English - BMI Bank

Management Discussion and Analysis
Management Discussion and Analysis
During the year, the net interest
margin continued to improve
from 2.9% in year 2009 to 3.4%
in 2010. The increase in margin
partly compensated for the drop
in volume of interest earning
assets and the higher level of
suspended interest and hence
the net interest income dropped
by only 5%.
//Other operating
income
Other operating income was lower
by BD 1.9 million, primarily due to
the following:
• Lower fees and commission
(BD 1.2 million) primarily in
the retail banking segment.
• Foreign exchange earnings
and other income were
lower during the year by
BD 712 thousand due to
lower customer volumes.
//Share of profits 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 110
thousand as compared to a loss
of BD 804 thousand in 2009.
//Operating expenses
Total Cash Operating expenses
at BD 15.3 million were higher by
BD 1.3 million (9%). This was due
to the following reasons :
1. During the year, the Bank
successfully rolled out its new
state-of-the-art integrated
core banking platform.
2. Consequently, the salary and
other related expenses of the
people involved in this activity,
which were capitalized in the
previous years, have now
been reflected in the income
statement. Total headcount
as of end of 2010 were 356
compared to 328 as of the
end of 2009.
3. This has also resulted in higher
level of running expenses for
the maintenance of hardware/
software and other related
expenses.
Amortization of intangible assets
represents franchise rights of
business and related cardholder
and merchant relationships
arising on acquisition of Diners
Club Services WLL (which issues
cards in Bahrain, Syria and
Yemen). During the year the
Bank conducted an impairment
testing of the business model and
concluded that these intangible
assets were fully impaired.
Accordingly, the amortized
charge for the year was lower
at BD 144 thousand compared
to BD 285 thousand for 2009
and the entire balance amount of
BD 1.65 million was charged to
the income statement.
Depreciation for the year at
BD 1.8 million was higher than
BD 941 thousand in 2009,
primarily due to the additional
depreciation charge on the new
banking system.
//Net impairment loss
on 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. The Bank has also raised a
//Balance sheet
higher level of collective provisions
on its standard book amounting
to BD 6 million, taking the total
amount of collective provisions to
BD 8.3 million as of end December
2010. Consequently the provision
cover on its Non-performing loans
was 76.2% as of end December
2010 compared to 82.3% as of
end December 2009.
Selected balance sheet data (BD million) 31-Dec-10 31-Dec-09
Cash and balances with the
Central Bank of Bahrain 83.0 35.9
(incl. Treasury Bills)
Due from banks and financial institutions 128.0 194.3
Loans and advances 310.0 388.0
(incl. Islamic Financing Assets)
Non-trading investments 44.4 31.7
Investment in associates 1.2 1.2
Investment in joint ventures 0.4 0.3
Total assets 590.5 673.4
Due to banks and financial institutions 163.6 170.7
Customers’ deposits 263.8 180.6
Wholesale Islamic deposits 18.3 108.0
Medium term loan 35.3 80.6
Subordinated liability 13.2 13.2
Total equity 86.4 112.6
Total Assets reduced from
BD 673.4 million as of end
December 2009 to BD 590.5
million as of end December 2010.
Cash and Placements with the
Central Bank (higher by BD 47
million), reflects the higher level
of placements with CBB made
during the year as a consequence
of the improved liquidity position
of the Bank.
Due from banks and financial
institutions were lower by
BD 66 million (34%) due to lower
interbank activity.
Loans and advances (including
Islamic financing assets), were
lower by BD 78 million (20%)
due to rundown of the loan book
and higher level of provisions.
The gross loan book (including
Islamic financing assets) reduced
40 // BMI Bank Annual Report 2010
BMI Bank Annual Report 2010 // 41