English - BMI Bank

[Growing Stronger] 

Annual Report 2011 

Licensed and regulated as a conventional Retail Bank by the Central Bank of Bahrain 

bmibank.com.bh

His Royal Highness Prince 

Khalifa bin Salman Al Khalifa 

The Prime Minister of the 

Kingdom of Bahrain 

His Majesty King 

Hamad bin Isa Al Khalifa 

The King of the 

Kingdom of Bahrain 

His Royal Highness Prince 

Salman bin Hamad Al Khalifa 

The Crown Prince and Deputy 

Supreme Commander of the 

Kingdom of Bahrain

[building a solid reputation for 

providing exceptional service, 

innovative products & bespoke 

financial solutions.]

[contents] 

[04] Our philosophy 

[06] Financial highlights 

[10] Chairman’s report 

[18] Chief Executive Officer's report 

[26] Board of Directors’ profile 

[34] Sharia Supervisory Board 

[38] Corporate governance 

[52] Management team 

[54] Management discussion & analysis 

[65] Financial statements 

BMI Bank Annual Report 2011 [3]

Our philosophy 

[OUR PHILOSOPHY] 

OUR VISION 

To become a dynamic regional bank, providing 

innovative and unique financial solutions. 

Our key pillars 

Innovation, inspiration, teamwork and a strong 

corporate culture. 

Our core values 

Integrity and ethical behavior, customer 

satisfaction, quality and excellence, empowerment 

and trust. 

Our creed 

[BMI Bank – 

Better, together.] 

[4] BMI Bank Annual Report 2011

Our philosophy 

Our purpose 

To provide high quality products and services in the form of 

Retail and Commercial Banking to an increasing number of 

people in selected markets throughout the MENA and other 

emerging markets. 

• To deliver a profitable performance; provide highquality 

products and services in competitive 

ways – maximizing revenues and minimizing cost. 

• To deliver a sustainable performance; provide products 

& services in a sustainable way attracting the best 

customers, accessing potential markets in which we enjoy 

their trust while bringing benefits to everyone concerned 

including customers, government, competitors, citizens 

and communities, thereby generating repeat business. 

• To deliver a consistent and growing performance; invest 

enough to deliver long-term growth while balancing it 

with returns to our shareholders. 

Our mission 

We are committed as a team to meet and exceed our 

customers’ expectations by providing them with innovative 

and high quality financial solutions – both conventional 

and Islamic. We are empowered with a strong corporate 

culture, knowledge, skills and the latest technology to meet 

our stakeholders’ expectations. We maintain our integrity, 

creating and sharing trust and practicing ethical behavior. 


Financial highlights 2011 

[2011 Financial highlights] 

BD ’000 

2011 2010 2009 2008 2007 

Total Assets 623,885 590,502 673,445 814,861 510,166 

Total Deposits 500,433 445,728 459,229 578,395 405,849 

Net Loans & Advances* 349,723 310,058 388,049 486,895 327,242 

Shareholders Equity 82,946 86,384 112,637 128,582 38,544 

Net Profit (Loss) (3,378) (26,487) (16,943) (2,981) 4,879 

Our credit ratings 

Moody’s Long term: Ba1 Short term: Not Prime BFSR: E+ Outlook: Negative 

Standard & Poor’s Long term: BB+ Short term: B outlook: Negative 

Moody’s 

“The rating is constrained by BMI Bank’s modest market position, weak profitability profile and short-term wholesale funding 

structure and by high corporate credit concentration. The rating is supported by adequate capitalisation and association 

with its parent that provides back-up liquidity”. 

S&P 

“The rating reflects BMI Bank’s “bbb-” anchor as well as its weak business position, strong capital and earnings, weak risk 

position, average funding and strong liquidity”. 

* Including Islamic financing assets 


Financial highlights 2011 

Financial Highlights 31 December 2011 

2011 2010 2009 2008 2007 

1. Profitability 

Net Interest Margin 3.3% 3.4% 2.9% 2.0% 2.1% 

2. Capital 

Capital Adequacy (BIS Standard) 19.4% 19.7% 21.8% 20.3% 13.1% 

Shareholders Funds/Total Assets 13.3% 14.6% 16.7% 15.8% 7.6% 

3. Asset Quality 

Non-Performing Loans to Total Loans 23.2% 18.6% 8.9% 2.0% 1.1% 

Loan Loss Provision to Total NPL’s 54.0% 76.2% 82.3% 88.1% 78.9% 

4. Liquidity 

Net Loans to Total Deposits 69.9% 69.6% 84.5% 84.2% 80.6% 

Net Loans to Total Assets 56.1% 52.5% 57.6% 59.8% 64.1% 

Liquid Assets to Total Deposits 48.4% 53.7% 49.3% 46.5% 40.8% 


STRENGTH 

THROUGH 

Progress 

thanks to our customercentric 

focus we have 

enhanced OUR CUSTOMERS 

banking experience 


In just a few years, thanks to our customercentric 

focus we have enhanced our customers 

banking experience in many ways. We have 

delivered an online platform, implemented a 

state-of- the-art core banking system, expanded 

our network of branches and ATMs and launched 

a range of innovative products and services. We 

have also extended our opening hours to coincide 

with our customers everyday life. To reflect our 

closer involvement with our customers, we have 

also transformed the way we look. The deeper 

blue makes for a strong, assertive and reassuring 

colour while the new red highlights the passion 

and charisma customers have come to expect 

from us. And finally, the inspiration for all our 

future communications is expressed in our new 

tagline that embodies all we stand for: growth, 

progress, new hopes and a more promising 

future… better, together. 


Chairman’s report 



[CHAIRMAN’s REPORT] 

2011 was a challenging year for Banks both locally as well as within the region. In 

addition, the unfortunate events that began within Bahrain in February severely 

affected local banks as key businesses within the economy including retail and tourism 

suffered with low volumes. Set against this backdrop, BMI Bank continued pushing 

forward with the transformation of its business into a stronger retail and commercial 

bank achieving significant traction and positive momentum during the second half of 

the year through the introduction of various customer-centric initiatives. Whilst the 

net results for the year is a loss of BD 3.4 million, the return to net profit for the last 

two quarters of 2011 reflects the effectiveness of the Bank’s strategy. 

SHEIKH KHALID BIN MUSTAHAIL AL MASHANI 

CHAIRMAN 

Sheikh Khalid bin Mustahail Al Mashani is the Chairman of the 

Board of Directors of BankMuscat S.A.O.G.; Chairman of the 

Board of Directors of BMI Bank B.S.C. (c), Bahrain; Deputy 

Chairman of Al Omaniya Financial Services Company; and 

Chairman of Dhofar International Development & Investment 

Holding Company S.A.O.G.. Sheikh Khalid is also the Director 

of Dhofar Cattle Feed Company S.A.O.G.; and the Chairman 

of the Board Risk Committee of BMI Bank B.S.C. (c), Bahrain. 

Sheikh Khalid holds a B.Sc. in Economics and a Masters 

Degree in International Boundary Studies from the School of 

Oriental and African Studies (SOAS), University of London. 



LOCAL MARKET 

After some difficult initial months, Bahrain’s economy has 

seen a return to growth and looks set to accelerate in 2012. 

Although the year was marked by its share of ups and 

downs, it was also filled with a strong desire to move forward 

with public investment and renewed private sector activity 

having a positive effect on the country’s economic health. 

Bahrain has over the past few years built and maintained 

its position as one of the region’s leading financial centers 

– an integral element of its economic diversification 

program. Public spending focused on the development of 

infrastructure, will boost the economy. At the beginning 

of the year Bahrain announced plans to spend more than 

USD 13 billion over 2011 and 2012. In 2011, the causeway 

linking Qatar, set to host soccer’s 2022 World Cup, and 

Bahrain was given the green light. The country also unveiled 

an ambitious new strategy to invest in its vital oil and gas 

sector and stepped up its oil exploration program by drilling 

25 new wells whilst the Housing Ministry was given the go 

ahead to build new cities across Bahrain. Additionally, the 

first phase of a multi-million dollar inter-change in Isa Town 

was completed in May. 

During the second half of 2011, the biggest public sector 

pay rise in Bahrain’s history was announced as part of a 

USD 530 million package. The increase meant a maximum 

of 36.5% extra in civil servants’ wage package, and 37.5% 

for pensioners. The government’s stimulus spending, plus 

financial support from the Gulf Cooperation Council (GCC) 

would contribute to economic expansion in the years to 

follow. The GCC has pledged USD 10 billion over 10 years to 

support Bahrain’s economic and social development policies, 

including the building of houses. 

The economy is expected to have expanded between 2% 

and 3% in 2011. This muted growth has been attributed 

to an uncertain global economic outlook, as well as the 

effect of social unrest in Bahrain and elsewhere in the Middle 

East earlier this year. However, despite the slowdown, 

unemployment remains low at below 4%. 

As indicated by the significant amount of public investments 

that are being carried out, the government is aware of the 

importance of keeping the economy moving in an uncertain 

global climate. 

FINANCIAL PERFORMANCE 

At BMI Bank, we continue to maintain an excellent Capital 

Adequacy Ratio of over 19% with strong liquidity and a 

portfolio of unique and innovative products and services. 

Although our financial results for 2011 reflect a loss of BD 

3.4 million, the last two quarters have registered net profits. 

During the year, we continued to remain prudent in both our 

lending practices as well as in our approach to provisioning, 

which we believe positions us well for 2012. 

Following the successful implementation of our new stateof-the-art 

core banking system in the previous year, we 

continued to work towards stabilizing and deriving value out 

of it during 2011. The full year impact of the depreciation 

as well as other related costs associated with the 

implementation has been reflected in our financial results 

for 2011. 

Net interest income for 2011 decreased slightly by 6.2% to 

BD 13.6 million from BD 14.5 million in 2010. Non-interest 

income for the year increased from BD 3.3 million to BD 

7.5 million, an increase of 127% over 2010. Total assets 

grew by 5.6% to BD 624 million as compared to BD 591 

million in 2010 while customer deposits increased by 56.1% 

from BD 264 million in 2010 to BD 412 million in 2011. As 

a result of Bank’s cautious lending policy, total loans and 

advances grew by 12.9% to BD 350 million during 2011. 

The results reflect a profit pre-provision of BD 2.6 million 

and a net loss post provision of BD 3.4 million for the year 

ended 31 December 2011. 

STRATEGIC DIRECTION AND ACHIEVEMENTS 

We began 2011 with a clear and single minded focus on 

consistently growing our business within the principle of 

conservatism and prudence. Building on from the strong 

foundations laid in 2010, we rolled out several new 



initiatives including key products and services to enhance 

our customers experience as well as grow our base. 

We began the year by unveiling our refreshed brand identity 

including a new look logo with a new tag line, ‘better, 

together’, strengthening our position as an entirely customer 

and customer-service driven bank. The new visual identity 

reinforces the name of the Bank while establishing a strong 

yet distinct brand using a new color palette. The dark blue 

used in our logo makes for a strong, assertive and reassuring 

color whilst the red, which is a new color to our Bank, brings 

in passion and charisma reiterating our strong anchorage as 

a Bahraini Bank. 

In line with our commitment to making banking convenient 

and centered around our customers’ needs, we rolled out 

three new full service branches including a special branch at 

the Bahrain World Trade Center to serve our high net-worth 

clients along with six new ATMs taking our total retail reach 

across Bahrain to ten branches and thirty ATMs. Additionally, 

we introduced two new payment and deposit options 

including a safe and secure online channel for customers to 

pay their credit card bills online. 

We were one of the first Banks in Bahrain to implement 

the International Bank Account Number (IBAN) standards 

used to increase the efficiency of electronic fund transfers 

both within and outside Bahrain and the only Bank to sign 

a strategic partnership agreement with Bahrain’s housing 

finance leader Eskan Bank, offering Bahrainis specifically 

tailored financial solutions. We also signed a strategic 

agreement with leading regional insurer Medgulf Allianz 

Takaful paving the way for us to offer customers a complete 

suite of life and non-life insurance products from Medgulf 

Allianz Takaful through our extended branch network within 

the country 

Our flagship retail product ‘Ayadi Saving Scheme’ has grown 

from strength to strength since its re-launch in early 2011 

whilst our credit card portfolio has seen a significant higher 

level of active utilization of limits with the introduction of 

a prize based reward scheme across all cards including our 

Diners Club credit card. 

We expect the operating environment for banks to remain 

difficult in 2012. However, BMI Bank with its excellent 

capital position and strong liquidity is well positioned for 

these difficult market conditions. The management team 

has done a good job in 2011 as witnessed from a return 

to profitability for the second half of the year and has the 

unanimous support of the Board on the way forward in 

2012 and beyond. 

STRENGTHENING OUR TALENT 

At BMI Bank, we have an experienced team with tremendous 

talent and potential. Recognizing the fact that our people 

are an important asset, we continued investing in training 

and developing this talent during 2011 by maximizing 

and enhancing the programs available both in house and 

through the Bahrain Institute of Banking & Finance (BIBF). 

Additionally several employee initiatives were rolled out 

throughout 2011 including an annual weight loss program 

designed to help our employees maintain a healthy diet and 

lifestyle. To help enhance transparency and build a stronger 

corporate culture within the organization, the Bank revised 

a few key policies during the year including recruitment, 

training and rewards amongst others. 

Our annual Employee Opinion Survey (EOS) held during 

the year once again proved to be a success registering 

an increase within the overall ratings. Keeping up with our 

commitment of recruiting and training local talent, we 

improved our Bahrainization ratio to 82% by the end of the 

year as compared to 77% in 2010. We also completed our 

Executive team through the appointments of key senior 

members during 2011. 

The employee headcount registered a slight decrease 

of 4.5% from 343 in 2010 to 328 in 2011 as a result 

of natural attrition and effective use of the performance 

management process. The experience and talent of our new 

hires has positioned us well for the future as we continue 

with the transformation of our business. 



MANAGING RISKS AND INTERNAL CONTROLS 

At the core of running our business well is our ability to 

maintain a firm control on all parts of our business. The 

level of control we exercise over our business continues to 

improve across many aspects, including credit, operational 

and market risk. Control is a critical key to our success 

and we have invested in our risk management people and 

systems to support the business to build a strong, customerfocused 

business. Building on the foundations laid during the 

previous years, we are pleased to reaffirm that our internal 

controls remain robust. During 2011, we started working on 

an exercise to implement a new operational risk solution that 

is expected to roll out during 2012. This sophisticated tool 

will assist us in further enhancing our existing operational 

risk framework. A very strong Issue Assurance Program to 

test the quality of audit findings implementations as well as 

the snap check framework in place to ensure critical controls 

within processes are effective at all times are important 

components of our internal control framework. Constant 

improvement in our risk management culture as well as in 

our processes and systems remains a critical objective. The 

Bank will continue to work on constant improvements in its 

risk management on all fronts. 

LOOKING FORWARD 

BMI Bank has, over the past few years transformed itself 

into a vibrant, dynamic and customer-centric brand enjoying 

a solid reputation amongst both customers as well as within 

the banking community. Equipped with a stable and growing 

business along with a refreshed strategy that was approved 

by the Board, we embark into 2012 with confidence. We 

will continue with our earnings momentum which will come 

from our many growth and productivity initiatives that are 

currently underway across all business lines. 

We will also continue to focus on our core strategy of 

developing a stronger retail and commercial banking 

business within Bahrain, which will provide our customers 

with innovative, valuable and competitive financial solutions 

that exceed their expectations. We will strengthen our 

links with our shareholders, particularly with BankMuscat, 

recognizing their inherent strength and capabilities and that 

our growth and success is interlinked with theirs. As a result, 

the Board of Directors are confident that BMI Bank is well 

positioned to continue to deliver strong outcomes for all 

its stakeholders in 2012 no matter what challenges may 

lie ahead. 

WORD OF THANKS 

I wish to record my gratitude on behalf of the Board of 

Directors’ and shareholders to His Majesty King Hamad bin 

Isa Al Khalifa, the King of the Kingdom of Bahrain, and His 

Majesty Sultan Qaboos bin Said, the Sultan of Oman and to 

their respective governments for their continued support of 

BMI Bank. I would also like to place on record the Board of 

Directors’ sincere appreciation to the support and guidance 

provided by the Central Bank of Bahrain. 

I take this opportunity to express my admiration and sincere 

appreciation to all our staff across our operations in Bahrain, 

Qatar and Seychelles for their continued dedication and 

commitment to reach higher levels of excellence in 2011. 

Today, our Bank is one of the best capitalized Banks in 

Bahrain with very strong liquidity and a portfolio of unique and 

rewarding products and services and with the enthusiastic 

support from everyone in the Bank I am confident we will 

continue to deliver on our creed of being better, together. 


CHAIRMAN 


[Equipped with a stable and growing business 

along with a refreshed strategy that was 

approved by the Board, we embark into 2012 

with confidence. We will continue with our 

earnings momentum which will come from our 

many growth and productivity initiatives 

that are currently underway across all 

business lines.] 


STRENGTH 

THROUGH 

PARTNERSHIP 

Unbeatable financial flexibility 

in a totalLy unique package 


Bahrain has been witnessing an escalating 

demand for social housing which has 

reached approximately 53,000 households 

in 2011 and is growing at 3,000-4,000 units per 

annum. This further accelerates our customers’ 

ever-growing need for an improved lifestyle and 

their constant demand for viable solutions to 

accomplish it. Our partnership with Eskan Bank, 

the leader in housing finance across Bahrain 

enables us to offer truly flexible and unique 

financial solutions to the customers – from their 

dream of investing in a house of their own to 

enabling them further with flexible personal loans 

and range of credit cards. 


Chief executive officer’s report 



[CHIEF EXECUTIVE OFFICER’s REPORT] 

In line with our commitment towards building a stronger retail and commercial banking 

business with a clear focus on Bahrain, we continued with the implementation of our 

strategy through the successful roll out of various customer-centric initiatives aimed 

at growing our business. 2011 was a year of transformation for our Bank with an 

emphasis on transparency, product innovation, stronger levels of customer service 

and openness; all key elements in realizing our objective of significantly increasing our 

market share within Bahrain whilst continuing to compete effectively. We have begun 

to witness the rewards of continuing our investment in our people, brand, system, 

product and services as reflected in both our net profits for the second half of 2011 

as well as our position as a key player amongst local retail and commercial banks 

within the country. At BMI Bank, we still maintain an excellent Capital Adequacy Ratio 

of over 19% with strong liquidity and a portfolio of unique and innovative products 

and services. As we move into 2012, we remain committed towards maximizing 

our shareholders’ returns along with providing our loyal customers with world-class 

standards in our products and services along with competitive value 

Jamal Ali Al-Hazeem 

Chief Executive Officer 

Jamal Al-Hazeem took on the role of Chief Executive 

Officer in May 2010, with a commitment to build on the 

Bank's strengths as well as deliver on its commitment to 

provide customers with unique and innovative financial 

products and services. Jamal was earlier the Managing 

Partner of Arthur Andersen - Bahrain for 22 years before 

being appointed as Chief Executive Officer (CEO) of 

the Economic Development Board (EDB) - Bahrain in 

2000. In his next role, Jamal worked in Kuwait with The 

International Investor and returned back to Bahrain in 

2007 to take on the role of CEO of First Investment Bank. 

Jamal currently serves as a Board Member at many 

prestigious organizations across the GCC including the 

Bahrain Association of Bankers and Nass Corporation. 

Jamal is also the Chairman of leading Kuwaiti company 

Al Taameer Real Estate Investment Company 

(Taameer – Kuwait) and a board member of Al-Masaleh Real 

Estate (Kuwait). 



STRENGTHENING THE BUSINESS PROPOSITION 

Our transformation began in earnest at the start of 

2011 with the roll out of a revised prize structure for our 

flagship retail product, the ‘Ayadi Savings Scheme’ offering 

customers the opportunity to win USD 1.66 million in prize 

money as well as uniquely positioning the product as the only 

such savings scheme in Bahrain to offer the biggest grand 

prizes during all three Eid’s including Bahrain’s National Day. 

This was followed by a campaign announcing our refreshed 

brand identity under a new tag line, “better, together” 

to strengthen our position as an entirely customer and 

customer-service driven bank. 

We also opened three new branches, a Small and Medium 

Enterprises (SME) focused branch at Hamala as well as one 

at Airport Avenue in Muharraq and one on the 16th floor 

of the Bahrain World Trade Center to cater to our high networth 

clients. In addition to growing our branch network to 

ten during the year, we also strengthened our ATM network 

to thirty through the launch of new ATMs at strategic 

locations within the country. 

Further to the launch of our state-of-the-art core banking 

system in 2010, we launched two new payment channels 

for our credit card customers; online in partnership with 

Benefit, Bahrain’s national electronic network for financial 

transactions and one through our newly introduced cash 

and cheque deposit ATMs installed at all major branches 

of the Bank. In addition to conducting credit card related 

transactions, our customers can now use the same ATMs 

to deposit real-time cash into their various accounts with 

the Bank, saving valuable time without the need to be 

committed to the Bank’s working hours. Similar to regular 

ATMs, a valid receipt reflecting details of the transaction is 

provided once the customer either deposits cash or pays 

their credit card bill. 

During the year we also launched several reward based 

promotions on our bouquet of retail products to engage our 

customers including one on our credit cards as well as one 

on our personal loans that was rebranded under the name 

‘Salaf’. Customers who shopped with their BMI Bank credit 

cards were rewarded with an opportunity to win four fabulous 

all-paid vacation packages including a cruise and a European 

holiday as well as BD 20,000 cash whilst customers who 

took a personal loan during the special promotion period 

were eligible to win back a year’s installment free in addition 

to benefiting from a lower interest rate of 6.5% p.a. 

Our successful partnership with Tamkeen was extended in 

2011 with a fresh top-up commitment of BD 10 million 

to their Private sector support finance scheme portfolio. 

We are proud to partner with Tamkeen in this scheme 

and look forward to building our relationship through the 

introduction of similar programs and schemes that will 

develop increased productivity and improved efficiency in 

businesses within Bahrain. 

Our commitment to transparency and quality of service is 

recognized by our customers who realize that in banking, 

‘better, together’, as our credo suggests, is the most profitable 

way forward. Through these promotions and product 

innovations, we believe, our Bank has managed to create a 

better value proposition for customers that both rewards 

them for their loyalty and offers them a competitive product. 

STRATEGIC PARTNERSHIPS DURING 2011 

Being a responsible local Bank, we believe it is our 

responsibility to play a leading role in assisting our loyal 

customers who place a lot of faith in us, better manage 

their finances. With this in mind, we signed several strategic 

partnerships with leading organizations within Bahrain aimed 

at providing our customers with unique opportunities that 

complement the bouquet of products and services that we 

offer. Amongst those that we partnered during 2011 were 

the following: 

• Bahrain Financial Exchange (BFX), the first multi-asset 

exchange in the Middle East and North Africa (MENA) 

region as a Trading and Clearing member of the BFX. 

• Kanoo Consulting Services, a division of Yusuf bin Ahmed 

Kanoo, whereby our Bank will act as the exclusive 



financial advisor to support the company’s growing 

business development initiatives. 

• International Hospital of Bahrain (IHB) to provide our 

customers with special value added services every time 

they use their BMI Bank credit or debit card to pay for 

services at the IHB. 

• Tamkeen’s Information and Communication Technology 

(ICT) finance scheme to enable the Bahraini private 

sector enterprises especially the small and medium 

enterprises (SMEs) to achieve greater competitiveness 

and operational efficiency through adoption of the latest 

ICT solutions. 

• A further BD 10 million extension to Tamkeen’s Shariacompliant 

financing scheme for enterprises within the 

local private sector to fulfill their financial needs at 

a competitive cost resulting in a total portfolio of 

BD 20 million. 

• Sinnad to manage our ATM network as well as issue 

our chip-enabled debit and Diners club credit cards, 

as well as implement a comprehensive system to 

monitor and manage the risk associated with the 

cards electronic transactions. 

• Eskan Bank, the leader in housing finance across Bahrain 

to bring flexible financial solutions to Bahrainis through 

the introduction of our personal loan along with the 

option of a credit card to customers of Eskan Bank’s 

Housing Loan scheme. 

• Medgulf Allianz Takaful, a leading regional insurer (a newly 

formed joint partnership between Allianz Group and 

Medgulf B.S.C. (c)) to offer our customers a complete 

suite of life and non-life insurance products from Medgulf 

Allianz Takaful through our extended branch network 

within the Kingdom. 

ISSUANCE OF LONG TERM DEBT 

In early 2011, the Bank signed a three-year syndicated 

term-loan facility for USD 80 million. The credit facility 

was arranged by BankMuscat with Bank of Bahrain and 

Kuwait (BBK), Standard Chartered Bank and Arab Banking 

Corporation as participants. The syndication received strong 

support from the banking market with an oversubscription 

in the facility amount and as a result the total amount was 

increased from the initial USD 75 million to USD 80 million. 

This successful transaction reiterates both our strong 

reputation as well as Bahrain’s economic position within the 

financial community. 

BUSINESS CONTINUITY PLAN (BCP) & DISASTER 

RECOVERY PLAN (DRP) 

While BCP by its very nature takes a broad approach to dealing 

with the effects of a disaster, the DRP focuses on taking the 

necessary steps to resume normal business operations as 

quickly as possible and is executed immediately after the 

disaster occurs. Continuing with our initial work on both 

BCP and DRP laid during the previous year, we successfully 

conducted a full simulation and test of the plan in 2011. As 

per the test, key members of every department within the 

organization were relocated to an alternate site and asked 

to perform critical banking functionalities that would have 

had an adverse effect on our customer service in the event 

of a natural disaster. A detailed folder containing essential 

documents to guide staff in the event of a disaster titled 

‘Battle Box’ was prepared and circulated to all department 

heads. In addition, a mini booklet containing a snapshot of 

key information from the BCP along with and contact details 

of all members of the crisis management team was prepared 

and distributed to all staff. 

INFORMATION SECURITY 

As a customer serving organization, protecting our 

customers' confidential information is both a business as well 

as an ethical and legal requirement. An information security 

policy defines the organization’s attitude to information whilst 

announcing both internally and externally that information 

is an asset, the property of the organization and is to be 

protected from unauthorized access, modification, disclosure 

and destruction. Having a stringent information security 

policy is therefore essential since it provides a framework for 

best practice that can be followed by all employees as well 

as help in ensuring risk is minimized and that any security 

incidents are effectively responded to. During the year we 

implemented an overall bank-wide information security 



policy to both enhance our information security controls as 

well as to better protect the organization and customers 

from information fraud threats and other malicious activities 

stemming from within and outside. 

Corporate Social Responsibility 

(CSR) program 

Our Bank constantly aims to encourage community led 

initiatives that encourage people to succeed and realize their 

ambitions. Our commitment to actively support and sponsor 

initiatives in education, arts, sports and culture is paramount 

in our efforts towards managing a cognizant CSR program. 

During 2011, we continued our support towards a set 

number of local and community led charities that we partner 

on a long term basis; Al Sanabel orphans care center, 

American Mission Hospital’s (AMH) community outreach 

program, the island classic charity golf tournament and 

think pink Bahrain by committing in excess of BD 80,000 to 

their causes as well as towards a few other smaller charity 

foundations within the community at large. Additionally, the 

Bank also sponsored an event organized by the Muharraq 

Municipal Council to commemorate the anniversary of 

passing Bahrain’s National Action Charter; the sponsorship 

went towards purchasing essential household electronics 

and supplies for the needy families in Muharraq. 

The community outreach program run by AMH offered free 

medical checkups and treatment including general physicals, 

physiotherapy, vision assessment, hearing tests and other 

necessary treatments to children from the Bahrain Down’s 

Syndrome Care Center. Think pink Bahrain, the local breast 

cancer awareness campaign that we have been actively 

supporting since 2009, will use the amount donated by us 

along with other donors towards the purchase of a Magnetic 

Resonance Imaging (MRI) machine. The donation to Al 

Sanabil orphans care center was used to help the center 

provide back-to-school items for the orphans managed by 

the center. In addition to this, the Bank also ran an internal 

charity program ‘Dinar for Dinar’ (D4D) with the aim of 

providing staff with an opportunity to be directly involved 

with the community. BD 2,000 was raised from the ‘Bake 

Sale’ and donated to the royal charity organization, a local 

organization established by H.M King Hamad bin Isa Al Khalifa 

to sponsor orphans, widows and those with special needs. 

THE WAY FORWARD IN 2012 

We move into 2012 with a renewed commitment to deliver 

innovative products and services through our retail and 

commercial banking franchise and will continue to invest in 

them to better serve our customers. We will primarily focus 

on the Bahraini market and look at emerging markets with 

active and potential energy, aviation, shipping, industrial 

and manufacturing sectors to diversify the Bank’s asset 

base and therefore reduce its real estate exposure. We 

will largely target governments, semi-governmental 

agencies, services, manufacturing, oil and gas exploration 

and production companies, airlines, and national bulk and 

tanker shipping companies. Also, we will act as arrangers 

for large corporations in Bahrain either by way of club deals 

or syndications. 

We believe that Bahrain has the potential to becoming a major 

destination for tourism, which is an important component in 

cementing its position as a major regional financial center. I 

am optimistic that recent steps towards strengthening the 

regulatory framework, improving infrastructure investment 

to facilitate more trade and foreign direct investment 

inflows, and the creation of a world-class financial exchange 

in the BFX are some of the measures that should help to 

ensure that Bahrain remains competitive for the long term. 

Given the revenue from the current oil prices, the fiscal 

policy of the government and the USD 10 billion support 

package from the GCC, a lot of money will be pumped into 

the economy in the near future. Our lending strategy going 

forward is one that takes advantage of this cash-flow. The 

focus is on quality credit, better risk management and 

making proper lending decisions. 

BMI Bank is now well-placed to become a leading retail bank in 

Bahrain and we will continue to grow our customer numbers 


through the introduction of innovative and customer-centric 

products and services as we transform our business into a 

stronger one backed by our excellent capital position and 

strong liquidity. We have a stable and growing business to 

leverage on with strong shareholder and customer support. 

We will continue to work with BankMuscat to explore and 

deliver synergies from operating as part of a wider group. 

I take this opportunity to thank the Central Bank of Bahrain, 

our shareholders and customers for their confidence in our 

capabilities and our staff for their continued commitment 

and support. 

BMI Bank - Better, together 



[Our commitment to transparency 

and quality of service is recognized 

by our customers who realize that 

in banking, ‘better, together’, as our 

CRedo suggests, is the most profitable 

way forward. Through these 

promotions and product innovations, 

we believe, our Bank has managed to 

CReate a better value proposition for 

customers that both rewards them 

for their loyalty and offers them a 

competitive product... We move into 

2012 with a renewed commitment 

to deliver innovative products and 

services through our retail and 

commercial banking franchise and will 

continue to invest in them to better 

serve our customers.] 


STRENGTH 

THROUGH 

VERSATILITY 

A range of financing facilities 

that best suits your financial 

requirements 


When it comes to applying for a personal 

loan, customers are always conscious of 

the applicable interest rate along with 

the monthly installment amount since it has a 

direct effect on their monthly disposable income. 

As a responsible local bank, we understand our 

customers better and recognize the need to 

tailor our products and services to better suit 

their requirements. During 2011 and in line with 

our motto of 'better, together', we rolled out 

a special value added promotion providing our 

customers with an opportunity to benefit from 

one of the lowest interest rates in the market 

on our Salaf personal loans at 6.5% p.a., while 

getting a chance to win back 12 months of their 

installments for free in line with our commitment 

towards providing our customers with innovative, 

valuable, rewarding and competitive financial 

solutions that exceed their expectations. 


Board of Directors’ profiles 

[board of directorS’ profiles] 


CHAIRMAN 

Sheikh Khalid holds a B.Sc. in Economics and a 

Masters Degree in International Boundary Studies 

from the School of Oriental and African Studies 

(SOAS), University of London. 

Sheikh Khalid bin Mustahail Al Mashani is the Chairman of the 

Board of Directors of BankMuscat S.A.O.G.; Chairman of the 

Board of Directors of BMI Bank B.S.C.(c), Bahrain; Deputy 

Chairman of Al Omaniya Financial Services Co.; and Chairman 

of Dhofar International Development & Investment Holding 

Co. S.A.O.G.. 

Sheikh Khalid is the Director of Dhofar Cattle Feed Co. 

S.A.O.G.; and the Chairman of the Board Risk Committee of 

BMI Bank B.S.C.(c), Bahrain. 



Salah Saleh Asheer 

Deputy CHAIRMAN 

Salah Asheer is a Certified Public Accountant and holds a B.Sc. 

in Accounting Science. 

Saleh Asheer has been serving 

as the Chief Executive Officer of 

certain Bahrain-based privately held 

investment companies (together, 

the Companies) for the past several 

years. In addition, Salah Asheer is an 

experienced investment banker and 

has served as a Director of several 

local, regional and international 

subsidiaries and associates of the 

above Companies. The Companies 

own and manage a diversified range 

of investments in the financial 

services industry among others. 

Salah Asheer is the Deputy Chairman 

of the Board of Directors of BMI Bank 

B.S.C.(c), Bahrain. 

Sulaiman bin Mohamed bin Hamed Al Yahyai 

Director 

Sulaiman Al Yahyai holds a certificate on Assets Management 

from Lausanne University, Switzerland; an MBA from the 

Institute of Financial Management from University of Wales, UK; 

and a certificate on Financials Crisis – Harvard University, USA. 

Sulaiman bin Mohamed bin Hamed 

Al Yahyai is the Deputy Chairman 

of the Board of Directors (since 

June 2011), a member of the Audit 

Committee and Board Nomination 

& Compensation Committee of 

BankMuscat S.A.O.G.. Sulaiman Al 

Yahyai is an Investment Advisor to 

the Royal Court Affairs; Chairman of 

Oman Chlorine Co. S.A.O.G.; Director 

of Al Madina Real Estate Co. S.A.O.C.; 

Director of Falcon Insurance S.A.O.C.; 

Chairman of the Oman Fixed Income 

Fund; Chairman of the Integrated 

Tourism Projects Fund; and Director 

of BMI Bank B.S.C.(c), Bahrain. 



Brigadier Saif bin Ali Al Amri 

Director 

Brigadier Saif bin Ali Al Amri is an Arab Certified Accountant and 

an Accounting Technician, and holds a Higher Diploma in Finance 

and Cost Accountancy from Abingdon College UK. 

Brigadier Saif bin Ali Al Amri is a 

Defense Resource Advisor at the 

Ministry of Defense of the Sultanate 

of Oman. Brigadier Saif Al Amri is a 

member of the Credit Committee of 

the Ministry of Defense Pension Fund 

of the Sultanate of Oman, Chairman 

of the Investment Committee of 

Oryx Fund, Chairman of the Board of 

Directors and Chairman of the Credit 

Committee of MAJAN Development 

Company, and a member of the 

Board of Directors and the Chairman 

of the Board Audit Committee of 

BMI Bank B.S.C.(c), Bahrain. 

Sunder George 

Director 

Sunder George holds an MBA from IMD Switzerland, and is a 

Fellow of the Chartered Institute of Bankers F.C.I.B. (London) 

and a Certified Associate of the Indian Institute of Bankers 

C.A.I.I.B.(India) 

Sunder George is the Deputy Chief 

Executive Officer of BankMuscat 

S.A.O.G. as well as a Director of 

Renaissance Services S.A.O.G.. 

Mr. George is a member of the 

Board of Directors and the Board 

Audit Committee of BMI Bank 




Ahmed Al Abri 

Director 

Ahmed Al Abri holds an MBA. He has also attended the 

Advanced Management Program at INSEAD in France and a 

General Managers Program at Harvard Business School. 

Ahmed Al Abri is the Chief Operating 

Officer of BankMuscat S.A.O.G., 

Oman. He is also a Director in BMI 

Bank B.S.C.(c), Bahrain., Gulf African 

Bank, Kenya; BMI Offshore Bank, 

Seychelles; and Muscat Fund. 

Salim Abdullah Al Awadi 

Director 

Salim Al Awadi holds a Bachelor Degree in Business 

Administration, a Post Graduate Diploma in Accounting from 

Strathclyde University, UK and an MBA from Lincoln University, UK. 

Salim Abdullah Al Awadi is the General 

Manager of Al Omaniya Financial 

Services S.A.O.G., Oman. He is a 

Director and Chairman of the Audit 

Committee in Transgulf Investment 

Holding S.A.O.G., Oman, Director 

in Dhofar Cattle Feed Co. S.A.O.G., 

Oman, Director & Chairman of Audit 

Committee in Tilal Development Co. 

S.O.A.C. and Chairman of Tilal Fund, 

Oman. He is a member of the Banking 

& Finance Committee at Chamber 

of Commerce and a member of the 

National Committee for Corporate 

Governance at the Capital Market 

Authority, Oman. 

Salim Al Awadi is a Member of 

the Board of Directors; Chairman 

of the Board Remunerations and 

Nominations Committee; Member 

of the Board Audit Committee; and 

Board Risk Committee of BMI Bank 




Dr. Amer Awadh Al Rawas 

Director 

Dr. Amer Al Rawas holds a PhD in Computer Science and 

Artificial Intelligence from the Sussex University, UK. Although 

his area of specialization is Software Engineering, his research 

has expanded in scope to cover the role of ICT in Economic 

Development, Socioeconomic and Demographic Drivers for 

Economic Growth. 

Dr. Amer Al Rawas is the 

CEO of OmanTel, the leading 

telecommunications company in 

Oman. Prior to his current post, he 

served as the Managing Director of 

Oman Mobile. Dr. Amer Al Rawas is the 

Chairman of Oman Fiber Optic S.A.O.C.; 

Vice Chairman of Muscat Gases 

Company S.A.O.C.; Board Member of Al 

Madina Financial & Investment Services 

Company S.A.O.C.; and a Member of 

the Board of Directors, Board Audit 

Committee and Board Remunerations 

& Nominations Committee of BMI 

Bank B.S.C.(c), Bahrain. Dr. Amer Al 

Rawas previous memberships and 

achievements include winning NTI 

BizPro ‘Best Business Leader’ of the 

Year Award in 2008; Invited as an 

honorary guest to the 3rd Meeting 

of the Nobel Laureate of Economic 

Sciences that took place in Germany, 

August 2008; Invited as a Visiting 

Scholar at the Software Research Lab 

at NASA (USA) 1995-1997 and has 

won the re-diffusion Simulation Ltd 

Prize for the best Software Engineering 

Graduation Project in UK in 1990. 

Hisham Al Saie 

Director 

Hisham Al Saie holds a BA in Accounting from the University 

of Texas at Arlington and has attended a number of executive 

education courses at INSEAD and other reputable institutions. 

Hisham Al Saie is a Board Member 

and a Member of the Audit & 

Remuneration Committees of Nass 

Corporation B.S.C.. He is also a Board 

Member of Al-Khaleej Commercial 

Bank (Qatar), Diyar Al Muharraq 

B.S.C(c), and Capital Management 

House B.S.C.(c). 

Hisham Al Saie is a representative 

of Overseas Investment Company 

S.P.C.. Prior to his current position, 

Hisham Al Saie was head of Corporate 

Finance at SICO Investment Bank, 

where he was responsible for 

structuring key local and regional 

equity and debt capital market 

transactions. He also held previous 

positions at BDO Jawad Habib, 

PriceWaterhouse Coopers and Arthur 

Andersen. 



Mustafa Kamal Beg 

Director 

Mustafa Beg has a Bachelors Degree in Civil Engineering, Masters 

in Business Administration and he is a CFA charter holder. 

Mustafa Kamal Beg is the Executive 

Director at Istithmar World Capital. 

In this capacity Mustafa Beg is 

responsible for investments made by 

Istithmar globally across various sub 

sectors of financial services industry 

including banks, asset management 

companies, insurance companies 

and specialty finance. Prior to joining 

Istithmar, Mustafa Beg worked at 

Cupola Group and was part of the 

team that made private equity and 

venture capital investments across 

a broad spectrum of industries in 

the Middle East, South Asia and 

North America. 

Abdulaziz Al Loughani 

Director 

Abdulaziz Al Loughani holds a double major degree in Business 

Administration majoring in Information Systems & E-Commerce 

from the University of Toledo, USA and is currently completing 

his MBA program at London Business School. 

Abdulaziz Al Loughani is currently the 

Vice President of the Private Equity 

Group at Global Investment House 

“Global”. He has played a major role 

in managing key investments within 

the Private Equity Group of Global 

by handling various assignments on 

corporate restructuring, business 

planning, deal sourcing, IPOs, M&As, 

due diligence reports and exit 

strategies. Abdulaziz currently serves 

as a member of board on a number 

of companies within the MENA 

region including Al Manar Financing & 

Leasing Co. (Kuwait), Mazaya Holding 

Co. (Kuwait), Model Restaurants Co. 

(Jordan), Ajlan & Bros. Co. (KSA) and 

other committee memberships in the 

region. AbdulAziz Al Loughani was 

also the Managing Partner of 6alabat. 

com until June 2010. He is a member 

of the Board of Directors and the 

Board Risk Committee of BMI Bank 

B.S.C.(c),Bahrain. 


STRENGTH 

THROUGH 

efficiency 

developING increased 

productivity and improved 

efficiency in businesses 

within Bahrain 


Our successful partnership with Tamkeen 

was extended in 2011 with a fresh topup 

commitment of BD 10 million resulting 

in a total portfolio of BD 20 million, to their 

private sector support finance scheme portfolio. 

Enterprises form the backbone of any economy 

and as a responsible local retail and commercial 

Bank we are proud to partner with Tamkeen 

in this scheme and look forward to building 

our relationship through the introduction of 

similar programs and schemes that will develop 

increased productivity and improved efficiency in 

businesses within Bahrain. 


Sharia Supervisory Board 

[Sharia Supervisory Board] 

BMI Bank's Islamic Banking unit is guided by a Sharia Supervisory Board consisting of 

three distinguished scholars. This Board reviews the Islamic Banking units activities 

to ensure that all related transactions comply fully with the rules and principles of 

Islamic Sharia. 

Dr. Fareed Mohammed Hadi 

Dr. Fareed Mohammed Hadi, holds a Ph.D. in Ibn 

Hazm’s Methodology of Jahala from the University 

of Edinburgh, United Kingdom and Ph.D. in 

Al-Bukhari’s Methodology from King Muhammed 

the Fifth in Morocco. 

Dr. Fareed Mohammed Hadi is a Director at the University of 

Bahrain and is currently serving as an Assistant Professor at 

the College of Arts, Department of Arabic & Islamic Studies. 

He has been a teacher\lecturer of important subjects such 

as Jurisprudence of Transaction, The Jurisprudence of 

Worship, Comparative Jurisprudence, Verses and Talk 

Provisions, Biography of the Prophet, Islamic Culture, 

Research Methods and Modern Analysis. He has a BSC. in 

Prophetic Sunna & ITS Sciences and MA in Islamic Call & 

Ihtisab from Imam Muhammad Ibn Saud Islamic University. 

He has served as an Executive Member on numerous Sharia 

Boards of GFH Investment & Commercial, in the Kingdom 

of Bahrain, Al Hilal Bank - National Bank Group and Khaleeji 

Commercial Bank. Dr. Fareed has also served as an Imam 

and Khatib since 2001 in Bahrain and in Edinburgh. He is also 

a founding member of the International Union for Muslim 

Schools (Dublin), a founding member and vice president of 

the Association of Scholars in the GCC countries (Bahrain), 

member of the Board of Trustees of the University of Mecca 

(Jeddah), member of the Board of Trustees International 

University of Africa (Sudan), director of the Bahrain 

institute of Forensic Sciences (Bahrain), board member of 

the Endowment Fund of the Central Bank (Bahrain) and 

managing director for the teaching of Islamic civilization 

and the makers of Islamic culture for graduate students and 

medical students at the University of the Gulf. 


Sharia Supervisory Board 

Dr. Muhammad Imran UsmanI 

Dr. Muhammad Imran Usmani, holds an LLB, M. Phil, and a Ph. D. 

in Islamic Finance graduating as a scholar with a specialization 

(Takhassus) in Islamic Fiqh and fatwa from Jamia Darul-Uloom, 

Karachi - Pakistan. 

Dr. Muhammad Imran Usmani is the head of the Hira 

Foundation School and the Sharia Advisor & Group Head of 

Product Development Sharia Compliance at Meezan Bank, 

in charge of research & development along with product 

development of Islamic banking products, training, advisory, 

and audit & compliance for the relevant activities. He has 

been serving as a teacher \ lecturer of important subjects of 

Shariah (Fiqh & Hadith in Mutawassitah to Aalimiyyah levels) 

since 1990 in Jamia Darul-Uloom and is a member of its 

administration board. He is also a visiting faculty member 

at the Karachi University and IBA. Dr. Usmani has also been 

leading Friday khuthbah and prayer at a Jamia Mosque for 

20 years. Dr. Muhammad Usmani has served as an advisor 

/ member of Sharia Boards of several renowned institutions 

since 1997 including BMI Bank, Bahrain amongst others. 

He is also an Executive Committee Member of AAOIFI 

(Dubai) and Sharia Supervisory Board of International Islamic 

Financial Market (IIFM) Bahrain and International Center for 

Education in Islamic Finance (INCEIF) Malaysia, Institute 

of Business Administration (IBA), Karachi and Center for 

Islamic Economics(CIE), Karachi. Dr. Usmani is the author 

of numerous publications related to Islamic finance and 

other Sharia-related subjects. He has presented papers 

in numerous national and international seminars and has 

delivered lectures at academic institutions including Harvard, 

LSE, LUMS and IBA. 

Sheikh Nizam Mohammed Yaquby 

Sheikh Nizam Mohammed Yaquby is an internationally acclaimed 

Sharia scholar in the Islamic banking industry. He has a background 

in both traditional Islamic sciences with senior scholars from different 

parts of the Muslim world and also a Master’s degree in Economics 

from McGill University in Canada. 

Sheikh Nizam has taught Islamic subjects in Bahrain 

and lectured all over the world. He is a member of many 

International Boards including the Sharia Council of AAOIFI, 

Dow Jones Islamic Index, Central Bank of Bahrain Sharia 

Committee and IIFM Sharia Council. Sheikh Nizam has 

edited several Arabic manuscripts and has more than 500 

audio-visual lectures and lessons in both Arabic and English. 


STRENGTH 

THROUGH 

PRIVILEGES 

A commitment to consistently 

provide our customers with 

rewarding products 

and services 


In line with our commitment to consistently 

provide our customers with rewarding products 

and services, we launched a new promotion 

offering our customers the opportunity to win 

4 fabulous vacation packages including a cruise 

and a European holiday as well as BD 20,000 in 

cash when they utilized their BMI Bank credit 

cards on everyday ordinary purchases. As 

we look at the general market landscape and 

listen to what our customers tell us, we plan 

to continuously introduce bigger and better 

benefits for our customers through product and 

service innovation. We will continue with the 

building of our retail business in Bahrain through 

the introduction of customer-centric products 

and services as well as enhancing our network of 

branches and ATMs, making it convenient for our 

customers to bank with us. 


Corporate governance 

[Corporate Governance] 

Corporate Governance is a matter of high importance to BMI Bank (the Bank) and its 

Board of Directors (the Board) and is undertaken with due regard to all of the Bank's 

stakeholders, the regulatory compliance requirements of the Central Bank of Bahrain 

(CBB) and the laws of the Kingdom of Bahrain and those of other jurisdictions in 

which the Bank operates. Good corporate governance is a fundamental part of the 

culture and the Bank is fully committed to be compliant with the requirements under 

the newly enacted Corporate Governance Code (CGC) by the Ministry of Industry & 

Commerce and the CBB’s High Level Controls Module (HC Module). 

The Board is responsible for the corporate governance of the Bank and of its controlled 

entities. The Board periodically reviews and approves the Corporate Governance 

Guidelines & Policy, which sets out the specific roles, duties, responsibilities and 

rights of the Directors of the Bank. Each Director is expected to have regard to these 

guidelines in the performance of his or her duties as a Director of the Bank. The Board 

has entrusted its Audit Committee with the responsibility to oversee and monitor the 

implementation of the Bank’s corporate governance framework. 

The Board of Directors 

The Board is accountable to the shareholders of the Bank. The 

main roles of the Board are to create value for its shareholders 

and provide leadership towards achieving the objectives of all its 

stakeholders, whilst ensuring that these duties are discharged 

in a transparent and ethical manner. They encompass, but are 

not limited to, approving the strategic objectives of the Bank 

and ensuring that the necessary resources are made available 

towards achieving these. 

In addition, the main responsibilities of the Board include:- 

• Setting the Bank’s strategy and approving the annual 

budget; 

• Reviewing operational and financial performance, and 

approving financial reporting and other disclosures; 

• Evaluating and approving appointments to the Board 

and those of the Chief Executive Officer and the 

Senior Management; 

• Ensuring that Board and Executive Management 

succession plans are in place; 

• Ensuring that the Bank’s business is conducted ethically 

and transparently; 

• Overseeing the implementation of the Bank’s corporate 

governance guidelines and compliance with the CGC and 

HC Module. 



BMI Bank's Board of Directors 

Board of Directors Membership of Sub-Committees Directorship Category 

(as defined by the CBB) 

Sh. Khalid bin 

Mustahail Al Mashani 

Mr. Salah Saleh 

Asheer 

Mr. Sulaiman bin 

Mohamed Al Yahyai 

Brigadier Saif bin 

Ali Al Amri 

Chairman - Risk Committee; 

Member - Remuneration & 

Nomination Committee 

None 

Member - Risk Committee; 

Member - Audit Committee* 

Chairman - Audit Committee*; 



Non-independent, 

Non Executive 


Executive 


Executive 

Independent, Non- 

Executive 

Mr. Sunder George Member - Audit Committee*; Non-independent, 

Executive 

Mr. Ahmed 

Mohamed Al Abri 

Mr. Salim Abdulla 

Al Awadi 

Dr. Amer bin Awadh 

Al Rawas 

Mr. Hisham Saleh 

Al Saie 

Mr. Mustafa Kamal 

Beg 

Mr. Abdulaziz Basem 

Al Loughani 

Member - Risk Committee 

Chairman - Remuneration & 

Nomination Committee; Member 

- Audit Committee*; Member - 

Risk Committee 

Member - Audit Committee*; 



Member - Risk Committee; 

Member - Audit Committee 

Member - Risk Committee 


Executive 

Independent, Non 

Executive 

Independent, Non 

Executive 


Executive 


Executive 

Designation 

Chairman 14 

Deputy 

Chairman 

Experience 

in years 

21 

Director 19 

Director 22 

Director 40 

Director 30 

Director 23 

Director 15 

Director 13 

Director 16 

Member - Risk Committee; Independent, Executive Director 8 

* Audit Committee Members also are responsible for overseeing and monitoring of the Bank’s corporate governance policy and performance. 

None of the Board Members are members of BMI Bank’s Senior Management. 



Term of the Board 

The Board is comprised of 11 Directors appointed for a 

term of three years. The current 3-year term of the Board 

commenced on 1st January 2011 and was formally ratified 

in the Annual General Meeting of the shareholders for the 

year 2010, held on 12th April 2011. 

Appointment and termination of the Board is covered by the 

Bank’s Articles of Association, which is in accordance with 

the Commercial Companies Law. 

Changes to the Board Structure 

In February 2011, Sh. AbdulMalik bin Abdulla AlKhalili, the 

then Chairman of the Board resigned due to his appointment 

as Minister of Tourism of Sultanate of Oman, following which 

Sheikh Khalid bin Mustahail Al Mashani was appointed as the 

Chairman of the Board and Mr. Salah Asheer was elected 

as the Deputy Chairman of the Board. During 2011, the 

following changes also took place: 

i) Mr. Bader Al-Sumait was replaced by Mr. Abduaziz 

Basem Al-Loughani; and 

ii) Two new independent Directors have been appointed. 

Induction, Education, Orientation to/of 

new directors 

During the year, the Bank has put in place a process for the 

induction, education and orientation of its new directors. 

Evaluation of the Board, Board 

Committees and individual directors 

The process for evaluation of the Board, Board Committees 

and individual directors and the disclosure thereof is in line 

with CBB guidelines. 

Chairman of the Board 

The Chairman of the Board, Sh. Khalid bin Mustahail Al Mashani 

is a non executive Director and is not independent. He is 

the nominee of BankMuscat S.A.O.G.,Oman, the largest 

Shareholder of BMI Bank. Necessary reporting is made to 

the Shareholders at the AGM. The Chairman's role includes: 

• Ensuring that all Board members are fully briefed 

on the terms of their appointment, their duties and 

responsibilities at the time of their appointment; 

• Providing effective leadership in formulating the Board’s 

strategy and governance; 

• Representing the views of the Board to the public; 

• Ensuring that all directors receive an agenda, minutes of 

prior meetings, and adequate background information in 

writing before each board meeting and when necessary 

between meetings and all directors receive the same 

board information; 

• Ensuring that the Board meets at regular intervals 

throughout the year, and that minutes of meetings 

accurately record decisions taken and, where appropriate, 

the views of individual directors; and 

• Maintaining continued personal contact with the 

shareholders to solicit their views and understand their 

concerns; and 

• Communicating the shareholders’ views to the Board as 

a whole; 

Board Meetings, Frequency and 

Attendance 

The Board generally meets at least four (4) times in a 

financial year, and more frequently if necessary. Meetings 

are organized annually in advance or by a request from the 

Chairman of the Board (the Chairman) or any Director. 

During 2011, the Board met 6 times (which includes a 

pre-board meeting held on 4th May 2011). Both, Audit 

Committee and Risk Committee met 4 times each. The 

Remuneration and Nomination Committee met once 

only. All Directors have attended more than 75% of the 

meetings, and their attendance at the meetings held in 

2011 is as follows:- 



Committees Meetings 

Directors 

Board Meetings 

Audit Committee 


Remunerations & 

Nomination 

Committee 

Name of Director 

10 Feb 

2011 

4 May 

2011 

28 July 

2011 

20 Oct 

2011 

15 Dec 

2011 

10 Feb 

2011 

4 May 

2011 

28 July 

2011 

20 Oct 

2011 

10 Feb 

2011 

4 May 

2011 

28 July 

2011 

20 Oct 

2011 

10 Feb 2011 

Sh. Khalid Al Mashani √ √ √ √ √ Not a Member √ √ √ √ √ 

Mr. Salah Asheer √ √ x √ √ Not a Member Not a Member √ 

Mr. Sulaiman Al-Yahyai √ √ √ √ √ √ √ √ √ √ √ √ √ √ 

Brig. Saif Al Amri √ x √ √ √ √ x √ √ Not a Member √ 

Mr. Sunder George √ x √ √ √ √ x √ √ Not a Member √ 

Mr. Ahmed Al Abri x √ √ √ √ Not a Member x √ √ √ x 

Mr. Salim Al Awadi √ √ √ √ √ √ √ √ √ √ 

Dr. Amer Rawas √ √ √ √ √ √ √ Not a Member 

Mr. Hisham Al Saie √ √ √ √ √ √ √ x √ √ √ √ √ √ 

Mr. Mustafa Beg √ √ √ √ √ √ √ Not a Member √ √ √ 

Mr. Abdulaziz Al-Loughani √ √ √ √ Not a Member √ √ √ 

Shaikh AbdulMalik Al Khalil √ Resigned √ 

Mr. Bader Al Sumait √ Resigned √ Resigned √ 

Absent x Present √ Attende by Conference call √ Not yet a member 

Board Sub-Committees 

There are currently three Board level Committees. These 

are the Audit; Risk; and Remunerations & Nominations 

Committees. The formal terms of reference of these 

Committees have been adopted by each of them 

respectively, and a summary thereof is set out below: 

Audit Committee 

The Audit Committee assists the Board in fulfilling its 

oversight responsibilities through the review of the financial 

reporting process, the systems of internal control, the audit 

process and the Bank’s process for monitoring compliance 

with the regulatory framework in which it operates. 

The Board had empowered the Audit Committee also to 

oversee and monitor implementation of the corporate 

governance policy framework of the Bank. 

Membership and Attendance 

The Audit Committee was re-constituted on 15 December 

2011, and consists of 5 Directors nominated by the Board 

of which majority are independent directors. The Chairman 

of the Committee is an independent director. 

Frequency of Meetings 

Audit Committee meetings are held once every quarter. 

The Committee members may request additional meetings 

if they are considered necessary. External Auditors are 

regular invitees. 

Authority 

The Audit Committee has an unlimited scope of activity 

authorized by the Board. The Committee receives risk 

assessments and an understanding of key control issues 

facing the Bank from the internal and external auditors as 

well as management. 

Roles and Responsibilities 

The Committee’s specific responsibilities include: 

• Evaluating the systems of internal control and whether 

these are comprehensively reviewed by the internal 

and external auditors and communicated effectively by 

executive management; 

• Reviewing the activities, structure, competencies and 

effectiveness of the internal audit function; 



• Overseeing and reviewing internal controls and 

procedures for the financial reporting process and 

significant accounting and reporting issues, including 

professional and regulatory pronouncements; 

• Reviewing the un-audited and audited financial 

statements in conjunction with the external auditors 

and management, to ensure that any necessary 

adjustments are dealt with adequately before formal 

adoption of the accounts; 

• Reviewing the effectiveness of systems for monitoring 

compliance with laws and regulations, and to periodically 

obtain updates from management and general counsel 

regarding compliance; and 

• Reviewing the proposed scope, approach, independence, 

and performance of the external auditors. 


In accordance with Basel II requirements, the Risk Committee 

assists the Board in fulfilling its oversight responsibilities 

through the formulation and implementation of risk policies 

in compliance with laws and regulations within an integrated 

risk management framework. 

The Committee formulates and recommends to the Board 

the aggregate risk appetite of the business and ensures 

that a framework is in place to allow the risk exposures to 

be measured. 

Membership and Attendance 

The Risk Committee consists of 7 Directors nominated by 

the Board. The Chairman of the Committee is appointed by 

the Board. 


Board Risk Committee meetings are held once every quarter 

or more frequently if deemed necessary. 

Authority 

The Committee has complete authority to recommend to 

the Board, amendments to any risk policy which become 

necessary in light of changes to the Bank’s operating 

environment and developments in both domestic and 

international markets. In addition the Committee has the 

mandate to ensure compliance with all risk policies, to 

communicate with internal and external auditors to assess 

the strength of the risk framework and suitability of policies 

and to consider and approve extensions to credit facilities 

above the remit of the management credit committee, 

upon their recommendation. 

Roles and Responsibilities 

The Committee’s specific responsibilities include: 

a) The effective operation of policies, procedures and 

processes pertaining to risk management; 

b) Maintenance of a compliant Internal Capital Adequacy 

Assessment Process as prescribed by Basel II as it relates 

to credit, operational and market risk; 

c) The ongoing review of credit risk management policy 

formulation, in light of the Bank’s strategic objectives 

and dynamic operating environment; 

d) Ensuring the credit approval process is fair and 

transparent and compliant with the policies set by the 

Board; 

e) Ensuring that the quality of credit assets conforms to 

the credit risk parameters as set by the Bank’s policies; 

f) Implementing and monitoring a risk management 

framework that reflects best practice in the industry; 

g) The review and organization of the necessary critical 

skills and other resources required to maintain the 

highest standards of risk management; and 

h) Reviewing and updating the terms of reference as per 

the directives of the Board; 

Nominations & Remunerations Committee 

Review of the remuneration and incentive packages of 

the executive management and the Board and ensuring 

that such packages are consistent with the corporate 

values and strategy of the Bank has been delegated to the 

Remunerations and Nominations Committee (BRNC). 



Composition 

The BRNC was re-constituted on 15 December 2011, which 

consists of 4 Directors nominated by the Board of which 

majority are independent directors. The Chairman of the 

Committee is an independent director. 


The Committee shall meet at least twice a year. 

Duties and Responsibilities 

The Committee’s specific responsibilities are more elaborately 

incorporated in its Terms of Reference, which also include: 

a) Consider and make specific recommendations to the 

Board on, both remuneration policy and individual 

remuneration packages for the Directors, CEO and GM 

and their direct reports in line with the policy guidelines 

to be used for determining remuneration in individual 

cases, including relative importance of each component; 

and specific criteria to be used in evaluating an officer’s 

performance; 

b) To evaluate the aggregate performance of all other 

officers of the Bank in consultation with the CEO and the 

Chairman of the Board; 

c) For retaining and overseeing outside consultants or 

firms for the purpose of determining director or officer 

remuneration, administering remuneration plans, or 

related matters; 

Additionally, with regards to Board membership: 

a) The Committee shall make recommendations to the 

Board From time to time as to changes the Committee 

believes to be desirable to the size of the Board or any 

Committee of the Board; 

b) Whenever a vacancy arises (including a vacancy resulting 

from an increase in Board size), the Committee shall 

recommend to the Board a person to fill the vacancy 

either through appointment by the Board or through 

Shareholder election; 

c) In performing the above responsibilities, the Committee 

shall consider any criteria approved by the Board and 

such other factors as it deems appropriate.; 

d) The Committee shall also consider all candidates for 

Board membership recommended by the Shareholders 

and any candidates proposed by management, and 

e) The Committee shall identify Board members qualified 

to fill vacancies on any Committee of the Board and 

recommend to the Board that such person appoint the 

identified person(s) to such Committee. 

Management Committees 

The Board has delegated the following responsibilities to the 

Executive Management: 

• The development and recommendation of strategic plans 

for consideration by the Board that reflect the longer 

term objectives and priorities established by the Board; 

• Implementation of the strategies and policies of the 

Bank as determined by the Board; 

• Monitoring of the operating and financial results against 

plans and budgets; 

• Monitoring the quality of the investment process 

against objectives; 

• Prioritizing the allocation of capital, technical and 

human resources; 

• Monitoring the composition and terms of reference of 

management committees; and 

• Developing and implementing an effective risk 

management framework. 

Several management committees have been constituted 

to assist in the affairs of the Bank, comprising of Executive 

Management and various senior managers. The main 

Committees and their respective summary terms of reference 

are set out below. All Management Committees are chaired by 

the Chief Executive Officer except the Executive Risk Committee 

where the Chief Risk Officer is the Chairman. Committee 

members are heads of the relevant divisions appointed by the 

Committee Chairman. Each Committee meets at least once 

a month except for the Management Remunerations and 

Promotions Committee which meets annually. 



COMMITTEE FREQUENCY OF MEETINGS SUMMARY TERMS OF REFERENCE 

EXCO (Executive 

Committee) 

Executive Risk 

Committee 

Asset & Liability 

Committee (ALCO) 

Management Credit 

Committee 

Remuneration 

& Promotions 

Committee (RPC) 

Products Review 

Committee 

Monthly • To review the overall performance of the functions of the Bank in line with 

the business plan and operating environment in order to achieve the Bank's 

objectives as set out by the Board and to agree actions required to achieve 

the business plan. 

Monthly • To drive control across the business, assessing & managing the risks to the 

business and managing the business in line with the Risk Appetite as agreed 

and monitored by the Board Risk Committee. 

• To devise and recommend to the Board Risk Committee the aggregate Risk 

appetite of the Bank to ensure appropriate policies, controls and measures 

are in place and adhered to support this, and to provide appropriate oversight 

to management to ensure conformance. 

• To review the risk profile of the business, develop policy and approach in 

conjunction with the Risk Management function and to propose major policy 

change to the Board Risk Committee. 

Monthly • To perform overall management of the balance sheet and the strategic 

management of risk. 

Monthly • To exercise authority in assessing and managing the credit risks of the 

business and ensuring the maintenance of a good quality risk asset 

portfolio in line with the Risk Appetite as agreed and monitored by the 

Board Risk Committee. 

• To monitor implementation of credit decisions in a manner so as to 

conform to credit policy as well as laws and regulations stipulated by the 

statutory authorities. 

Annually • It is the responsibility of the RPC to review all salary adjustments and 

promotions which are presented to it in an off-cycle basis. Employees, who 

are promoted as a result of successfully applying for internal vacancies and 

are moved into a more senior post, are considered natural progression and 

in-cycle and thus will not be reviewed by RPC. 

• It is also within the scope of the RPC to review and approve the bonus and 

year-end salary adjustments at pay round for all employees, except for 

positions covered by BRNC where the decision will be by the Board. 

• RPC is also the approving body for HC policies. HHC will submit all new policies 

for discussion and approval as and when required. 

Ad hoc • Formed to assist Management in ensuring that new products are launched 

only following a robust product review involving input from all internal 

stakeholders and that as a consequence the fully functional product is value 

adding for our customer, makes commercial sense and is within risk appetite 

of the Bank. 

• Committee responsible for reviewing, post launch, the performance of 

approved products, within 6 months of their launch. 



Board 

Board Remuneration & 


Board Risk 

Committee 

Board Audit 

Committee 

Board secretary 

Shobhana Kumar 

Risk Director 

Isa Maseeh 

Internal Audit 

Alok Misra 

Compliance 

Sumaya 

Eftekharyan 

CE0 

Jamal A. Al-Hazeem 

MD Qatar – 

Ghalib Al-Moayed 

GM Business Group 

(Vacant) 

Retail Banking 

Mazen Sater 

GM Support Service 

Eyad Sater 

Operations 

Yaqoob Abdullah 

Treasury 

Ramaswamy Venkatesh 

Information Technology 

Sami Al Jamea 

Wholesale 

Fathi Ebrahim 

Human Capital 

Mohammed Bushehri 

FIG 

Sadiq Al Shaikh 

Financial Control 

Nurani Ramanthan 

Islamic Banking 

Salah Khalifa 

Legal 


Investment Banking 

Khalid Zainelabdin 

Corporate Communications 

Gordon Andrade 

Private Banking 

Basim Husain 

Enterprise Program Office 

Gopi Krishnan 



Executive Management Profile 


CEO 

• CPA from California 

• Banking Experience: More than 31 years working with 

banks and in the banking industry 

• Joined BMI Bank in May 2010 

Isa Hasan Maseeh 

Chief Risk Officer 

• Master of Business Administration - DePaul University, 

USA; Bachelor of Commerce - Concordia University, 

Canada; Chartered Financial Analyst (CFA), USA; 

• Banking Experience: 14 years 

• Joined BMI Bank in August 2011 

Eyad Yousif Sater 

GM – Support Services 

• Master in Business Admin. (MBA), University of 

Glamorgan, UK. 

• Banking Experience: 30 Years. 

• Joined BMI Bank in July 2011 

Sami Ahmed Al jamea 

Chief Information Officer 

• Bachelor of Business Administration & Computer 

Science, Pittsburg State University, 1988 


• Joined BMI Bank in April 2011 

Alok Misra 

Head – Internal Audit 

• Fellow Chartered Accountant (Institute of Chartered 

Accountants of India), Certified Fraud Examiner 

(Association of Certified Fraud Examiners – USA); 

• Banking/Financial Services Experience: 20 years 


Fathi M. Ebrahim 

Head – Wholesale Banking 

• Advanced Diploma in Banking, BIBF, Bahrain 


• Joined BMI Bank in 1999 

Basim Husain 

Head – Private Banking 

• M.Sc. in Financial Economics, University of London, UK.; 

Bachelor of Business Administration, college of Business, 

USA; Trader & Investment Professional (Series7), 

BIBF, Bahrain. 



Khaled Abdulrazak Zainalabedin 

Head – Investment Banking 

• Bachelor Degree Banking and Finance, University 

of Bahrain. 


• Joined BMI Bank in March 2011 



Executive Management Profile (continued) 

Marco Peter Wolters* 

Chief Operations Officer 

• Master of Business Administration, Joseph M. Katz 

Graduate School of Business, University of Pittsburgh, 

PA. Bachelor in Hotel Administration, Dutch School for 

Hospitality Management, Maastricht, The Netherlands. 

• Banking Experience: 15 Years 


* Resigned in Nov 2011 

Mohammed Bushehri 

Head - Human Capital 

• Bachelor’s degree in Arts from the University of 

North Carolina at Charlotte (USA). Full Member of the 

Chartered Institute of Personnel & Development. 

• Banking Experience: 21 Years 


Mazen S. Sater 

Head – Retail Banking 

• MBA Marketing & Change Management, DePaul 

University, Chicago, Illinois, USA. 



Sadiq Al Shaikh 

Head – Financial Institutions & International Banking 

• Bachelor in Business Management, University of 

Bangalore, India 



Nurani A Ramanathan 

Head – Finance 

• Bachelor of Commerce – University of Mumbai, India, 

Management Accountant from the Institute of Cost & 

Works Accountants of India. 


• Joined BMI Bank in December 2007 


Head – Legal / Corporate Secretary 

• Master of Law (LLM), University of Bombay, India. 


• Joined BMI Bank in February 2006 

Sumaya Redha Eftekharyan 

Head – Compliance 

• B.Sc. in Accounting, University of Bahrain, Bahrain, 

Certified Anti-Money Laundering Specialist (CAMS) & 

Financial Risk Manager (FRM) 



Salah Khalifa 

Head – Islamic Financial Services 

• Master of Business Administration (MBA), University of 

Glamorgan, UK. 



Venkatesh Ramaswamy 

Head – Treasury 

• Master in Industrial Management, IIT Chennai, FRM 

(Financial Risk Manager), ACI Diploma. 



Yacoob Yousif Ahmed Abdulla 

Head - Operations and Administrations 

• Post Graduate – Executive Management (UOB) 

• Advance Banking Diploma BIBF 

• Banking Experience 30 years 




Authorities Matrix 

The Authorities Matrix which is approved by the full Board 

and any amendments thereto, outline matters that require 

specific Board / Board Committee approvals and also 

sets out matters that are delegated to the Executive 

Management. Based on materiality credit approvals above 

certain limits and criteria and all investment decisions are 

brought before the Board. 

Management Structure 

The Bank’s Organization Chart which is communicated 

to the CBB defines the reporting lines and segregation of 

duties among different departments of the Bank. Review of 

segregation of duties is generally part of the scope of audits 

conducted by the Internal Audit Department, in accordance 

with its annual audit plan, as an independent party 

Internal Audit 

Internal Audit provides independent and objective appraisal 

of all the activities of the Bank aiming to add value, 

improve operational efficiency, risk management and 

internal control systems and helps the Bank accomplish its 

objectives by evaluating and improving the effectiveness 

of risk management, control and governance process, and 

by providing objective analysis and recommendations to 

improve the Bank’s activities. Internal Audit reports to 

Board Audit Committee. 

Communication with Stakeholders 

The Bank uses all available avenues to communicate with its 

stakeholders, in line with the principle of transparency and 

disclosure that is integral to good corporate governance. This 

includes wide use of the media for the purposes of advertising 

and providing information on the Bank’s progress. Furthermore 

the Bank’s website www.bmibank.com carries updates of any 

significant events and regulatory directives/requirements and 

financial data for a minimum of three years as per the Basel II 

Pillar III disclosure requirements approved by the Board. 

The Bank’s quarterly results are published in both Arabic and 

English newspapers, and are posted on the Bank’s website. 

Copies of these releases are available on request. 

Code of Ethics for Business Conduct 

The Bank has a Code of Ethics for Business Conduct in place 

which was approved by the Board and this aims to provide 

its customers courtesy, fairness, flexibility, efficiency and 

professionalism and thereby upholding the image of the Bank 

at all times. The Bank has adopted this Code of Ethics for 

Business Conduct to ensure that it retains its integrity and 

merits, public trust and confidence by following it along with 

other policies and procedures of the Bank and by adhering to 

the letter and the spirit of all applicable laws and regulations. 

Related Party Transactions 

Bank’s policy of related party transaction is aligned with CBB 

guidelines on such transactions. A process is being put in 

place by which all related party transactions will be reported 

to the Board on a quarterly basis and necessary reports will 

form a part of the disclosures to the shareholders at the 

AGM. In addition, all credit proposals where any director 

has abstained from voting due to conflict of interest will 

be reported to the shareholders at the AGM. In 2011, six 

credit proposals were presented to the Board And Board 

Risk Committee, where certain members of the Board had 

conflict of interest, had been unanimously approved in each 

case by the rest of the Board members, except by the 

member who had conflict of interest, where they abstained 

from voting. Also, refer to the notes in the consolidated 

Financial Statements in this Annual Report. 

Compliance and Anti-Money Laundering 

The Bank is aware of its duties and responsibilities in observing 

all regulatory requirements in its functioning as a responsible 

financial institution and has an established Compliance 

function in place to handle it. Compliance function handles all 

the regulatory requirements laid down by the Central Bank of 

Bahrain, which also encompasses the Anti Money Laundering 

requirements in line with Central Bank of Bahrain's regulations. 

The Bank has in place a documented Compliance Manual 

covering all the regulatory requirements of Central Bank of 

Bahrain and Anti Money Laundering policy and procedure 

complying to Financial Crime regulatory requirements in line 

with the recommendations issued by FATF. 



Rewards Policy 

The Bank has a rewards and recruitment policy which deals 

with rewards and salary ranges for different categories of 

staff. The Bank distributes Director’s remuneration as per 

the provisions of Bahrain Commercial Companies laws. The 

Bank is in the process of revising its remuneration policy, for 

staff and Directors, in line with CBB and Ministry of Industry 

and Commerce (MOIC) guidelines on corporate governance. 

The Board Remuneration and Nomination Committee 

makes specific recommendations to the Board on, both the 

remuneration policy and individual remuneration packages 

for the Directors, CEO, GM and their direct reports in line 

with the policy guidelines 

The Bank operates a bonus scheme for staff that seeks to 

reward achievements against agreed objectives and the 

contributions individuals make to achieve the Bank’s goals. 

Bonus payments are at the sole discretion of the Bank. The 

Bank does not currently have a stock option plan in place. 

Professional Profile of the Statutory 

Auditors 

The Board recommended to the Shareholders for the 

reappointment of Ernst & Young, Bahrain as the statutory 

auditors of the Bank and the same was approved by the 

Shareholders by a resolution adopted at the Annual General 

Meeting of the Shareholders held on 12 April 2011. 

Ernst & Young is a professional services organization 

providing the professional accounting, auditing, taxation and 

consultancy services, with more than 141,000 personnel 

worldwide. They provide integrated services to private 

enterprises and public agencies in more than 670 cities 

located in more than 140 countries. 

The Middle East practice of Ernst & Young is an independent 

professional firm which has operated in the Middle East 

region since 1923 and is a member of Ernst & Young 

Global. The firm has 3,100 staff working from 17 offices 

in 14 Arab countries. 


STRENGTH 

THROUGH 

INNOVATION 

Save with an Ayadi Savings 

Account and win up to USD 

1.69 million in cash along 

with USD 1 million in grand 

Ayadi prizes given away during 

all 3 Eids including Bahrain’s 

National Day* 

* 2012 promotion 


Our ‘life-changing’ Ayadi Savings Scheme 

has been hugely successful in 2011 where 

we witnessed tremendous growth in the 

portfolio thanks to strong support from customers 

both old and new who continued to invest their 

savings with us. We have had great success last 

year with lots of financial benefits awarded to our 

customers enabling them to realize their dreams 

while benefiting from an excellent opportunity to 

investing a scheme that is rewarding. 

2012 will be an equally rewarding year for our 

customers with an enhanced prize pool and to 

make the draws even more exciting than before 

we have increased the prize pool to US$ 1.69 

million continuing with our core proposition of 

offering the biggest grand prizes during the 

three Eids. 


Management team 

[Management Team] 

IN THE MIDDLE 

1. Eyad Sater 

General Manager Support Services 

2. Isa Maseeh 

Chief Risk Officer 

FROM LEFT TO RIGHT 

3. Mazen Sater 

Head - Retail Banking 

4. Sadiq Al Shaikh 

Head - Financial Institutions and International Banking 

5. Khaled Zainalabedin 

Head - Investment Banking 

6. Basim Husain 

Head - Private Banking 

7. Salah Khalifa 

Head - Islamic Banking 

8 Venkatesh Ramaswamy 

Head - Treasury 

9. Fathi Ebrahim 

Head - Wholesale Banking 

[5] [6] [7] 

[8] 

[9] 

[3] [4] 

[1] [2] 


Management team 

FROM LEFT TO RIGHT 

1. Vijayan Govindarajan 

Head - Wholesale Credit 

2. Gordon Andrade 

Head – Corporate Communications 

3. Yacoob Abdulla 

Head - Operations and Administration 

4. Shobhana Kumar 

Head – Legal/ Corporate Secretary 

6. Nurani Ramanathan 

Head - Finance 

7. Sumaya Eftekharyan 

Head - Compliance 

8. Mohammed Bushehri 

Head – Human Capital 

9. Sami Al Jamea 

chief Information Officer 

5. Alok Misra 

Head – Internal Audit 

[8] 

[1] [2] [3] 

[4] [5] [6] 

[7] 

[9] 


Management Discussion and Analysis 

[MANAGEMENT DISCUSSION AND ANALYSIS] 

On January 1st 2005, BMI Bank B.S.C (c), previously BankMuscat International B.S.C 

(c), (“the Bank”) was established as a locally incorporated Full Commercial Bank (FCB), 

registered and based in the Kingdom of Bahrain and regulated by the Central Bank 

of Bahrain (CBB). Under the revised license framework of the CBB introduced in July 

2006, the Bank operates as a Conventional Retail Bank with a retail banking network 

of ten (10) branches and thirty (30) ATMs in Bahrain and a branch in the State of 

Qatar (operating under a license to offer wholesale and private banking products 

and services, granted by the Qatar Financial Centre Regulatory Authority). Following 

approvals of the Bank’s shareholders at their Extraordinary General Meeting held on 

6th January 2008 and of the Central Bank of Bahrain, the Bank changed its name to 

BMI Bank B.S.C (c) effective 1st April 2008. 

The Bank also operates and owns 50% of BMI Offshore Bank in Seychelles and 50% of 

Money on Demand Holdings WLL (“Mode”), a mobile banking company incorporated 

in Bahrain. Finally, BMI Bank has a 21.33% stake in Gulf African Bank, an Islamic bank 

in Kenya. 

The Bank’s shareholders are: 

BankMuscat (Oman) 49%, 

Overseas Investments (Bahrain) 20%, 

Royal Court Affairs (Oman) * 11%, 

Istithmar World Capital (Dubai) ** 10% 

Global Investment House (Kuwait) 0.1% 

Financial Assets Bahrain W.L.L 9.9% 

* The Royal Court Affairs is part of the Government of the Sultanate 

of Oman 

** istithmar World Capital is the investment arm of the Government 

of Dubai 

The Bank’s staff strength decreased to 328 people at the 

end of 2011 from 343 at the end of 2010. 



Regional Outlook 

2011 was a turbulent year throughout the globe and 

specifically for the Middle East North Africa (MENA) region. 

It was first marked by sovereign crisis throughout Euro zone 

states starting from Greece and affecting Portugal, Ireland, 

Spain and finally threatening Italy. This resulted in significant 

increase in sovereign yields in these countries as well as 

downgrading of their sovereign ratings. 

Also, the year saw the downgrading of the coveted AAA 

status of US by S&P for the first time in almost 70 years. 

Emerging markets like China, India & Brazil also reported 

slowdown in economic activity. The overall effect of all 

these events was a general note of pessimism throughout 

the globe. 

In the Arab world, the year began with the Jasmine revolution 

in Tunisia. Events continued to accelerate resulting in the 

overthrowing of the Mubarak regime in Egypt. This caused 

more political and social turmoil in other countries in the 

Arab world especially in Syria, Oman and Bahrain. 

The political unrest has prompted GCC governments 

to boost fiscal spending to sustain growth and reduce 

popular discontent. However, this has put government 

finances under strain. The unrest has also prompted GCC 

governments to focus a growing proportion of resources 

within the GCC region 

Bahrain’s political and economic outlook 

Bahrain is widely regarded as one of the most forwardlooking 

countries in the region. Political and economic 

reforms have yielded significant progress in recent years. 

Regional and international institutions have been attracted 

to the country mainly due to Bahrain’s liberal economic 

policies, geographic proximity to major oil exporters, 

developed infrastructure, cosmopolitan society and the 

reputation of the Central Bank of Bahrain as a prudent 

financial regulator. 

There are concerns that Bahrain will not fully regain 

its attractiveness as a financial and business services 

centre, particularly when compared with Dubai and Doha 

Nevertheless, it retains strong comparative advantages 

in particular segments, including Islamic finance, asset 

management and private placement. 

The recent political turmoil, however, has negatively 

impacted the image of the country. Growth picked up 

quite sharply in H2 and this was mainly due to favorable 

oil trends, which in turn have driven oil-related activity and 

government spending. Activity in hotels and restaurants 

and in business services remained well below levels of a year 

earlier. A package of labour market reforms backed by the 

Economic Development Board should improve productivity 

and boost growth. 

Consumer prices fell 0.3% in November because of 

unfavorable base effects and seasonal factors. The annual 

inflation rate rose to a nine-month high of 1.3%. Inflation 

pressures remain under better control than in other GCC 

countries but, with base effects less favorable, economic 

activity strengthening, interest rates remaining low and 

public sector salaries rising, inflation is expected to rise 

further, averaging 3% in 2012 after -0.3% in 2011. 

The current account surplus rose in 2011 to an estimated 

US$1.2bn, some 5% of GDP. The surplus is expected to 

narrow to only about US$250m in 2012, with lower oil prices 

and export volumes more than offsetting improvements 

elsewhere. The GDP is projected to grow at a modest rate 

of 3% for 2012. 

A quick and acceptable resolution to the crisis would be 

imperative for the stability and growth of the Kingdom. 



The financial sector 

Bahrain continues to be one of the major financial services 

hubs of the region. This is also borne out by the number 

of financial institutions operating in the country, and the 

contribution of the banking sector to the GDP that stood at 

30% in 2011. The financial sector is the largest employer in 

the Kingdom. 

The total number of licensed Financial institutions in Bahrain 

as of 31 December 2011 was 414 out of which 123 belong 

to the banking sector. Among them were 30 retail banks, 

15 locally incorporated, 15 branches of foreign banks, 76 

wholesale banks and 16 representative offices. The Central 

Bank of Bahrain reported total banking sector assets at 

BD 75 billion (USD 200 billion). 

Central Bank of Bahrain mandates banks operating in 

the kingdom to comply with Basel II standards and has 

set regulatory capital adequacy ratio at 12%. BMI Bank 

comfortably exceeds this requirement with Capital Adequacy 

Ratio standing at 19.4%. The US Dollar – Bahraini Dinar peg 

remains actively maintained by the CBB. Hence interest rate 

movements directed by CBB were largely reflective of the 

actions taken by the US Federal Reserve during the year to 

maintain low interest rates. 

Performance & outlook 

Statement of Income 

2011 

BD'000 

2010 

BD'000 

Net interest income 13,629 14,514 

Other operating income 7,534 3,298 

Share of results of associate and joint ventures 286 110 

Operating income 21,449 17,922 

Staff and other operating expenses (15,956) (15,337) 

Amortisation of intangible assets - (144) 

Depreciation (2,936) (1,806) 

Operating expenses (18,892) (17,287) 

Profit before provision for impairment 2,557 635 

Net provision for impairment of financial assets (5,935) (25,469) 

Impairment of intangible assets - (1,653) 

Loss for the year (3,378) (26,487) 



Net interest income 

Net Interest Income decreased by BD 885 thousand (6%) 

to BD 13,629 thousand in year 2011 mainly due to higher 

level of suspended interest on the impaired loans and lower 

level of wholesale banking lending. 

Due to the market slowdown in Bahrain and BMI’s conscious 

decision to run down its cross border exposures and big ticket 

lending, overall growth in our loan portfolio has been modest. 

Average interest earning assets increased in 2011 by BD 48 

million (9%) from BD 511 million in 2010 to BD 560 million. 

Average interest earning liabilities increased in year 2011 

by BD 26 million (6%) from BD 407 million in 2010 to BD 

433 million. 

During the year, the net interest margin has marginally 

decreased from 3.4% in year 2010 to 3.3% in 2011. 

Other operating income 

Other operating income was higher by BD 4.2 million, 

primarily due to the following: 

• Higher fees and commission (BD 2.5 million) primarily in 

the wholesale banking segment, and 

• Foreign exchange earnings and other income were 

higher during the year by BD 1.4 million due to higher 

customer volumes and one off transactions with 

certain customers. 

Share of RESULTS of associates and 

joint ventures 

During the year, the Bank’s associate Gulf African Bank, 

Kenya and its joint venture in Seychelles turned profitable 

and accordingly the share of profit of BMI Bank for the year 

was BD 286 thousand as compared to a profit of BD 110 

thousand in 2010. 

Operating expenses 

Total Operating expenses at BHD 18.9 million were higher by 

BD 1.6 million (9.3%). This was due to the following reasons: 

1. Increase in IT and data maintenance cost by 

BD 0.3 million. 

2. Increase in credit card processing and marketing costs 

by BD 0.1 million. 

3. Increase in rent by BD 0.3 million and advertisement 

costs relating to new products (Ayadi / Tamkeen 

schemes) by BD 0.4 million. 

4. The above is partly compensated by decrease in staff 

costs by BD 0.6 million, mainly due to decrease in 

average headcount (343 in 2010, 328 in 2011) and one 

off payments made to senior management personnel 

who resigned last year (approx BD 0.2 million). 

Depreciation for the year at BD 2.9 million was higher 

than BD 1.8 million in 2010 as the new system is now 

depreciated for the entire year compared with 5 months 

for 2010. 

NET PROVISION FOR IMPAIRMENT OF 

FINANCIAL ASSETS 

During the year, the Bank continued to experience stress on 

its wholesale portfolio and Islamic financing assets. The Bank 

has prudently raised specific provisions on these stressed 

assets to the tune of BD 10.5 million. The Bank has released 

an amount of BD 4.5 million from collective provision in 

line with our collective impairment model, taking the total 

amount of collective provisions to BD 3.8 million as of end 

December 2011. 

The collective impairment provision as a % of gross loans 

amounts to 1.25% and is in line with the expectation of 

the Central Bank of Bahrain. During the year, we had to 

classify our exposure to a quasi – GCC government entity 

(against which we had already considered a collective 

provision in 2010). Consequently the provision cover on our 

Non-performing loans was down to 54% as of 31 December 

2011 compared to 76.2% as of 31 December 2010. 



BALANCE SHEET 

Selected balace sheet data (BD million) 

31-Dec-11 

BD million 

31-Dec-10 

BD million 

Cash and balances with the Central Bank of Bahrain (incl.Treasury Bills) 40.8 83 

Due from banks and financial institutions 151.6 128 

Loans and advances (incl.Islamic Financing Assets) 349.7 310.1 

Non-Trading investments 58.6 44.4 

Investment in associates 1.3 1.2 

Investment in joint ventures 0.6 0.4 

Total assets 623.9 590.5 

Due to banks and financial institutions 64.9 163.6 

Customer’s deposits 412.5 263.8 

Wholesale Islamic Deposits 23.1 18.3 

Medium term borrowings 30.2 35.3 

Subordinated liability - 13.2 

Total equity 82.9 86.4 

Total Assets increased from BD 590.5 million as of end 

December 2010 to BD 623.9 million as of 31 December 2011. 

Cash and Placements with the Central Bank were lower at 

BD 40.8 million.Due from banks and financial institutions 

were higher by BD 23.8 million (19%) due to higher 

interbank activity as the bank continued to explore options 

to maximize its interest income on liquid assets. 

Loans and advances (including Islamic financing assets), 

were higher by BD 39.7 million (13%). The gross loan 

book (including Islamic financing assets) increased by 

BD 45 million during the year. 

Non-Trading investments were higher by BD 14.2 million at 

BD 58.6 million as of end December 2011 compared to 

BD 44.4 million as of end December 2010. This increase was 

primarily due to fresh investments during the year in long 

dated debt securities issued by the Central Bank of Bahrain 

& Government of Bahrain amounting to BD 22 million partly 

compensated by maturity of some of the existing investments. 

As of 31 December 2011, the bank’s share of the net 

assets of Gulf African Bank was BD 1.3 million. 

As of 31 December 2011, the bank’s share of the net assets 

of its joint venture in Seychelles, BMI Offshore Bank Limited, 

was BD 557 thousand. The bank’s investment in Money on 

Demand Holdings WLL (Mode) continues to be valued at 

nil, as was done during end December 2010. Due to banks 

and financial institutions were lower by BD 98.7 million at 

BD 64.9 million, reflecting the lower level of reliance on 

inter – bank deposits. 

Customer deposits have recorded a strong growth at BD 149 

million (46%) during the year. The Bank continues to improve 

its market share in all segments of the deposit market as well 

as having access to big-ticket long-term deposits. 

Wholesale interbank deposits have slightly increased from 

BD 18 million as of end December 2010 to BD 23 million as 

of end December 2011. These deposits have traditionally 

been volatile in nature and the bank continues to follow the 

strategy of reducing dependence on such deposits. 



The Bank has resorted to taking syndicated borrowing of 

USD 80 million during the first half of 2011 and repaid its 

medium term borrowing (Islamic Murabaha) denominated 

in a basket of currencies equivalent to USD 93.6 million 

(BD 35.336 million) on the due date of 25th July 2011. 

During the year, the bank successfully repaid its subordinated 

liability of BD 13.195 million (USD 35 million) on due date on 

14th April 2011. 

Total shareholders’ funds were lower at BD 83 million as 

of end December 2011 compared to BD 86 million as of 

end December 2010. This was primarily due to the loss of 

BD 3.4 million incurred during the year. 

Business unit performance 

The main business units of the bank include retail, private, 

SME, wholesale / financial institutions group as well as the 

Islamic financial services unit. 

Retail Banking 

Despite a challenging external environment clubbed with 

increasingly higher level of competition within the local market, 

the retail business reported strong growth in 2011 through 

its continued strategy of launching innovative products and 

services whilst growing its assets book by nearly 39%. 

During 2011, the business celebrated a number of key 

accomplishments including the launch of its flagship savings 

product under a new brand name and a revised prize pool 

of USD 1.66 million. Ayadi, a new savings scheme offered 

customers the opportunity to win fifty-six monthly prizes 

worth USD 440,000, six quarterly prizes worth USD 

320,000 and seven grand Ayadi prizes worth USD 900,000 

that were given out on Eid Al Fitr, Eid Al Adha and Bahrain’s 

National Day. Since its launch in January 2011, the scheme 

has received tremendous support from customers with the 

net portfolio registering a growth of over 50%. 

In line with the Bank’s strategy to constantly refresh its 

product offering, a new loan brand “Salaf” was unveiled during 

the first quarter of the year with a special offer specifically 

on its personal loans offering customers the opportunity 

to win back a year’s installments for free. Since its launch, 

the business’s loan portfolio has seen a growth of 39%. 

Additionally the business also launched a special “swipe and 

smile” promotion on its credit cards as a way to reward its loyal 

customers who shop using their BMI Bank credit card. During 

the year, the Bank completed its merger of the Diners Club 

cards business into the Banks cards business unit as well as 

the migration of Diners Cards hosting from Commercial Bank 

of Qatar to SINNAD. The Bank also signed several strategic 

partnership agreements with various establishments within 

Bahrain including Eskan Bank - to cross sell mortgage loans 

and credit cards, International Hospital of Bahrain - to provide 

health care services to the banks customers and Medgulf 

Allianz Takaful – to introduce bancassurance services. 

To better serve its customers, three new branches were 

launched during 2011 (in Hamala, Airport Avenue and on 

the 16th floor of the Bahrain World Trade Center) along with 

five new ATMs taking its total reach to 10 branches and 30 

ATMs. During the year the Bank also closed down its branch 

at Ramez. All the big branches of the Bank come equipped 

with a dedicated cheque and cash deposit ATM, along with a 

24/7 self-service customer workstation and a hotline to the 

Bank’s customer service centre. The Business will continue 

to focus on growing the retail business during 2011 with an 

emphasis on expanding the retail network through additional 

branches and ATMs as well as enhancing the bouquet of 

retail products and services. 

Wholesale Banking 

Despite the latest economic and political unrest, Wholesale banking 

retained its focus on growing the business in the local market and 

managed to increase its customer base and report a substantial 

growth in the unit’s assets and liabilities. Wholesale banking offered 

customers extended credit facilities; however several facilities were 

curtailed in line with more prudent lending policies. Recovery of 

non-performing assets was given attention and provisions were 

revisited. Efforts towards attracting customer deposits also 

gained excellent results and Net loans and advances grew by 

72% and customer deposits increased by 190% during the year. 

The department’s focus will continue to remain in increasing the 

domestic market share through quality service delivery. 



Small and Medium Enterprises (SME) Banking 

SME banking has shown strong growth in 2011 by focusing 

on the local market and managed to retain its liability 

portfolio and managed to successfully grow its Assets 

Portfolio by 21%. New innovative products and services 

were introduced along with a dedicated team of Relationship 

Managers who cater to customers’ financial requirements. 

SME is highly rated in the island in providing Global Trade 

Service (GTS) products to Small and Medium Enterprises 

sector and will continue its focus of providing new products 

and services to the market. 

Private Banking 

While 2011 started on a negative note, private banking has 

nevertheless ended the year with positive operating figures. 

The client base grew by more than 30% while assets grew 

by over 20% and the turnover of transactions increased by 

25%. The healthy pick in business in the second half of the 

year will help it in sustaining the Banks growth in 2012. 

Financial Institutions and Correspondent 

Banking 

Despite the regional economic and political challenges 

in 2011, the division was successful in building stronger 

banking correspondent relationships with local and 

regional banks. BMI Bank was heavily involved with 

institutional counterparties particularly focusing on 

regional markets with trade finance products that helped 

the bank generate substantial non-interest income 

revenues and end the year with a healthy operating 

profit. While expanding its correspondent relationships, 

the Bank also increased its business in the local market 

and took cross border risk on a case by case. The bank 

continues to be cautious on its credit approach and risk 

appetite in the regional markets particularly focusing on 

trade finance self-liquidation transactions. 

ISLAMIC BANKING 

In 2011 Islamic Banking managed to further expand its client 

base which presently consists of corporate clients, Islamic 

commercial & investment banks, financing companies, 

government & quasi - government entities in Bahrain, other 

GCC countries, Turkey and Pakistan, and increased its assets 

largely by replacing runoffs of legacy/low priced assets 

with higher yield generated assets. The focus was also on 

short to medium term financing and avoided long term 

financing and syndication facilities with bullet payments. 

Islamic Banking has successfully built a strong customer 

base in a short time under the Enterprise financing from 

Tamkeen finance scheme with the business successfully 

managing a top-up to scheme by a further BD 10 million 

during 2011 making it the most prompt bank to request a 

top-up reflecting the bank’s commitment to development 

of the Tamkeen program in Bahrain. The demand for such 

products is considerable and coupled with the professional 

human capital that the bank embraces along with the 

anticipated new product offering; the Bank should increase 

its market share under this segment during 2012. During 

2011, Islamic Banking focused on bilateral and club facilities 

mainly targeting clients within the Kingdom of Bahrain and 

the same strategy will be followed during 2012 with an 

eagle eye view and opportunistic approach for selective 

cross-border transactions. 

Looking forward, the business will focus on the following as 

part of its strategy: 

• Actively pursue opportunities in areas of Corporate 

and Project Finance and Debt Capital Markets 

(Defensive Sectors) 

• Primarily focus on larger deal size with improved fee 

income levels 

• Develop financial advisory services in areas such as 

Securitization, Sukuks, 

• Enhance deal origination through direct contact 

• Product development with improved performance 

• Increase the un-funded credit facilities to boost 

fee income 

• Increase liabilities and the diversification of the 

liability source 

• Increase the share of Wallet 



Risk management 

Risk management is the process by which the Bank identifies 

key risks, sets consistent understandable risk measures, 

chooses which risks to reduce, which to increase and by 

what means, and establishes procedures to monitor the 

resulting risk position. Risk management is the discipline at 

the core of every financial institution and encompasses all 

the activities that affect its risk profile. It is driven by an 

objective of controlling risks to ensure that value is created 

for shareholders through an optimum return on equity by 

an appropriate trade-off between risk and return. Risk can 

be perceived as the combination of severity (magnitude 

of impact) and frequency (likelihood of occurrence) of 

potential loss over a given time horizon and is inherent to 

the Bank’s activities. 

Effective risk management is the cornerstone of a sound 

operating performance and capital structure. The vision 

of risk management is to address all aspects of risk, which 

the Bank may be exposed to. The Bank’s risk function 

is independent of lines of business and the Chief Risk 

Officer reports directly to the Board Risk Committee and 

administratively to the Chief Executive Officer. 

The Bank is exposed to risks, which include, but are 

not limited to, credit, market, liquidity, reputational and 

operational risk. The Bank’s aim is to achieve an appropriate 

balance between risks and return and minimize any potential 

adverse impact on the Bank’s financial performance. 

The Bank’s risk policy, as approved by the Board of Directors, 

analyzes and sets risk limits for credit risk, liquidity risk and 

market risk (to include interest rate and currency risk). 

This is further segmented into line of business, product, 

geography, counterparty, and risk type as agreed by 

executive management and the Board in accordance to a 

clearly stipulated authorities matrix. 

Furthermore, stress tests form an essential part of the risk 

management framework. Stress tests are used to measure 

the impact of extreme yet plausible events on the Bank. The 

Bank has in place a stress testing mechanism covering credit 

quality, capital adequacy, liquidity, and market risks. This 

assists in assessing how portfolios would react in adverse 

market and operating conditions and the resultant impact 

they may have on the Bank. The outcomes of the scenarios 

are reported on a monthly basis and discussed at the Asset 

and Liability and Executive Risk Committees. 

Credit risk management 

Credit risk is defined as the potential that the Bank’s borrower 

or counterparty will fail to meet its obligations in accordance 

with the agreed terms. The goal of credit risk management 

is to maximize the Bank’s risk-adjusted rate of return by 

maintaining credit exposures within acceptable parameters 

of both quantity and quality. The Bank has well-defined 

policies and procedures for identifying, measuring, monitoring 

and controlling credit risk in all the Bank’s activities. Credit 

limits are approved after a thorough assessment of the 

creditworthiness of the borrower or counterparty, including 

the purpose and structure of the credit facility, and the 

source of repayment. Credit proposals are prepared by lines 

of business and are independently reviewed and analyzed 

by risk management professionals before the approval of 

the appropriate approving authority, such as the Executive 

Management, Management Credit Committee, Board Risk 

Committee (a sub-committee of Board of Directors) or 

Board of Directors is sought. Monthly presentations of the 

credit portfolio to the Management Credit Committee are 

undertaken by individual lines of business, in order to provide 

an overview of the Bank’s entire credit portfolio. 

Cross border exposures, exposures to sovereigns, banks and 

other financial institutions are guided by risk limits set for 

these entities and approved by the Board Risk Committee 

based on various risk factors. 

The credit growth, quality and portfolio composition are 

continuously monitored to maximize risk adjusted returns 

and manage the level of impairment in line with Bank’s 

strategy and policy. The concentration of risk is mitigated 

by the setting of various limits such as the Single Borrower 



Limit (SBL), country limits, industry-wise concentrations, 

sensitive sectorial limits and individual counterparty limits. 

These parameters are subject to regular review and are 

updated accordingly. Sector limits and maximum exposure 

guidelines are set on a country basis and a portfolio basis to 

avoid undue concentrations. 

The Credit Administration Department ensures that credit 

facilities are only released upon obtaining the requisite 

approvals and documentation. It also monitors daily 

excesses over limits, overdue reviews and exceptions to 

policy and escalates the same to the relevant committee. 

All relationships are reviewed annually and non-performing 

accounts are reviewed more regularly. 

Through its Early Warning System, the Bank adopts a 

rigorous standard for the identification and monitoring 

of non-performing loans’ (NPL) with a view to eventual 

recovery. Problematic accounts are reviewed regularly by 

the Management Credit Committee to evaluate compliance 

with the terms of the ‘work out’ strategy with laid down 

lending norms and to ensure incorporation of the lessons 

learned, if any, into the Bank’s lending guidelines. 

A basic and key element of the credit approval process is 

a detailed risk assessment of each credit-counterparty. The 

wholesale credit assessment methodology entails the use 

of Moody’s Risk Analyst Software (MRA) that generates an 

internal default grade (on a 10-grade scale) for evaluating the 

credit-worthiness of counterparties. Where a counterparty is 

rated (on a global scale) by an external credit agency (viz. 

Moody’s, Fitch, Standard & Poors or Capital Intelligence) then 

its rating is internally mapped to the default grade scale. 

For wholesale portfolios, the MRA system is used and 

ensures that a client receives the same rating regardless of 

the part of the business with which it is dealing. The MRA 

system takes into account both the objective (quantitative) 

and subjective (qualitative) data for grade generation. The 

methodology of grading corporate customers differs from 

that of banks and financial institutions. In case of banks and 

financial institutions that are externally rated, the grades get 

mapped from the latest available external ratings. In case 

the counterparty is not rated by any external rating agency, 

then an internally generated rating through the financial 

institutions default grade model is incorporated. 

Liquidity risk management 

Liquidity risk is the potential inability of the Bank to meet 

cash flows of its maturing obligations to counterparty. 

Liquidity risk management seeks to ensure that the Bank 

has the ability, under varying scenarios, to fund increases 

in assets and meet maturing obligations as they arise. The 

Treasury Department of the Bank is responsible for liquidity 

management in the Bank under the guidance and supervision 

of the Asset and Liability Committee (ALCO). The liquidity 

risk policy sets liquidity limits, targets, and ratios, to aid 

robust liquidity management. 

The Bank’s funding sources are well diversified across 

funding types and include customer deposits, inter-bank 

deposits, and term loans. The sources and maturities of 

assets and liabilities are closely monitored to avoid any undue 

concentrations and to ensure the robust management of 

liquidity risk. Contingency plans to meet liquidity in order to 

withstand a bank specific or market crisis scenario are in 

place and are reviewed periodically by ALCO. 

The Bank has in place liquidity gaps to manage its risk profile. 

These positions are monitored on a daily basis against the 

stipulated limits approved by the Board Risk Committee. 

Market risk management 

Market risk arises from fluctuations in interest rates, foreign 

exchange rates and commodity and equity prices. As per the 

board directive, the Bank does not have authority to enter 

into any proprietary position on currencies or interest rates. 

Currency and interest rate risk is carried only on the banking 

book. Currency risk, arising out of customer positions is 

hedged on a back-to-back basis. The Bank maintains minimal 

open positions on G7 and other volatile currencies. 



The Treasury Department also operates within the prescribed 

open currency position limits approved by the Board Risk 

Committee. The management of currency risk rests with 

ALCO, which meets on a monthly basis, but where positions 

are, monitored daily. 

Interest rate risk management 

Interest rate risk is the risk that the Bank’s profitability 

or fair value of its financial instruments will be adversely 

affected by the changes in interest rates. Interest rate risk 

arises from the possibility of changes in interest rates and 

mismatches or gaps in the amount of assets and liabilities 

and off balance sheet items that mature or are re-priced 

in a given period. The responsibility for interest rate risk 

management rests with the Bank’s ALCO which takes an 

integrated view of the interest rate risk across the Bank’s 

products and lines of business. 

Positions are monitored on a daily basis to ensure they are 

maintained within established limits. 

Operational risk management 

Operational risk is the risk of loss arising from causes 

associated with the Bank’s processes, personnel, information 

systems and external factors such as those arising from 

legal and regulatory requirements. It is inherent in every 

business organization and covers a wide spectrum of issues. 

The objective of the Bank is to manage this risk by striking 

a commercial balance between the risks of financial loss and 

avoiding excessively bureaucratic internal procedures, which 

limit the ability to provide an effective service to customers. 

The Bank achieves this through a control-based environment 

where processes are documented, authorization is 

independent and transactions are monitored and reconciled. 

This is supported by an independent program of periodic 

internal audit reviews. 

The operational risk management process is guided by 

high level policies supported by procedures embedded 

within the policies. The policies and the procedures 

capture how the Bank manages its operational risk by 

identifying, controlling and mitigating the operational risk 

and implementing any additional procedures which may be 

required as dictated by the risk identified or operational 

risk loss incurred. The operational risk processes and 

procedures are dictated by the scale of operations. 

The operational risk management framework is guided by 

the following principles: 

• Management of operational risk is the responsibility of 

the senior management of each segment of business 

• Appropriate and regular management reports 

• Risk assessment of critical businesses to identify 

risks facing each department and the risks inherent 

in its processes and products. Risks identified are 

subjected to periodic reviews to ensure that the 

circumstances under which they were identified have 

not significantly changed. 

• Collection of operational risk loss data and reporting 

individual cases and trends to senior management. 

• All risks identified and loss data reported are analyzed 

for underlying root causes and mitigants put in place 

to ensure that the root causes do not pose a risk to 

the Bank. 

• Risk mitigation techniques, like insurance, are used 

where appropriate. 

The Bank has developed and implemented a comprehensive 

Business Continuity Plan (BCP) to respond to events that 

disrupt its operations at any location within its network. The 

plan seeks to quickly recover and resume its most critical 

operations with minimal disruption to its operations. 

The plan addresses several areas including data back up and 

recovery, communication with stakeholders and the use 

of alternate physical locations amongst others. The plan is 

dependent on a number of external vendors as well as their 

responses in the event of a disruption. 



Internal control systems 

Management is fully aware of its responsibilities to the 

Bank’s depositors and shareholders. A key factor in the 

fulfillment of these responsibilities is the strength of the 

Bank’s operating procedures and associated internal control 

systems. These are designed to address several critical 

issues including the completeness, accuracy and reliability of 

the financial information that is used to monitor and manage 

the business and the need to provide fast and efficient 

services to customers. 

The Bank addresses these issues by maintaining clearly 

defined operating procedures, which are updated as and 

when necessary to cope with the growth in the Bank’s size 

and complexity. 

The operation of the internal control systems is also 

reviewed by the Bank’s Internal Audit department, which 

reports directly to the Board Audit Committee. 

The organization structure and human resources policy of 

the Bank are designed to ensure that areas of the Bank’s 

operations are managed and supervised effectively by 

competent and well-qualified staff. 

Outlook 

The Bank remains committed to its vision of long-term 

regional growth and providing superior returns to its 

stakeholders, employees and the community in which 

it operates. 

The Bank will continue to work towards further strengthening 

its position, developing new products and services, and 

achieving overall excellence. 

In accordance with the Central Bank of Bahrain Rules concerning Public Disclosure module, the Pillar III disclosures are published separately on the Bank’s web 

site under the financials section and this document has been reviewed by the Bank’s external auditors, Ernst and Young. 


[FINANCIAL STATEMENTS] 



Independent Auditor's Report 

[INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF 

BMI BANK B.S.C. (c)] 

Report on the consolidated financial statements 

We have audited the accompanying consolidated financial statements of BMI Bank B.S.C. (c) (‘the Bank’) and its subsidiary 

(together ‘the Group’) which comprise the consolidated statement of financial position as at 31 December 2011 and the 

consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and 

a summary of significant accounting policies and other explanatory information. 

Board of Directors’ responsibility for the consolidated financial statements 

The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in 

accordance with International Financial Reporting Standards 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. 

Auditors’ responsibility 

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted 

our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical 

requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial 

statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated 

financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks 

of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk 

assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated 

financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the 

purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating 

the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of 

Directors, as well as evaluating the overall presentation of the consolidated financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 

Opinion 

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position 

of the Group as at 31 December 2011, and its consolidated financial performance and its consolidated cash flows for the 

year then ended in accordance with International Financial Reporting Standards. 

Report on other regulatory requirements 

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

report that: 

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

(b) the financial information contained in the report of the Board of Directors is consistent with the consolidated 

financial statements. 

We are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial 

Institutions Law, the CBB Rule Book (Volume 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 2011 that might have had a 

material adverse effect on the business of the Bank or on its financial position. Satisfactory explanations and information 

have been provided to us by management in response to all our requests. 

26 January 2012 

Manama, Kingdom of Bahrain 


Consolidated Statement of Financial Position 

[CONSOLIDATED STATEMENT OF FINANCIAL POSITION] 

31 December 2011 

ASSETS 

2011 2010 

Note BD ’000 BD ’000 

Cash and balances with the Central Bank of Bahrain 7 40,801 63,391 

Treasury bills 8 - 19,642 

Due from banks and financial institutions 9 151,590 128,016 

Loans and advances 10 281,131 253,529 

Islamic financing assets 11 68,592 56,529 

Non-trading investments 12 58,567 44,406 

Investment in an associate 13 1,262 1,189 

Investment in joint ventures 14 557 403 

Premises and equipment 15 16,904 17,872 

Other assets 16 4,481 5,525 

TOTAL ASSETS 623,885 590,502 

LIABILITIES AND EQUITY 

LIABILITIES 

Due to banks and financial institutions 64,859 163,573 

Customers' deposits 17 412,459 263,845 

Wholesale Islamic deposits 23,115 18,310 

Medium term borrowings 18 30,160 35,336 

Other liabilities 19 10,346 9,859 

Subordinated liability 20 - 13,195 

TOTAL LIABILITIES 540,939 504,118 

EQUITY 

Share capital 21 58,530 58,530 

Reserves 22 24,416 27,854 

TOTAL EQUITY 82,946 86,384 

TOTAL LIABILITIES AND EQUITY 623,885 590,502 

Chairman 


Deputy Chairman 

The attached notes 1 to 39 form part of these consolidated financial statements 


Consolidated Statement of Income 

[CONSOLIDATED STATEMENT OF INCOME] 

YEAR ENDED 31 December 2011 

2011 2010 

Note BD ’000 BD ’000 

Interest and similar income 23 25,225 25,200 

Interest expense and similar charges 24 11,596 10,686 

NET INTEREST INCOME 13,629 14,514 

Net fees and commission income 25 4,519 2,028 

Share of results of associate and joint ventures 13,14 286 110 

Other operating income 26 3,015 1,270 

OPERATING INCOME 21,449 17,922 

Staff expenses 8,914 9,498 

Other operating expenses 7,042 5,839 

Depreciation 15 2,936 1,806 

Amortisation of intangible assets - 144 

OPERATING EXPENSES 18,892 17,287 

PROFIT BEFORE PROVISION FOR IMPAIRMENT 2,557 635 

Net provision for impairment of financial assets 27 (5,935) (25,469) 

Impairment of intangible assets - (1,653) 

LOSS FOR THE YEAR (3,378) (26,487) 



Consolidated Statement of Comprehensive Income 

Consolidated Statement of Changes in Equity 

[CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME] 


2011 2010 

BD ’000 BD ’000 

LOSS FOR THE YEAR (3,378) (26,487) 

Other comprehensive (loss) income: 

Unrealised (loss) gain on available-for-sale investments (503) 268 

Recycling of fair value loss due to impairment of available-for-sale 

investments to the consolidated statement of income (note 27) 498 - 

Exchange difference on translation of investment in an associate (55) (76) 

Other comprehensive (loss) income for the year (60) 192 

TOTAL COMPREHENSIVE LOSS FOR THE YEAR (3,438) (26,295) 

[CONSOLIDATED STATEMENT OF CHANGES IN EQUITY] 


Reserves 

foreign 

Subordinated currency Cumulative 

Share Share Statutory debt translation changes in Accumulated Total Total 

capital premium reserve reserve reserve fair value losses reserves equity 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Balance at 1 January 2011 58,530 61,470 1,407 7,917 (473) (209) (42,258) 27,854 86,384 

Loss for the year - - - - - - (3,378) (3,378) (3,378) 

Other comprehensive (loss) income - - - - (55) (5) - (60) (60) 

Total comprehensive (loss) income - - - (55) (5) (3,378) (3,438) (3,438) 

Share based payments - - - - - - - - - 

Transfer of subordinated debt 

reserve (note 20) - - - (7,917) - - 7,917 - - 

Balance at 31 December 2011 58,530 61,470 1,407 - (528) (214) (37,719) 24,416 82,946 

Balance at 1 January 2010 58,530 61,470 1,407 7,917 (397) (477) (15,813) 54,107 112,637 

Loss for the year - - - - - - (26,487) (26,487) (26,487) 

Other comprehensive (loss) income - - - - (76) 268 - 192 192 

Total comprehensive (loss) income - - - - (76) 268 (26,487) (26,295) (26,295) 

Share based payments - - - - - - 42 42 42 

Balance at 31 December 2010 58,530 61,470 1,407 7,917 (473) (209) (42,258) 27,854 86,384 



Consolidated Statement of Cash Flows 

[CONSOLIDATED STATEMENT OF CASH FLOWS] 


2011 2010 

Note BD ’000 BD ’000 

OPERATING ACTIVITIES 

Loss for the year (3,378) (26,487) 

Adjustments for non-cash items: 

Share of results of associate and joint ventures 13,14 (286) (110) 

Depreciation 15 2,936 1,806 

Net provision for impairment of financial assets 27 5,935 25,469 

Amortisation of intangible assets - 144 

Impairment of intangible assets - 1,653 

Premises and equipment written-off 23 - 

Fair value gain on derivative financial assets (53) - 

Profit on sale of equipment (5) - 

Share based payments - 42 

Other non-cash movements 4 100 

Operating profit before changes in operating assets and liabilities 5,176 2,617 

Changes in operating assets and liabilities: 

Mandatory reserve deposit with the Central Bank of Bahrain 7 (320) (3,630) 

Due from banks and financial institutions (29,299) - 

Proceeds from (purchase of) treasury bills 6,964 (6,964) 

Loans and advances 10 (30,850) 48,338 

Islamic financing assets 11 (14,252) 6,455 

Other assets 16 1,097 (1,685) 

Due to banks and financial institutions (98,714) (7,110) 

Customers' deposits 148,864 83,273 

Wholesale Islamic deposits 4,805 (89,664) 

Other liabilities 19 487 2,024 

Net cash (used in) from operating activities (6,042) 33,654 

INVESTING ACTIVITIES 

Purchase of non-trading investments (27,368) (17,409) 

Proceeds from sale of non-trading investments 12,704 4,999 

Investment in a subsidiary (250) - 

Investment in joint ventures - (94) 

Purchase of premises and equipment 15 (1,995) (3,849) 

Proceeds from sale of premises and equipment 9 5 

Net cash used in investing activities (16,900) (16,348) 

FINANCING ACTIVITIES 

Medium term borrowings 18 30,160 - 

Repayment of medium term borrowings (35,336) (45,240) 

Repayment of subordinated liability (13,195) - 

Net cash used in financing activities (18,371) (45,240) 

DECREASE IN CASH AND CASH EQUIVALENTS (41,313) (27,934) 

Cash and cash equivalents at beginning of the year 195,925 223,859 

CASH AND CASH EQUIVALENTS AT END OF THE YEAR 154,612 195,925 

Cash and cash equivalents comprise: 

Cash and balances with the Central Bank of Bahrain 

excluding mandatory reserve deposit 7 32,321 55,231 

Treasury bills with original maturity of 90 days or less - 12,678 

Due from banks with original maturity of 90 days or less 122,291 128,016 

154,612 195,925 



Notes to the Consolidated Financial Statements 

[NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS] 


1. CORPORATE INFORMATION 

Incorporation 

BMI Bank B.S.C. (c) (“the Bank”) is a closed shareholding company incorporated on 1 January 2005 when the Bank acquired 

the Bahrain commercial branch of BankMuscat S.A.O.G. The registered address of the Bank is PO Box 350, Manama, 

Kingdom of Bahrain. 

Activities 

The Bank operates under a retail banking license issued under the new integrated licensing framework of the Central Bank of 

Bahrain and is engaged in commercial banking activities through its ten branches in the Kingdom of Bahrain and a branch in 

the Qatar Financial Centre in the State of Qatar. 

During the year, the Bank placed its wholly owned subsidiary Diners Club Services W.L.L. under voluntary liquidation following 

merger of its operations with those of the Bank’s credit card operations effective 29 March 2011. 

During the year, the Bank established a wholly owned subsidiary - Palma Holding S.P.C (‘the Subsidiary’). The Subsidiary was 

incorporated on 19 October 2011 in the Kingdom of Bahrain, to engage in wealth management activities. 

These consolidated financial statements were authorised for issue in accordance with a resolution of the Board of Directors 

dated 26 January 2012. 

2. BASIS OF PREPARATION 

Statement of compliance 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards 

(IFRS) issued by the International Accounting Standards Board (IASB) and in conformity with the Bahrain Commercial 

Companies Law and the Central Bank of Bahrain and Financial Institutions Law, the CBB Rule Book (Volume 1 and applicable 

provisions of Volume 6) and the relevant CBB directives. 

Accounting convention 

The consolidated financial statements have been prepared under the historical cost convention modified for the 

remeasurement at fair value of available-for-sale investments and derivatives. 

The consolidated financial statements have been presented in Bahraini Dinars (BD) which is the functional currency of the 

Group. All values are rounded off to the nearest thousand (BD ‘000) unless otherwise indicated. 

Basis of consolidation 

The consolidated financial statements comprise the financial statements of the Bank and its Subsidiary. A subsidiary is an 

entity that the Group has the power to control so as to obtain economic benefits and therefore excludes those held in a 

fiduciary capacity. The financial statements of the Subsidiary are prepared for the same reporting period as the Bank, using 

consistent accounting policies. 

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, which is 

other than fiduciary in nature, and continue to be consolidated until the date that such control ceases. 

All intra-group balances, transactions, income and expenses and profit and losses resulting from intra-group transactions are 

eliminated in full. 





3. PROSPECTIVE CHANGES IN ACCOUNTING POLICIES 

New standards and amendments issued but not yet effective 

Standards issued but not yet effective up to the date of issuance of the Group's consolidated financial statements are listed 

below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future 

date. The Group intends to adopt those standards (where applicable) when they become effective: 

IAS 1 Financial Statement Presentation 

The amendments becomes effective for annual periods beginning on or after 1 July 2012 and require that an entity present 

separately, the items of other comprehensive income that would be reclassified (or recycled) to profit or loss in the future 

if certain conditions are met (for example, upon derecognition or settlement), from those that would never be reclassified 

to profit or loss. The amendment affects presentation only, therefore, will have no impact on the Group's financial position 

or performance. 

IAS 19 Employee Benefits 

The IASB has issued numerous amendments to IAS 19, which are effective for annual periods beginning on or after 1 

January 2013. These include the elimination of the corridor approach and recognising all actuarial gains and losses in other 

comprehensive income as they occur; immediate recognition of all past service costs; and replacement of interest cost and 

expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined 

benefit liability (asset); and certain clarifications and re-wording. The Group is currently assessing the full impact of these 

amendments. 

IFRS 9 Financial Instruments 

IFRS 9 as issued reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and 

measurement of financial assets and financial liabilities as defined in IAS 39. 

It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires 

financial assets to be classified into two measurement categories: those measured as at fair value and those measured at 

amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model 

for managing its financial instruments and the contractual cash flow characteristics of the instrument. 

For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the 

fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in 

other comprehensive income rather than the income statement, unless this creates an accounting mismatch. 

It also includes those paragraphs of IAS 39 dealing with how to measure fair value and accounting for derivatives embedded 

in a contract that contains a host that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of 

Embedded Derivatives. 

The IASB issued amendments to IFRS 9 that defer the mandatory effective date from 1 January 2013 to 1 January 

2015 with early application continuing to be permitted. In subsequent phases, the IASB will address hedge accounting and 

impairment of financial assets. 

The Group will quantify the effect of adoption of this Standard, in conjunction with the other phases, when issued, to present 

a comprehensive picture. 





3. PROSPECTIVE CHANGES IN ACCOUNTING POLICIES (continued) 

IFRS 10 Consolidated Financial Statements 

IFRS 10 introduces a new approach to determining which investees should be consolidated and provides a single consolidation 

model that identifies control as the basis for consolidation for all types of entities. 

An investor controls an investee when: 

- it is exposed or has rights to variable returns from its involvement with that investee; 

- it has the ability to affect those returns through its power over that investee; and 

- there is a link between power and returns. 

Control is re-assessed as facts and circumstances change. 

IFRS 10 replaces IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities. 

IFRS 10 is effective for annual periods beginning on or after 1 January 2013 and earlier application is permitted. The Group 

is currently assessing the full impact of this new standard. 

IFRS 11 Joint arrangements 

IFRS 11 establishes principles for the financial reporting by parties to a joint arrangement and improves on IAS 31 by 

establishing principles that are applicable to the accounting for all joint arrangements. 

IFRS 11 classifies joint arrangements into two types – joint operations and joint ventures; and defines joint control as the 

contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities (i.e. 

activities that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control. 

IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities – Non-monetary Contributions 

by Venturers. IFRS 11 is effective for annual periods beginning on or after 1 January 2013 and earlier application is permitted. 

The Group is currently assessing the full impact of this new standard. 

IFRS 12 Disclosure of interests in other entities 

IFRS 12 combines, enhances and replaces the disclosure requirements for subsidiaries, joint arrangements, associates and 

unconsolidated structured entities. As a consequence of these new IFRSs, the IASB also issued amended and retitled IAS 27 

Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. 

IFRS 12 aims to provide information to enable users to evaluate: 

- the nature of, and risks associated with, an entity’s interests in other entities; and 

- the effect of those interests on the entity’s financial position, financial performance and cash flows. 



IFRS 13 Fair value measurement 

IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value 

measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure 

requirements for fair value measurements. It explains how to measure fair value when it is required or permitted by other 

IFRSs. IFRS 13 does not extend the use of fair value accounting but provides guidance on how it should be applied where its 

use is already required or permitted by other standards within IFRSs. 







3. PROSPECTIVE CHANGES IN ACCOUNTING POLICIES (continued) 

IAS 27 Separate Financial Statements (as revised in 2011) 

IAS 27 (2011) supersedes IAS 27 (2008). As a consequence of the new IFRS 10 and IFRS 12 aforementioned, IAS 27 

(2011) carries forward the existing accounting and disclosure requirements for separate financial statements, with some 

minor clarifications. 

IAS 27 (2011) is effective for annual periods beginning on or after 1 January 2013 and earlier application is permitted. The 

Group does not present separate financial statements. 

IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) 

IAS 28 (2011) supersedes IAS 28 (2008). As a consequence of the new IFRS 11 and IFRS 12 aforementioned, IAS 28 has 

been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to 

investments in joint ventures in addition to associates. 

IAS 28 (2011) is effective for annual periods beginning on or after 1 January 2013 and earlier application is permitted. The 

Group is currently assessing the full impact of this revised standard. 

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

New and amended standards and interpretations effective as of 1 January 2011 

The accounting policies adopted are consistent with those of the previous financial year, except for the following new and 

amended IFRS and IFRIC interpretations effective as of 1 January 2011: 

IAS 24 Related Party Disclosures (amendment) 

The IASB has issued an amendment to IAS 24 that clarifies the identification of related party relationships, particularly in 

relation to significant influence or joint control. The new definitions emphasise a symmetrical view on related party relationship 

as well as clarifying in which circumstances persons and key management personnel affect related party relationships of 

an entity. Secondly, the amendment introduces an exemption from the general related party disclosure requirements for 

transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same 

government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or 

performance of the Group. 

IAS 32 Financial instruments: presentation (amendment) 

The amendment alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain 

options or warrants as equity instruments. The amendment is applicable if the rights are given pro-rata to all of the existing 

owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own 

equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or 

performance of the Group as the Group has not issued these type of instruments. 

IFRS 7 Financial instruments: Disclosures (amendment) 

These amendments introduced new disclosure requirements for transfers of financial assets, including disclosures for: 

- financial assets that are not derecognised in their entirety; and 

- financial assets that are derecognised in their entirety but for which the entity retains continuing involvement. 

The amendment has had no effect on the disclosures made by the Group as the Group has not issued these types of 

instruments 





4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 

New and amended standards and interpretations effective as of 1 January 2011 (continued) 

Improvements to IFRSs 

In May 2010, the Board issued its third omnibus of amendments to its standards, primarily with a view to removing 

inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the 

following amendments resulted in changes to accounting policies, but did not have any impact on the financial position or 

performance of the Group. 

• IFRS 3 Business Combinations: The measurement options available for non-controlling interest (NCI) have been amended. 

Only components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share 

of the entity’s net assets in the event of liquidation must be measured at either fair value or at the present ownership 

instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are to be measured at 

their acquisition date fair value. 

• IFRS 7 Financial Instruments – Disclosures: The standard was amended to simplify the disclosures required, by reducing 

the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the 

quantitative information in context. 

• IAS 1 Presentation of Financial Statements: The amendment clarifies that an analysis of each component of other 

comprehensive income may be presented either in the consolidated statement of changes in equity or in the notes to 

the consolidated financial statements. 

Other amendments resulting from improvements to IFRSs to the following standards did not have any impact on the 

accounting policies, financial position or performance of the Group: 

• IFRS 3 Business Combinations (Contingent consideration arising from business combination prior to adoption of IRS 3 (as 

revised in 2008); 

• IFRS 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment award); 

• IAS 27 Consolidated and Separate Financial Statements; 

• IAS 34 Interim Financial Reporting; and 

• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. 

Treasury bills 

Treasury bills are initially recognised at cost. Premiums and discounts are amortised on a systematic basis to their maturity. 

Due from banks and financial institutions 

Due from banks and financial institutions are financial assets which are mainly money market placements with fixed or 

determinable payments and fixed maturities that are not quoted in an active market. Money market placements are not 

entered into with the intention of immediate or short-term resale. Due from banks and financial institutions are initially 

measured at cost, being the fair value of the consideration given. 

Following initial recognition, due from banks and other financial institutions are stated at cost less any amount written-off 

and specific provisions for impairment, if any. 






Loans and advances and Islamic financing assets 

Loans and advances and Islamic financing assets are non-derivative financial assets originated or acquired by the Group with 

fixed or determinable payments. 

Loans and advances and Islamic financing assets are recognised when cash is advanced to borrowers. They are derecognised 

when either borrower repays their obligations, or the loans are sold or written off, or substantially all the risks and rewards 

of ownership are transferred. 

Loans and advances and Islamic financing assets are initially measured at cost, being the fair value of the consideration given. 

Following initial recognition, loans and advances and Islamic financing assets for which fair value has not been hedged are 

stated at cost less any amount written off and specific and collective provisions for impairment. 

For presentation purposes, provision for credit losses is deducted from loans and advances and Islamic financing assets. 

Non-trading investments 

These are classified as follows: 

• Held-to-maturity 

• Loans and receivables 

• Available-for-sale 

All investments are initially recognised at fair value including directly attributable transaction costs. 

For unquoted equity investments, fair value is determined by reference to the market value of a similar investment, or is 

based on the expected discounted cash flows. 

Premiums and discounts on non-trading investments are amortised using the effective interest rate method and are taken 

to interest expense and similar charges and interest and similar income respectively, within the consolidated statement of 

income. 

Held-to-maturity 

Non-trading investments with fixed or determinable payments and fixed maturities and which the Group has the intention 

and ability to hold to maturity are classified as held-to-maturity. After initial measurement, held to maturity investments are 

subsequently measured at amortised cost using the effective interest rate method. Any gain or loss on such investments is 

recognised in the consolidated statement of income when the investments are derecognised or impaired. 

Loans and receivables 

Debt instruments which do not meet the definition of held-to-maturity, and which have fixed or determinable payments 

but are not quoted in an active market are treated as loans and receivables carried at amortised cost, less any provision for 

impairment. 

Available-for-sale 

Available-for-sale investments are those which are designated as such or do not qualify to be classified as fair value through 

profit or loss, held to maturity or loans and receivables. These investments may be sold in response to the need for liquidity 

and changes in market conditions. These include equity and debt instruments. 






Non-trading investments (continued) 

Available-for-sale (continued) 

After initial measurement, available-for-sale financial investments are subsequently measured at fair value except where fair 

value cannot be reliably determined, in which case they are measured at cost less impairment. Unrealised gains and losses 

are recognised directly in the consolidated statement of comprehensive income under ‘other comprehensive income’. When 

the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the consolidated 

statement of income in ‘Other income’. Interest earned whilst holding available-for-sale debt securities is reported as interest 

income using the effective yield method. The losses arising from impairment of such investments are recognised in the 

consolidated statement of income in ‘net provision for impairment of financial assets’ and removed from the ‘cumulative 

changes in fair value’ in the consolidated statement of changes in equity. 

Investment in associate and joint ventures 

An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor a joint venture. 

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to 

joint control. The Group's investment in its associate and joint ventures are accounted for using the equity method. 

Under the equity method, the investment in associate and joint ventures are carried in the consolidated statement of 

financial position at cost plus post-acquisition changes in the Group's share of the net assets of the associate and joint 

venture. The consolidated statement of income reflects the Group's share of the results of operations of the associate 

and joint ventures. Where there has been a change recognised directly in the equity of the associate and joint venture, the 

Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in 

equity. Unrealised gains and losses resulting from transactions between the Group and the associate and joint ventures are 

eliminated to the extent of the interest in the associate and joint ventures. 

The reporting dates of the associate and joint ventures and the Group are identical and the associate's and joint venture’s 

accounting policies conform to those used by the Group for like transactions and events in similar circumstances. 

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on 

the Group's investment in an associate and joint venture. The Group determines at each reporting date whether there is any 

objective evidence that the investment in associate or joint venture is impaired. If this is the case, the Group calculates the 

amount of impairment as being the difference between the recoverable amount of the associate and joint venture and its 

carrying value and recognises the amount in the consolidated statement of income. 

Fair values 

The fair value of financial instruments that are quoted in an active market is determined by reference to market bid prices for 

assets and offer prices for liabilities, at the close of business on the statement of financial position date, without deduction 

for transaction costs. 

The fair value of liabilities with a demand feature is the amount payable on demand. 

Financial instruments with no active market or where fair value cannot be reliably determined are stated at cost less provision 

for any impairment. 

The fair value of forward foreign exchange contracts is determined using forward exchange rates at the statement of 

financial position date with the resulting value discounted back to present value. 

The fair value of interest rate swaps is determined by discounting estimated future cash flows based on the terms and 

maturity of each contract and using market interest rates for a similar instrument at the measurement date. 






Derecognition of financial assets and financial liabilities 

(i) Financial assets 

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: 

• the rights to receive cash flows from the asset have expired; 

• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full 

without material delay to a third party under a ‘pass-through’ arrangement; and 

• either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither 

transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. 

(ii) Financial liabilities 

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. 

Premises and equipment 

Premises and equipment are initially recognised at cost. Depreciation on premises and equipment is provided on a straightline 

basis over the following estimated useful lives: 

- Equipment and hardware: 4 to 5 years 

- Software (includes software and other developmental costs on the core banking platform): 10 years 

- Motor vehicles: 4 years 

Capital work-in-progress is not depreciated. 

Due to banks and financial institutions and customer deposits 

Due to banks and financial institutions and customer deposits are carried at the fair value of consideration received, less 

amounts repaid. 

Interest bearing loans and borrowings 

Interest bearing loans and borrowings are initially recognised at fair value, less directly attributable transaction costs. After 

initial measurement, loans and borrowings are subsequently measured at amortised cost using the effective interest rate 

method. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an 

integral part of the effective interest rate. 

Provisions 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and 

the costs to settle the obligation are both probable and reliably measurable. Provisions are determined by discounting the 

expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the 

risk specific to the liability. 

Amortised cost measurement 

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial 

recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of 

any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment for 

financial assets. 






Offsetting 

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial 

position if, and only if, there is a legally enforceable right to set off the recognised amounts and the Group intends to either 

settle on a net basis, or to realise the asset and settle the liability simultaneously. 

Revenue recognition 

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can 

be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: 

(i) Interest and similar income 

Interest income and related fees are recognised using the effective yield method, which is the rate that exactly discounts 

estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where 

appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all 

contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to 

the instrument and are an integral part of the effective interest rate, but not future credit losses. The carrying amount of 

the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted 

carrying amount is calculated based on the original effective interest rate and the change in carrying amount is recorded as 

interest income or expense. Recognition of interest income is suspended when loans become impaired. Notional interest is 

recognised on impaired loans and other financial assets based on the rate used to discount future cash flows to their net 

present value. 

(ii) Fees and commission income 

Credit origination fees are treated as an integral part of the effective interest rate of financial instruments and are recognised 

over their lives, except when the underlying risk is sold to a third party at which time it is recognised immediately. Other fees 

and commission income is recognised when earned. 

(iii) Dividend income 

Dividend income is recognised when the right to receive payment is established. 

Income tax 

The income tax liability relates to tax payable by the Group's branch in the State of Qatar to the Qatar Financial Centre 

Regulatory Authority (QFCRA). The tax rates and tax laws used to compute the amount are those that are enacted at the 

statement of financial position date, which is a flat rate of 10% on the Branch’s net income for the year. 

Foreign currencies 

Transactions in foreign currencies are initially recorded at the functional currency rate prevailing on the date of the transaction. 

Monetary assets and liabilities in foreign currencies are translated into Bahraini Dinars at functional currency rates of 

exchange prevailing at the statement of financial position date. Any gains or losses are recognised in the consolidated 

statement of income. 

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange 

rates as at the dates of the initial transaction and are not subsequently restated. Non-monetary items measured at fair 

value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Fair 

value differences arising from investment in associates denominated in a foreign currency are taken to “foreign currency 

translation reserve” in the consolidated statement of changes in equity. 






Employees’ end of service benefits 

Bahraini employees are covered by the Social Insurance Organisation scheme which comprises a defined contribution scheme 

to which the Group contributes a monthly sum based on a fixed percentage of the salary. The contribution is recognised as 

an expense in the consolidated statement of income. 

The Group provides end of service benefits to its non-Bahraini employees. Entitlement to these benefits is usually based 

upon the employees’ length of service and the completion of a minimum service period. The expected costs of these 

benefits which comprise a defined benefit scheme are accrued over the period of employment based on the notional amount 

payable if all employees had left at the statement of financial position date. 

Cash and cash equivalents 

Cash and cash equivalents referred to in the consolidated statement of cash flows comprise of cash and non restricted 

balances with the Central Bank of Bahrain, deposits with banks and financial institutions and treasury bills with original 

maturities of 90 days or less. 

Derivatives and hedge accounting 

The Group makes use of derivative instruments including forwards and swaps to manage exposures to interest rate and 

foreign currency risks. 

Derivatives are initially recognised, and subsequently measured at fair value with transaction costs taken directly to the 

consolidated statement of income. The fair value of a derivative is the equivalent of the unrealised gain or loss from marking 

to market the derivative. Derivatives with positive fair values (unrealised gains) are included in other assets and derivatives 

with negative fair values (unrealised losses) are included in other liabilities in the consolidated statement of financial position. 

Derivatives embedded in other financial instruments are treated as separate derivatives and recorded at fair value, when 

their economic characteristics and risks are not closely related to those of the host contract and the host contract is not 

carried as held for trading. The embedded derivatives are, where material, separated from the host contract and carried at 

fair value with the changes in fair value recognised in the consolidated statement of income. 

The Group applies hedge accounting for transactions which meet the specified criteria. 

At the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected 

to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed each quarter. A 

hedge is regarded as highly effective if the changes in fair value or cash flows attributable to the hedged risk during the 

period for which the hedge is designated are expected to offset in a range of 80% to 125%. 

Any gains or losses arising from changes in fair values of derivatives that do not meet the criteria for hedge accounting are 

taken directly to the consolidated statement of income. 

(i) Cash flow hedges 

Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in 

equity in the cash flow hedge reserve to the extent that the hedge is effective. To the extent that the hedge is ineffective, 

changes in fair value are recognised in the consolidated statement of income. 

When the hedged cash flow affects the consolidated statement of income, the gain or loss on the hedging instrument is 

recycled in the corresponding income or expense line of the consolidated statement of income. When the hedging instrument 

expires or is sold, terminated or exercised or when a hedge no longer meets the criteria for hedge accounting, any cumulative 

gain or loss existing in equity at the time remains in equity and is recognised when the hedged forecast transaction is 

ultimately recognised in the consolidated statement of income. When a forecast transaction is no longer expected to occur, 

the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of income. 






Derivatives and hedge accounting (continued) 

(ii) Fair value hedges 

Changes in the fair value of a derivative hedging instrument designated as fair value hedge are recognised in the consolidated 

statement of income. Meanwhile, the change in the fair value of the hedged item attributable to the risk hedged is recorded 

as part of the carrying value of the hedged item and is also recognised in the consolidated statement of income. 

If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for 

hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortised cost, using the effective 

interest rate method, the difference between the carrying value of the hedged item on termination and the face value is 

amortised over the remaining term of the original hedge. If the hedged item is derecognised, the unamortised fair value 

adjustment is recognised immediately in the consolidated statement of income. 

Share based payment transactions 

Share based payment arrangements which provide the counterparty the right to choose whether a share based payment 

transaction is settled in cash or by issuing equity instruments, are accounted for as a compound financial instrument 

containing both liability and equity components. In accordance with IFRS 2, the fair value of the cash settled component of 

the share based transaction is first measured followed by measurement of the equity settled component. 

The cost of cash settled transactions is measured initially at fair value at the grant date using option pricing models. The fair value 

is expensed over the period until vesting with recognition of a corresponding liability. The liability is re-measured at each reporting 

date up to and including the settlement date with changes in fair value recognised in the consolidated statement of income. 

The cost of equity settled transactions is recognised, together with the corresponding increase in equity, over the vesting period. 

Impairment of financial assets 

An assessment is made, at the date of each statement of financial position, to determine whether there is objective evidence 

that a financial asset or a group of financial assets may be impaired. If such evidence exists, the estimated recoverable 

amount of that asset is determined and any impairment loss is recognised for changes in its carrying amount as follows: 

Impairment of financial assets held at amortised cost 

A financial asset is considered impaired when there is objective evidence of credit-related impairment as a result of one 

or more loss event(s) that occurred after the initial recognition of the asset and those loss events have an impact on the 

estimated future cash flows of the financial asset or group of financial assets and can be reliably estimated. 

A specific provision for credit losses, due to impairment of a loan or any other financial asset held at amortised cost, is 

established if there is objective evidence that the Group will not be able to collect all amounts due. The amount of the 

specific provision is the difference between the carrying amount and the estimated recoverable amount. The estimated 

recoverable amount is the present value of expected cash flows, including amounts estimated to be recoverable from 

guarantees and collateral, discounted based on the original effective yield basis. 

In addition to a specific provision for credit losses, a provision for collective impairment is made on a portfolio basis for credit 

losses where there is an objective evidence that unidentified losses exist at the reporting date. These are based on any 

deterioration in the risk rating (i.e. downward migration of risk ratings) of the financial assets since it was originally granted. 

This provision is estimated based on various factors including credit ratings allocated to a borrower or group of borrowers, 

the current economic conditions, the experience the Group has had in dealing with a borrower or group of borrowers and 

available historical default information. 

The carrying amount of the asset is adjusted through the use of a provision for impairment account and the amount of the 

adjustment is included in the consolidated statement of income. 






Impairment of financial assets (continued) 

Impairment of financial assets held at fair value 

In the case of debt instruments classified as available-for-sale, the Group assesses individually whether there is an objective 

evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount 

recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair 

value, less any impairment loss on that investment previously recognized in the consolidated statement of income. 

If, in a subsequent period, the amount of the impairment loss on debt instruments decreases upon subsequent increase 

in the fair value and the decrease can be related objectively to an event occurring after the impairment was recognised 

(such as an improvement in the issuer’s credit rating), the previously recognised impairment loss is reversed by adjusting 

the provision account. The amount of the reversal is recognised in the consolidated statement of income as provision for 

impairment on investment. 

Where a loss has been recognised directly under shareholders equity, the cumulative net loss recognised in shareholders 

equity is transferred to the consolidated statement of income when the asset is considered to be impaired. 

The Group writes off its financial assets when the respective business units, together with Risk Management, determine that 

the financial assets are uncollectible. This determination is reached after considering information such as the occurrence of 

significant changes in the borrower/issuer’s financial position such that the borrower/issuer can no longer pay the obligations, 

or that proceeds from collateral will not be sufficient to pay back the entire exposure. The financial assets are, then, written 

off only in circumstances where effectively all possible means of recovery have been exhausted. For consumer loans, write 

off decisions are generally based on a product specific past due status. When a financial asset is uncollectible, it is written 

off against the related provision for impairment, if any, and any amounts in excess of available provision are directly charged 

to the consolidated statement of income. 

Once a financial asset has been written down to its estimated recoverable amount, special commission income is thereafter 

recognised based on the rate of special commission that was used to discount the future cash flows for the purpose of 

measuring the recoverable amount. 

Loans, whose terms have been renegotiated, are no longer considered to be past due but are treated as new loans. 

Restructuring policies and practices are based on indicators or criteria which indicate that payment will most likely continue. 

The loans continue to be subject to an individual or collective impairment assessment. 

Impairment of non-financial assets 

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication 

exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An 

asset’s recoverable amount is higher of an asset’s fair value less costs to sell and its value in use and is determined for an 

individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or 

group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired 

and is written down to its recoverable amount and impairment losses are recognised in the consolidated statement of income. 

Financial guarantees 

In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and 

acceptances. Financial guarantees are initially recognised in the consolidated financial statements at fair value, being the 

commission received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher 

of the amortised commission and the best estimate of expenditure required to settle any financial obligation arising as a 

result of the guarantee. 






Financial guarantees (continued) 

Any increase in the liability relating to financial guarantees is taken to the consolidated statement of income in ‘Net provision 

for impairment of financial assets’. The premium received is recognised in the consolidated statement of income in ‘Net fees 

and commission income’ on a straight line basis over the life of the guarantee. 

Renegotiated loans 

Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending 

the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan 

is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met 

and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment 

assessment, calculated using the loan’s original effective interest rate. 

Fiduciary assets 

The Group provides trusts and other fiduciary services that result in the holding or investing of assets on behalf of its clients. 

Assets held in a fiduciary capacity are not reported in the consolidated financial statements, as they are not the assets of 

the Group. 

Trade and settlement date accounting 

Purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase 

or sell the asset. The Group initially recognises loans and advances, Islamic financing assets, deposits, debt securities issued 

and subordinated liabilities on the date that they originate. All other financial assets and liabilities are initially recognised on 

the trade date, at which the Group becomes a party to the contractual provisions of the instrument. 

Events after the statement of financial position date 

The consolidated financial statements are adjusted to reflect events that occurred between the statement of financial position 

date and the date the consolidated financial statements are authorised for issue, provided they give evidence of conditions that 

existed as of the statement of financial position date. Events that are indicative of conditions that arose after the statement of 

financial position date are disclosed, but do not result in an adjustment to the consolidated financial statements. 

5. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES 

The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions 

that affect the reported amount of assets, liabilities, revenue, expenses and the disclosure of contingent liabilities as of the 

reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a 

material adjustment to the carrying amount of the asset or liability affected in the future. 

Judgements 

In the process of applying the Group's accounting policies, management has made the following judgements apart from 

those involving estimates and assumptions, which have the most significant effect on the amounts recognised in the 

consolidated financial statements. 

Going concern 

The Group's management has made an assessment of the Group's ability to continue as a going concern and is satisfied 

that the Group has the resources to continue in business for the foreseeable future. Furthermore, the management is not 

aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. 

Therefore, the consolidated financial statements continue to be prepared on the going concern basis. 

Classification of investments 

Management decides on acquisition of an investment, whether it should be classified as held-to-maturity, carried at amortised 

cost or available-for-sale. 





5. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued) 

Estimates 

The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial 

position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities 

within the next financial year are discussed below: 

Impairment losses on loans and advances 

The Group reviews its problem loans and advances on a quarterly basis to assess whether a provision for impairment should 

be recorded in the consolidated statement of income. In particular, considerable judgement by management is required in the 

estimation of the amount and timing of future cash flows when determining the level of provisions required. Such estimates 

are necessarily based on assumptions about several factors involving varying degrees of judgement and uncertainty, and 

actual results may differ resulting in future changes to such provisions. 

Collective impairment provisions on corporate loans and advances 

In addition to specific provisions against individually significant loans and advances, the Group also considers the need for a 

collective impairment provision against loans and advances which although not specifically identified as requiring a specific 

provision have a greater risk of default than when originally granted. This collective impairment provision is based on any 

deterioration in the internal grade of the loan since it was granted. These internal ratings take into consideration factors 

such as any deterioration in country risk, industry, and technological obsolescence as well as identified structural weaknesses 

or deterioration in cash flows. The amount of the provision is based on the likelihood of recoverability of the loans and is 

adjusted to reflect current economic changes. 

Impairment of available-for-sale investments 

The Group reviews its debt securities classified as available-for-sale investments at each statement of financial position 

date to assess whether they are impaired. This requires similar judgement as applied to the individual assessment of loans 

and advances. 

The Group also records impairment charges on available-for-sale equity investments when there has been a significant 

or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires 

judgement. In making this judgement, the Group evaluates, among other factors, historical share price movements and 

duration and extent to which the fair value of an investment is less than its cost. 





6. CLASSIFICATION OF FINANCIAL INSTRUMENTS 

As at 31 December, the Group's financial instruments have been classified as follows for the purpose of measurement 

under IAS 39 - Financial Instruments: Recognition and Measurement. 

Loans and 

Available- Held to receivables / 

for-sale maturity amortised cost Total 

31 December 2011 BD ’000 BD ’000 BD ’000 BD ’000 

Assets 

Balances with the Central Bank of Bahrain - - 36,955 36,955 

Treasury bills - - - - 

Due from banks and financial institutions - - 151,590 151,590 

Loans and advances - - 281,131 281,131 

Islamic financing assets - - 68,592 68,592 

Non-trading investments 22,255 36,312 - 58,567 

Other assets - - 3,770 3,770 

22,255 36,312 542,038 600,605 

Liabilities 

Due to banks and financial institutions - - 64,859 64,859 

Customers' deposits - - 412,459 412,459 

Wholesale Islamic deposits - - 23,115 23,115 

Medium term borrowings - - 30,160 30,160 

Other liabilities - - 10,346 10,346 

Subordinated liability - - - - 

- - 540,939 540,939 

Loans and 

Available- Held to receivables / 

for-sale maturity amortised cost Total 

31 December 2010 BD ’000 BD ’000 BD ’000 BD ’000 

Assets 

Balances with the Central Bank of Bahrain - - 60,664 60,664 

Treasury bills - - 19,642 19,642 

Due from banks and financial institutions - - 128,016 128,016 

Loans and advances - - 253,529 253,529 

Islamic financing assets - - 56,529 56,529 

Non-trading investments 26,255 18,151 - 44,406 

Other assets - - 5,341 5,341 

26,255 18,151 523,721 568,127 

Liabilities 

Due to banks and financial institutions - - 163,573 163,573 

Customers' deposits - - 263,845 263,845 

Wholesale Islamic deposits - - 18,310 18,310 

Medium term borrowings - - 35,336 35,336 

Other liabilities - - 9,859 9,859 

Subordinated liability - - 13,195 13,195 

- - 504,118 504,118 





7. CASH AND BALANCES WITH THE CENTRAL BANK OF BAHRAIN 

2011 2010 

BD ’000 BD ’000 

Cash 3,846 2,727 

Balances with the Central Bank of Bahrain in: 

- Current account 2,275 2,304 

- Mandatory reserve* 8,480 8,160 

- Deposit accounts 26,200 50,200 

36,955 60,664 

40,801 63,391 

* This balance is unavailable for use in the day-to-day operations of the Group. 

8. TREASURY BILLS 

Treasury bills issued by the Government of the Kingdom of Bahrain matured during the year. 

9. DUE FROM BANKS AND FINANCIAL INSTITUTIONS 

2011 2010 

BD ’000 BD ’000 

Nostro accounts 17,977 10,659 

Balances with brokers 1,738 2,437 

Placements with banks and financial institutions 131,875 114,920 

151,590 128,016 

10. LOANS AND ADVANCES 

2011 2010 

Corporate Syndicated Retail Total Corporate Syndicated Retail Total 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Commercial loans 110,562 32,897 - 143,459 99,046 51,677 - 150,723 

Overdrafts 69,113 - 3,768 72,881 50,358 - 2,934 53,292 

Personal loans - - 32,616 32,616 - - 32,552 32,552 

Mortgage loans - - 60,043 60,043 - - 53,185 53,185 

Credit cards - - 6,161 6,161 - - 6,192 6,192 

Bills discounted 8,589 - - 8,589 254 - - 254 

188,264 32,897 102,588 323,749 149,658 51,677 94,863 296,198 

Less: Suspended 

interest (4,849) (376) (1,495) (6,720) (2,077) (824) (940) (3,841) 

Less: Provision for 

credit losses (26,346) (3,949) (5,603) (35,898) (25,542) (7,695) (5,591) (38,828) 

157,069 28,572 95,490 281,131 122,039 43,158 88,332 253,529 





10. LOANS AND ADVANCES (continued) 

The movements in the provision for credit losses and suspended interest are as follows: 

Corporate Syndicated Retail Total 

2011 BD ’000 BD ’000 BD ’000 BD ’000 

At 1 January 2011 27,619 8,519 6,531 42,669 

Net charge for the year (note 27) 804 1,645 799 3,248 

Written off during the year - (5,391) (787) (6,178) 

Interest suspended (released) during the year 2,772 (448) 555 2,879 

At 31 December 2011 31,195 4,325 7,098 42,618 

Specific provision 24,644 3,587 4,498 32,729 

Collective provision 1,702 362 1,105 3,169 

Suspended interest 4,849 376 1,495 6,720 

31,195 4,325 7,098 42,618 

Gross amount of individually impaired loans 44,990 4,014 10,899 59,903 

Corporate Syndicated Retail Total 

2010 BD ’000 BD ’000 BD ’000 BD ’000 

At 1 January 2010 17,889 6,996 3,701 28,586 

Net charge for the year 8,374 2,037 3,252 13,663 

Written off during the year - (1,003) (780) (1,783) 

Interest suspended during the year 1,356 489 358 2,203 

At 31 December 2010 27,619 8,519 6,531 42,669 

Specific provision 24,020 7,138 4,207 35,365 

Collective provision 1,522 557 1,384 3,463 

Suspended interest 2,077 824 940 3,841 

27,619 8,519 6,531 42,669 

Gross amount of individually impaired loans 40,877 9,670 7,374 57,921 

11. ISLAMIC FINANCING ASSETS 

2011 2010 

Corporate Syndicated Total Corporate Syndicated Total 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Islamic financing assets 41,613 45,453 87,066 21,718 48,934 70,652 

Less: Suspended profit (1,191) (1,819) (3,010) (759) (90) (849) 

Less: Provision for credit 

losses (5,444) (10,020) (15,464) (7,167) (6,107) (13,274) 

34,978 33,614 68,592 13,792 42,737 56,529 





11. ISLAMIC FINANCING ASSETS (continued) 

The movements in provision for credit losses and suspended profit in respect of Islamic financing assets are as follows: 

Corporate Syndicated Total 

2011 BD ’000 BD ’000 BD ’000 

At 1 January 2011 7,926 6,197 14,123 

Net charge for the year (note 27) (1,723) 3,913 2,190 

Profit suspended during the year 432 1,729 2161 

At 31 December 2011 6,635 11,839 18,474 

Specific provision 5,068 9,746 14,814 

Collective provision 376 274 650 

Suspended profit 1,191 1,819 3,010 

6,635 11,839 18,474 

Gross amount of individually impaired Islamic financing assets 11,609 23,600 35,209 

Corporate Syndicated Total 

2010 BD ’000 BD ’000 BD ’000 

At 1 January 2010 1,253 951 2,204 

Net charge for the year 6,129 5,188 11,317 

Profit suspended during the year 544 58 602 

At 31 December 2010 7,926 6,197 14,123 

Specific provision 7,098 1,357 8,455 

Collective provision 69 4,750 4,819 

Suspended profit 759 90 849 

7,926 6,197 14,123 

Gross amount of individually impaired Islamic financing assets 7,779 2,567 10,346 





12. NON-TRADING INVESTMENTS 

2011 2010 

Held to Available- Held to Availablematurity 

for-sale Total maturity for-sale Total 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Quoted investments 

Government debt securities - 19,600 19,600 - 15,751 15,751 

Other debt securities - 2,795 2,795 - 2,795 2,795 

Provision for impairment of 

quoted debt securities - (498) (498) - - - 

- 21,897 21,897 - 18,546 18,546 

Unquoted investments 

Government debt securities 26,890 - 26,890 8,685 - 8,685 

Other debt securities 10,176 - 10,176 10,220 7,351 17,571 

Equity securities - 358 358 - 358 358 

Provision for impairment of 

unquoted debt securities (754) - (754) (754) - (754) 

36,312 358 36,670 18,151 7,709 25,860 

Total 36,312 22,255 58,567 18,151 26,255 44,406 

Unquoted equity investments are carried at cost due to the unpredictable nature of future cash flows and lack of suitable 

alternative methods to arrive at a reliable fair value. There is no market for these investments and management intends to hold 

them for long term. 

The movement in provision for non-trading investments was as follows: 

2011 2010 

BD ’000 BD ’000 

At 1 January 754 189 

Charge for the year (note 27) 498 565 

At 31 December 1,252 754 

Gross amount of individually impaired non-trading investments 1,350 754 

13. INVESTMENT IN AN ASSOCIATE 

The Group has investment in the following associate: 

Country of incorporation 

ownership 

2011 2010 

Gulf African Bank Kenya 21.33% 21.33% 

Gulf African Bank is an Islamic bank incorporated in Kenya. This investment is denominated in Kenyan Shillings. 





13. INVESTMENT IN AN ASSOCIATE (continued) 

The following table summarises the financial information of the Group's investment in Gulf African Bank: 

2011 2010 

BD ’000 BD ’000 

Share of associate's statement of financial position: 

Assets 12,290 9,543 

Liabilities (11,028) (8,354) 

Net assets and carrying amount of the investment 1,262 1,189 

Share of associate's statement of income: 

Revenue 994 842 

Profit/(loss) 131 89 

Share of associate's contingent liabilities 1,403 1,208 

14. INVESTMENT IN JOINT VENTURES 

The Group has investments in the following joint ventures: 

Country of incorporation 

ownership 

2011 2010 

BMI Offshore Bank Limited ("BMIO") Seychelles 50.00% 50.00% 

Money on Demand Holdings W.L.L. ("MODE") Kingdom of Bahrain 50.00% 50.00% 

BMIO 

The Group entered into a joint venture agreement with Seychelles International Mercantile Banking Corporation Limited, (trading 

under the name "NOUVOBANQ") to form BMIO as an off-shore limited liability entity in the Seychelles. 

MODE 

In April 2008, the Group entered into an agreement with Nonoo Holdings W.L.L. to form MODE as a joint venture. The joint 

venture has been incorporated in the Kingdom of Bahrain and is engaged in providing mobile phone banking operations following 

approvals from the Central Bank of Bahrain. The Group has fully impaired its investment in MODE. 

The following table summarises the financial information of BMIO: 

2011 2010 

BD ’000 BD ’000 

Share of joint venture’s statement of financial position: 

Assets 12,782 13,353 

Liabilities (12,225) (12,950) 

Net assets and carrying amount of the investment 557 403 

Share of joint ventures’ statement of income: 

Revenue 297 159 

Profit (loss) 155 21 





15. PREMISES AND EQUIPMENT 

Premises 

Capital 

and Motor work-inequipment 

Software vehicles progress Total 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Cost: 

At 1 January 2011 7,157 14,335 173 741 22,406 

Additions 1,326 - 669 1,995 

Transfer from capital work-in-progress - 857 - (857) - 

Disposals (389) - (29) - (418) 

At 31 December 2011 8,094 15,192 144 553 23,983 

Depreciation: 

At 1 January 2011 3,696 754 84 - 4,534 

Charge during the year 1,016 1,890 30 - 2,936 

Disposals (366) - (25) - (391) 

At 31 December 2011 4,346 2,644 89 - 7,079 

Net book value: 

At 31 December 2011 3,748 12,548 55 553 16,904 

At 31 December 2010 3,461 13,581 89 741 17,872 

At 31 December 2011, the gross amount of fully depreciated premises and equipment that is still in use is BD 1,575 

thousand (31 December 2010: BD 1,578 thousand). 

16. OTHER ASSETS 

2011 2010 

BD ’000 BD ’000 

Interest receivable 2,649 3,900 

Sundry debtors and prepayments 845 623 

Positive fair value of derivatives (note 32) 591 388 

Other 396 614 

4,481 5,525 

17. CUSTOMERS’ DEPOSITS 

2011 2010 

BD ’000 BD ’000 

Term deposits 203,724 164,651 

Current accounts 185,801 82,637 

Saving accounts 22,369 15,718 

Call accounts 565 839 

412,459 263,845 





18. MEDIUM TERM BORROWINGS 

On 20 January 2011, the Group entered into an agreement to borrow US$ 80 million (BD 30.16 million) from a syndicate of banks. 

The facility is repayable in three years, carries interest of 275 basis points over the six months LIBOR and matures on 20 January 

2014. The Group is not in compliance with certain covenants relating to this borrowing. However, subsequent to the statement of 

financial position date, the syndicate of lenders have agreed to grant exemption from compliance with these covenants. 

The Group repaid its medium term borrowing (Islamic Murabaha) denominated in a basket of currencies equivalent to USD 93.6 

million (BD 35.336 million) on the due date of 25 July 2011. 

19. OTHER LIABILITIES 

2011 2010 

BD ’000 BD ’000 

Interest payable 2,432 2,247 

Staff related accruals 1,713 1,647 

Unearned revenue 2,706 1,378 

Insurance deferral - 569 

Pay orders 587 655 

Negative fair value of derivatives (note 32) 321 111 

Sundry creditors and other 2,587 3,252 

20. SUBORDINATED LIABILITY 

10,346 9,859 

The Group fully repaid its subordinated liability of BD 13.195 million on the due date of 14 April 2011 and consequently the 

balance in the subordinated debt reserve was released during the year. 

21. SHARE CAPITAL 

2011 2010 

BD ’000 BD ’000 

Authorised: 

225 million (31 December 2010: 225 million) ordinary shares of BD 1 each 225,000 225,000 

Issued and fully paid up: 

58.53 million (31 December 2010: 58.53 million) ordinary shares of BD 1 each 58,530 58,530 

The Group's shareholding is as follows: 

2011 2010 

Country of Share- Shareincorporation 

holding % BD ’000 holding % BD ’000 

BankMuscat S.A.O.G. oman 49.0 28,680 49.0 28,680 

Overseas Investment S.P.C. Bahrain 20.0 11,706 20.0 11,706 

Royal Court Affairs of Oman oman 11.0 6,438 11.0 6,438 

Istithmar World uAE 10.0 5,853 10.0 5,853 

Financial Assets Bahrain W.L.L. Bahrain 9.9 5,847 9.9 5,847 

Global Investment House Kuwait 0.1 6 0.1 6 

100 58,530 100 58,530 





22. RESERVES 

i) Statutory reserve 

As required by the Bahrain Commercial Companies Law and the Bank’s articles of association, 10% of the net profit for the 

year is required to be transferred to a statutory reserve. The Bank may resolve to discontinue such annual transfers when the 

reserve equals 50% of paid up share capital. The reserve is not available for distribution, except in circumstances as stipulated in 

the Bahrain Commercial Companies Law and following the approval of the Central Bank of Bahrain. No transfer was made during 

the year as the Bank has incurred a loss. 

ii) Subordinated debt reserve 

Consequent to the full repayment of the subordinated liability (note 20) the balance in the subordinated debt reserve was 

fully released to accumulated losses. 

23. INTEREST AND SIMILAR INCOME 

2011 2010 

BD ’000 BD ’000 

Interest income on: 

Loans and advances 20,579 20,490 

Due from banks and financial institutions 1,394 609 

Non-trading investments 1,013 576 

22,986 21,675 

Profit on Islamic financing assets 2,239 3,525 

25,225 25,200 

24. INTEREST EXPENSE AND SIMILAR CHARGES 

2011 2010 

BD ’000 BD ’000 

Interest expense on: 

Due to banks and financial institutions 1,858 3,055 

Customers' deposits 7,516 5,258 

Medium term borrowings 1,857 1,475 

Subordinated liability 61 344 

11,292 10,132 

Profit on wholesale Islamic deposits 304 554 

11,596 10,686 

25. NET FEES AND COMMISSION INCOME 

2011 2010 

BD ’000 BD ’000 

Fees and commission income: 

Wholesale banking 2,931 799 

Islamic financing 438 380 

Retail banking 1,106 854 

Private banking 230 191 

4,705 2,224 

Fees and commission expense: 

Retail banking 148 177 

Private banking 38 19 

186 196 

4,519 2,028 

Fees and commission income include BD 59 thousand (2010: BD 55 thousand) relating to trust and other fiduciary activities. 


Consolidated Statement of Changes in Eqyuity 



26. OTHER OPERATING INCOME 

2011 2010 

BD ’000 BD ’000 

Net foreign exchange gain 2,045 613 

Other 970 657 

27. NET PROVISION FOR IMPAIRMENT OF FINANCIAL ASSETS 

3,015 1,270 

2011 2010 

BD ’000 BD ’000 

(Provision for) reversal of provision for impairment of: 

Loans and advances (note 10) (3,248) (13,663) 

Islamic financing assets (note 11) (2,189) (11,317) 

Non-trading investments (note 12) (498) (565) 

Other assets (note 14) - (537) 

Placement with banks and financial institutions - 613 

(5,935) (25,469) 

2011 2010 

BD ’000 BD ’000 

Impairment loss by class of financial asset: 

Available-for-sale (498) - 

Held to maturity - (565) 

Loans and receivables (5,437) (24,904) 

28. RISK MANAGEMENT 

(5,935) (25,469) 

Introduction 

Risk is defined as the combination of severity and frequency of potential loss over a given time horizon and is inherent in the Group's 

activities. Risk can be expressed in the dimensions of potential severity of loss (magnitude of impact) and potential loss frequency 

(likelihood of occurrence). Risk management is the process by which the Group identifies key risks, sets consistent understandable 

risk measures, chooses which risks to reduce, which to increase and by what means, and establishes procedures to monitor the 

resulting risk position. Risk management is the discipline at the core of every financial institution and encompasses all the activities 

that affect its risk profile. It involves identification, measurement, monitoring and controlling risks to ensure that optimum value is 

created for the shareholders through an optimum return on equity by an appropriate trade-off between risk and return. 

Effective risk management is the cornerstone of capital structure. The vision of risk management is to address all aspects of risk 

which the Group may be exposed to. The Group's risk function is independent of lines of business and the Chief Risk Officer, who 

is appointed by the Board of Directors, reports to the Board Risk Committee. The key role of the risk management function is 

defining, identifying and reducing risks, and being independent and objective. 

The Group has exposure to risks, which include credit, market, liquidity, reputation, compliance risk and operational risk. Taking 

risk is core to the financial business. The Group's aim is to achieve an appropriate balance between risk and return and minimise 

potential adverse effect on the Group's financial performance. 





28. RISK MANAGEMENT (CONTINUED) 

The Group's risk policy, as approved by the Board of Directors, analyses and sets risk limits for credit risk, liquidity risk, market 

risk and operational risk. 

Risk measurement and reporting systems 

The Group's risk management policies aim to identify, analyse and manage the risks faced by the Group, to set appropriate risk 

limits and controls, and to continuously monitor risk levels and adherence to limits. The Group's risk management department 

is also responsible for identifying risk characteristics inherent in new and existing products, activities, exposure limits to mitigate 

these risks. 

The operational risk management function is aimed at developing and ensuring proper functioning of internal processes, 

procedures and controls that minimise the Group's exposure to internal and external risk factors. 

Risk governance 

The Board of Directors of the Group has overall responsibility for the oversight of the risk management framework and reviewing 

its risk management policies and procedures as well as approving significantly large exposures. 

Credit, market, interest rate and liquidity risks both at portfolio and transactional levels are managed and controlled through Management 

Credit Committee, Executive Risk Committee and Asset and Liability Management Committee. In order to facilitate efficient decisionmaking, 

the Group has established a hierarchy of approval authorities depending on the type and amount of the exposure. 

Risk assessment, management and control 

Compliance with the Group's standards is supported by periodic reviews undertaken by the internal audit department and other 

external audit reviews. The results of internal audit reviews are discussed with the management of the business unit to which 

they relate and presented to the risk department, with summaries submitted to the Audit Committee and senior management 

of the Group. 

29. CREDIT RISK 

Credit risk is defined as the potential that a borrower or counterparty will fail to meet its obligations in accordance with the 

agreed terms. The goal of credit risk management is to maximize the Group's risk-adjusted rate of return by maintaining 

credit exposures within acceptable parameters. The Group has well-defined policies and procedures for identifying, measuring, 

monitoring and controlling credit risk in all the Group's activities. Credit limits are approved after thorough assessment of the 

creditworthiness of the borrower or counterparty, including the purpose and structure of the credit facility, compliance with the 

Group's lending policies, and the source of repayment. Credit proposals are prepared by lines of business and are independently 

reviewed and analysed by risk management professionals before approval of the appropriate approving authority, such as the 

Management Credit Committee or Board, is sought. 

Exposures to sovereigns, banks and other financial institutions are guided by risk limits set for these entities and approved by 

the Board of Directors based on various risk factors. 

The credit growth, quality and portfolio composition are continuously monitored to maximise risk adjusted returns and reduce 

the level of impairment. The concentration of risk is spread by the setting of various limits such as the Single Borrower Limit 

(SBL), country limits, industry-wise concentrations, sensitive sectoral limits and individual counterparty limits. These parameters 

are subject to review, and updated accordingly. A comprehensive stress testing regime is in place and the results of these tests 

are similarly reviewed on a regular basis by executive management. 

The Credit Administration Department, ensures that credit facilities are only released upon obtaining the requisite approvals and 

documentation. Exceptions, if any, need to be approved by the appropriate approval authority. It also monitors daily excesses 

above agreed limits, overdues, exceptions, overdue reviews, and escalates the same to the relevant credit committee. All 

relationships are reviewed annually and non-performing and problematic accounts are reviewed more regularly. 





29. CREDIT RISK (CONTINUED) 

The Group adopts a rigorous standard for the identification and monitoring of non-performing loans (NPL) with a view to eventual 

recovery. Every problematic account is reviewed to evaluate compliance with laid down lending norms and incorporating the 

lessons, if any, into the Group's lending guidelines. The Group has formalised Early Warning System (EWS) guidelines to assist in 

detection of problematic and troublesome accounts and take quick action to contain the risk of possible loss whilst maximising 

recovery prospects. 

Credit risk, in respect of derivative financial instruments, is limited to those with the positive fair values, which are included under 

other assets. 

a) Credit risk governance 

The Group has established a number of authority levels, which are responsible for oversight of credit risk. 

The Group has a comprehensive and precise authorities matrix defining which individual or committee is responsible for approving 

wholesale, Islamic, financial institutions and SME credit risk exposures. This matrix is based upon, a combination of, both the 

absolute amount of the lending and the internal rating assigned to it. 

b) Credit risk management 

Exposure to credit risk is managed through regular analysis of the ability of borrowers to meet interest and principal repayment 

obligations, and by changing lending limits where appropriate. 

c) Maximum exposure to credit risk without taking account of any collateral and other credit enhancements 

The Group's maximum exposure to on-balance sheet credit risk is reflected in the carrying amounts of financial assets on the 

consolidated statement of financial position. The impact of possible netting of assets and liabilities to reduce potential credit 

exposure, is not significant. 

Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of another 

party to a financial instrument failing to perform in accordance with the terms of the contract. The Group uses the same 

procedures and methodologies, as defined by the Group's credit policy, for approving credit related commitments (undrawn loan 

commitments, letters of credit and guarantees) as it does for on balance sheet credit obligations (loans). 





29. CREDIT RISK (CONTINUED) 

c) Maximum exposure to credit risk without taking account of any collateral and other credit enhancements (continued) 

The table below shows the maximum exposure to credit risk for the components of the consolidated statement of financial 

position. The maximum exposure is shown gross, before the effect of mitigation through the use of master netting and collateral 

agreements, but after impairment provisions, where applicable. 

Gross 

Gross 

maximum 

maximum 

exposure 

exposure 

2011 2010 

BD ’000 BD ’000 

Balances with the Central Bank of Bahrain 36,955 60,664 

Treasury bills - 19,642 

Due from banks and financial institutions 151,590 128,016 

Loans and advances 

Corporate 157,069 122,039 

Syndicated 28,572 43,158 

Retail 95,490 88,332 

Islamic financing assets 

Corporate 34,978 13,792 


Non-trading investments 58,209 44,048 

Other assets 3,770 5,341 

600,247 567,769 

Commitments and contingent liabilities 213,781 129,457 

Total 814,028 697,226 

d) Collateral and other credit enhancements 

Exposure to credit risk is also managed, in part, by obtaining and monitoring collateral in the form of mortgage interests over 

property, pledge of assets and securities, charge over vehicles, bank guarantees and other collaterals. 

While collateral is an important mitigant to credit risk, it is the Group's policy to establish that loans are within the customer’s 

capacity to repay rather than to over rely on security. In certain cases, depending on the customer’s standing and the type of 

product, facilities may be unsecured. 

The principal collateral types are as follows: 

• For commercial loans; charge over business assets such as properties, equipment, inventory and assignment of trade 

receivables, bank guarantees; 

• For mortgage loans; mortgages over the properties being financed; 

• For retail loans; charge over vehicles and properties; and 

• For private banking loans; securities. 

All collateral are subject to periodic valuations to monitor the adequacy of margins. 





29. CREDIT RISK (continued) 

d) Collateral and other credit enhancements (continued) 

In respect of facilities secured by property and equipment (land, building, plant and machinery), collateral values are reviewed 

concurrently when obligor/facility financing reviews are performed. However, the frequency may be revised in the event of an 

obligor's credit risk rating being downgraded. 

An industry sector analysis of the Group's gross loans and advances and Islamic financing assets, before and after taking into 

account collateral held or other credit enhancements, is as follows: 

Gross net Gross Net 

maximum maximum maximum maximum 

exposure exposure exposure exposure 

2011 2011 2010 2010 

BD ’000 BD ’000 BD ’000 BD ’000 

Banking and financial services 65,695 49,151 48,595 48,218 

Manufacturing 23,425 15,449 33,919 33,816 

Personal 127,379 102,350 120,899 97,968 

Trade 79,185 46,393 66,853 61,444 

Construction 64,667 41,339 62,918 35,283 

Other 50,464 43,426 33,666 28,543 

Total 410,815 298,108 366,850 305,272 

The above table reflects only the impact of collateral qualifying under Basel II and excludes the value of any mortgage interest 

over properties. As stated, such collateral is an important mitigant of credit risk and consequently the true net maximum 

exposure will, in reality, be substantially lower than that reported above. 

The fair value of collateral, that the Group holds relating to loans and advances, individually determined to be impaired, 

at 31 December 2011 amounts to BD 34.11 million (31 December 2010: BD 10.83 million) and relating to Islamic financing 

assets at 31 December 2011 amounts to BD 17.39 million (31 December 2010: Nil). 

The collateral consists of cash, securities, properties and letters of guarantee from banks. 






e) Concentration risk 

Concentration risk arises when a number of counterparties are engaged in similar economic activities or activities in the same 

geographic region or have similar economic features that would cause their ability to meet contractual obligations to be similarly 

affected by changes in economic, political or other conditions. The Group seeks to manage its concentration risk by establishing 

and constantly monitoring geographic and industry wise concentration limits. 

The Group's exposure analysed on geographic regions and industry sectors is as follows: 

31 December 2011 31 December 2010 

Contingent 

Contingent 

Assets Liabilities liabilities Assets Liabilities liabilities 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Geographic region: 

Kingdom of Bahrain 426,050 451,364 35,887 376,861 319,285 33,793 

Other GCC countries 92,656 24,402 11,977 160,715 137,786 17,578 

Europe 44,053 1,158 2,527 24,976 1,525 646 

Asia 49,930 45,605 1,553 14,856 21,242 280 

Americas 1,015 782 11 11,135 601 135 

Rest of the world 10,181 17,628 1,427 1,959 23,679 1,964 

623,885 540,939 53,382 590,502 504,118 54,396 

31 December 2011 31 December 2010 

Contingent 

Contingent 

Assets Liabilities liabilities Assets Liabilities liabilities 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Industry sector: 

Banking and financial 

services 257,232 293,344 9,725 286,247 236,948 9,372 

Manufacturing 20,561 13,783 13,682 25,696 3,966 4,908 

Personal 118,736 75,436 2,379 116,847 129,935 - 

Trade 69,230 19,003 11,577 43,930 6,528 20,192 

Construction 57,404 16,698 1 58,989 22,931 11,131 

Other 100,722 122,675 16,018 58,793 103,810 8,793 

623,885 540,939 53,382 590,502 504,118 54,396 

f) Credit quality per class of financial assets 

The Group employs an internal credit rating based approach to the qualitative assessment of wholesale lending assets, using 

Moody's Risk Analyst software to generate a default grade (DG) from DG 1 to DG 10. Assets with ratings between DG 1 and DG 

3 are included under 'High Grade', ratings between DG 4 and DG 6 under 'Acceptable Grade' and the remaining are classified under 

'Special Mention'. The table below shows the credit quality by class of financial assets based on the Group's internal rating system: 






f) Credit quality per class of financial assets(continued) 

neither past due nor impaired 

Past due 

High Acceptable Special but not Individually 

grade grade mention impaired impaired Total 

31 December 2011 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Balances with the Central 

Bank of Bahrain 36,955 - - - - 36,955 

Due from banks and 

financial institutions 63,552 88,038 - - - 151,590 

Loans and advances 81,347 126,536 4,755 41,319 27,174 281,131 


Non-trading investments 46,490 11,979 - - 98 58,567 

Other assets - 3,770 - - - 3,770 

261,620 238,110 6,136 47,072 47,667 600,605 

neither past due nor impaired 

Past due 

High Acceptable Special but not Individually 

grade grade mention impaired impaired Total 


Balances with the Central 

Bank of Bahrain 60,664 - - - - 60,664 

Treasury bills 19,642 - - - - 19,642 


financial institutions 118,801 9,215 - - - 128,016 

Loans and advances 37,381 150,602 1,821 41,169 22,556 253,529 


Non-trading investments 24,436 19,970 - - - 44,406 

Other assets - 5,341 - - - 5,341 

286,778 191,324 7,201 58,299 24,525 568,127 






g) Aging analysis of past due but not impaired financial assets 

Less than 31 to 60 61 to 90 

30 days days days Total 

2011 BD ’000 BD ’000 BD ’000 BD ’000 


Corporate 21,669 3,081 89 24,839 

Syndicated 4,462 - - 4,462 

Retail 8,762 1,472 1,784 12,018 


Corporate 66 2,135 - 2,201 

Syndicated 3,552 - - 3,552 

38,511 6,688 1,873 47,072 

Less than 31 to 60 61 to 90 

30 days days days Total 

2010 BD ’000 BD ’000 BD ’000 BD ’000 


Corporate 7,968 10,146 385 18,499 

Syndicated - 1,895 5,246 7,141 

Retail 11,438 2,633 1,458 15,529 


Corporate - 17,130 - 17,130 

19,406 31,804 7,089 58,299 

h) Renegotiated facilities 

2011 2010 

BD '000 BD '000 


Corporate 12,211 24,321 


Retail 1,012 1,040 


Corporate - 2,009 

Syndicated 880 880 

Total renegotiated facilities 15,131 32,582 





30. MARKET RISK 

Market risk arises from fluctuations in interest rates, foreign exchange rates and equity prices. As per the Board directive, the 

Group does not have authority to enter into any proprietary position on currencies or interest rate. 

Currency and interest rate risk is carried only on the banking book. Currency risk arising out of customer positions are hedged on 

a back to back basis. The Group maintains minimal open position on G7 and other volatile currencies. 

The treasury also operates within the prescribed currency position limit approved by Asset and Liability Committee (ALCO). 

a) Interest rate risk 

Interest rate risk is the risk that the Group's profitability or fair value of its financial instruments will be adversely affected by 

the changes in interest rates. Interest rate risk arises from the possibility of changes in interest rates and mismatches or gaps in 

the amount of assets and liabilities and off-balance sheet items that mature or are re-priced in a given period. The responsibility 

for interest rate risk management rests with the Group's ALCO. ALCO takes an integrated view of interest rate risk across the 

Group's products and lines of business. 

Positions are monitored on a daily basis to ensure they are maintained within established limits. 

The sensitivity of the consolidated statement of income is the effect of the assumed changes in interest rates on the net 

interest income for one year, based on financial assets and financial liabilities held at 31 December 2011. The sensitivity 

of equity is calculated by revaluing fixed rate available-for-sale financial assets at 31 December 2011 for the effects of the 

assumed changes in interest rates. 

The following table demonstrates the currency wise sensitivity to a reasonable possible change in interest rates, with all other 

variables held constant, of the Group's consolidated statement of income: 

2011 2010 

Sensitivity 

Sensitivity 

of net Sensitivity of net Sensitivity 

interest of interest of 

income equity income equity 

BD ’000 BD ’000 BD ’000 BD ’000 

At 10 bps increase (+) / decrease (-): 

Bahraini Dinars (61) (36) 33 (22) 

US Dollars 4 (24) (16) (11) 





30. MARKET RISK (continued) 

b) Currency risk 

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group 

views the Bahraini Dinar as its functional currency. The Board has set limits on positions by currency. Positions are monitored on 

a daily basis and hedging strategies used to ensure positions are maintained within limits established by ALCO. 

The tables below indicate the currencies to which the Group had significant exposure at 31 December 2011 and 31 December 

2010 on its monetary assets and liabilities. The analysis calculates the effect of a reasonably possible movement of the currency 

rate against the Bahraini Dinar with all other variables held constant on the consolidated statement of income (due to the fair 

value of currency sensitive non-trading monetary assets and liabilities) and equity. A negative amount in the table reflects a 

potential net reduction in consolidated statement of income or equity, while a positive amount reflects a net potential increase. 

2011 2010 

Change in Effect on effect on 

currency rate profit profit 

by % BD ’000 BD ’000 

Currency: 

Euro +10 - (18) 

Pound Sterling +10 - 5 

Kuwaiti Dinar +10 - 8 

As at 31 December 2011, the Group had net foreign currency exposure in respect of US Dollars and other GCC currencies. As 

the Bahraini Dinar and other GCC currencies are pegged to the US Dollar, positions in these currencies are not considered to 

represent significant currency risk. 

c) Equity price risk 

As the Group has minimal equity investments, equity price risk is not considered material. 





31. LIQUIDITY RISK 

Liquidity risk is the potential inability of the Bank to meet cash flows of its maturing obligations to a counterparty. Liquidity risk 

management seeks to ensure that the Bank has the ability, under varying scenarios, to fund increases in assets and meet maturing 

obligations as they arise. The Treasury Department of the Bank is responsible for its liquidity management in the Bank, under the 

guidance and supervision of the ALCO. The risk policy sets liquidity limits, targets, and ratios, to aid robust liquidity management. 

The Group's funding sources are well-diversified across funding types and include customer deposits, interbank group deposits 

and syndicated term loan, amongst others. The sources and maturities of assets and liabilities are closely monitored to avoid 

any undue concentrations and to ensure the vigorous management of liquidity risk. 

a) Maturity analysis of assets and liabilities 

The table below summarises the maturity profile of the Group's assets and liabilities as at 31 December 2011 based on 

expected maturities. 

Up to 1 to 3 3 to 6 6 months Total up to 1 to 5 Over No fixed 

1 Month months months to 1 year 1year years 5 years maturities Total 


ASSETS 

Cash and balances with the 

Central Bank of Bahrain 32,321 - - - 32,321 - - 8,480 40,801 


financial institutions 123,370 28,220 - - 151,590 - - - 151,590 

Loans and advances 71,593 15,010 17,674 248 104,525 37,259 139,347 - 281,131 

Islamic financing assets 9 4,001 7,243 12,980 24,233 15,541 28,818 - 68,592 

Non-trading investments - - 560 10,267 10,827 39,064 8,318 358 58,567 

Investment in an associate - - - - - - - 1,262 1,262 

Investment in joint ventures - - - - - - - 557 557 

Premises and equipment - - - - - - - 16,904 16,904 

Other assets 4,481 - - - 4,481 - - - 4,481 

Total assets 231,774 47,231 25,477 23,495 327,977 91,864 176,483 27,561 623,885 

LIABILITIES 

Due to banks and 

financial institutions 64,859 - - - 64,859 - - - 64,859 

Customers' deposits 151,131 35,231 92,419 83,529 362,310 13,464 36,685 - 412,459 

Wholesale Islamic deposits 23,115 - - - 23,115 - - - 23,115 

Medium term borrowings - - - - - 30,160 - - 30,160 

Other liabilities 10,346 - - - 10,346 - - - 10,346 

Total liabilities 249,451 35,231 92,419 83,529 460,630 43,624 36,685 - 540,939 

Net liquidity gap (17,677) 12,000 (66,942) (60,034) (132,653) 48,240 139,798 27,561 82,946 

Cumulative liquidity gap (17,677) (5,677) (72,619) (132,653) (84,413) 55,385 82,946 





31. LIQUIDITY RISK (continued) 

a) Maturity analysis of assets and liabilities (continued) 

The maturity profile of the assets and liabilities at 31 December 2010 was as follows: 

Up to 1 to 3 3 to 6 6 months Total upto 1 to 5 Over No fixed 

1 month months months to 1 year 1year years 5 years maturities Total 


ASSETS 

Cash and balances with 

Central Bank of Bahrain 55,231 - - - 55,231 - - 8,160 63,391 

Treasury bills - 12,679 5,976 987 19,642 - - - 19,642 


financial institutions 118,715 9,301 - - 128,016 - - - 128,016 

Loans and advances 61,665 36,512 9,784 7,282 115,243 55,364 82,922 - 253,529 

Islamic financing assets 4,801 10,572 16,130 22,800 54,303 880 1,346 - 56,529 

Non-trading investments 1,885 5,132 6,580 220 13,817 17,281 5,599 7,709 44,406 

Investment in an associate - - - - - - - 1,189 1,189 

Investment in joint ventures - - - - - - - 403 403 

Premises and equipment - - - - - - - 17,872 17,872 

Other assets 5,525 - - - 5,525 - - - 5,525 

Total assets 247,822 74,196 38,470 31,289 391,777 73,525 89,867 35,333 590,502 

LIABILITIES 


financial institutions 120,514 25,340 8,294 9,425 163,573 - - - 163,573 

Customers' deposits 143,291 51,309 34,726 20,752 250,078 13,221 546 - 263,845 

Wholesale Islamic deposits 18,310 - - - 18,310 - - - 18,310 

Medium term borrowings - - - 35,336 35,336 - - - 35,336 

Other liabilities 9,859 - - - 9,859 - - 9,859 

Subordinated liability - - 13,195 - 13,195 - - - 13,195 

Total liabilities 291,974 76,649 56,215 65,513 490,351 13,221 546 - 504,118 

Net liquidity gap (44,152) (2,453) (17,745) (34,224) (98,574) 60,304 89,321 35,333 86,384 

Cumulative liquidity gap (44,152) (46,605) (64,350) (98,574) (38,270) 51,051 86,384 





31. LIQUIDITY RISK (continued) 

b) Maturity profile of contractual, undiscounted repayment obligations 

The table below summarises the maturity profile of the Group's financial liabilities at 31 December 2011 based on contractual 

undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were to be given immediately. 

Up to 1 1 to 3 3 to 6 6 to 12 1 to 5 

months months months months years Total 



financial institutions 64,929 - - - - 64,929 

Customers' deposits 240,449 34,001 93,577 33,052 14,481 415,560 

Wholesale Islamic deposits 23,117 - - - - 23,117 

Medium term borrowings 82 160 245 489 31,211 32,187 

Other liabilities 10,346 - - - - 10,346 

Total undiscounted liabilities 338,923 34,161 93,822 33,541 45,692 546,139 

Derivatives: 

Forward foreign exchange contracts 25,900 955 1,329 946 - 29,130 

Interest rate swaps - 139 136 268 130 673 

25,900 1,094 1,465 1,214 130 29,803 

Contingent liabilities: 

Acceptances 931 2,720 973 22 - 4,646 

Letters of credit 146 2,416 6,487 407 - 9,456 

Guarantees 1,911 8,538 13,208 8,960 6,663 39,280 

2,988 13,674 20,668 9,389 6,663 53,382 

up to 1 1 to 3 3 to 6 6 to 12 1 to 5 

months months months months years Total 



financial institutions 120,539 25,472 8,343 9,574 - 163,928 

Customers' deposits 143,327 51,571 35,284 21,274 15,470 266,926 

Wholesale Islamic deposits 18,311 - - - - 18,311 

Medium term borrowings - - - 35,909 - 35,909 

Subordinated liability - - 13,292 - - 13,292 

Other liabilities 9,859 - - - - 9,859 

Total undiscounted liabilities 292,036 77,043 56,919 66,757 15,470 508,225 

Derivatives: 

Forward foreign exchange contracts 15,550 3,610 4,569 3,830 418 27,977 

Interest rate swaps - 198 152 295 613 1,258 

15,550 3,809 4,720 4,125 1,031 29,234 

Contingent liabilities: 

Acceptances 2,767 1,116 91 - - 3,974 

Letters of credit 2,353 13,484 5,717 1,782 - 23,336 

Guarantees 1,732 1,540 9,158 7,741 6,915 27,086 

6,852 16,140 14,966 9,523 6,915 54,396 





32. DERIVATIVE FINANCIAL INSTRUMENTS 

In the ordinary course of business, the Group enters into various types of transactions that involve derivative financial instruments. 

A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements 

in price in one or more underlying financial instruments, reference rates or indices. 

These include forwards and interest rate swaps, which create rights and obligation that have the effect of transferring between 

the parties of the instrument one or more of the financial risks inherent in an underlying primary financial instrument. On 

inception, a derivative financial instrument gives one party a contractual right to exchange financial assets or financial liabilities 

with another party under conditions that are potentially favourable, or a contractual obligation to exchange financial assets or 

financial liabilities with another party under conditions that are potentially unfavourable. However, they generally do not result in 

a transfer of the underlying primary financial instrument on inception of the contract, nor does such a transfer necessarily take 

place on maturity of the contract. Some instruments embody both a right and an obligation to make an exchange. Because the 

terms of the exchange are determined on inception of the derivative instruments, as prices in financial markets change those 

terms may become either favourable or unfavourable. 

The table below shows the net fair values of derivative financial instruments together with the notional amounts. The notional 

amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the 

value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at period-end and are 

neither indicative of the market risk nor credit risk. 

2011 2010 

notional Derivative Derivative Notional Derivative Derivative 

amount assets liabilities amount assets liabilities 

BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Derivatives held-for-trading: 

Recovery notes - 53 - - - - 

Derivatives held as hedges: 

Interest rate swaps 18,850 190 - 26,390 388 - 

Forward foreign exchange 

contracts 29,131 348 321 27,977 - 111 

47,981 591 321 54,367 388 111 

The Group uses fair value hedges to protect against changes in the fair value of its financial assets and financial liabilities due to 

movements in interest and exchange rates. 

Interest rate swaps are used to hedge against interest rate risk on the Group's retail and mortgage loan portfolios. The Group 

uses forward foreign exchange contracts, in the normal course of business, to protect itself against changes in exchange rates. 

For the year ended 31 December 2011, the Group recognised a net gain of BD 177 thousand (2010: net loss of BD 270 

thousand), representing the gain on the hedging instruments which was offset by a net loss on hedged items attributable to the 

hedged risk amounting to BD 178 thousand (2010: net gain of BD 268 thousand). 





33. RELATED PARTY TRANSACTIONS 

Related parties represent shareholders, directors and key management personnel of the Group, and entities controlled, jointly 

controlled or significantly influenced by such parties. All the loans and advances to related parties are performing and are free 

of any provision for possible credit losses except as stated below: 

Balances / transactions with related parties are as follows: 

Entities Directors 

having and key 

significant management 

Shareholders Joint ventures influence personnel Total 

2011 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Due from banks and financial institutions 266 - - - 266 

Due to banks and financial institutions 98 14,528 - - 14,626 

Customers' deposits 360 1,362 30,704 247 32,673 

Loans and advances 2,147 - 33,671 236 36,054 

Interest and similar income 64 - 423 16 503 

Interest expense and similar charges 123 397 74 6 600 

Other operating expenses - - - 102 102 

entities Directors 

having and key 

significant management 

Shareholders Joint ventures influence personnel Total 

2010 BD ’000 BD ’000 BD ’000 BD ’000 BD ’000 

Due from banks and financial institutions 11,872 - - - 11,872 

Due to banks and financial institutions 37,888 20,020 - - 57,908 

Customers' deposits - 1,252 88 972 2,312 

Loans and advances 2,225 - 10,077 1,009 13,311 

Interest and similar income 5 - 113 21 139 

Interest expense and similar charges 1,166 202 - 36 1,404 

Other operating expenses - - - 56 56 

Terms and conditions of transactions with related parties 

The Group enters into transactions, arrangements and agreements with its related parties in the ordinary course of business at 

commercial interest rates and fees. The above mentioned transactions and balances arose from the ordinary course of business 

of the Group. The interest or profit charged and paid to these related parties is at normal commercial rates. Outstanding balances 

at the year end are unsecured. The Group did not provide or receive any guarantee for any related party payables or receivables. 

Compensation of the key management personnel is as follows: 

2011 2010 

BD ’000 BD ’000 

Salaries and other benefits 1,462 1,557 

End of service benefits 45 46 

Share based payments - 16 

Total compensation paid to key management personnel 1,507 1,619 





34. CAPITAL ADEQUACY 

Capital management 

The primary objectives of the Group's capital management are to ensure that the Group complies with externally imposed capital 

requirements and that the Group maintains strong credit ratings and healthy capital ratios. 

The Group's capital adequacy policy is to maintain a strong capital base to support the development and growth of the business. 

Current and future capital requirements are determined on the basis of asset growth expectations for each business of the 

Group, expected growth in off-balance sheet facilities, future sources and uses of funds. 

The Group seeks to maintain a prudent balance between the different components of its capital, particularly the relative mix of 

Tier I and Tier II capital. It also recognises the impact of shareholder returns on the level of capital employed and therefore seeks 

to maintain a prudent balance between the advantages and flexibility afforded by a strong capital position and the higher returns 

on equity made possible by greater leverage. 

During 2011, in line with the guidelines issued by the Central Bank of Bahrain, the Group has calculated capital adequacy based 

on Basel II regulations. Accordingly, risk weighted assets comprise credit risk weighted assets, market risk weighted assets 

and operational risk weighted assets. The Group uses the Basel II standardised approach for credit and market risk. The basic 

indicator approach is used for operational risk. The capital adequacy ratio for the Group is as follows: 

2011 2010 

BD ’000 BD ’000 

Capital base: 

Tier I capital 82,269 84,460 

Tier II capital 2,928 6,149 

Total capital base (a) 85,197 90,609 

Risk weighted assets (b) 439,815 459,331 

Capital adequacy (a/b * 100) 19.37% 19.73% 

Minimum requirement 12.00% 12.00% 

Regulatory capital consists of Tier I capital, which comprises share capital, retained earnings brought forward, statutory reserve, 

subordinated debt reserve and fair value reserve on available for sale investments. Certain adjustments are made to IFRS based 

results and reserves as prescribed by the Central Bank of Bahrain. The other component of regulatory capital is Tier II capital, 

which includes current year loss, subordinated debt, foreign currency translation reserve and collective provisions. 

Throughout the year the Bank complied with all capital requirements imposed by the regulator. 





35. COMMITMENTS AND CONTINGENT LIABILITIES 

Credit-related commitments 

Credit-related commitments include commitments to extend credit, standby letters of credit, guarantees and acceptances 

which are designed to meet the requirements of the Group's customers. 

Letters of credit, guarantees (including standby letter of credit) and acceptances commit the Bank to make payments to third 

parties on behalf of customers in certain circumstances. 

Commitments to extend credit represents contractual commitments to make loans and revolving credits. The majority of 

commitments expire within one year. Since commitments may expire without being drawn upon, the total contract amounts do 

not necessarily represent future cash requirements. 

The Bank has the following credit related commitments: 

2011 2010 

BD ’000 BD ’000 

Contingent liabilities on behalf of customers: 

Acceptances 4,646 3,974 

Letters of credit 9,456 23,336 

Guarantees 39,280 27,086 

53,382 54,396 

Irrevocable commitments to extend credit 156,410 71,223 

Capital expenditure commitments 

Estimated capital expenditure contracted for at the 

statement of financial position date but not provided for 145 291 

Operating lease commitments 

Future minimum lease payments: 

Within one year 992 1,001 

After one year but not more than five years 2,852 2,546 

Total operating lease expenditure contracted for at the 

statement of financial position date 3,844 3,547 

36. FIDUCIARY ASSETS 

The assets managed on behalf of customers, to which the Bank does not have any legal title are not included in the 

consolidated statement of financial position. At 31 December 2011, the total market value of such assets was BD 7.39 million 

(31 December 2010 : BD 8.58 million). 





37. FAIR VALUE OF FINANCIAL INSTRUMENTS 

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable and willing parties 

in an arm's length transaction. 

With the exception of the unquoted investments carried at cost, the fair value of financial instruments are not materially 

different from their carrying values at the statement of financial position date. 

The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: 

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; 

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, 

either directly or indirectly; and 

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based 

on observable market data. 

All quoted available-for-sale investments and derivative assets and liabilities qualify under level 2 of the fair value hierarchy. 

The Bank had no financial assets or liabilities qualifying under level 3 of the fair value hierarchy. 

During the year ended 31 December 2011, there were no transfers between levels 1 and 2. 

38. DEPOSIT PROTECTION SCHEME 

Deposits held with the Group's Bahrain operations are covered by the Deposit Protection Scheme (the Scheme) which was 

established by the Central Bank of Bahrain concerning the establishment of Deposit Protection Scheme and Deposit Protection 

Board. No liability is due until one of the member commercial banks of the Scheme is unable to meet its deposit obligations. 

39. COMPARATIVE FIGURES 

The comparative figures have been reclassified where necessary to conform with the current year’s presentation. This related 

to the following: 

(a) BD 554 thousand reclassified from 'Interest expense on customer's deposits' to 'Interest expense on due from 

banks and financial institutions' in note 24; 

(b) BD 1,050 thousand reclassified from 'Past due but not impaired' to 'Acceptable grade' under 'Loans and 

advances' in note 29 (f); and 

(c) BD 4,241 thousand reclassified from 'Past due but not impaired' to 'Acceptable grade' under 'Islamic financing 

assets' in note 29 (f). 

Such reclassification has not affected net income, total assets, and total liabilities and equity of the Group as previously reported.

English - BMI Bank

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