
Reserves from capital contribution 0 0 7 3 10 0
Retained earnings 416 772 0 402 633 0
Reserves for currency translation 8 1 5 0 607 0
Consolidated profit for the period 17 120 0 14 1 39 0
Total liabilities 798 274 3 059 196 783 487 2 670 1 25
38 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 39 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
2018 2017
ASSETS BY COUNTRIES / REGIONS CHF 1 000 % CHF 1 000 %
EuropeSwitzerland 1 833 439 47.5 1 402 751 40.6
United Kingdom 258 1 83 6.7 304 564 8.8
Turkey 67 676 1.8 107 1 92 3.1
Other 67 1 98 1.8 36 004 1 .1
Germany 64 985 1.7 55 694 1.6
Netherlands 63 924 1.7 68 410 2.0
France 35 902 0.9 34 590 1.0
Luxembourg 23 882 0.6 21 8 1 8 0.6
Austria 22 362 0.6 16 822 0.5
Norway 6 1 34 0.2 15 228 0.4
Sweden 4 528 0.1 9 882 0.3
Middle EastLebanon 3 1 9 262 8.3 307 325 8.9
Other 159 523 4. 1 258 2 1 5 7.5
United Arab Emirates 140 089 3.6 145 400 4.2
Jordan 140 067 3.6 1 2 1 659 3.5
Qatar 23 791 0.6 2 540 0.1
AmericaOther American countries 189 322 4.9 1 52 475 4.4
USA / Canada 136 205 3.5 1 27 685 3.7
Far East 120 424 3.1 130 784 3.8
Other countries 180 574 4.7 1 34 574 3.9
Total assets 3 857 470 100.0 3 453 61 2 100.0
NET EXPOSURE ABROAD2018
NET EXPOSURE ABROAD2017
BREAKDOWN OF TOTAL ASSETS ABROADACCORDING TO THE CREDIT RATING OF REGIONS(RISK DOMICILE PRINCIPLE) CHF 1 000 % CHF 1 000 %
AAA 3 1 1 466 1 5 291 73 1 14
AA+ - AA- 487 409 24 498 884 24
A+ - A 30 242 1 32 800 2
BBB+ - BBB- 135 193 7 96 1 52 5
BB+ - BB- 1 8 043 1 14 1 224 7
B+ - B- 759 837 38 530 120 26
CCC+ - D 0 0 8 249 0
Unrated 281 841 14 451 701 22
Total 2 024 031 100 2 050 861 100
The ratings used are the Standard & Poor’s (S&P) ratings for country risks.
40 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2017 / CONSOLIDATED FINANCIAL STATEMENTS
2018ASSETS AND LIABILITIES BY CURRENCIESCHF 1 000 CHF USD EUR OTHER
AssetsLiquid assets 1 043 375 7 1 7 1 250 4 1
Amounts due from banks 246 726 334 229 1 74 953 7 1 874
Amounts due from customers 1 53 97 1 1 081 054 47 351 8 548
Mortgages loans 49 558 0 0 3 1 875
Trading portfolio 0 1 5 293 6 578 493
Positive replacement values of derivatives 13 555 5 648 1 97 759
Financial investments 199 735 221 145 3 348 3 975
Accrued income and prepaid expenses 48 462 5 081 57 209
Participations 50 006 0 0 0
Tangible fixed assets 3 1 773 0 0 325
Other assets 824 2 834 1 46 1 505
Total on-balance sheet assets 1 837 985 1 666 001 233 880 1 1 9 604
Delivery claims from spot exchange deals, forward exchange deals and currency options transactions 225 734 1 754 237 1 60 094 698 7 1 7
Total assets 2 063 719 3 420 238 393 974 8 1 8 321
LiabilitiesAmounts due to banks 246 096 1 776 566 41 809 75 105
Amounts due to customers 65 220 646 097 21 8 932 142 058
Negative replacement values of derivatives 15 827 5 639 1 96 891
Accrued expenses and deferred income 52 865 1 331 - 8 846
Other liabilities 1 104 34 1 5 73
Provisions 6 597 45 0 1 1 2
Reserves for general banking risks 98 6 13 0 0 0
Share capital 26 700 0 0 0
Reserves from capital contribution 0 0 0 0
Retained earnings 416 772 0 0 0
Reserves for currency translation 0 0 0 8 1 5
Consolidated profit for the period 17 120 0 0 0
Total on-balance sheet liabilities 946 914 2 429 71 2 260 944 21 9 900
Delivery claims from spot exchange deals, forward exchange deals and currency options transactions 1 1 33 1 97 97 1 952 143 753 589 880
Total liabilities 2 080 1 1 1 3 401 664 404 697 809 780
Net positions - 1 6 392 18 574 - 10 723 8 541
42 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
4 - INFORMATION ON CONSOLIDATED OFF-BALANCE SHEET TRANSACTIONS
CONTINGENT LIABILITIESCHF 1 000 2018 2017
Credit guarantees and similar 41 440 43 666
Performance-related guarantees and similar 36 908 53 1 24
Irrevocable commitments due to documentary credits 3 17 507 209 687
Total contingent liabilities 395 855 306 477
FIDUCIARY TRANSACTIONSCHF 1 000 2018 2017
Fiduciary placements with third party companies 998 972 7 1 6 695
Fiduciary placements with Arab Bank PLC Amman and its subsidiaries as well as affiliated companies 186 8 1 7 234 678
Total fiduciary transactions 1 185 789 951 373
ASSETS UNDER MANAGEMENTCHF 1 000 2018 2017
Type of assets under managementAssets in collective investment schemes managed by ABS Group 136 554 86 372
Assets with administrations’ mandate 168 914 188 530
Other client assets 3 5 1 9 959 3 1 77 562
Total assets under management (including double-counting) 1) 3 825 427 3 452 464
- of which double counts 136 554 86 372
Total assets under management (excluding double-counting) 1) 3 688 873 3 366 092
Development of assets under managementTotal assets under management (including double-counting) at the beginning 3 452 464 3 769 779
+ / - Net new money inflows or outflows 2) 250 446 - 67 573
+ / - Market price trend, dividends and currency development 1 22 5 1 7 - 249 742
Total assets under management (including double-counting) at the end 3 825 427 3 452 464
1) Client Assets are asset values of clients, for which ABS Group renders investment and consulting services, but without loans.2) Sum of all individual money deposits and payments as well as security incoming and outgoing deliveries, whereby new loans and loan repayments are accounted for.
CREDIT COMMITMENTSCHF 1 000 2018 2017
Commitments arising from deferred payments 4 728 21 71 6
Total credit commitments 4 728 21 716
42 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 43 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
5 - INFORMATION ON THE CONSOLIDATED INCOME STATEMENT
RESULTS FROM TRADING OPERATIONSCHF 1 000 2018 2017
Equities shares (including funds) -483 766
Foreign exchange 33 713 17 738
Total trading results 33 230 18 504
INFORMATION ON SIGNIFICANT NEGATIVE INTERESTS
In 2015, the Swiss National Bank (SNB) introduced negative interest rates of -0.75% on sight deposit account balances with SNB. The paid and accrued SNB negative interests for the year of 2018 amounted to CHF 7.3 million (2017: CHF 6.5 million).
PERSONNEL EXPENSESCHF 1 000 2018 2017
Salaries 25 883 26 745
Social insurance obligations 1 822 1 7 51
Pension fund 3 202 3 180
Other personnel expenses 703 439
Total personnel expenses 31 610 32 1 15
GENERAL AND ADMINISTRATIVE EXPENSESCHF 1 000 2018 2017
Office space expenses 1 086 946
Expenses for information technology and telecommunications 3 059 2 936
Outsourcing expenses 3 546 5 672
Expenses for motor vehicles, machinery, furniture and other equipment and operating lease expenses 300 422
Audit fees 542 5 1 1
- of which for financial and regulatory audits 492 465
- of which for other services 49 46
Other operating expenses 7 172 6 749
Total general and administrative expenses 15 705 17 236
44 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
OPERATING RESULTS, BROKEN DOWN ACCORDING TO DOMESTIC AND FOREIGN ORIGIN, ACCORDING TO THE PRINCIPLE OF PERMANENT ESTABLISHMENT CHF 1 000
2018 2017
DOMESTIC FOREIGN TOTAL DOMESTIC FOREIGN TOTAL
Net results from interest operations 1 6 158 1 2 1 1 17 369 1 9 770 1 332 2 1 102 Results from commissions from business and services 28 592 740 29 332 27 334 5 1 1 27 845 Net income from trading 33 043 1 87 33 230 18 4 1 1 92 18 503 Other results from ordinary activities 560 - 897 - 337 570 - 1 438 - 868 Operating expenses - 45 100 - 2 21 5 - 47 315 - 47 7 14 - 1 637 - 49 35 1 Value adjustments on participations as well as depreciation on tangible fixed assets - 16 815 - 1 22 - 1 6 937 - 1 908 - 1 1 4 - 2 022
Changes in provisions and other value adjustments as well as losses 12 953 - 4 1 1 2 91 2 1 1 1 83 - 35 1 1 148
Operating result 29 391 - 1 137 28 254 27 646 - 1 289 26 357
CURRENT AND DEFERRED TAXESCHF 1 000 2018 2017
Current taxes 8 314 6 794
Total current taxes 8 314 6 794
The average tax rate was 32.7% of the results for the period before taxes in the current year (previous year : 32.5%).
Deferred taxes 4 463 1 869
Total deferred taxes 4 463 1 869
Deferred tax were calculated using actual expected tax rates.
MATERIAL LOSSES, EXTRAORDINARY INCOME AND EXPENSES AS WELL AS RELEASE OF SIGNIFICANT HIDDEN RESERVES, RESERVES FOR GENERAL BANKING RISKS AND VALUE ADJUSTMENTS AND PROVISIONS NO LONGER NECESSARYCHF 1 000 2018 2017
Extraordinary incomeRelease of provisions* 1 5 545 0
Other extraordinary income 325 5 1 1
Total extraordinary income 15 870 5 1 1
Extraordinary expensesOther extraordinary expenses 60 1
Total extraordinary expenses 60 1
* Of which release of a provision of CHF 15 million created in 2016 in relation with increased risks relating to a permanent participation, instead of recording a valuation adjustment whose economic necessity was not clear at that time.
44 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 45 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
6 - CONSOLIDATED CAPITAL ADEQUACY AND LIQUIDITY DISCLOSURE
CHF 1 000 2018 2017
Eligible capitalCommon Equity Tier 1 Capital (CET1) 538 282 514 081
Total eligible capital 538 282 514 081
Required capitalCredit risks 122 654 120 036
Non-counterparty-related risks 2 554 2 686
Market risks 14 792 11 469
Operational risks 9 873 9 249
Other capital requirement * 7 936 10 341
Total required capital 157 809 153 781
Solvency ratio 27 % 27 %
Leverage ratioLeverage ratio exposure 4 022 176 3 616 033
Leverage ratio 13 % 14 %
CHF 1 000 31.12.2018 30.09.2018 30.06.2018 31.03.2018 31.12.2017
Liquidity ratioTotal High Quality Liquid Assets 1 215 682 1 321 689 1 273 262 1 471 568 924 266
Total Net Cash Outflows 358 675 236 382 187 719 599 343 506 675
Liquidity coverage ratio 339% 559% 678% 246% 182%
* (including National Countercyclical Buffer and items not deducted in application of threshold 3, but risk-weighted with 250%)
46 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS 47 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF THE STATUTORY AUDITOR ON THE CONSOLIDATED FINANCIAL STATEMENTS
As statutory auditor, we have audited the consolidated financial statements of Arab Bank (Switzerland) Ltd., which comprise the balance sheet, income statement, cash flow statement, statement of changes in equity and notes (pages 20 to 44), for the year ended 31 December 2018.
Board of Directors’ responsibilityThe Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with the requirements of Swiss law and the consolidation and valuation principles as set out in the notes. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further res-ponsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our au-dit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evi-dence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial state-ments, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control sys-tem relevant to the entity’s preparation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as eva-
luating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have ob-tained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements for the year ended 31 December 2018 comply with Swiss law and the consolidation and valuation principles as set out in the notes.
Other matterThe consolidated financial statements of Arab Bank (Switzer-land) Ltd. for the year ended 31 December 2017 were audited by another statutory auditor who expressed an unmodified opinion on those consolidated financial statements on 31 De-cember 2017.
REPORT ON OTHER LEGAL REQUIREMENTS
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and indepen-dence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the prepa-ration of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
Ernst & Young Ltd
Stéphane MullerLicensed audit expert
(Auditor in charge)
Milena De SimoneLicensed audit expert
Lancy, 21 February 2019
REPORT OF THESTATUTORY AUDITORTO THE GENERAL MEETING OF ARAB BANK (SWITZERLAND) LTD., GENEVA
Ernst & Young LtdRoute de Chancy 59P.O. BoxCH-1213 Lancy
Phone: +41 58 286 56 56Fax: +41 58 286 56 57www.ey.com/ch
48 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 49 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
FINANCIAL STATEMENTS2018
50 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
BALANCE SHEET AND OFF-BALANCE SHEETTRANSACTIONSAT DECEMBER 31, 2018
CHF 2018 2017 VARIANCE
AssetsLiquid assets 1 044 845 003 804 88 1 5 7 1 239 963 432
Amounts due from banks 819 223 199 897 194 368 - 77 971 169
Amounts due from customers 1 290 259 104 1 057 995 820 232 263 284
Mortgage loans 81 433 2 13 86 58 1 105 - 5 147 892
Trading portfolio 2 1 871 080 27 387 734 - 5 51 6 654
Positive replacement values of derivatives 20 158 437 9 747 872 10 410 565
Financial investments 428 203 329 408 280 953 19 922 376
Accrued income and prepaid expenses 54 015 1 85 48 595 928 5 419 257
Participations 64 860 545 79 860 545 - 15 000 000
Tangible fixed assets 31 773 030 33 379 698 - 1 606 668
Other assets 3 385 058 409 2 9 1 2 975 767
Total assets 3 860 027 183 3 454 314 885 405 712 298
Total subordinated claimsof which with conversion obligation and / or debt waiver
123 6 13 774 0
1 22 376 679 0
1 237 095 0
LiabilitiesAmounts due to banks 2 139 575 735 1 659 777 878 479 797 857
Amounts due to customers 1 072 306 984 1 159 91 8 379 - 87 61 1 395
Negative replacement values of derivatives 22 553 143 1 5 541 065 7 012 078
Accrued expenses and deferred income 53 923 385 48 415 201 5 508 184
Other liabilities 1 1 57 1 67 722 436 434 73 1
Provisions 27 955 988 37 1 94 808 - 9 238 820
Reserves for general banking risks 80 381 634 80 38 1 634 0
Share capital 26 700 000 26 700 000 0
Legal reserves from capital contribution 0 7 309 950 - 7 309 950
Legal retained earnings 22 735 500 22 735 500 0
Voluntary retained earnings 395 500 000 380 500 000 15 000 000
Profit brought forward 1 1 8 034 609 546 - 491 51 2
Profit for the period 17 1 1 9 6 13 14 508 488 2 6 1 1 125
Total liabilities 3 860 027 1 83 3 454 314 885 405 712 298
Off-balance sheet transactionsContingent liabilities 395 854 469 306 475 840 89 378 629
Irrevocable commitments 73 41 9 744 80 808 094 - 7 388 350
Credit commitments 4 727 624 2 1 7 1 5 658 - 16 988 034
50 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 51 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
INCOME STATEMENTAT DECEMBER 31, 2018
CHF 2018 2017 VARIANCE
Results from interest operations :Interest and discount income 42 379 018 29 051 023 13 327 995
Interest and dividend income from trading portfolio 355 455 266 045 89 410
Interest and dividend income from financial investments 8 469 787 7 245 1 55 1 224 632
Interest expense - 34 342 690 - 16 680 988 - 17 661 702
Gross results from interest operations 16 861 570 19 881 235 - 3 019 665
Change in value adjustments due to default risk as well as losses from interest operations - 703 968 - 1 1 0 804 - 593 1 64
Subtotal net results from interest operations 16 157 602 19 770 431 - 3 612 829
Results from commissions from business and services :Commission income from securities trading and investment activities 14 523 240 13 266 7 1 2 1 256 528
Commission income from lending activities 15 567 8 1 8 14 539 8 17 1 028 001
Commission income from other services 935 642 953 297 - 1 7 655
Commission expense - 2 434 291 - 1 426 066 - 1 008 225
Subtotal results from commissions from business and services 28 592 409 27 333 760 1 258 649
Net income from trading operations 33 042 708 18 41 1 326 14 631 382
Other results from ordinary activities :
Results from the sale of financial investments 0 - 9 801 9 801
Results from participations 68 484 0 68 484
Results from real estate 483 830 578 585 - 94 755
Other ordinary income 14 93 1 943 13 988
Other ordinary expenses - 7 682 0 - 7 682
Subtotal other results from ordinary activities 559 563 569 727 - 10 164
Total income 78 352 282 66 085 244 12 267 038
Operating expenses :Personnel expenses - 30 1 1 3 8 1 1 - 30 935 657 821 846
General and administrative expenses - 14 985 986 - 16 778 703 1 792 7 1 7
Subtotal operating expenses - 45 099 797 - 47 714 360 2 614 563
Gross profit 33 252 485 18 370 884 14 881 601
Value adjustments on participations as well as depreciation on tangible fixed assets - 16 81 5 487 - 1 907 838 - 14 907 649
Changes in provisions and other value adjustments as well as losses - 6 893 014 4 249 835 - 1 1 142 849
Operating result 9 543 984 20 712 881 - 1 1 168 897
Extraordinary income 15 870 369 510 97 1 15 359 398
Extraordinary expenses - 60 000 - 1 359 - 58 641
Taxes - 8 234 740 - 6 714 005 - 1 520 735
Profit for the period 17 1 1 9 6 13 14 508 488 2 61 1 125
52 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
CHF 2018 2017 VARIANCE
Profit for the period 17 1 1 9 613 14 508 488 2 6 1 1 1 25
Profit brought forward 1 1 8 034 609 546 - 491 5 1 2
Profit brought forward at the end of the period 17 237 647 1 5 1 1 8 034 2 1 19 613
The Board of Directors proposes :Distribution of dividends 1 1 246 396 7 309 950 3 936 446
Dissolution of legal reserves from capital contribution 0 - 7 309 950 7 309 950
Allocation to voluntary retained earnings 5 500 000 15 000 000 - 9 500 000
Surplus allocated to profit brought forward 491 251 1 1 8 034 373 2 1 7
As stated above 17 237 647 15 1 1 8 034 2 1 1 9 613
Upon acceptance of this proposal, the dividendwill be paid as follows :To the shareholders registered in the share book at March 27, 2019, per share of CHF 0.75 0.3 1 591 0.20534 0.1 1057
Less 35% Swiss withholding tax - 0.1 1 057 0.00000 - 0.1 1057
Net per share 0.20534 0.20534 0.00000
ALLOCATION OFEARNINGS
52 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 53 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
STATEMENT OFCHANGES IN EQUITY
CHF 1 000 SHA
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Shareholders’ equity as at December 31, 2017 26 700 7 310 22 735 80 382 395 618 0 532 745Dividends and other distributions 0 0 0 0 - 7 310 0 - 7 310
Dissolution of legal reserves from capital contribution 0 - 7 310 0 0 7 3 10 0 0
Profit for the period 0 0 0 0 0 17 120 17 120
Shareholders’ equity as at December 31, 2018 26 700 0 22 735 80 382 395 618 17 120 542 555
54 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
Arab Bank (Switzerland) Ltd. is constituted according to Swiss law as an independent company. It started operations in 1962 in Zug, then moved its operations to Zurich soon afterwards. It opened a branch in Geneva in June 1964. The Bank head-quarters were located in Zurich until their transfer to Geneva in 2012. The Bank has a branch in Zurich.
The Bank is a public company with 18’811 shareholders (who are also the shareholders of Arab Bank PLC. in Amman, Jordan) at the end of 2018.
The focus of the services of Arab Bank (Switzerland) Ltd. is on providing asset management and investment advisory as well as financial planning services for private and institutio-nal clients, in addition to Commodity Trade Finance and other credit-related products and services for commercial and cor-porate clients.
The Bank also operates via its subsidiary Arab Bank (Switzerland) Lebanon S.A.L., Lebanon and its associate company Ubhar Capital SAOC, Oman. Arab Bank (Switzerland) Ltd. employed 106 people on a full-time equivalent basis at the end of 2018 (previous year : 107).
FINMA’s regime for banks of category 4 and 5 In 2018, the Swiss Financial Market Supervisory Authority FINMA has defined a new regime for banks of category 4 and 5 that have high levels of capital and liquidity. Participating institutions will be subject to a substantially less complex regu-latory regime. The regulatory requirements regarding the risk-weighted assets, the net stable funding ratio and disclosure are reduced to a minimum. FINMA, in its July 12th, 2018 letter, has accepted Arab Bank (Switzerland) Ltd in this new regime.
BUSINESS ACTIVITIES
Wealth Management Wealth Management caters and responds to the private banking needs of its predominantly Middle-Eastern clientele, providing it with tailor-made solutions and access to an open platform co-vering the full range of wealth management products, services, mainly investment management, such as advisory services and discretionary portfolio management as well as market research.
Commodities Trade FinanceThe Commodities Trade Finance division of Arab Bank (Switzerland) Ltd. created at the end of 2009 has become a reference name in the commodities trade finance sector. Arab Bank (Switzerland) Ltd. offers tailored made solutions to finance predominantly Commodities Trading companies active in the Soft Commodities, Ferrous and non-Ferrous Metals and Energy fields with a particular focus on flows going to or originating from the MENA region.
Credit / Financing products and servicesArab Bank (Switzerland) Ltd. provides a comprehensive range of credit instruments (various types of loans such as Lom-bard loans, mortgages and guarantees) to its private banking clients enabling them to fund their commercial business or leverage their private portfolios. Arab Bank (Switzerland) Ltd. also offers credit solutions including a comprehensive range of commercial loans and documentary products to its Com-modities Trade Finance clients base of commodities trading companies, local exporters and large corporates.
Treasury and Foreign ExchangeThe Bank provides its clients with a wide range of products and services in Money Market, Foreign Exchange, Precious Metals and Securities Trading.
NOTES TO THE FINANCIAL STATEMENTS
1 - BUSINESS ACTIVITIESAND PERSONNEL
54 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 55 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
RISK MANAGEMENT & CONTROL
GeneralThe Bank has established and implemented a comprehensive set of internal policies and procedures in order to manage and monitor the key risks to which it is exposed, and to ensure that all Swiss laws and all the relevant guidelines and regulations issued by FINMA and Swiss Bankers Association, as well as the internal rules of the Bank, are adhered to. Whenever risks are taken, they are identified, measured, monitored and mitigated accordingly.
In conformity with the Swiss Code of Obligations, the Board of Directors formally reviews annually the bank’s key risks and, whenever deemed necessary, takes appropriate measures.
Credit RisksCredits and loans are granted according to clear rules, regu-lations and competencies. Lending ratios for all categories of collateral have been defined. Credit risks are mitigated by strict monitoring of limits (counterparty, group, country) and quality collaterals are assessed and reviewed on a regular basis.
Market RisksThe Bank defines various limits regarding the nature, quality, currency and duration of investments for the Banking and the Trading Book. Beside the daily management of the market risks by Treasury, the Bank’s Asset & Liability Committee monitors these risks and adherence to the limits on a continuous basis.
As a rule, interest rate risk is minimized by funding loans with matching maturities. The Bank optimizes asset and liability management in accordance with the anticipated interest rate variation and the limits granted. The Bank defines limits for refinancing gaps for the Net Economic Value and monitors adherence to these limits on a regular basis.
Liquidity RisksThe Bank monitors its liquidity in a way to ensure adequate levels at all times, in line with the regulatory requirements pertaining to the liquidity ratios.
Operational RisksThe Bank has clear policies, regulations and procedures in place, and maintains an overall control infrastructure that is regularly amended to factor-in changes occurring in the Bank. The assessment of the control framework is reviewed and va-lidated on a regular basis by the Board of Directors upon the recommendation of Audit Committee.
Legal & Compliance RisksThe Bank implements comprehensive measures to ensure compliance with laws and regulations in order to mitigate legal and reputational risks. The Legal & Compliance department is responsible for supervising these aspects. AML-related risk is subject to Compliance’s continuous focus. Regulatory changes are follow-up upon and are duly and regularly reflected in the Bank’s policies.
Compliance ensures appropriate training of the Bank’s em-ployees on all relevant subjects.
2 - ACCOUNTING POLICIES AND VALUATION PRINCIPLES
General PrinciplesAccounting and valuation principles are governed by the Swiss Code of Obligations, the Federal Law on banks and savings banks, its ordinance and its execution by the Articles of Asso-ciation and the directives issued by the Swiss Financial Markets Supervisory Authority (FINMA).
The statutory financial statements are presented with reliable presentation in conformity with the FINMA circular 2015/1 – Accounting - Banks.
Recording of transactionsAll operations executed at the date of the balance sheet were accounted for and evaluated according to recognized principles. The results of all operations executed are included in the income statement. Recording in the balance sheet of spot transactions, concluded but not yet settled, is done following the trade date accounting principles.
Timeliness of recognitionIncome and expenses are booked as soon as they are acquired or accrued, or as they are incurred, and booked in the related year, and not on the date they are received or paid.
The most important valuation principles can be summarized as follows :
Foreign currency translationsAssets and liabilities denominated in foreign currencies are translated into Swiss francs at the exchange rates on the ba-lance sheet closing date, except the participations which are translated at the historical rate. Income and expenses are converted at the exchange rate in force on the transaction date. Exchange gains and losses resulting from conversion into Swiss Francs of positions and operations denominated in foreign currencies are booked to Income from trading.
The main exchange rates applied at closing date were as follows :
31.12.2018 31.12.2017USD 0.9843 0.9744EUR 1.1 266 1.1703
Liquid assets and amounts due to / from banks These balances are shown on the balance sheet at the nominal value after deduction of individual bad debt provisions, if any are required.
Claims and liabilities in respect of customers and mortgage loans These amounts are valued at their nominal value. Valuation adjustments are made for identifiable risks. General provisions exist for contingent risks. Lending against collateral is made within the generally accepted lending principles. These are stipulated in the internal rules and regulations. The valuation of real estate is based on market value, which is determined according to generally accepted valuation methods.
Impaired customer loans are subject to individual valuation and, should the case arise, to an individual value adjustment, directly deducted from this caption, equivalent to the part of the amount which is not secured by collateral, as soon as the loan is reported impaired.
Interest and commission income, which is overdue for more than 90 days, will only be booked after payment.
56 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
57 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
Trading positions in securities and precious metalsTrading positions are valued at market prices on the balance sheet date.
Profits and losses on prices are booked to result from trading operations.
Replacement values of derivative financial instrumentsReplacement values of derivative financial instruments are calculated and accounted for in order to take into account the cost or the gain resulting from a potential counterparty deli-very failure.
The positive replacement values are accounted for in the ba-lance sheet on the asset side, and the negative replacement values on the liability side, for all the derivative financial ins-truments outstanding at balance sheet date which would re-sult from own account or customer transactions, irrespective of the accounting treatment in the income statement.
Financial investmentsFinancial investments, acquired with the intent to be held un-til maturity, are carried in the balance sheet under “financial investments”. The difference between the nominal value and the acquisition cost is spread over the period remaining to maturity (accrual method) and booked to the “interest and dividend income on financial investments”.
ParticipationsParticipations, held as permanent investments, are recorded at acquisition cost, less appropriate depreciation where ne-cessary.
Tangible Fixed AssetsFixed assets are stated in the balance sheet at their cost price and depreciated using the straight-line method over a period corresponding to the useful economic life of the different types of assets. The depreciation rates used are as follows :
• Bank building : maximum 50 years• Building improvement costs : maximum 10 years• Furniture and fixtures : maximum 5 years• Vehicles : maximum 5 years• Software : maximum 5 years• IT hardware : maximum 3 years
Valuation Adjustments and ProvisionsAccording to the principle of prudence, valuation adjustments and specific provisions are made for all identifiable risks exis-ting at the balance sheet date.
Additional general value adjustment could be recorded under “other reserve” to cover the latent risks arising from Trade Finance transactions or to cover potential exchange rate risk on investments. Nevertheless, given the lack of precise sta-tistics on the losses history the Bank considers these provi-sions to be hidden reserves.
Reserves for general banking risksReserves for general banking risks are reserves constituted out of prudence with the objective of covering latent banking risks. They are net of tax.
TaxesTaxes are calculated in accordance with relevant tax laws and are either paid or provisioned for.
58 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
Policy applicable in respect of derivative financial instrumentsThe derivative financial instruments are mainly used in opera-tions for the account of customers. To avoid any exposure, the Bank concludes back-to-back transactions on the financial markets.
The Bank uses financial derivative instruments when deemed adequate in order to hedge the foreign currency exposure on its revenues, an important proportion of which derives from underlying assets denominated in foreign currencies, particu-larly in USD and EUR.
Premiums paid or received in relation to these operations are recognized in the balance sheet within the lines positive and negative replacement values. They are reported prorata tem-poris in the income statement item which is subject to the hedge transaction until maturity.The positive or negative replacement values are recognized in the balance sheet. Should a hedge transaction exceed the un-derlying amount to be covered (inefficiency), the amount re-sulting from the excess of hedge would be accounted for in the trading results.
Definition Client Assets & Net Increase / (Decrease) of Client AssetsClient assets are asset values of clients, for which Arab Bank (Switzerland) Ltd. renders investment and advisory services. Custody portfolios and asset values, which are held exclusively for transaction and custodian purposes, are not included in the client assets. The same applies for loans and purely com-mercial clients. The net increase / (decrease) of client assets consists of the sum of all individual money deposits and pay-ments as well as security incoming and outgoing deliveries, whereby new loans and loan repayments are accounted for. Interests and dividends credited to clients as well as debit in-terests, commissions and charges debited for bank services, are excluded from the calculation of the net increase/(de-crease) of client assets, as they form part of the client perfor-mance – the same is valid for variations in client assets due to market currency and security prices.
Pension PlanArab Bank (Switzerland) Ltd. maintains legally separated wel-fare schemes for its 104 active insured parties at the date of the balance sheet (2017 : 108) and 50 retired (2017 : 48). The pension plan is based on the Swiss defined contribution sys-tem (defined contribution plans in accordance with “Swiss GAAP FER 26”). The Bank carries approximately two thirds of the pension cost. The cost carried by the bank is shown under the information on the balance sheet (note “Information on payables to own employee pension fund”).
The pension fund liabilities as well as the plan assets are legal-ly separated from the Bank in fully funded independent foun-dations. Organization, management and financing of the pension plan are subject to Swiss Federal regulations and to the constitution of the foundations (trust deed) as well as the currently valid regulations of the pension plan.
Subsequent eventsThe participation Turkland Bank A.S. has been sold at the beginning of 2019. No further gain or loss raised from this transaction. This transaction is subject to the Turkish autho-rities’ approval.
58 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 59 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
60 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
3 - INFORMATION ON THE BALANCE SHEETAT DECEMBER 31, 2018
TYPE OF COLLATERAL
COLLATERAL FOR LOANS AND OFF-BALANCE SHEETTRANSACTIONS, AS WELL ASDOUBTFUL RECEIVABLESCHF 1 000
MORTGAGE
2018
OTHER
2018
UNSECURED
2018
TOTAL
2018
Loans (before offsetting any value adjustments)Amounts due from customers 5 372 592 487 707 278 1 305 137Mortgage loans
- Residential property 62 71 8 0 0 62 71 8
- Commercial property 13 800 0 0 13 800 - Commercial and industrial real estate 4 91 5 0 0 4 915
Total loans (before offsetting any value adjustments) 86 805 592 487 707 278 1 386 570
Previous year 88 21 5 546 1 1 2 524 302 1 158 629
Total loans (after offsetting any value adjustments) 86 805 577 609 707 278 1 371 692
Previous year 88 21 5 532 060 524 302 1 144 577
Off-balance sheet transactionsContingent liabilities 0 149 757 246 097 395 854
Irrevocable commitments 0 8 407 65 01 3 73 420
Credit commitments 0 2 704 2 024 4 728
Total off-balance sheet transactions 0 160 868 31 3 1 34 474 002
Previous year 0 82 1 9 1 326 809 409 000
Gross amount due
Estimated liquidation proceeds
of the collateral Net amount dueIndividual value
adjustments
CHF 1 000 2018 2018 2018 2018
Doubtful receivables 15 232 354 14 878 14 878
Previous year 14 594 542 14 052 14 052
60 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 61 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
TRADING PORTFOLIOCHF 1 000 2018 2017
Assets - Trading portfolioDebt instruments, money-market instruments, money-market transactions 0 0
- of which listed 0 0
Equity securities 21 871 27 388
Total assets - Trading portfolio 21 871 27 388
- of which securities allowed for repos as per liquidity provisions 0 0
- of which determined using a valuation model 0 0
62 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
TRADING INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS AND LIABILITIES) PO
SITI
VE
REP
LAC
EMEN
T VA
LUE
NEG
ATI
VE
REP
LAC
EMEN
T VA
LUE
CO
NTR
AC
T V
OLU
ME
CHF 1 000 2018 2018 2018
Interest rate instruments
- Swaps 0 0 0
Foreign exchange / precious metal
- Forward contracts 13 276 15 548 2 002 259
- Options (OTC) 1 890 1 880 180 269
Participations / indices
- Options (exchange-traded) 4 992 4 993 659 354
Total before netting agreements 20 158 22 421 2 841 882
Previous year 9 748 1 5 394 2 1 85 487
CHF 1 000
Positive replacement
value(cumulative)
2018
Negative replacement
value (cumulative)
2018
Total after netting agreements 20 1 58 22 553
Previous year 9 748 1 5 54 1
HEDGING INSTRUMENTS
POSI
TIV
E R
EPLA
CEM
ENT
VALU
E
NEG
ATI
VE
REP
LAC
EMEN
T VA
LUE
CO
NTR
AC
T V
OLU
ME
2018 2018 2018
0 132 3 764
0 0 0
0 0 0
0 0 0
0 132 3 764
0 147 3 955
BREAKDOWN ACCORDING TO COUNTERPARTIES C
ENTR
AL
CLE
AR
ING
PA
RTI
ES
BA
NK
S A
ND
SE
CU
RIT
IES
DEA
LER
S
OTH
ER C
LIEN
TS
TOTA
L
CHF 1 000 2018 2018 2018 2018
Positive replacement values (after netting agreements) 0 10 550 9 608 20 158
62 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 63 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
BOOK VALUE FAIR VALUEFINANCIAL INVESTMENTSCHF 1 000 2018 2017 2018 2017
Debt instruments 428 168 408 246 426 898 410 099
- of which held until maturity 428 168 408 246 426 898 4 10 099
Participations 35 35 40 37
Total 428 203 408 281 426 938 410 136
- of which securities allowed for repos as per liquidity provisions 264 1 53 1 1 0 291 262 246 1 1 1 204
2018
BREAKDOWN OF THE COUNTERPARTY ACCORDING TO RATING CHF 1 000
AAA TO AA-
A+ TO A-
BBB+ TO
BBB-BB+ TO
B-
LOWER THAN
B- UNRATED TOTAL
Debt instruments : book value 172 374 90 769 20 321 1 325 0 143 379 428 168
The above mentioned ratings have been issued by Standard & Poor’s.
OTHER ASSETS OTHER LIABILITIESOTHER ASSETS AND OTHER LIABILITIESCHF 1 000 2018 2017 2018 2017
Compensation account 52 38 0 0
Indirect tax 432 359 420 438
Escrow account 2 749 0 0 0
Not paid dividends 0 0 144 65
Other 1 52 1 2 593 219
Total 3 385 409 1 1 57 722
ECONOMIC SITUATION OF OWN EMPLOYEE PENSION FUND
All members of the Bank's staff are covered by defined contribution pension arrangements provided through pension institution in Switzerland. As at December 31st 2018, there was no economic obligation to be booked in the Bank's balance sheet or income statement. For that reason, we refrain from further disclosures. As at December 31st 2017, the coverage of the liabilities for the pension plans was 123.1%.
INFORMATION ON PAYABLES TO OWN EMPLOYEE PENSION FUNDCHF 1 000 2018 2017
Due to own pension plan 6 804 6 043
64 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
2018
VALUE ADJUSTMENTS AND PROVISIONS AS WELL AS RESERVES FOR GENERAL BANKING RISKSCHF 1 000 B
ALA
NC
E A
S A
T D
ECEM
BER
31,
2017
USE
IN C
ON
FOR
MIT
YW
ITH
DES
IGN
ATE
D
PUR
POSE
REC
LASS
IFIC
ATI
ON
S
FOR
EIG
N E
XCH
AN
GE
DIF
FER
ENC
ES
OV
ERD
UE
INTE
RES
T,R
ECO
VER
IES
NEW
AD
JUST
MEN
TS
DEB
ITED
TO
INC
OM
E
REL
EASE
S C
RED
ITED
TO
INC
OM
E
BA
LAN
CE
AS
AT
DEC
EMB
ER 3
1, 2
018
Provisions for other business risks 10 0 0 0 0 0 0 1 0Other provisions 37 1 85 0 0 6 0 6 300 - 15 545 27 946
Total provisions 37 195 0 0 6 0 6 300 - 15 545 27 956
Reserves for general banking risks 80 382 0 0 0 0 0 0 80 382
Value adjustments for default risks and country risks 14 052 0 0 1 19 - 176 883 0 14 878
- of which value adjustments for default risks due to doubtful receivables 14 052 0 0 1 1 9 - 176 883 0 14 878
The amount of CHF 80'381'634 of reserves for general banking risks are free of taxes.
2018 2017
SHARE CAPITAL
NOMINALVALUE
CHF 1 000
QUANTITY
CHF 0.75
CAPITAL ELIGIBLE
FOR DIVIDEND
CHF 1 000
NOMINALVALUE
CHF 1 000
QUANTITY
CHF 0.75
CAPITAL ELIGIBLE
FOR DIVIDEND
CHF 1 000
Share capital 26 700 35 600 000 26 700 26 700 35 600 000 26 700
- of which paid up 26 700 35 600 000 26 700 26 700 35 600 000 26 700
Total share capital 26 700 35 600 000 26 700 26 700 35 600 000 26 700
64 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 65 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
AMOUNTS DUE FROM AMOUNTS DUE TOAMOUNTS DUE FROM AND DUETO RELATED PARTIESCHF 1 000 2018 2017 2018 2017
ABS Group companies 2 953 5 846 0 0
Associated companies 345 076 260 223 1 791 34 1 1 160 432
Transactions with members of governing bodies 81 767 62 204 19 838 0
The “Amounts due from” and “Amounts due to” associated companies represent the interbanks business concluded with Arab Bank PLC, Amman and its subsidiaries.
The “Transactions with members of governing bodies” includes mortgages and contingent liabilities granted at market conditions.
2018 2017
SIGNIFICANT SHAREHOLDERS
NOMINAL VALUE
CHF 1 000
PERCENTAGE
%
NOMINAL VALUE
CHF 1 000
PERCENTAGE
%
With voting sharesOger Middle East Holding S.A.L, Beirut (Lebanon) 0 0.0 0 0.0
Social Security Corporation, Amman (Jordan) 5 696 000 16.0 5 696 000 16.0
NET EXPOSURE ABROAD2018
NET EXPOSURE ABROAD2017
BREAKDOWN OF TOTAL ASSETS ABROADACCORDING TO THE CREDIT RATING OF REGIONS(RISK DOMICILE PRINCIPLE) CHF 1 000 % CHF 1 000 %
AAA 3 1 1 466 15 291 73 1 1 4
AA+ - AA- 487 409 24 498 884 24
A+ - A 30 242 1 32 800 2
BBB+ - BBB- 1 35 1 93 7 96 1 52 5
BB+ - BB- 20 410 1 142 663 7
B+ - B- 760 027 38 529 384 26
CCC+ - D 0 0 8 249 0
Unrated 281 841 14 45 1 701 22
Total 2 026 588 100 2 051 564 100
The ratings used are the Standard & Poor’s (S&P) ratings for country risks.
66 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
FIDUCIARY TRANSACTIONSCHF 1 000 2018 2017
Fiduciary placements with third party companies 998 972 7 1 6 695
Fiduciary placements with Arab Bank PLC Amman and its subsidiariesas well as affiliated companies 186 817 234 678
Total fiduciary transactions 1 185 789 951 373
4 - INFORMATION ON OFF-BALANCE SHEET TRANSACTIONS
ASSETS UNDER MANAGEMENTCHF 1 000 2018 2017
Type of assets under management :Assets in collective investment schemes managed by the Bank 136 554 86 372
Assets with administrations’ mandate 168 914 1 88 530
Other client assets 3 5 1 9 959 3 1 77 562
Total assets under management (including double-counting) 1) 3 825 427 3 452 464
- of which double counts 136 554 86 372
Total assets under management (excluding double-counting) 1) 3 688 873 3 366 092
Development of assets under management :Total assets under management (including double-counting) at the beginning 3 452 464 3 769 779
+ / - Net new money inflows or outflows 2) 250 446 - 67 573
+ / - Market price trend, dividends and currency development 1 22 5 1 7 - 249 742
Total assets under management (including double-counting) at the end 3 825 427 3 452 464
1) Client Assets are asset values of clients, for which Arab Bank (Switzerland) Ltd. renders investment and consulting services, but without loans.
2) Sum of all individual money deposits and payments as well as security incoming and outgoing deliveries, whereby new loans and loan repayments are accounted for.
66 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 67 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
RESULTS FROM TRADING OPERATIONSCHF 1 000 2018 2017
Participations (including funds) - 507 748
Foreign exchange 33 550 17 663
Total trading results 33 043 18 41 1
PERSONNEL EXPENSESCHF 1 000 2018 2017
Salaries 24 765 25 895
Social insurance obligations 1 622 1 634
Pension fund 3 202 3 180
Other personnel expenses 525 227
Total personnel expenses 30 1 14 30 936
GENERAL AND ADMINISTRATIVE EXPENSESCHF 1 000 2018 2017
Office space expenses 982 851
Expenses for information technology and telecommunications 3 059 2 936
Outsourcing expenses 3 546 5 672
Expenses for motor vehicles, machinery, furniture and other equipment and operating lease expenses 247 180
Audit fees 542 5 1 1
- of which for financial and regulatory audits 493 465
- of which for other services 49 46
Other operating expenses 6 610 6 629
Total general and administrative expenses 14 986 16 779
5 - INFORMATION ON THE INCOME STATEMENT
INFORMATION ON SIGNIFICANT NEGATIVE INTERESTS
In 2015, the Swiss National Bank (SNB) introduced negative interest rates of -0.75% on sight deposit account balances with SNB. The paid and accrued SNB negative interests for the year of 2018 amounted to CHF 7.3 million (2017: CHF 6.5 million).
68 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
MATERIAL LOSSES, EXTRAORDINARY INCOME AND EXPENSESAS WELL AS RELEASE OF SIGNIFICANT HIDDEN RESERVES,RESERVES FOR GENERAL BANKING RISKS AND VALUEADJUSTMENTS AND PROVISIONS NO LONGER NECESSARYCHF 1 000 2018 2017
Extraordinary incomeRelease of provisions* 15 545 0
Other extraordinary income 325 5 1 1
Total extraordinary income 15 870 5 1 1
Extraordinary expensesOther extraordinary expenses 60 1
Total extraordinary expenses 60 1
* Of which release of a provision of CHF 15 million created in 2016 in relation with increased risks relating to a permanent participation, instead of recording a valuation adjustment whose economic necessity was not clear at that time.
CURRENT AND DEFERRED TAXESCHF 1 000 2018 2017
Current taxes 8 235 6 714
Total taxes 8 235 6 714
The average tax rate was 32.5% of the results for the period before taxes in the current year (previous year : 31.6%)
68 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 69 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
CHF 1 000 2018 2017
Eligible capitalCommon Equity Tier 1 Capital (CET1) 505 961 495 364
Eligible core capital 505 961 495 364
Required capitalCredit risks 1 2 1 437 1 1 8 748
Non-counterparty-related risks 2 528 2 653
Market risks 1 4 7 1 3 1 1 4 16
Operational risks 9 743 9 204
Other capital requirement * 7 936 10 001
Total required capital 156 357 152 022
Solvency ratio 26% 26%
Leverage ratioLeverage ratio exposure 4 009 879 3 601 108
Leverage ratio 13% 14%
6 - CAPITAL ADEQUACY AND LIQUIDITY DISCLOSURE
CHF 1 000 31.12.2018 30.09.2018 30.06.2018 31.03.2018 31.12.2017
Liquidity ratioTotal High Quality Liquid Assets 1 21 5 144 1 320 722 1 272 283 1 470 636 923 3 1 6
Total Net Cash Outflows 365 646 242 282 1 87 7 1 9 605 384 5 1 3 179
Liquidity coverage ratio 332% 545% 678% 243% 180%
* (including National Countercyclical Buffer and items not deducted in application of threshold 3, but risk-weighted with 250%)
70 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS 71 | ARAB BANK (SWITZERLAND) LTD. ANNUAL REPORT 2018 / FINANCIAL STATEMENTS
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS
As statutory auditor, we have audited the financial statements of Arab Bank (Switzerland) Ltd., which comprise the balance sheet, income statement, statement of changes in equity and notes (pages 50 to 68), for the year ended 31 December 2018.
Board of Directors’ responsibilityThe Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintai-ning an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in ac-cordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes eva-luating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is suffi-cient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements for the year ended 31 December 2018 comply with Swiss law and the company’s articles of incorporation.
Other matterThe financial statements of Arab Bank (Switzerland) Ltd. for the year ended 31 December 2017 were audited by another statutory auditor who expressed an unmodified opinion on those financial statements on 31 December 2017.
REPORT ON OTHER LEGAL REQUIREMENTS
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and indepen-dence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the pre-paration of financial statements according to the instructions of the Board of Directors.
We further confirm that the proposed appropriation of avai-lable earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.
Ernst & Young Ltd
Stéphane MullerLicensed audit expert
(Auditor in charge)
Milena De SimoneLicensed audit expert
Lancy, 21 February 2019
REPORT OF THESTATUTORY AUDITORTO THE GENERAL MEETING OF ARAB BANK (SWITZERLAND) LTD., GENEVA
Ernst & Young LtdRoute de Chancy 59P.O. BoxCH-1213 Lancy
Phone: +41 58 286 56 56Fax: +41 58 286 56 57www.ey.com/ch