Annual Report 2012 - Al Baraka Investment and Development

president & chief executiVe’s report
(continued)
Al BARAKA islAMiC BAnK B.s.C.
Founded 1984 - Bahrain
From an exceptionally low growth rate of only 1.5% in 2011, Bahrain’s
GDP grew by an estimated 3.9% in 2012. This was mainly due to
the continuing strong global oil prices feeding into the country’s
revenue earnings chiefly from oil and refined petroleum products.
For similar reasons, the current account surplus rose over the
period. The rate of inflation however remained low.
The slowdown in the economy due to recent unrest has started to
recover. Business activity has remained largely unaffected, with the
exception of the comparatively small tourism sector. However, in
its effort to return the country to its traditional peace and stability,
the government continues to promote private sector growth
and try to diversify the economy away from the hydrocarbons
sector. It is increasing public spending by boosting subsidies, while
accelerating investment in new capital projects in an effort to
increase employment. A number of large construction projects in
the Bahrain Bay area off the coast of Manama have recently been
announced, which are expected to help reduce unemployment
and lead to increased foreign direct investment. It seeks to build
on its successful development of the financial services industry
over the last three decades, with its sound regulatory grounding,
particularly in the Islamic banking and finance field. In January
2013 Standard & Poor’s revised its BBB rating outlook of Bahrain
from “Negative” to “Stable”.
Bahrain announced that it had signed a Free Trade Agreement
with the United States, the first country in the Gulf to do so,
which it plans to use as a launching pad for greater diversification
of the economy.
Al Baraka Bahrain, operating under a retail banking licence from the
Central Bank, was one of the first Islamic banks to be established
in Bahrain. After spreading to Pakistan in 1991, subsequently
opening several branches over the years, it acquired a local bank in
Pakistan in 2010, merging the local branches’ operations to create
the second largest Islamic retail banking institution in Pakistan.
In 2012 Al Baraka Bahrain’s total Bahrain-based assets contracted
by 16% to $713 million. The fall was primarily due to a special
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situation which arose in December 2011 when a large letter of
credit was issued on behalf of a client, for which a substantial cash
margin was taken, thus temporarily increasing both assets and
liabilities by this amount. The transaction matured in 2012, when
the position reverted to normal. Additionally, and partly reflective
of the downturn in trade in Bahrain over the course of the year,
some additional facilities ran their course and were not replaced
by new business. These reductions in business volume were
reflected to some extent in the total financings and investments,
which fell by 14% to $601 million, of which the Murabaha sales
receivables at the end of the period had declined by 24% to
$235 million and the Mudaraba and Musharaka portfolios by 25%
to $82 million. Customer deposits including equity of IAH declined
by 6% for similar reasons, to $542 million, of which equity of IAH of
$404 million, which declined by 10%, accounted for the majority.
The Bahrain-based total operating income, however, rose by 6%
to over $18 million, largely due to income from joint financings
and investments, which increased by 6% to $23 million and,
after accounting for the IAH share, resulted in the bank’s share
including its share as Mudarib increasing by 8% to $12 million. The
remainder of the operating income, constituting income from its
own sales and investments, Mudarib share from the off-balance
sheet equity of IAH, banking fees and commissions and other
income, was unchanged at $6 million. Total operating expense,
on the other hand, increased by 9% to a little under $20 million,
leaving a net operating loss of $1 million which, after provisions,
resulted in a net loss for the year of $5 million, compared with
a small net profit in 2012 of less than $1 million.
Under its strategic plan for expansion in Bahrain, Al Baraka Bahrain
plans to open 2 new branches in 2013, bringing the network up
to 8 branches, with a long term aim of 16 branches by 2017. It
now has an ATM network of 16 machines spread across Bahrain.
In addition to its existing product range of personal, housing and
auto finance and its Taqseet (repayment by instalments) card
offering multiple Murabaha finance transactions through a single
card, it recently soft launched online and mobile banking and
has plans to launch a prepaid travel card and Takaful insurance
products in the near future.
(All figures in US Dollars unless otherwise stated)