Banque Saudi Fransi: Interim Condensed Consolidated Financial Statements - 30 June 2019

Transcription

1. BANQUE SAUDI FRANSI INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED June 30 , 2019
9. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 6 1. General Banque Saudi Fransi (the Bank) is a Saudi Joint Stock Company established by Royal Decree No. M/23 dated Jumada Al Thani 17, 1397H (corresponding to June 4, 1977). The Bank formally commenced its activities on Muharram 1, 1398H (corresponding to December 11, 1977), by taking over the branches of the Banque de l’Indochine et de Suez in the Kingdom of Saudi Arabia. The Bank operates under Commercial Registration Number 1010073368 dated Safar 4, 1410H (corresponding to September 5, 1989), through its 87 branches (June 30, 2018: 86 branches) in the Kingdom of Saudi Arabia, employing 2,943 people (June 30, 2018: 3,036 people). The objective of the Bank is to provide a full range of banking services, including Islamic products, which are approved and supervised by an independent Shariah Board. The Bank’s Head Office is located at King Saud Road, P.O. Box 56006, Riyadh 11554, Kingdom of Saudi Arabia. The Bank owns a subsidiary, Saudi Fransi Capital (100% share in equity) engaged in brokerage, asset management and corporate finance business. The Bank also owns Saudi Fransi Insurance Agency (SAFIA), Saudi Fransi Financing & Leasing and Sofinco Saudi Fransi having 100% share in equity. The Bank owns 100% (95% direct ownership and 5% indirect ownership through its subsidiary) share in Sakan Real Estate Financing. These subsidiaries are incorporated in the Kingdom of Saudi Arabia. The Bank also formed a subsidiary, BSF Markets Limited registered in Cayman Islands having 100% share in equity. The objective of this company is derivative trading and Repo activities. The Bank owns 27% shareholding in Banque BEMO Saudi Fransi (“Associate”), incorporated in Syria. 2. Basis of preparation The interim condensed consolidated financial statements of the Group as at and for the period ended 30 June 2019 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by the Saudi Organisation for Certified Public Accountants (“SOCPA”). The consolidated financial statements of the Group as at and for the period and year ended 31 March 2019 and 31 December 2018, respectively, were prepared in compliance with the IAS 34 and the International Financial Reporting Standards (“IFRS”) respectively, as modified by SAMA for the accounting of zakat and income tax (relating to the application of IAS 12 – “Income Taxes” and IFRIC 21 – “Levies” so far as these relate to zakat and income tax) and the Banking Control Law and the Regulations for Companies in the Kingdom of Saudi Arabia. On 17 July 2019, SAMA instructed the banks in the Kingdom of Saudi Arabia to account for the zakat and income taxes in the statement of income. This aligns with the IFRS and its interpretations as issued by the International Accounting Standards Board (“IASB”) and as endorsed in the Kingdom of Saudi Arabia and with the other standards and pronouncements that are issued by the Saudi Organisation for Certified Public Accountants (“SOCPA”) (collectively referred to as “IFRS as endorsed in KSA”). Accordingly, the Group changed its accounting treatment for zakat and income tax by retrospectively adjusting the impact in line with International Accounting Standard 8 Accounting Policies, Changes in Accounting Estimates and Errors (as disclosed in note 5) and the effects of this change are disclosed in note 16 to the interim condensed consolidated financial statements).
10. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 7 3. Basis of consolidation The interim condensed consolidated financial statements comprise the financial statements of the Bank and its subsidiaries; Saudi Fransi Capital, Saudi Fransi Insurance Agency, Saudi Fransi Financing & Leasing, Sofinco Saudi Fransi, Sakan real estate financing and BSF Markets Limited. The financial statements of the subsidiaries are prepared for the same reporting period as that of the Bank, using consistent accounting policies. Adjustments are made wherever necessary in the financial statements of the subsidiaries to align with the Bank’s interim condensed consolidated financial statements. Subsidiaries are the entities that are controlled by the Bank. The Bank controls an entity when it is exposed, or has a right, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over that entity. Subsidiaries are consolidated from the date on which control is transferred to the Bank and cease to be consolidated from the date on which the control is transferred from the Bank. The results of subsidiaries acquired or disposed during the period, if any, are included in the interim condensed consolidated statement of income from the effective date of the acquisition or up to the effective date of disposal, as appropriate. Balances between the Bank and its subsidiaries, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the interim condensed consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 4. Impact of changes in accounting policies due to adoption of new standards Effective 1 January 2019 the Group has adopted a new accounting standard, the impact of the adoption of this standard is explained below: Before January 01, 2019, the Bank follows Accounting for leases (if applicable): (i) Where the Bank is the lessee Leases that do not transfer to the bank substantially all of the risk and benefits of ownership of the asset are classified as operating leases. Consequently, all of the leases entered into by the Bank are all operating leases. Payments made under operating leases are charged to the (consolidated) statement of income on a straight-line basis over the period of the lease. (ii) Where the Bank is the lessor When assets are transferred under a finance lease, including assets under Islamic lease arrangement (e.g. Ijara Muntahia Bittamleek or Ijara with ownership promise) (if applicable) the present value of the lease payments is recognised as a receivable and disclosed under “Loans and advances”. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. The bank adopted IFRS 16 ‘Leases’ the standard replaces the existing guidance on leases, including IAS 17 ‘Leases”, IFRIC 4 ‘Determining whether an Arrangement contains a Lease”, SIC 15 “Operating Leases – Incentives” and SIC 27 “Evaluating the Substance of Transactions in the Legal Form of a Lease”. IFRS 16 was issued in January 2016 and is effective for annual periods commencing on or after 1 January 2019. IFRS 16 stipulates that all leases and the associated contractual rights and obligations should generally be recognize in the Bank’s Financial Position, unless the term is 12 months or less or the lease for low value asset. Thus, the classification required under IAS 17 “Leases” into operating or finance leases is eliminated for Lessees. For each lease, the lessee recognizes a liability for the lease obligations incurred in the future. Correspondingly, a right to use the leased asset is capitalized, which is generally equivalent to the present value of the future lease payments plus directly attributable costs and which is amortized over the useful life.
11. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 8 4. Impact of changes in accounting policies due to adoption of new standards (continued) The Bank has opted for the modified retrospective application permitted by IFRS 16 upon adoption of the new standard. During the first time application of IFRS 16 to operating leases, the right to use the leased assets was generally measured at the amount of lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018, using the interest rate at the time of first time application. The net impact on retained earnings on 01 January 2019 was a decrease of SAR 63 million. RECONCILIATION OF LEASE LIABILITIES SAR’ 000 Off-balance sheet lease obligations (with extended period) as of December 31, 2018 Current leases with a lease term of 12 months or less & low-value leases Operating lease obligations as of January 1, 2019 (Gross without discounting) Discounting to present value Operating lease obligations as of January 1, 2019 (net, discounted) 952,870 (247) 952,623 (274,371) 678,252 The Bank applied the weighted average incremental borrowing rate to lease liabilities recognized in the statement of financial position at the date of initial application. The bank has lease contracts for Branch premises, ATM premises and leasehold improvements thereon. The Right of Use Asset (including prepaid rent) recognized by the Bank as at 1 January 2019 amounted to SR 653 million. The net impact on retained earnings, due to adoption of IFRS 16, on 01 January 2019 was a decrease of SAR 63 million. Right of Use assets have been presented as part of property and equipment, net and lease liability has been included under other liabilities on the statement of financial position. 5. Significant Accounting Policies The accounting policies, estimates and assumptions used in the preparation of these interim condensed consolidated financial statements are consistent with those used in the preparation of the annual consolidated financial statements for the year ended December 31, 2018 except for the adoption of IFRS 16 ‘Leases’ and the change in the accounting for zakat and income tax as explained below. IFRS 16 ‘Leases’ Right of Use Asset / Lease Liabilities On initial recognition, at inception of the contract, the Bank shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is identified if most of the benefits are flowing to the Bank and the Bank can direct the usage of such assets. Right of Use Assets Bank applies cost model, and measure right of use asset at cost; 1. less any accumulated depreciation and any accumulated impairment losses; 2. adjusted for any re-measurement of the lease liability for lease modifications Generally, RoU asset would be equal to the lease liability. However, if there are additional costs such as Site preparation, non-refundable deposits, application money, other expenses related to transaction etc. need to be added to the RoU asset value.
12. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 9 5. Significant Accounting Policies (continued) Lease Liability On initial recognition, the lease liability is the present value of all remaining payments to the lessor. After the commencement date, Bank measures the lease liability by: 1. Increasing the carrying amount to reflect interest on the lease liability. 2. Reducing the carrying amount to reflect the lease payments made and; 3. Re-measuring the carrying amount to reflect any re-assessment or lease modification. Change in the accounting for zakat and income tax: As mentioned in note 2, the basis of preparation has been changed for the period ended 30 June 2019 as a result of the issuance of latest instructions from SAMA dated 17 July 2019. Previously, zakat and income tax were recognized in the statement of changes in equity as per the SAMA circular no 381000074519 dated 11 April 2017. With the latest instructions issued by SAMA dated 17 July 2019, the zakat and income tax shall be recognized in the statement of income. The Group has accounted for this change in the accounting for zakat and income tax retrospectively (see note 16) and the effects of the above change are disclosed in note 16 to the interim condensed consolidated financial statements. The change has resulted in reduction of reported income of the Group for the three month and six month periods ended 30 June 2018 by SR 79 million and SR 142 million respectively. The change has had no impact on the statement of financial position and cash flows as at and for the period ended 30 June 2018. Income tax: The income tax expense or credit for the period is the tax payable on the current period’s taxable income, based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company and its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Adjustments arising from the final income tax assessments are recorded in the period in which such assessments are made. The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted for the changes in deferred tax assets and liabilities attributable to the temporary differences and to the unused tax losses. IFRIC Interpretation 23 Uncertainty over Income Tax Treatment: The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following: • • • • Whether an entity considers uncertain tax treatments separately The assumptions an entity makes about the examination of tax treatments by taxation authorities How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates How an entity considers changes in facts and circumstances An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed.
13. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 10 5. Significant Accounting Policies (continued) The Group applies significant judgement in identifying uncertainties over income tax treatments. Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions, particularly those relating to transfer pricing. The Bank’s and the subsidiaries’ tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Group determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have an impact on the consolidated financial statements of the Group. Deferred income tax: Deferred income tax is provided using the liability method on temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for the taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amounts of assets and liabilities using the tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available and the credits can be utilized. Deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefits will be realized. Deferred tax liabilities and assets are not recognized for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized. Zakat: The Group is subject to Zakat in accordance with the regulations of the General Authority of Zakat and Income Tax (“GAZT”). Zakat expense is charged to the statement of income. Zakat is not accounted for as income tax and as such no deferred tax is calculated relating to zakat. 6. Investments, net Investments are classified as follows: Jun 30, 2019 (Unaudited) 26,783,761 Dec 31, 2018 (Audited) 22,596,255 Jun 30, 2018 (Unaudited) 21,198,671 6,707,029 5,511,719 5,768,635 Investments at FVOCI – Equity/ other investments 110,017 135,133 130,499 Investment at FVIS – Debt instruments 114,540 356,748 317,495 Less: Impairment (20,596) (227,875) (187,500) 33,694,751 28,371,980 27,227,800 SAR’000 Investment at amortized cost Investments at FVOCI – Debt instruments Total
14. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 11 7. Loans and advances, net Loans and advances held at amortised cost June 30, 2019 (Unaudited) SAR '000 Performing loans and advances - gross Non performing loans and advances, net Total loans and advances Allowance for impairment Loans and advances held at amortised cost, net Overdraft & Commercial Loans Credit Cards Consumer Loans 109,244,331 463,623 15,230,505 124,938,459 3,080,207 62,473 268,186 3,410,866 112,324,538 526,096 15,498,691 128,349,325 (3,646,787) (101,256) (368,273) (4,116,316) 108,677,751 424,840 15,130,418 124,233,009 Total December 31, 2018 (Audited) SAR' 000 Consumer Loans Total 456,779 13,066,013 121,066,822 3,257,188 80,568 287,410 3,625,166 Total loans and advances Allowance for impairment 110,801,218 (3,631,806) 537,347 (80,775) 13,353,423 (347,773) 124,691,988 (4,060,354) Loans and advances held at amortised cost, net 107,169,412 456,572 13,005,650 120,631,634 Performing loans and advances - gross Non performing loans and advances, net Overdraft & Commercial Loans Credit Cards 107,544,030 June 30, 2018 (Unaudited) SAR' 000 Overdraft & Commercial Loans Credit Cards 110,856,826 491,131 12,122,661 123,470,618 2,713,011 63,422 216,316 2,992,749 Allowance for impairment 113,569,837 (3,323,913) 554,553 (68,164) 12,338,977 (260,366) 126,463,367 (3,652,443) Loans and advances held at amortised cost, net 110,245,924 486,389 12,078,611 122,810,924 Performing loans and advances - gross Non performing loans and advances, net Total loans and advances Consumer Loans Total The movement in the allowance for impairment of Loans and advances to customers for the period ended 30 June 2019 is as follows: SAR' 000 Opening loss allowance as at 1 January June 30, 2019 (Unaudited) June 30, 2018 (Unaudited) 4,060,354 4,089,084 344,486 215,925 Bad debts written off against provision (288,524) (652,566) Balance at the end of the period 4,116,316 3,652,443 Charge for the period, net
15. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 12 8. Customers’ deposits SAR' 000 Demand June 30, 2019 (Unaudited) December 31, 2018 (Audited) June 30, 2018 (Unaudited) 70,245,205 67,792,228 74,294,404 548,344 547,702 560,406 Time 66,525,745 75,682,178 67,745,132 Other 4,907,024 4,345,896 4,104,787 Total 142,226,318 148,368,004 146,704,729 Saving 9. Derivatives In the ordinary course of business, the Bank utilizes the following derivative financial instruments for both trading and hedging purposes: a) Swaps Swaps are commitments to exchange one set of cash flows for another. For commission rate swaps, counterparties generally exchange fixed and floating rate commission payments in a single currency without exchanging principal. For currency rate swaps, fixed and floating commission payments and principal are exchanged in different currencies. b) Forwards and futures Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or financial instrument at a specified price and date in the future. Forwards are customized contracts transacted in the over the counter market. Foreign currency and commission rate futures are transacted in standardized amounts on regulated exchanges and changes in futures contract values are settled daily. c) Forward rate agreements Forward rate agreements are individually negotiated commission rate contracts that call for a cash settlement for the difference between a contracted commission rate and the market rate on a specified future date, on a notional principal for an agreed period of time. d) Options Options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, to either buy or sell at fixed future date or at any time during a specified period, a specified amount of a currency, commodity or financial instrument at a pre-determined price. e) Held for trading purposes Most of the Bank’s derivative trading activities relate to sales, positioning and arbitrage. Sales activities involve offering products to customers, Banks and other financial institutions in order, inter alia, to enable them to transfer, modify or reduce current and future risks. Positioning involves managing market risk positions with the expectation of profiting from favorable movements in prices, rates or indices. Arbitrage involves identifying, with the expectation of profiting from price differentials between markets or products. The bank also holds structured derivative which are fully back to back in accordance with the bank’s risk management strategy.
16. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 13 9. Derivatives (continued) f) Held for hedging purposes The Bank has adopted a comprehensive system for the measurement and the management of risk. Part of the risk management process involves managing the Bank’s exposure to fluctuations in foreign exchange and commission rates to reduce its exposure to currency and commission rate risks to an acceptable level as determined by the Board of Directors in accordance with the guidelines issued by SAMA. The Board of Directors has established the levels of currency risk by setting limits on counterparty and currency position exposures. Positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within the established limits. The Board of Directors has also established the level of commission rate risk by setting commission rate sensitivity limits. Commission rate exposure in terms of the sensitivity is reviewed on a periodic basis and hedging strategies are used to reduce the exposure within the established limits. As part of its asset and liability management the Bank uses derivatives for hedging purposes in order to adjust its own exposure to currency and commission rate risks. This is generally achieved by hedging specific transactions as well as strategic hedging against overall consolidated statement of financial position exposures. Strategic hedging does not qualify for special hedge accounting and the related derivatives are accounted for as held for trading. The Bank uses forward foreign exchange contracts and currency rate swaps to hedge against specifically identified currency risks. In addition, the Bank uses commission rate swaps and commission rate futures to hedge against the commission rate risk arising from specifically identified fixed commission rate exposures. The Bank also uses commission rate swaps to hedge against the cash flow risk arising on certain floating rate exposures. In all such cases, the hedging relationship and objective, including details of the hedged items and hedging instrument are formally documented and the transactions are accounted for as fair value or cash flow hedges. g) Cash flow hedges The Bank is exposed to variability in future special commission income cash flows on non-trading assets and liabilities which bear variable commission rate. The Bank uses commission rate swaps as cash flow hedges of these commission rate risks. Also, as a result of firm commitments in foreign currencies, such as its issued foreign currency debt, the Bank is exposed to foreign exchange and commission rate risks which are hedged with cross currency commission rate swaps. The tables below show the positive and negative fair values of derivative financial instruments held, together with their notional amounts. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the year end, do not necessarily reflect the amounts of future cash flows involved. These notional amounts, therefore, are neither indicative of the Bank’s exposure to credit risk, which is generally limited to the positive fair value of the derivatives, nor to market risk. SAR '000 June 30, 2019 (Unaudited) December 31, 2018 (Audited) June 30, 2018 (Unaudited) Positive fair value Negative fair value Notional amount Positive fair value Negative fair value Notional amount Positive fair value Negative fair value Notional amount 2,017,078 1,994,393 161,397,536 1,087,606 1,033,434 154,889,392 1,000,006 876,932 155,990,416 Commission rate futures and options 545,801 545,801 53,500,025 241,720 241,720 55,743,725 317,738 317,738 55,915,282 Forward foreign exchange contracts 132,422 26,803 34,043,826 134,446 18,682 28,146,685 201,719 8,098 26,900,114 1,484 1,484 231,765 1,577 1,577 694,355 8,842 8,842 1,423,998 22,892 22,892 524,818 7,791 7,791 709,920 4,116 4,116 545,091 - - - - - - 211 - 264,000 Commission rate swaps 1,135,505 27,118 54,512,188 459,324 110,924 60,041,236 297,554 296,098 63,882,784 Total 3,855,182 2,618,491 304,210,158 1,932,464 1,414,128 300,225,313 1,830,186 1,511,824 304,921,685 Held for trading Commission rate swaps Currency options Others Held as fair value hedges Commission rate swaps Held as cash flow hedges
17. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 14 10. Commitments and contingencies The Bank's credit related commitments and contingencies are as follows: SAR '000 Letters of credit Letters of guarantee Acceptances Irrevocable commitments to extend credit June 30, 2019 (Unaudited) 7,850,111 39,426,152 2,068,358 December 31, 2018 (Audited) 7,918,102 41,289,519 1,872,827 June 30, 2018 (Unaudited) 7,549,999 44,048,631 2,103,499 4,025,781 2,815,479 3,456,358 53,370,402 53,895,927 57,158,487 Total The bank has made impairment provision amounting to SAR 555 million (December 31, 2018: 577 million) against credit related commitments and contingencies which has been classified into other liabilities. The Group is subject to legal proceedings in the ordinary course of business. There was no material change in the status of legal proceedings filed against the bank as disclosed at December 31, 2018. 11. Cash and cash equivalents Cash and cash equivalents included in the interim consolidated statement of cash flows comprise the following: SAR '000 June 30, 2019 (Unaudited) December 31, 2018 (Audited) June 30, 2018 (Unaudited) Cash and balances with SAMA excluding statutory deposit 5,950,193 12,775,498 4,190,907 Due from banks and other financial institutions maturing within three months from the date of acquisition 5,524,523 11,214,381 16,250,303 11,474,716 23,989,879 20,441,210 Total Cash and cash equivalents include amount of SAR 125 million (December 31, 2018: 1,419 million) held with CA-CIB group (one of the major shareholders). 12. Fair values of financial assets and liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Valuation models Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates, bond and equity prices and foreign currency exchange rates.
18. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 15 12. Fair values of financial assets and liabilities (continued) The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The Bank uses widely recognized valuation models for determining the fair value of common and simpler financial instruments. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchangetraded derivatives and simple over-the-counter derivatives such as interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. Valuation models that employ significant unobservable inputs require a higher degree of management judgment and estimation in the determination of fair value. Management judgment and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of the probability of counterparty default and prepayments and selection of appropriate discount rates. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Bank believes that a third party market participant would take them into account in pricing a transaction. Fair values aims also to reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank and the counterparty where appropriate. Valuation Framework The Bank has an established control framework with respect to the measurement of fair values. This framework includes a Market Risk Department, which is independent of Front Office management and reports to the Chief Risk Officer, and which has overall responsibility for independently verifying the results of trading and investment operations and all significant fair value measurements. Determination of fair value and fair value hierarchy The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted prices in active markets for the same instrument (i.e. without modification or repackaging) Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data: and Level 3: valuation techniques for which any significant input is not based on observable market data. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Derivative products valued using a valuation technique with market observable inputs are mainly commission rate swaps and options, currency swaps and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including foreign exchange spot and forward rates and commission rate curves. Other investments in level 2 are valued based on market observable date including broker rates etc.
19. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 16 12. Fair values of financial assets and liabilities (continued) SAR '000 Level 1 Level 2 Level 3 Total June 30, 2019 (Unaudited) Financial assets Derivative financial instruments positive fair value Financial investments designated at FVIS Financial investments at FVOCI 109,401 2,934,724 3,855,182 5,139 3,867,866 6,966 3,855,182 114,540 6,809,556 Total 3,044,125 7,728,187 6,966 10,779,278 Financial Liabilities Derivative financial instruments negative fair value - 2,618,491 - 2,618,491 Total - 2,618,491 - 2,618,491 SAR '000 Level 1 Level 2 Level 3 Total December 31, 2018 (Audited) Financial assets Derivative financial instruments positive fair value Financial investments designated at FVIS - 1,932,464 - 1,932,464 336,521 20,227 - 356,748 Financial investments at FVOCI 1,468,311 4,166,211 6,984 5,641,506 Total 1,804,832 6,118,902 6,984 7,930,718 Financial Liabilities Derivative financial instruments negative fair value - 1,414,128 - 1,414,128 Total - 1,414,128 - 1,414,128 SAR '000 Level 1 Level 2 Level 3 Total June 30, 2018 (Unaudited) Financial assets Derivative financial instruments positive fair value Financial investments designated at FVIS Financial investments at FVOCI Total 160,343 1,639,359 1,830,186 157,152 4,253,666 6,109 1,830,186 317,495 5,899,134 1,799,702 6,241,004 6,109 8,046,815 Derivative financial instruments negative fair value - 1,511,824 - 1,511,824 Total - 1,511,824 - 1,511,824 Financial Liabilities The fair values of investments held at amortized cost are SAR 26,888 million (December 31, 2018: SAR 22,085 million and June 30, 2018: SAR 20,851 million) against carrying value of SAR 26,771 million (December 31, 2018: SAR 22,374 million and June 30, 2018: SAR 21,011 million).The fair values of commission bearing customers’ deposits, debt securities, due from and due to banks and other financial institutions which are carried at amortized cost, are not significantly different from the carrying values included in the interim condensed consolidated financial statements, since the current market commission rates for similar financial instruments are not significantly different from the contracted rates, and due to the short duration of due from and due to banks and other financial institutions. An active market for these instruments is not available and the Bank intends to realize the carrying value of these financial instruments through settlement with the counter party at the time of their respective maturities.
20. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 17 12. Fair values of financial assets and liabilities (continued) The estimated fair values of investments held at amortized cost are based on quoted market prices when available or pricing models when used in the case of certain fixed rate bonds. Consequently, differences can arise between carrying values and fair value estimates. The fair values of derivatives are based on the quoted market prices when available or by using the appropriate valuation technique. The Bank uses the discounted cash flow method using current yield curve to arrive at the fair value of loans and advances after adjusting internal credit spread which is SAR 126,831 million (December 31, 2018: SAR 122,432 million and June 30, 2018: SAR 124,723 million). The carrying values of those loans and advances are SAR 124,233 million (December 31, 2018: SAR 120,632 million and June 30, 2018 SAR 122,811 million). 13. Segment information Operating segments are identified on the basis of internal reports about components of the Bank that are regularly reviewed by the Bank’s Board of Directors in its function as chief decision maker in order to allocate resources to the segments and to assess its performance. Transactions between operating segments are approved by the management as per agreed terms and are reported according to the Bank’s internal transfer pricing policy. These terms are in line with normal commercial terms and conditions. The revenue from external parties report to the Board is measured in a manner consistent with that in the consolidated statement of income. There have been no changes to the basis of segmentation or the measurement basis for the segment profit or loss since 31 December 2018. The Bank is organised into the following main operating segments: Retail banking – incorporates private and small establishment customers' demand accounts, overdrafts, loans, saving accounts, deposits, credit and debit cards, consumer loans, certain forex products and auto leasing. Corporate banking – incorporates corporate and medium establishment customers' demand accounts, deposits, overdrafts, loans and other credit facilities and derivative products. Treasury – incorporates treasury services, trading activities, investment securities, money market, Bank’s funding operations and derivative products. Investment banking and brokerage – Investment management services and asset management activities related to dealing, managing, arranging, advising and custody of securities, retail investments products, corporate finance and international and local shares brokerage services and insurance. The Bank's total assets and liabilities, together with total operating income, total operating expenses and net income for the six months then ended, by operating segments, are as follows: SAR '000 June 30, 2019 (Unaudited) Total assets Total liabilities Total operating income Total operating expenses Net income for the period before zakat and income tax Inter-segment revenue Depreciation and amortization Impairment charges for financial assets, net Retail banking Corporate banking Treasury Investment banking and brokerage Total 21,834,981 71,546,880 939,854 606,983 104,338,799 72,190,572 1,518,818 513,902 59,164,121 9,058,277 815,616 136,669 1,240,789 1,181,083 154,824 90,004 186,578,690 153,976,812 3,429,112 1,347,558 332,871 1,004,916 678,947 64,820 2,081,554 546,177 65,187 70,539 102,579 27,157 227,649 (648,756) 10,917 4,393 1,936 - 105,197 302,581
21. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 18 13. Segment information (continued) SAR '000 December 31, 2018 (Audited) Total assets Total liabilities SAR '000 June 30, 2018 (Unaudited) Total assets Total liabilities Total operating income Total operating expenses Share in earnings of associates, net Net income for the period before zakat and income tax Inter-segment revenue Depreciation and amortization Impairment charges for financial assets, net Retail banking Corporate banking 19,763,892 70,767,490 Retail banking Treasury 102,522,524 78,633,093 Corporate banking 66,629,360 8,734,008 Treasury 18,608,292 68,645,456 814,855 619,713 108,708,328 79,331,356 1,509,827 485,882 - Investment banking and brokerage 1,334,501 1,253,736 Investment banking and brokerage Total 190,250,277 159,388,327 Total 1,543,181 1,448,960 141,460 89,129 - 60,101,236 7,388,993 943,473 184,644 2,529 - 188,961,037 156,814,765 3,409,615 1,379,368 2,529 195,142 1,023,945 761,358 52,331 2,032,776 437,709 44,277 51,007 92,383 21,173 153,680 (530,092) 9,135 (3,369) - - 2,393 76,978 201,318 - 14. Share capital and Earnings per share The authorised, issued and fully paid share capital of the Bank consists of 1,205 million shares of SAR 10 each (December 31, 2018: 1,205 million shares of SAR 10 each and June 30, 2018: 1,205 million shares of SAR 10 each). Basic and diluted earnings per share for the periods ended June 30, 2019 and 2018 are calculated on a weighted average basis by dividing the net income for the period by 1,205 million shares after excluding treasury shares consists of 5.7 million shares as of June 30, 2019 (December 31, 2018: 6 million shares and June 30, 2018: 6 million shares). The final net dividend of SAR 0.80 per share for the year ended 2018 has been approved by the shareholders at the General Assembly Meeting held on May 01, 2019. 15. Interim dividends The Board of Directors recommended on 03 July 2019 an interim net dividend of SAR 1.00 per share (June 30, 2018: SAR 0.90 per share) of SAR 1,155 million (June 30, 2018: SAR 1,028 million) for the six months period ended June 30, 2019. 16. Zakat and income tax The change in the accounting policy for zakat and income (as explained in note 5) has the following impacts on the line items of statements of income, statement of financial position and changes in shareholders' equity:
22. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 19 16. Zakat and income tax (continued) As at and for the six month period ended 30 June 2018: Financial statement impacted Statement of changes in Equity Statement of income Statement of income Statement of financial position Statement of financial position Account Before the restatement for the six-month period ended 30 June 2018 Effect of restatement 117,471 (117,471) - 1.69 7,681,393 141,519 (0.11) 42,746 42,746 141,519 1.58 42,746 7,724,139 Provision for zakat and income tax (retained earnings) Zakat and Income tax for the period Earnings per share Deferred Tax Retained earnings As restated as at and for the six-month period ended 30 June 2018 For the three month period ended 30 June 2018: Financial statement impacted Statement of income Statement of income Account Zakat and Income tax for the period Earnings per share Before the restatement for the three-month period ended 30 June 2018 0.77 Effect of restatement 79,347 (0.07) As restated as at and for the three-month period ended 30 June 2018 79,347 0.70 As at 31 December 2018 Financial statement impacted Statement of financial position Statement of financial position Before the restatement as at 31 December 2018 Account Deferred tax asset Retained earnings 5,200,042 Effect of restatement As restated as at 31 December 2018 49,571 49,571 49,571 5,249,613 As at 1 January 2018 Financial statement impacted Account Statement of financial position Statement of financial position Statement of changes in equity Deferred tax asset Retained earnings Impact of adopting IAS 12 Before the restatement as at 1 January 2018 after effect of IFRS 9 5,766,088 - Effect of restatement As restated as at 1 January 2018 66,794 66,794 66,794 66,794 5,832,882 66,794 Deferred tax The deferred tax arises on end of service benefits, impairment allowance on off-balance expected credit losses. SAR 000 Opening deferred tax asset Origination or reversal of temporary differences Impact of change in shareholding Deferred tax (expense) Closing 30 June 2019 49,571 (5,348) (1,956) (7,304) 42,267 31 December 2018 66,794 21,432 (38,655) (17,223) 49,571 30 June 2018 66,794 9,286 (33,334) (24,048) 42,746
23. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2019 and 2018 Page 20 17. Capital Adequacy The Bank’s objectives when managing capital are, to comply with the capital requirements set by SAMA; to safeguard the Bank’s ability to continue as a going concern; and to maintain a strong capital base. Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management. The Bank monitors the adequacy of its capital using ratios established by SAMA. These ratios measure capital adequacy by comparing the Bank’s eligible capital with its statement of financial position assets, commitments and notional amount of derivatives at a weighted amount to reflect their relative risk. SAMA requires holding the minimum level of the regulatory capital of and maintaining a ratio of total regulatory capital to the risk-weighted asset (RWA) at or above the agreed minimum of 8%. SAMA through its circular number 391000029731 Dated 15/03/1439AH, which relates to the interim approach and transitional arrangements for the accounting allocations under IFRS9, has directed banks that the initial impact on the capital adequacy ratio as a result of applying IFRS shall be transitioned over five years. Bank's total risk weighted assets and total Tier I & Tier I + Tier II Capital are as follows: SAR '000 Credit Risk RWA June 30, 2019 (Unaudited) December 31, 2018 (Audited) June 30, 2018 (Unaudited) 169,050,175 165,236,811 169,923,672 12,559,400 12,481,250 12,325,051 2,016,665 1,863,538 2,523,959 Total RWA 183,626,240 179,581,599 184,772,682 Tier I Capital 31,811,197 Tier II Capital 32,452,103 1,705,761 3,685,383 33,323,135 3,898,558 Total Tier I & II Capital 34,157,864 35,496,580 37,221,693 Capital Adequacy Ratio % Tier I ratio 17.67% 17.71% 18.03% Tier I + Tier II ratio 18.60% 19.77% 20.14% Operational Risk RWA Market Risk RWA 18. Comparative figures Certain prior period figures other than those restated as detailed in note 16 have been reclassified to conform to current period’s presentation. 19. Board of Directors Approval The interim condensed consolidated financial statements were authorised for issue by the Board of Directors on 31 July 2019 corresponding to 28 Dhu Al Qidah 1440H.