Posted: August 2nd, 2022

One page

 My part is asset quality and banks selected are ahli united bank and Gulf International Bank. I need only one page.  

Need in few hours. No late will be accepted and no excuses.  

FIN

3

2

3: Commercial Banking Summer 2021-22

Course Project Guidelines

Overview:

It is a group project (with a minimum of 10 students not more than 11) where students are required to analyze the financial condition of two banks of their choices in terms of Profitability and risk. Students are supposed to deliver a written report in addition to a presentation.


Report:

Should include three parts:

1.
Select two conventional banks from Bahrain.

Using financial statements,

Present and compare the two banks

(History, organization, structure, and corporate social responsibility)

2. Using tables and graphics make a CAMEL Analysis of the two banks:

· Capital Adequacy: The purpose of capital, the ratio for evaluating capital adequacy, The measurement of capital, Prompt Corrective Action

· Asset Quality: Concept of asset quality, Impact of asset quality on bank’s financial statements. Analyzing asset quality ratios. Adequacy of allowance for loans and leases losses (ALLL)

· Management Competence: Management organization and function. Assessment of management. Evaluation factors and ratings

· Earnings Ability: Analysis of the different components of earnings (ROE, ROA). Importance of earnings to a bank’s financial condition

· Liquidity Risk: Liquidity risk management. Factors for evaluating liquidity

Report Format:

· WRD doc of Minimum Pages 10, Maximum 20 : Font: New Times Roman, Font Size: 12 , Spacing: Single

· PPT File of Maximum 15 slides.

Important Note:

Report should be written with your own words without repeating the statements or sentences available in the financial reports of the commercial bank you have chosen (Avoid plagiarism).

The grading rubrics is given below for your reference.

2

2

2

2

3

Marks

Present and compare the two banks 3

Capital Adequacy

2

Asset Quality

Management Competence

Earnings Ability

Liquidity Risk Liquidity

originality in reporting

4

PowerPoint presentation

Total

20 marks

Present and compare the two banks

Capital Adequacy

Asset Quality

Management Competence

Earnings Ability

Liquidity Risk Liquidity

originality in reporting

PowerPoint presentation

Above Expectations

Meets Expectations

Below Expectations

90%-100%

70%-89%

<69%

A deep explanation is provided for History, organization, structure and corporate social responsibility of the two banks.

A limited explanation is provided for History, organization, structure and corporate social responsibility of the two banks.

A weak explanation is provided for History, organization, structure and corporate social responsibility of the two banks.

The purpose of capital, ratio for evaluating capital adequacy is properly explained and compared for both banks

The purpose of capital, ratio for evaluating capital adequacy is not properly explained and compared for both banks

The purpose of capital, ratio for evaluating capital adequacy is poorly explained and compared for both banks

Concept of asset quality, Impact of asset quality on bank’s financial statements. Analyzing asset quality ratios

is properly explained and compared for both banks.

Concept of asset quality, Impact of asset quality on bank’s financial statements. Analyzing asset quality ratios is not properly explained and compared for both banks.

Concept of asset quality, Impact of asset quality on bank’s financial statements. Analyzing asset quality ratios is poorly/ not adequate explained and compared for both banks.

Management organization and function. Assessment of management. Evaluation factors and ratings is properly explained and compared for both banks.

Management organization and function. Assessment of management. Evaluation factors and ratings is not properly explained and compared for both banks.

Management organization and function. Assessment of management. Evaluation factors and ratings is poorly/ not adequate explained and compared for both banks.

Analysis of the different components of earnings (ROE, ROA) is properly explained and compared for both banks.

Analysis of the different components of earnings (ROE, ROA) is not properly explained and compared for both banks.

Analysis of the different components of earnings (ROE, ROA) is poorly/ not adequate explained and compared for both banks.

Risk Liquidity management. Factors for evaluating liquidity

is properly explained and compared for both banks.

Risk Liquidity management. Factors for evaluating liquidity is not properly explained and compared for both banks.

Risk Liquidity management. Factors for evaluating liquidity is poorly/ not adequate explained and compared for both banks.

Organization clarity & originality in reporting is exceptional

Organization clarity & originality in reporting is above average

Organization clarity & originality in reporting is not up to the mark

The presentation provides clear and comprehensive explanation to the project

The presentation provides limited explanation to the project

The presentation provides unclear and weak explanation to the project

University of Bahrain

Collage of Business Administration

Economics and Finance Department

Second Semester 2021-2022

Bank323 Project

Submitted to Dr Mehdi


Bahrain Development Bank (

BDB

) & Bank of Bahrain & Kuwait (

BBK

)

Section 1

Prepared by:

Aleena Ansari: 20180859

Wafa Wasim: 20192031

Hawra’a Abdali: 20173479

Hussain Jaffer: 20197280

Munem Hussain: 20180411

Contents:

1 INTRODUCTION

· BAHRAIN DEVELOPMENT BANK (BDB)

· BANK OF BAHRAIN & KUWAIT (BBK)

2 CAPITAL ADEQUACY RATIO

3 ASSET QUALITY

4 MANAGEMENT COMPETENCE

5 EARNING ABILITIES

6 LIQUIDITY RISK

7 References

1.
INTRODUCTION

BAHRAIN DEVELOPMENT BANK (BDB)

Bahrain development bank started its operation in the region of Bahrain from the year 1991. The bank was established by the government of Bahrain to provide different service to the people of Bahrain it is one of the oldest banks of Bahrain. The banking authorization register with the central bank of Bahrain which provides regulation and different other aspects that has been followed by the Bahrain Development Bank. The bank headquarter has been operating from the city of Manama, Bahrain. The services that have been rendered by Bahrain Development Bank has been listed as the finance and insurance, consumer banking, corporate banking and investment banking. Key individuals of the company are listed as below. (Hassan, 2004)

1. Muhammed Bin Essa Al Khalifa (CHAIRMAN)

2. Salnjeey Paul (CEO)

The banking sector has been managing operation through providing different services that has been listed as the financial services that has been supporting the SMEs in the region to explore and expand into new ventures. The assistance has been provided through different sources of the banking services which includes the finance service of Islamic Finance and Tamkeen Finance that are contributing for businesses that are listed as below.

1. Manufacturing

2. Agriculture

3. Healthcare

These are some of the industries that are getting benefits from Bahrain development bank in regard to finance services. The banking phase of Bahrain has been developing quite well as the industry has been adopting the technology in managing service implication of fintech to ensure that banking industry has been leading towards growth. The fiscal year results of Bahrain development Bank have been providing with the results that Bank has been interpreting growth which has been utilized as the Interest income of company has been amounted to BD 7,323,000, total assets of bank amounted to BD 226,483,000 and total equity has been amounted to BD 68,705,000. The Bahrain Development Bank leads towards the agreement to promote different new ventures that has been performing in region and establish assistance to help them lead business towards success over the time. The bank partnered with the European community investment to access in funding and support Brussels and European industry in the region. The following opportunities and success have been led by the organization in managing expansion and growth of banking industry in the region and impact on the economy of Bahrain over time period. (Hidayat, 2012)

The Bahrain development Bank has been providing with the different aspects of corporate social responsibility in region which has been enabling to provide community with the growth and development of Islamic banking sector and helps in providing with empowerment of startups in region to build a strong economy of the region. The Bahrain development Bank has been providing with funds to the charitable organization to manage their operations and build a strong community. These are some of the corporate social responsibilities that has been providing sustainability to the community that has been gathering positive response in the market over time. (Tabash, 2013)

BANK OF BAHRAIN AND KUWAIT

The bank of Bahrain and Kuwait has been managing operation since the year 1971 in Bahrain and Kuwait. The region demand of banking industry has been quite high which leads the managing new businesses into the industry as the bank has been owned by the jointly of agreement government of Bahrain and general public which includes local and international investors. The position of managing targets of banking services has been expanded of Bank of Bahrain and Kuwait leading towards structuring process in involving the fintech in business operation which provides sustainability and efficiency in services. The Bank of Bahrain and Kuwait has been providing same aspects of services as the different other banks operating in region with proper functioning and establishing a customer demand towards the bank.

The bank shares have been floated in the Bahrain Bourse which has been distributed among Ithmaar Bank B.S.C, Pension Fund Commission, Kuwait Investment Bank and social insurance organization share ratio owned by companies has been listed as 25.38%, 18.77%, 18.70% and 13.34% respectively. The company has been divided into categories that includes retail banking, investment banking, e-banking and multi feature accounts. The purpose of managing capital management and corporate banking has been evaluated to lead the different organization managing their finances.

Since the year 1971 Bank of Bahrain and Kuwait has been providing with sustainability and efficiency in managing operation regarding banking industry and managing business portfolio with different operations over the period of time. The Murad Ali Murad has been working as the chairperson and A. Rahman Saif has been working as the CEO of the Bank of Bahrain and Kuwait. The business has been providing with the service that has been determined to utilize changes in structure of banking system to provides opportunities and acceptance of the future stability in the market (Hussain, 2012).

The corporate social responsibility by the Bank of Bahrain and Kuwait has been consist of providing funding and regulating social causes awareness. The business has been providing with opportunities to the organization that has been working towards community provide them with support and healthier society. The progress of company in corporate social responsibility has been highlighted in the annual report of organization creating to provide achievements that has been accomplished by the Bahrain Development Bank over the period.

2.

CAPITAL ADEQUACY RATIO

The capital adequacy ratio highlights Bahrain development bank and Bank of Bahrain and Kuwait efficiency to eliminate the weighted risk that has been emerged due to the credit spending of capital available in the bank. The formula utilized for the computation for capital adequacy ratio has been adding up the tier 1 and tier 2 divided by the risk weighted assets for the period. The capital adequacy ratio has been leading towards providing trust of the customers who have deposited amount in the bank as they could payoff the amount while eliminating risk of credit. The tier 1 and tier 2 consist of shareholder’s equity, retained earnings, revalued reserves and undisclosed reserves. The risk weighted assets has been based on debenture and percent of risk. This overall computation leads towards providing with capital adequacy ratio has been based on the projection, determining position, and building up trust of the customers of organization.

The capital adequacy ratio has been providing with the Bahrain Development Bank and Bank of Bahrain and Kuwait. The capital adequacy ratio has been providing with details that Bahrain Development Bank has been lowered due to the reason that company losses over the credit, which has been impacting the capital adequacy of the banking sector while analyzing capital adequacy ratio of Bank of Bahrain and Kuwait has been highlighting the progress that bank has been maintaining risk position quite efficiently over the period of time to have stable operations and building up the trust of the customers into the business which has been highlighted through increase in finance income for the bank for the period. The capital adequacy ratio of both the banks has been concerned to be stable after analyzing the details of accounts that conclude the business provides sustainable results over the period. The depositors amount within both the banking organization has been forecasted to be safe and secure while analyzing through the capital adequacy ratio of the Bahrain development bank and Bank of Bahrain and Kuwait. (Oudat, 2021)

 

 

 

 

 

 

 

 

 

 

 

 

BANK OF BAHRAIN AND KUWAIT

 

 

 

Computation

 

 

TIER 1

 

Shareholder’s equity

Retained earnings

 

 

 

 

 

TIER 2

 

Revalued reserves

Undisclosed reserves

 

 

 

 

 

 

 

 

 

RISK WEIGHTED ASSETS

 

Debenture

Percent of risk

0.4

 

 

 

 

CAPITAL ADEQUACY RATIO

CAPITAL ADEQUACY RATO

 

FORMULA

(Tier 1 + Tier 2)/ Risk Weighted Assets

BAHRAIN DEVELOPMENT BANK

Computation

TIER 1

Shareholder’s equity

241.8

68.7

Retained earnings

12

5.6

-2.65

TIER 2

Revalued reserves

66.8

1.18

Undisclosed reserves

61.6

1.14

RISK WEIGHTED ASSETS

Debenture

1555.8

1468

Percent of risk

0.4

CAPITAL ADEQUACY RATIO

0.796696

0.116433924

3.
ASSET QUALITY

The asset quality rating provides details regarding assets of Bahrain Development Bank and Bank of Bahrain and Kuwait. The asset rating has been one of the important prospectuses that need to be analyzed for the period that assets of banks are riskier or not. The assets include the investment in bonds and stocks portfolio. Each assets have certain amount of risk that has been occurred at a time which has been crucial to be analyzed to maintain sustainability of organization. The formula that can be utilized for the computation of the asset quality risk has been evaluated as per the net profit or losses for the period divided by the number of loans bank has lend over a period of time. The second formula that has been utilized was net profit or loss divided by the total equity of the bank. The allowance for loan loss divided by total loans represents the impact of losses on allowance and percentage designated for the loan losses. The provision for loan loss ratio has been evaluated to provide with details of loans loss ratio divided by total loans for the period. These are some of the formulation which has been leading towards providing with the asset quality of the bank and provides clear image of the bank statement about efficiency and stability over the risk of losses that could organization cover and impact on profitability of the Bahrain Development Bank and Bank of Bahrain and Kuwait.

The impact of asset quality on financial statements has been represented through the implication of potential risk on assets that devalued the profits of banks due to increase in expenses of losses over the assets. The assets are being purchased to increase profit for the Bahrain development bank and Bank of Bahrain and Kuwait but if the losses started interpreting from the assets that would be affecting organization profits over the period. The value of assets starts to decrease over the period which has been impacting in the statement of financial position and statement of profit and loss. The efficiency, stability, profitability and sustainability over period of time in representing over processing and complete information of the risk. (Hawaldar, 2017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPL’s to total loans

 

 

 

 

 

 

NPL’s to total equity

 

 

NPL’s

52.6

56.3

 

Allowance for loan loss ratio

 

 

Total loans

2167.4

3530

 

Provision for loan loss ratio

 

 

Total loans

2167.4

3530

 

 

 

 

 

BBK

BDB

NPL’s to total loans

0.024269

0.015949

NPL’s to total equity

0.102235

0.081951

Allowance for loan loss ratio

0.038341

0.027252

Provision for loan loss ratio

0.002584

0.001076

ASSETS QUALITY RATIO

Formula

NPL’s

to total loans

NPL’s/total loans

NPL’s to total equity

NPL’s/total equity

Allowance for loan loss

ratio

Allowance for loan loss/total loans

Provision for loan loss

ratio

Provision for loan loss ratio

/total loans

BBK

BDB

NPL’s

52.6

56.3

Total loans

2167.4

3530

0.024269

0.015949

Total equity

514.5

687

0.102235

0.081951

Allowance for loan loss

83.1

96.2

0.038341

0.027252

Provision for loan loss 5.6

3.8

0.002584

0.001076

The asset quality rating provides details of Bahrain development bank and Bank of Bahrain and Kuwait. The progress of Bahrain development bank has been highlighting higher impact on managing risk and output of sustainability in progress and gaining higher financial progress. The overall business position of Bahrain development bank has been lower as compared to Bank of Bahrain and Kuwait.

The adequacy of allowance has been leading towards utilizing the (ALLL) Bahrain development bank and leading towards guidelines in regarding featuring of allowance of lease and loans has been implementing the progression of allowance of loans that has been managed. The allowance provides sustainability in operations of both the banks and maintain position to determine stability all over the financial aspects over the period of time.

4.
MANAGEMENT COMPETENCE

The management competence has been dependent on approach to provide strategies that has been leading towards stability in working environment and management. The management has been quite competent enough to provide sustainability and leading towards achieving goals and objectives that has been set by the organization over the period and provide expansion in business portfolio. The management of the BBK and BDB has been working on introducing fintech on commercial purposes which would be helping managing performance of the organization with highly automated environment of the business. The implication of departmentalization has been gathering positive impact on business entity as each strategy has been evaluated towards progress of the business.

5.
EARNING ABILITIES

RETURN ON ASSETS AND RETURN ON EQUITY

 

 

Formula

 

 

Return on assets

 

 

Net income/total assets

 

 

 

 

 

Return on equity

 

 

Net income/shareholder’s equity

 

 

 

 

 

 

BBK

BDB

RETURN ON ASSETS

 

 

Net income

52.6

56.3

Total assets

3760.4

226.4

 

0.013988

0.248675

RETURN ON EQUITY

 

 

Net Income

52.6

56.3

Shareholder’s equity

514.5

687.5

 

0.102235

0.081891

The BBK and BDB has been utilizing their resources quite efficiently over the period of time which has been resulted in progress of the business through having higher financial results at the year end. The return on assets for the BBK has been lower as compared to the BDB due to the reason the amount of assets has been higher for BBK which has been causing the impact on sustainability of the return on assets. The return on equity has been providing with the results that BBK has been higher number of returns over equity due to the reason that equity has been lowered for the bank while BDB has been highlighting lower returns for the period.

6.
LIQUIDITY RISK

LIQUIDITY RISK

 

 

Formula

 

 

Current asset/ current liabilities

 

 

 

 

 

Computation

 

 

Liquidity risk

BBK

BDB

Current asset

3576.3

152920

Current liabilities

2327.9

153334

 

1.536277

0.9973

The liquidity risk has been providing with the information regarding the changes that has been occurring in the current assets and current liabilities of the BBK and BDB. The overall portion provides with the implication that company could pay off their short-term liabilities through the current assets. The position of BBK has been quite well as compared to the BDB position which has been reflected in above computation of the ratios.

References
Hassan, M. A. A. a. S. A., 2004. An empirical study of relative efficiency of the banking industry in Bahrain.. Studies in economics and finance..
Hawaldar, I. K. K. P. P. a. S. S., 2017. Performance analysis of commercial banks in the kingdom of Bahrain (2001-2015).. International Journal of Economics and Financial Issues, , 7(3), pp. 729-737.
Hidayat, S. a. A. M., 2012. Does financial crisis give impacts on Bahrain Islamic banking performance? A panel regression analysis.. International Journal of Economics and Finance,, 4(7), pp. 79-87.
Hussain, H. a. A. J., 2012. Risk management practices of conventional and Islamic banks in Bahrain.. The Journal of Risk Finance..
Oudat, M. a. A. B., 2021. The Underlying Effect of Risk Management On Banks’ Financial Performance: An Analytical Study On Commercial and Investment Banking in Bahrain.. Ilkogretim Online, 20(5).
Tabash, M. a. D. R., 2013. An empirical analysis of the flow of Islamic banking and economic growth in Bahrain.. International Journal of Management Sciences and Business Research,, 3(1).

ASSET QUALITY RATING

BBK NPL’s to total loans NPL’s to total equity Allowance for loan loss ratio Provision for loan loss ratio 2.4268709052320751E-2 0.1022351797862002 3.8340869244255789E-2 2.5837408876995477E-3 BDB NPL’s to total loans NPL’s to total equity Allowance for loan loss ratio Provision for loan loss ratio 1.5949008498583567E-2 8.1950509461426485E-2 2.7252124645892353E-2 1.0764872521246459E-3

CONSOLIDATED FINANCIAL
STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31st December 2021

CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 1
CONSOLIDATED STATEMENT OF INCOME 2
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 3
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4
CONSOLIDATED STATEMENT OF CASH FLOWS 5
1 Incorporation and registration 6
2 Basis of preparation 6
3 Accounting policies 8
4 New and amended standards and interpretations 19
5 Accounting judgements estimates and assumptions 23
6 Classification of assets and liabilities 24
7 Cash and other liquid assets 25
8 Securities purchased under agreements to resell 25
9 Placements 25
10 Trading securities 25
11 Investment securities 25
12 Loans and advances 27
13 Other assets 29
14 Post retirement benefits 29
15 Deposits 33
16 Securities sold under agreements to repurchase 33
17 Other liabilities 34
18 Senior term financing 34
19 Share capital 34
20 Reserves 35
21 Dividends 35
22 Net interest income 36
23 Fee and commission income 36
24 Trading income 37
25 Foreign exchange income 37
26 Other income 37
27 Provision for expected credit losses 38
28 Taxation and zakat 38
29 Segmental information 39
30 Risk management 41
31 Geographical distribution of assets 52
32 Maturities of assets and liabilities 53
33 Interest rate risk 55
34 Derivatives and foreign exchange instruments 56
35 Credit-related financial instruments 61
36 Contingent liabilities 61
37 Capital adequacy 62
38 Fiduciary activities 62
39 Related party transactions 63
40 Fair value of financial instruments 64
41 Earnings per share 66
42 Principal subsidiaries 66
43 Non-controlling interest 67
44 Average consolidated statement of financial position 68
45 Shariah compliant assets and liabilities 68
46 Comparatives 69
SUPPLEMENTARY DISCLOSURES TO THE CONSOLIDATED FINANCIAL INFORMATION 70
31st December 2021 GULF INTERNATIONAL BANK B.S.C.

A member firm of Ernst & Young Global Limited

Ernst & Young — Middle East
P.O. Box 140
East Tower — 10th floor
Bahrain World Trade Center
Manama
Kingdom of Bahrain

Tel: +973 1753 5455
Fax: +973 1753 5405
manama@bh.ey.com
www.ey.com/mena
C.R. no. 29977-1

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF
GULF INTERNATIONAL BANK B.S.C.

Report on the Audit of the Consolidated Financial Statements

Opinion
We have audited the accompanying consolidated financial statements of Gulf International Bank
B.S.C. (the “Bank”) and its subsidiaries (together the “Group”), which comprise the consolidated
statement of financial position as at 31 December 2021, and the consolidated statements of
income, comprehensive income, changes in equity and cash flows for the year then ended, and
notes to the consolidated financial statements, including a summary of significant accounting
policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at 31 December 2021, and its
consolidated financial performance and consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards (“IFRS”) as modified by the Central
Bank of Bahrain (“CBB”).

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our
responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the consolidated financial statements section of our report. We are independent of
the Group in accordance with the International Code of Ethics for Professional Accountants
(including International Independence Standards) (“IESBA Code”) together with the ethical
requirements that are relevant to our audit of the financial statements in the Kingdom of Bahrain,
and we have fulfilled our other ethical responsibilities in accordance with these requirements and
IESBA. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the consolidated financial statements for the year ended 31 December 2021. These
matters were addressed in the context of our audit of the consolidated financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. For each matter below, our description of how our audit addressed the matter is provided
in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
consolidated financial statements section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated financial statements. The
results of our audit procedures, including the procedures performed to address the matters below,
provide the basis for our audit opinion on the accompanying consolidated financial statements.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF
GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9
Key audit matter How the key audit matter was addressed in the
audit
The Group exercises significant
judgment using subjective
assumptions over both when and
how much to record as loan
impairment, and estimation of the
amount of the Expected Credit
Losses (“ECL”) for loans and
advances.

The COVID-19 pandemic has
impacted management
determination of the ECL. This has
resulted in an increased level of
uncertainty associated with
management judgement, which may
result in outputs significantly different
from the future credit losses and
staging of the customers.

Loans and advances form a major
portion of the Group’s assets, and
due to the significance of the
judgments used in classifying loans
and advances into various stages
stipulated in IFRS 9 and determining
related ECL requirements, this audit
area is considered a key audit risk.

As at 31 December 2021, the
Group’s gross loans and advances
amounted to US$ 11,952.6 million
and the related impairment
provisions amounted to US$ 295.1
million, comprising of US$ 128.7
million of provision against Stage 1
and 2 exposures and US$
166.4 million against exposures
classified under Stage 3.

The accounting policies relating to
estimating ECL are presented in the
accounting policies, and the
associated credit risk disclosure is
presented in Note 30 to the
consolidated financial statements.

• We gained an understanding of the Group’s
key credit processes comprising granting,
booking, monitoring and provisioning, including
an understanding of the design and operating
effectiveness of relevant controls over the ECL
model, including model build and approval,
ongoing monitoring/validation, model
governance and mathematical accuracy.

• We read the Group’s IFRS 9 based impairment
provisioning policy and compared it with the
requirements of IFRS 9 as well as relevant
regulatory guidelines and pronouncements.

• We assessed the soundness of the Group’s
loan grading processes.

Stage 1 and Stage 2 Provisions:

• For ECL against exposures classified as Stage
1 and Stage 2, we obtained an understanding
of the Group’s provisioning methodology, the
underlying assumptions and the sufficiency of
the data used by management.

• We obtained an understanding of the Group’s
internal rating model for loans and advances.
We have read the annual external validation
report on the internal rating model to assess the
appropriateness of the rating model.

• We checked the appropriateness of the
Group’s determination of significant increase in
credit risk and the resultant basis for
classification of exposures into various stages.

• For forward looking assumptions used by the
Group in its ECL calculations, we held
discussions with management and
corroborated the assumptions using publicly
available information. We also assessed the
reasonableness of changes made to the
economic scenarios to reflect the effect of
COVID-19.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF
GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9 (continued)
Key audit matter How the key audit matter was addressed in the
audit
• For a sample of exposures, we checked the
appropriateness of the Group’s staging.

• For Probability of Default (“PD”) used in the
ECL calculations we checked the Through the
Cycle (“TTC”) PDs with internal historical data
and checked the appropriateness of conversion
of the TTC PDs to Point in Time PDs.

• We checked the appropriateness of the Loss
Given Default used by the Group’s
management in the ECL calculations.

• For a sample of exposures, we checked the
appropriateness of determining Exposure at
Default, including the consideration of
repayments in the cash flows and the resultant
arithmetical calculations.

• We checked the completeness of loans and
advances and credit related contingent items
included in the ECL calculations as of 31
December 2021.

• We involved Financial Services Risk
Management and Information System
specialists to verify the appropriateness of the
model.

• We considered the adequacy of the disclosures
in the consolidated financial statements in
accordance with IFRS 9. Refer to the
accounting policies, accounting judgements,
estimates and assumptions, disclosures of
loans and advances and credit risk
management in notes 3, 5, 12 and 30
respectively to the consolidated financial
statements.

• We assessed the basis of determination of the
management overlays considering the impact
of the COVID-19 global pandemic against the
requirements of the Group’s ECL policy.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF
GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9 (continued)
Key audit matter How the key audit matter was addressed in the
audit
Stage 3 (Specific) Provisions:

• For a sample of exposures determined to be
individually impaired, we obtained an
understanding of the latest developments in the
counterparty’s situation and examined
management’s estimate of future cash flows
and checked the resultant provision
calculations.

• For each exposure in the sample selected, we
re-performed the provision calculation by
considering the appropriateness of the
management assumptions used and where
possible benchmarked the provision held to
that across the industry.

Other information included in the Group’s 2021 Annual Report
Other information consists of the information included in the Group’s 2021 Annual Report, other
than the consolidated financial statements and our auditor’s report thereon. The Board of
Directors is responsible for the other information. Prior to the date of this auditor’s report, we
obtained the Chairman’s Statement which will form part of the annual report, and the remaining
sections of the annual report are expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and
we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information identified above when it becomes available and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based
on the work we have performed on the other information obtained prior to the date of the auditor’s
report, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors for the consolidated financial statements
The Board of Directors is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with IFRS as modified by the CBB and for such internal control
as the Board of Directors determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for
assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless the Board of
Directors either intends to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF
GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial
statements.

As part of an audit in accordance with ISA, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the Board of Directors.

• Conclude on the appropriateness of the Board of Directors’ use of the going concern basis
of accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to
continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance
of the Group audit. We remain solely responsible for our audit opinion.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF
GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Auditor’s responsibilities for the audit of the consolidated financial statements (continued)
We communicate with the Group’s Audit Committee regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.

We also provide the Group’s Audit Committee with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate to them all
relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, actions taken to eliminate threats or the safeguards applied.

From the matters communicated with the Group’s Audit Committee, we determine those matters
that were of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because
the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

As required by the Bahrain Commercial Companies Law and Volume 1 of the Central Bank of
Bahrain (CBB) Rule Book, we report that:

a) the Bank has maintained proper accounting records and the consolidated financial
statements are in agreement therewith;

b) the financial information contained in the Chairman’s Statement is consistent with the
consolidated financial statements;

c) we are not aware of any violations of the Bahrain Commercial Companies Law, the
Central Bank of Bahrain and Financial Institutions Law, the CBB Rule Book (Volume 1
and applicable provisions of Volume 6) and CBB directives, or the terms of the Bank’s
memorandum and articles of association during the year ended 31 December 2021 that
might have had a material adverse effect on the business of the Bank or on its
consolidated financial position; and

d) satisfactory explanations and information have been provided to us by management in
response to all our requests.

The partner in charge of the audit resulting in this independent auditor’s report is Nader Rahimi.

Partner’s registration no.115
24 February 2022
Manama, Kingdom of Bahrain

31st December 2021
Consolidated Statement of Financial Position
31.12.21 31.12.20
Note US$milions US$ millions
ASSETS
Cash an

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