Annual Report
For the year ended 31 December 2013
A London listed financial services group specialized in the growth
markets of the GCC
European Islamic Investment Bank plc
Introduction
Highlights
Chairman‟s Statement
Directors
Strategic Review
Report of the Directors
Corporate Governance
Statement of Directors‟ Responsibilities
Report of the Sharia‟a Supervisory Board
Independent Auditor‟s Report
The Financial Statements
2
3
4
6
8
19
21
24
25
26
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Financial Position
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Financial Statements
Bank Information
27
29
30
31
32
33
34
35
97
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European Islamic Investment Bank plc
A London listed financial services group specialized in the growth markets of the GCC
European Islamic Investment Bank plc (“EIIB”) is a London listed specialist investment banking and asset management
group focused on the oil rich markets of the Gulf Cooperation Council (GCC) countries.
EIIB has an extensive network of business relationships throughout the GCC and wider Middle East and North Africa
(MENA) region. Our skilled and experienced teams provide investment management and financing solutions to
pension funds, family groups, corporations and financial and government institutions.
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European Islamic Investment Bank plc
2013 HIGHLIGHTS
Our year at a glance

EIIB‟s new strategy and business model starts to yield positive results

Assets under management including capital seeded by the Group increased by 25% to £712m (US$ 1,176m)
(2012: £570m / US$ 922m)

New products launched in Equity, Leasing and Trade Finance

Existing equities and fixed income funds moved into UCITS

Arranged mid-market sukuk financing and awarded “Europe Deal of the Year”

Further progress in realizing value from legacy investments

Rasmala shareholding increased to 76.3%

London based institutional investors joined the shareholder register
How we performed

Total operating income of £10.2m (2012: £3.9m)

Profit before tax from continuing operations £1.5m (2012: loss £10.1m)

Profit to equity holders was £0.14m after tax expense of £0.26m and loss on discontinued operations of
£1.25m and the overall loss including Non-controlling interest in 2013 amounted to £0.03m (2012 loss
£11.02m).

Staff costs maintained at £5.78m (2012: £5.72m) and other operating expenses reduced by a further 21% to
£2.9m (2012: £3.7m)

Assets under management including capital seeded by the Group increased by 25% to £712m (US$ 1,176m)
(2012: £570m / US$ 922m)

The bank maintained its strong capital adequacy, regulatory and liquidity ratios. The Regulatory Capital of the
Group at 31 December 2013 stood at £101m (£99.5m at 31 December 2012).

Net Asset Value of 6.4 pence per share (2012: 6.9 pence per share)
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European Islamic Investment Bank plc
CHAIRMAN‟S STATEMENT:
I am pleased to report that during 2013 we made further progress in transforming EIIB into a specialist asset
management and financing business and began to see the positive results of the strategy we put in place two years
ago.
Progress
The strategy your Board set out was aimed at transforming EIIB into a market leading asset management and
financing business focused on London and the GCC region.
Our first tasks involved addressing the Bank's legacy investments, instituting tight cost controls and restructuring the
operations of Rasmala, the leading Dubai-based investment bank that we acquired in 2012 in order to enhance our
asset management capabilities. A great deal of work was needed to resolve legacy issues in an orderly manner and to
maximise the synergies between EIIB and Rasmala. In 2013, there was significant progress on these fronts and this
has enabled us to start a number of projects to increase the revenue potential by upgrading the existing platform and
launching new products.
Progress to date enabled the Bank to return a profit in 2013, while continuing to invest in the growth initiatives required
to achieve our aim of growing Assets Under Management (AUMs) to US$3bn by 2016.
Performance
During 2013, the Bank's operating performance showed continuing signs of improvement. Despite headwinds and
continued political uncertainty in some of our markets, particularly in Egypt, as highlighted in our half year results, total
operating income increased to £10.2m (2012 £3.9m). Combined with tight control of costs, this increase resulted in an
underlying operating profit from continued operations of £1.5m.
The achievement of an operating profit in this way is the most encouraging sign to date of the potential for our plans
and demonstrates that the Bank's new strategy is delivering positive results.
Market developments
The Gulf Cooperation Council (GCC) countries continue to benefit from high oil prices and political stability. The rapid
economic development in the United Arab Emirates (UAE) and Qatar has been recognized by the global index
compiler MSCI with an upgrading from Frontier Market to Emerging Market status and their inclusion in the MSCI
Emerging Markets Index from May 2014. This upgrade is indicative of a new era in capital flows into the Gulf and
reflects increasing confidence in regional markets.
Macroeconomic markets around the world present a mixed picture. A return to growth in many developed economies,
albeit underpinned in some quarters by considerable government intervention, must be seen against a slowing of
growth in some emerging markets. While many stock and debt markets continue to reach new heights, concern
remains over the prospect of the tapering of quantitative easing by the US Federal Reserve.
Despite the wider MENA region experiencing a period of unprecedented change, we continue to believe that our
regional knowledge and expertise stands us in good stead. The GCC economies are positioned at the crossroads
between East and West and benefit from a growing population and the wealth derived from approximately half the
world's proven oil and gas reserves and this offers outstanding opportunities.
EIIB is now well positioned to benefit in these markets.
EIIB is also well positioned to benefit from the continued rise in popularity of Islamic finance, particularly in London and
the GCC countries.
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European Islamic Investment Bank plc
In 2013 the World Islamic Economic Forum (WIEF) was held in London, highlighting growing efforts to position London
as a leading hub for Islamic finance and this was further reinforced by the presence of the British Prime Minister and
his announcement of plans for Britain to issue its first sovereign sukuk.
Islamic assets exceeded $1.8 trillion by the end of 2013 and are forecast to grow considerably faster than conventional
banking over the next few years. There is now rapid growth in trade involving wealthy GCC economies and this will
drive further interest from around the world in Islamic finance.
Corporate governance
EIIB is committed to good corporate governance and we believe high standards in this area combined with strong
management will make an important contribution to EIIB‟s long-term performance.
The Board has successfully managed a period of significant change and has also taken steps to increase
independence by appointing John Wright and Martin Gilbert Barrow as independent non-executive directors.
During the year Aabed Al Zeera and Keith McLeod left the Board. We thank them for their contributions.
We will continue to strengthen the Board and intend to take further action to increase independence and effectiveness.
The Board has already commenced a process of reviewing its performance, its committees‟ performance and that of
individual board members to ensure the Board and its committees have the appropriate balance of skills, experience
and independence.
The Board has been applying the UK Corporate Governance Code in a manner that balances the need for systems
and procedures with the need for flexibility and entrepreneurship that is essential in growth companies. The London
Stock Exchange regards the UK Corporate Governance Code as the standard to which all public companies should
aspire, and supports the use of the Quoted Companies Alliance (QCA) Guidelines by AIM companies. The Board is
now evaluating whether to formally adopt the QCA Guidelines.
Outlook
The Board has delivered a major turnaround and we are now positioned as a specialist asset management and
financing business focused on the growth markets of the GCC.
The GCC region continues to show considerable buoyancy, reflecting both economic growth and confidence in the
future. After two years of restructuring EIIB is now well positioned to move to the next stage in its strategy, a drive for
growth. I am optimistic that we will deliver what we set out to achieve.
__________________________
Abdallah Y. Al-Mouallimi
Chairman
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European Islamic Investment Bank plc
DIRECTORS
NON-EXECUTIVE DIRECTORS
H.E. Abdallah Yahya Al-Mouallimi
(2), (3). Chairman of the Board and Chairman of the Board Risk Committee of EIIB, he is currently the Permanent
Representative of Saudi Arabia to the United Nations. He has held various senior government and private sector
positions including Ambassador to Belgium, Luxembourg and the European Union, Mayor of Jeddah, member of the
Saudi Consultative Council and Director of Saudi General Organisation for Military Industries. His private-sector service
includes chairing the Jeddah Chamber of Commerce, Vice-Chairman of Olayan Financing Company, Board Member of
Saudi Telecom Company, Managing Director of Coca-Cola Bottling Company Saudi Arabia, Board Member of Saudi
National Commercial Bank and Egypt Finance Company amongst others. He is also Co-Founder and Chairman of
HBG Holdings. He has a Masters in Management from Stanford University and a Bachelor of Science in Chemical
Engineering from Oregon State University.
Mohammed Al Sarhan*
(1), (2). Senior Independent Director and Chairman of the Nomination and Remuneration Committee of EIIB. Until
recently Vice President and Chief Operating Officer of Al Faisaliah Group, Kingdom of Saudi Arabia since 2001.
Previously he was Managing Director of Al Safi Danone Co. and Vice President of Samarec. He is Vice Chairman of
the National Shipping Company of Saudi Arabia; Board Member of Saudi Arabian Public Transport Company; Board
Member of Al Safi Danone Co.; Board Member of Saudi Fresh Dairy Board and President of the Al Safi Club for
Friends of the Environment. He holds a B.Sc (Mathematics) from Oregon State University, USA.
John Robertson Wright*
(1). Chairman of the Audit Committee and Non-Executive Director of EIIB. A career Banker with strong experience in
UK and international markets including assignments in India, Sri Lanka, West Africa, Canada, Hong Kong and the
United States. He was recently appointed Chairman of Butterfields Bank UK. He was formerly Chief Executive of
Oman International Bank for seven years, Chief Executive of the Northern and National Irish Banks in Ireland for five
years, Chief Executive of the Gulf Bank in Kuwait and finally Chief Executive of Clydesdale & Yorkshire Banks prior to
retirement. He has also served as Non Executive Director of banks in Oman, London and Bermuda and as Chairman
of companies in Northern Ireland and in Scotland. He is a Fellow of the Chartered Institute of Bankers in Scotland and
the Chartered Institute of Bankers in Ireland.
Michael Willingham-Toxvaerd
Non-Executive Director of EIIB. In addition to this he is Managing Partner of HBG Holdings UK LLP. He also holds a
number of other directorships. He has significant experience in capital market, mergers and acquisitions, founding,
financing and listing companies on the London Stock Exchange. He is also experienced in private equity and holds an
MBA from Cranfield University.
Martin Gilbert Barrow*, CBE
(3). Mr. Barrow has extensive knowledge of Asia, having worked in the region for 35 years with Jardine Matheson.
After joining the Hong Kong operations in 1965, he served as President of the group‟s affiliate in Saudi Arabia,
Managing Director of the operations in Japan and Regional Managing Director of Hong Kong and China, before being
appointed to the board of Jardine Matheson Ltd in 1989. Mr. Barrow is a director of Matheson & Co Limited, Ballie
Gifford Japan Trust PLC, China Britain Business Council and the Hong Kong Association.
EXECUTIVE DIRECTORS
Zulfi Caar Hydari
(3). Chief Executive Officer of EIIB. Mr. Hydari is an activist investor experienced in special situations, PIPEs and
private equity transactions. He is specialised in structuring investment capital from the GCC and implementing post
acquisition value enhancement strategies in portfolio companies. Mr. Hydari is Group Chief Executive of Rasmala
Holdings Limited. He is also Co-Founder of HBG Holdings, a leading special situations private equity firm. Mr. Hydari
holds an MBA from Cranfield University.
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European Islamic Investment Bank plc
(1) Member of the Audit Committee
(2) Member of the Nomination and Remuneration Committee
(3) Member of the Board Risk Committee
* Independent Director
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European Islamic Investment Bank plc
STRATEGIC REPORT FOR 2013:
The Directors present the Strategic Report, Directors‟ Report and the financial statements of European Islamic
Investment Bank plc (“the Group” or “EIIB”) for the year ended 31 December 2013.
OVERVIEW
EIIB is a London listed specialist investment banking and asset management group focused on the oil rich markets of
the Gulf Cooperation Council (GCC) countries. EIIB is authorised by the Prudential Regulation Authority and the
Financial Conduct Authority in the United Kingdom. EIIB‟s primary focus is to provide investment management and
financing solutions to pension funds, family groups, corporations and financial and government institutions.
EIIB‟s mission is to achieve excellence in the provision of investment banking and asset management products and
services in accordance with the principles of Sharia‟a. The activities of the bank include: investment banking services
encompassing provision of financing, debt capital markets and structured finance; investment management solutions
encompassing equities, fixed income and real estate; and business advisory services.
During the past year we continued to implement our strategy of developing our core asset management capabilities
whilst also enhancing our specialist investment banking business and focusing on the growth markets of the GCC.
RESULTS
The financial statements for the reporting year ended 31 December 2013 are shown on pages 27 to 96.
Results for 2013 reflect continued strengthening of our business. Total operating income increased to £10.2m (2012
£3.9m), which, combined with continued tight cost control, delivered an underlying operating profit before tax from
continued operations of £1.5m.
The profit to equity holders was £0.14m after tax expense of £0.26m and loss on discontinued operations of £1.25m
and the overall loss including Non-controlling interest in 2013 amounted to £0.03m (2012 loss £11.02m).
Our asset management business performed strongly. Discretionary managed assets including capital seeded by the
Group increased by 25% to £712m (US$ 1,176m) (2012: £570m / US$ 922m). There were positive movements in AUM
despite instability in the region, unexpected regulatory changes in Egypt and the sell-off in bond markets worldwide.
Again, strong investment performance across our flagship funds and investment strategies showed the benefits of our
regional expertise and detailed local insights.
Investment banking also made its mark in 2013 most notably by winning the $100m sukuk al-wakala mandate for FWU
Group.
The bank maintained its strong capital adequacy, regulatory and liquidity ratios. The Regulatory Capital of the Group at
31 December 2013 stood at £101.0m (£99.5m at 31 December 2012).
These results met our original management forecasts and represent good performance in a second year of major
change. They put us in a strong position to accelerate growth going forward.
Developing an integrated team with one vision
The investment we have made in restructuring and integrating our businesses over the last two years has created a
unique platform for future growth. EIIB is now positioned to capture market share and take advantage of a variety of
investment opportunities in our target markets.
The extensive restructuring over the last two years led to a significant reduction in headcount across the group. In 2013
the firm was stabilized and was able to resume recruitment activity. In particular the firm has been looking to
strengthen its origination, sales and distribution capabilities in order to drive future growth.
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European Islamic Investment Bank plc
A key element in the acquisition of Rasmala has been the building of an integrated team with a shared vision of the
firm going forward – a team that is capable of delivering beyond the sum of its parts. We have created a cost conscious
and service driven culture across the business and are now in a position to increasingly turn the Group‟s focus towards
profitable growth.
Asset management
Assets Under Management (AUM) continued to grow during the year. AUM now exceeds US$1bn and we are on target
to achieving our stated aim of growing AUM to US$3bn by December 2016. We are gaining market share in the UAE in
terms of total assets under management and Institutional Investor magazine now includes us in the “Middle East‟s Top
20 Money Managers”.
The successful integration of Rasmala within the EIIB group has delivered cost synergies and enabled us to move to
the next phase of our strategy - upgrading existing products and launching new products to enhance the revenue
growth potential of the platform, all from within the 2012 cost base.
New funds
Building on our launch of the Rasmala Global Sukuk Fund in 2012, we expanded our local market product offering with
the launch of the Rasmala GCC Islamic Equity Income Fund, investing in high dividend paying equity securities listed
on the GCC stock exchanges. The fund currently targets an annual distribution of over 4% and has benefitted from the
buoyant performance of several GCC stock exchanges in the last year.
Strategically, we also launched investment products to capture outbound investment flows from GCC investors to
opportunities in other geographies. We feel that there is a market opportunity for us to cater not only to investor
requirements in the MENA investment markets, but also to offer our GCC client base unique, Sharia‟a compliant,
investment products investing in international markets. To that end, we launched the Rasmala Leasing Fund and the
Rasmala Trade Finance Fund.
The Rasmala Leasing Fund is a Sharia‟a compliant six-year term fund, investing in lease assets in the United States
and the Rasmala Trade Finance Fund is a Sharia‟a compliant open-ended fund providing investors with a low volatility
money market alterative. The Fund is linked to emerging market trade transactions and aims to benefit from the rapid
growth of global trade, including in the GCC.
Strong performance
Overall investment performance remained strong compared to both our competitors and industry-recognised
benchmarks. The Arabian Markets Growth Equity Fund returned 38.0% (net of all fees and expenses) compared to the
S&P Arab Composite Index return of 21.6%. This builds upon the fund's long-term track record, which stands at an
annualized outperformance of 8.5% since inception in 2006.
The Rasmala GCC Fixed Income Fund returned 1.2% (net of all fees and expenses) despite the global fixed income
headwinds and compared to the Citigroup Corporate AAA/AA Bond Index return of 0.9%, also extending that fund‟s
long-term track record of annualized outperformance of 5.8% since inception in 2009.
In addition all of our mutual funds and discretionary portfolio mandates outperformed their respective benchmarks in
2013.
The response from our existing client base has been encouragingly positive, many of our clients increased their assets
under management with us during the year.
We have also attracted new client mandates, including our first from Egypt‟s Social Insurance Fund, serving
approximately 1.5 million pensioners and 3.8 million contributors, all of whom are government employees.
There is clear demand for our products and we will continue to drive growth by recruiting proven talent and increasing
our product range.
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European Islamic Investment Bank plc
Positioning for further growth
In 2013, we commenced a major project to re-domicile our existing open-ended funds from the Cayman Islands to
Luxembourg as UCIT IV Funds.
This project involved a significant expense, borne primarily in 2013, and slowed asset gathering as our open-ended
funds were closed to new subscriptions for a significant period towards the end of 2013. However, the future benefits
for us, and our clients, are clear. Clients and distributors clearly value the high standard of funds managed within the
UCITS regime. In addition, the regulatory approval process for distribution of funds within MENA jurisdictions, and
globally, is far faster and far less burdensome, enabling us to deliver our products to distributors and clients more
quickly and efficiently.
Investment Banking
Traditionally domestic and regional Islamic institutions have relied upon partnerships with bulge bracket firms for
product structuring expertise. In contrast, EIIB established itself as a credible product manufacturer in its own right
during 2013. The investment banking team executed a number of structuring and arranging mandates during the year
that showcased the bank‟s skill set in debt capital markets and structured debt finance.
In October 2013, we successfully acted as lead arranger and book runner for European-based multinational insurance
group FWU Group on their sukuk al-wakala programme. The first tranche of US$20 million was part of a US$100m
program and was rated “BBB-” by Fitch. This was a unique asset backed transaction involving a European corporate
issuing rated paper via the sukuk markets. The issue was recognized as the “Europe Deal of the Year” for 2013 at the
Islamic Finance News awards and helped the bank to win the award for “Best European Islamic Bank” at the Islamic
Business and Finance Awards 2013.
In parallel with developing cutting-edge solutions for our clients in sukuk, investment banking has been instrumental in
generating value for the bank through evaluating other investment opportunities. For example, during 2013, EIIB
arranged and participated in financings for the Channel Island Stock Exchange-listed investment company London
Central Apartments Limited and the Kuwaiti retail distributor Yusuf A. Al-Ghanim & Sons. Trade finance was another
area of focus, with investment banking working closely with asset management to structure the Rasmala Trade
Finance Fund.
EIIB‟s approach to investment banking aims to look beyond mere replication of conventional financing structures
through the application of Sharia‟a “wrappers” and other synthetic structures, and instead focuses on first principles of
Islamic finance. We see these products and services as being a growth area, particularly as capital from the GCC
region flows into the London market.
Exiting legacy investments
We maintained strong focus on our legacy private equity investments and balance sheet exposures during 2013.
We sold an Islamic debt obligation to Barclays Bank for £4.8m (US$8.1m). We completed the sale of an office building
in Cairo related to our discontinued Egyptian brokerage operations for US$6.2m and settled the related financing. And
we exchanged the majority of our capital in a NAVIS private equity fund (2012: £3.2m) for units in a public equities
open-ended fund managed by NAVIS offering quarterly liquidity (2013: £2.4m). The lock-up on redemptions for this
fund expired on 31 Dec 2013.
We continue to seek an orderly exit from our remaining legacy investments and are determined to optimise the returns
from our exits.
Market review
At the macro level, we believe that the markets of the GCC region continue to offer outstanding prospects. The GCC
countries have some of the highest growth rates in the world and a combination of sovereign wealth, the need for
increasing infrastructure spend, rising income, demographics and location will continue to ensure long-term growth.
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European Islamic Investment Bank plc
In the short term, prospects for the GCC remain healthy. The IMF predicts GDP growth of 4.4% in 2014 for the GCC
overall, but more importantly higher non-oil GDP growth. This compares with their forecast of 3.7% Global GDP growth
and only 2.0% G7 growth. Dubai continues to recover from the 2008 downturn and is developing into a major financial
centre and cooperation between the UK and the UAE in particular continues to increase, including in areas of Islamic
finance.
In financial market terms, our view that during 2013 investors would increasingly seek dividend-yielding equity
investment opportunities, proved correct as global interest rates began to rise from record low levels, negatively
effecting fixed income, while Arab equity markets were some of the top performers globally.
We believe a rebound in confidence in the GCC will maintain momentum in 2014 and continue to favour equities,
however, we do not anticipate the same degree of abnormal returns as in 2013. New supply will be a feature of the
equities markets in 2014 with the return of IPOs. In addition the global index compiler MSCI has upgraded the United
Arab Emirates ("UAE") and Qatar to Emerging Market status from Frontier Market. Effective May 2014, the UAE and
Qatar will be given a weighting of 0.4 percent and 0.45 percent respectively in the MSCI Emerging Markets Index. This
upgrade marks a new era for capital flows into the Gulf and is important for developing the region as a destination for
equity investment in the long term.
There is continued regional demand for sukuk and credit. We expect reasonable performance assuming the global
rates curve rises within current consensus expectations, as regional credit quality, and therefore spreads, continues to
improve.
Our strategy – going forward
The strategy approved for the period 2012-2016 was to restructure EIIB by exiting higher risk, longer term, private
equity investments and build more stable income streams by developing the Bank as a specialist asset management
and financing business. We also established a clear goal of positioning EIIB as a catalyst for consolidation in the GCC
asset management industry and to achieve a market leading position, with at least $3bn of assets under management,
by 2016.
We remain committed to our strategic plan as we move from restructuring to the growth phase. We will now focus on
product development, distribution capabilities, further strengthening of the team and strategic or bolt-on acquisitions as
appropriate.
Future developments
We believe that we have a solid investment banking and asset management offering in the GCC region.
EIIB is now well positioned to expand market share - the outlook is positive.
The Rasmala acquisition was the initial key to delivering our strategy. As we have now largely completed the
restructuring and increased our strategic stake to 76.3%, we are now upgrading our communications collateral to fully
reflect our offer and expect to complete this exercise by Q4 of 2014.
During the year management participated in an institutional road show to give presentations to analysts, fund
managers and potential investors. The road show resulted in new institutional shareholders joining the shareholder
register and it is anticipated that further road shows will take place in 2014.
EIIB plans to reduce its capital so as to facilitate distributions to shareholders in 2014 – subject to shareholder
approval. The bank is currently constrained in its ability to make distributions due to insufficient distributable reserves
and the Board will make a further announcement on proposed next steps in advance of the next Annual General
Meeting.
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European Islamic Investment Bank plc
Acknowledgements
Over the last two years we have successfully repositioned the bank, thanks to a consistent and innovative business
strategy, quality execution provided by a strong Board and management team and supportive clients.
We believe the transformation of EIIB is on course and look forward to reporting further progress in the future.
OPERATING AND FINANCIAL REVIEW
Introduction
EIIB is a London listed specialist investment banking and asset management group focused on the oil rich markets of
the Gulf Cooperation Council (GCC) countries. It delivers investment banking and asset management products and
services across asset classes to the wholesale and institutional markets.
EIIB is authorised by the Prudential Regulation Authority (PRA) (previously The Financial Services Authority (FSA))
and is listed on the AIM Market of the London Stock Exchange. The Bank's activities are also regulated by local
regulators in MENA jurisdictions. The Bank's competitive position is significantly enhanced by its geographic footprint in
London and the MENA region.
The Directors present the Operating and Financial Review for 2013. Having followed the framework set out in the
Accounting Standards Board Reporting Statement: Operating and Financial Review as a guide to best practice, the
Directors believe they have discharged their responsibilities under Section 417 of the Companies Act 2006 to provide a
balanced and comprehensive review of the development and performance of the business.
Results
Total operating income in 2013 was £10.2m (2012: £3.9m). Profit before tax from continuing operations amounted to
£1.5m (2012: loss £10.1m).
Capital Adequacy
EIIB had total assets of £154m at 31 December 2013 (£172m at 31 December 2012). Regulatory capital resources of
the Group as at 31 December 2013 was £101m (£100m at 31 December 2012) and the total risk weighted assets was
£117m (£128m at 31 December 2012). The capital adequacy ratio as at 31 December 2013 stood at 86% (2012: 78%).
Liquidity
EIIB's balance sheet remains highly liquid. As at 31 December 2013, the net cash excess (calculated as a percentage
of deposits) was +40% (31 December 2012: +49%) in the 8 days and under category, and +60% (31 December 2012:
+60%) in the 1 month and under category, against minimum requirements of 0% and -5% respectively.
Liquidity is managed on a day to day basis by the Head of Principal Investments & Treasury.
Business strategy
EIIB's business strategy is to develop as a specialist asset management and financing business, offering clients
bespoke solutions and operating between London and the growth markets of the GCC. We also established a clear
goal of positioning EIIB as a catalyst for consolidation in the GCC asset management industry and to achieve a market
leading position, with at least $3bn of assets under management, by 2016
Islamic finance
The key principles of Islamic finance are based on ethical real economy transactions, thus Islamic finance transactions
avoid the following:
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European Islamic Investment Bank plc




Interest or the trading of intangible assets and cash flows
Uncertainty
Speculation
Unjust enrichment or unfair exploitation
The Bank adheres to these principles.
The Bank's Sharia'a Supervisory Board (SSB), comprising eminent Islamic scholars, is tasked with monitoring and
certifying that all products and services are structured and executed to reflect these principles.
People
A significant differentiating factor for our business is our ability to attract talent. The post-acquisition integration of
Rasmala enabled a significant rationalisation of staff subsequent to which during the period, the Group started to add
to headcount, particularly in the sales function, as our strategy moved into its growth phase. During the period the
Directors believe that EIIB has been able to provide a stimulating environment and competitive remuneration structures
which has enabled the Bank to attract and retain staff of the highest calibre.
Operational
During the period the Bank has successfully restructured the operations of Rasmala and has created a more integrated
and scalable infrastructure. The Bank has put in place controls, systems and processes to enable the group to operate
more effectively as a whole and to protect and safeguard the Bank's assets. EIIB's Internal Audit framework, directed
by the Board's Audit Committee, is responsible for working with management to identify and quantify risk, provide
independent appraisals of systems of internal control, add value to business initiatives and support the maintenance of
a sound control culture throughout the Bank.
Key performance indicators
The Bank does not consider it meaningful to disclose numerical targets and performance indicators other than those
financial and Assets Under Management figures published in this report.
2013 review
2013 was a strong year for Rasmala‟s asset management business. Discretionary managed assets including capital
seeded by EIIB group increased by 25% to £712m (US$ 1,176m) (2012: £570m / US$ 922m). Strong investment
performance across our flagship funds and investment strategies showed the benefits of our regional expertise and
detailed local insights. Assets under management including capital seeded by the Group increased by 25% to £712m
(US$ 1,176m) (2012: £570m / US$ 922m)
Rasmala Assets Under Management
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European Islamic Investment Bank plc
During 2013, we focused our efforts on innovating, expanding and upgrading our product offering; and deepening and
expanding our market penetration within existing and new distribution channels and clients.
Investment Performance
Our investment performance was strong across all investment strategies, Funds and client portfolios. Our two flagship
Funds, the Arabian Markets Growth Equity Fund and the Rasmala GCC Fixed Income Fund continue their long
standing track record of investment success, outperforming industry recognized benchmarks and peer group averages.
 Arabian Markets Growth Equity Fund Performance Tables
Fund Performance
2013
2012
2011
Arabian Markets Growth Equity Fund
37.95%
11.91%
-2.16%
S&P Pan Arab Composite Large Mid
Cap Index1
21.62%
3.10%
-13.62%
Relative Performance
16.33%
8.81%
11.46%
1Y
2Y
5Y
Since
Inception2
Arabian Markets Growth Equity Fund
37.95%
54.37%
98.54%
60.23%
S&P Pan Arab Composite Large Mid
Cap Index1
21.62%
25.39%
43.70%
-13.17%
Relative Performance
16.33%
28.98%
54.84%
73.40%
Cumulative Returns (%)
1
Index was MSCI Arabian Markets Index since inception until August 2010. It was then changed to
S&P Pan Arab Composite Large Mid Cap Index.
2
Inception date is 30th July 2006.
Returns net of all fees and expenses
14
European Islamic Investment Bank plc
 Rasmala GCC Fixed Income Fund Performance Table
Fund Performance
2013
2012
2011
Rasmala GCC Fixed Income Fund
1.14%
14.56%
6.47%
Citigroup MENA Broad Bond Index
GCC1
0.03%
12.63%
7.49%
Relative Performance
1.11%
1.93%
-1.02%
1Y
2Y
3Y
Since
Inception2
Rasmala GCC Fixed Income Fund
1.14%
15.86%
23.36%
58.81%
Citigroup MENA Broad Bond Index
GCC1
0.03%
12.66%
21.10%
37.58%
Relative Performance
1.11%
3.20%
2.26%
21.23%
Cumulative Returns (%)
1
Index was Citigroup Corporate AAA/AA Bond since inception until March 2011. After which, it was changed
to Citigroup MENA Broad Bond Index GCC
Inception date is 31st March 2009
2
Wholesale Distribution Channels
We are increasing our visibility by opening new distribution channels. We believe there is great potential in forming
strategic partnerships with regional financial services providers and this has been the core focus of wholesale
distribution efforts in 2013. In particular we are building relationships with entities that offer Islamic insurance and
savings products (Sharia‟a Compliant Takaful and Re-Takaful) for promotion by Emirati based banks and IFAs to their
core banking/wealth management customers respectively. The market for packaged insurance and saving products is
growing rapidly in the Gulf, and these entities are well positioned to cooperate with Rasmala.
We also worked closely with existing distributors to identify new opportunities and add additional products to their
platforms.
Discretionary Portfolio Mandates
We increased both the number and size of our discretionary portfolio mandates (DPM) during 2013. Notably we won
new mandates from government institutions in Oman that we consider to be strategic.
In a clear vote of confidence in our investment performance and high levels of client servicing, existing DPM clients
increased the size of their portfolios with us during the year.
DPM funds provide the investment manager with the discretion to execute transactions within set parameters without
referring to the account owner.
New Fund Launches
In 2013, we continued to execute the product expansion plan we developed and set in motion in 2012. In May 2013,
we launched the Rasmala GCC Islamic Equity Income Fund with a seed capital of £6.7m (US$11m). The Fund‟s
investment performance has been impressive since its launch, returning 11.97%% since its launch until the end of the
year. The Fund‟s investment strategy is to offer investors semiannual distributions of equity dividends as well as the
potential for capital appreciation by investing in high dividend paying equity securities listed on the GCC stock
exchanges. We also launched in November, 2013, with seed capital commitment of £6.01 (US$10m), the Rasmala
15
European Islamic Investment Bank plc
Trade Finance, a Sharia compliant open ended Fund providing investors with a low volatility money market alterative.
The Fund is targeting a return of 4% while providing investors with monthly liquidity.
These product launches build upon the 2012 newly launched products. In 2012 we launched the Rasmala Global
Sukuk Fund with initial seed capital of £15.5m (US$25m), and in December 2012, we launched the Rasmala Leasing
Fund, a Cayman Limited Partnership established to capture investment performance in the US leasing market, with a
£6.1m (US$10m) seed commitment. The Rasmala Leading Fund targets regular annual distributions of 12%, and an
IRR of 7% to 8% over the full life of the Fund. The Rasmala Global Sukuk Fund includes sukuk exposures from
outside the GCC namely from Islamic Asia.
Strategically, these investment products allow us to capture the outbound investment flows from GCC investors to
investment opportunities in other geographies. We feel that there is a market opportunity for us to not only cater to
investor requirements in the MENA investment markets, but also to offer to our GCC client base unique, Sharia
compliant, investment products investing in international markets.
After establishing an initial track-record and portfolio for these funds in 2012 and 2013, the full marketing effort in 2013
allowed third-party money in these funds to increase.
Rasmala Key Funds
Equity
 Arabian Markets Growth Equity Fund
 Rasmala GCC Islamic Equity Income Fund
 Rasmala Palestine Equity Fund
Fixed Income
 Rasmala GCC Fixed Income Fund
 Rasmala Global Sukuk Fund
Alternative
 Rasmala Leasing Fund
 Rasmala Trade Finance Fund
Investment Banking
The investment banking team is specialized in Islamic banking products and services.
In October 2013, we successfully acted as lead arranger and book runner for our first sukuk following the repositioning,
for European-based multinational insurance group FWU Group. The US$20 million issue was part of a US$100m
program and was rated “BBB” by Fitch. We see such mid-market sukuk products and services as being a growth area
particularly as capital from the GCC region flows into the London market.
Summary
Our asset management business remains on a clear growth path aided by additional products in the platform and
additional focus on sales. Our investment performance and outstanding client servicing continues to attract AUMs from
new and established direct clients and via a broadening range of distribution channels.
With the launch of new Funds in 2013 and further expansion of Rasmala‟s product range planned in 2014, we are
confident that our asset management business will continue to flourish.
Our investment banking operation is well positioned to develop its debt capital markets and structured debt finance
business.
16
European Islamic Investment Bank plc
Legacy investments
Under EIIB's original business model the Bank focused on private equity investments and with limited focus on asset
management; success depended on the performance and realisation of Private Equity investments. However, despite
some initial success, these investments lacked a clear sector or geographic focus where our regional expertise could
add value and accordingly, under EIIB's revised strategy, the decision was made to exit these legacy investments.
Legacy assets consisted of a number of private equity investments and a financing arrangement:

Arcapita
On 12 February 2013 we announced the sale of 100% of our remaining exposure in Arcapita for £5.0m
(US$8.1m) in cash consideration. We held no exposure to Arcapita at year-end 2013.

Accelerator Technology Holdings
Accelerator Technology Holdings is a private equity company that invests in ventures specialising in the
information and communications technology value chain in the Arab world. Our exposure to Accelerator
Technology Holdings at year-end 2013 was recorded at £2.8m (2012: £2.7m).

Carian Bay
Carian Bay is a luxury residential and hospitality real estate development project based
exposure to Carian Bay at year-end 2013 was recorded at £1.4m (2012 £1.7m).

in
Turkey.
Our
DiamondCorp
DiamondCorp plc is an emerging diamond producer focused on maximising shareholder value through the
development of high-margin diamond production assets. Our exposure at year-end 2013 was recorded at
£2.8m (2012: £2.2m).

Rasmala Legacy PE Investments. At acquisition, Rasmala held stakes in three material private investments
arising from participations in pre-IPO placements to clients prior to the global financial crisis. The material
investments were equity in a Dubai based primary and secondary private schools operator, a Ras Al Khaimah
based E&P company with a controlling stake in DNO International (operates in the Kurdish region of Iraq) and
the equity in a Dubai based real estate developer of a single completed office/retail project in TECOM, Dubai.
Our exposure at year-end 2013 was recorded at £7.7m (2012: £6.7m).
Risk factors
EIIB's business model involves the taking of risk in return for reward. Our MENA regional focus offers opportunities for
outstanding returns but exposes us to a number of emerging market social, political and economic risks.
The Bank is exposed to market risk in relation to its assets and liabilities, credit risk from transactions with third parties,
particularly money market transactions, liquidity risk from liquidity mismatches and operational risk.
The effective management of risk is an essential part of our business and a key element in good corporate
governance. Strong risk management is fundamental to EIIB's culture. The Bank's approach to risk is documented in
various risk policies. Under these policies risk is monitored on a daily basis. Further details are reported in note 42 to
the Financial Statements on pages 81 to 95.
In terms of the Corporate Governance Code, the Board is responsible for risk. A Risk Appetite and Tolerance Policy
sets the parameters for risk taking. Systems and controls are in place to identify, measure, monitor and manage risk.
The responsibility for managing risks lies with senior management. The Risk Department facilitates this process and
monitors the effectiveness of the Bank's risk management processes.
17
European Islamic Investment Bank plc
The Board Risk Committee (BRC) has overall responsibility for ensuring the Bank's Risk Policies are implemented.
Key Elements
The key elements of our risk management framework are:







setting the Risk Management strategy and philosophy;
defining the business risk appetite and tolerances;
identification and quantification of risks;
evaluation of identified risks;
managing identified risks;
risk reporting to support the on-going management of risks and the effectiveness of the risk solutions; and
business continuity planning.
Key risks
The Bank is exposed mainly to credit risk, market risk, operational risk and liquidity risk.
Further details on the Bank's approach to risk management are included in Note 42 to the Financial Statements on
pages 81 to 95.
Zulfi Caar Hydari
Chief Executive Officer,
2 May 2014
Registered Office:
Milton Gate
60 Chiswell Street
London EC1Y 4SA
18
European Islamic Investment Bank plc
REPORT OF THE DIRECTORS OF THE GROUP
The Directors of European Islamic Investment Bank plc (registration number 5328847) have pleasure in presenting
their annual report, together with the audited financial statements, for the year ended 31 December 2013.
DIVIDEND
The bank plans to reduce its capital and make distributions to shareholders in 2014.
DIRECTORS
The Directors serving at the date of this report and during the year are shown on page 6.
On 22 April 2013, Martin Barrow was appointed Non-Executive Director.
On 28 May 2013, Keith McLeod resigned as Executive Director.
On 27 November 2013, Aabed Al Zeera‟s engagement terminated as Non Executive Director.
DIRECTORS‟ INTERESTS
The Directors who held office at the end of the financial year had the following beneficial interests in the ordinary
shares of the Bank according to the register of Directors‟ interests. The table shows the number of shares held as a
percentage of total shares in issue at that time:
Name
Mohammed Al Sarhan
Class of share
Ordinary 1p
Interest at end of year
Interest at start of year
5,549,567
5,549,567
0.29%
0.31%
Abdallah Al-Mouallimi, the Chairman and Michael Willingham-Toxvaerd hold indirect beneficial interests in EIIB by
virtue of their participations in HBG Group fund structures, which in turn hold 16.11% of EIIB‟s shares.
None of the other Directors who held office at the end of the financial year had any other disclosable interest in the
shares of the Bank.
According to the register of Directors‟ interests, no rights to subscribe for shares in or debentures of the Bank were
granted to any of the Directors or their immediate families, or exercised by them, during the financial year.
SHARIA‟A SUPERVISORY BOARD MEMBERS
The Sharia‟a Supervisory Board (SSB) members are as follows:
• Dr. Abdul Sattar Abu Ghuddah – Chairman
• Shaykh Nizam Yacouby – Deputy Chairman
• Dr. Aznan bin Hasan*
* appointed 1 January 2013
ZAKAH
Zakah is an annual amount to be paid by Muslims to charity out of their savings. The Directors calculate that the Zakah
contribution payable by shareholders on their share of the Bank‟s earnings is 0.165p per share or £1.65 per thousand
shares held based on the net assets method as detailed in the Accounting, Auditing and Governance Standards 20045 of the Accounting and Auditing Organisation for Islamic Financial Institutions.
19
European Islamic Investment Bank plc
POLITICAL CONTRIBUTIONS AND CHARITABLE DONATIONS
The Bank made no political contributions or charitable donations during the year.
PRINCIPAL RISKS AND UNCERTAINTIES
Refer to the Strategic Report
FINANCIAL INSTRUMENTS
Refer to the Strategic Report
EVENTS SINCE THE BALANCE SHEET DATE
The Directors confirm there are no significant events arising since the balance sheet date that should be reported to
shareholders other than those disclosed on page 96.
GOING CONCERN
In approving the financial statements the Directors have reviewed the current and potential future business activities
and financial position of the Bank, including an assessment of the capital adequacy and liquidity forecasts. Based upon
this they are satisfied that the Bank has adequate resources to continue in business for the foreseeable future. For this
reason the Directors continue to adopt the going concern basis in preparing the financial statements.
AUDITORS
The Directors who held office at the date of approval of this Directors‟ report confirm that so far as they are each aware
there is no relevant audit information of which the Bank‟s auditors are unaware, and each Director has taken all steps
that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that
the Bank‟s auditors are aware of that information.
20
European Islamic Investment Bank plc
CORPORATE GOVERNANCE
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
The Board considers that good corporate governance is central to achieving the Bank‟s objectives and has applied
these principles in drawing up the Bank‟s risk management framework taking into consideration The UK Corporate
Governance Code June 2010 published by the Financial Reporting Council (“The Code”).
THE BOARD AND ITS COMMITTEES
The Bank is led by a Board comprising Non-Executive and Executive Directors with significant experience in financial
services and deep relationships in the MENA region. The appointment of Directors is considered by the Nomination
and Remuneration Committee and then the Board. Following the provisions in the Articles of Association, all NonExecutive Directors must stand for re-election by the shareholders at the first Annual General Meeting following their
appointment and must also stand for re-election by the shareholders, at least every three years. Executive Directors
normally retire at age 65, as required by their service agreements. Non-Executive Directors are appointed for threeyear renewable terms, which may be terminated by giving three months notice.
The Board is required to meet at least four times a year; in 2013 there were six Board meetings. The Board has a
programme designed to enable the Directors to review corporate strategy and the operations and results of the
business and to discharge their duties within a framework of prudent and effective controls relating to the assessment
and management of risk.
The matters specifically referred to the Board for decision include the approval of the annual report and financial
statements; the payment of dividends; the long-term objectives of the Bank; the strategies necessary to achieve these
objectives; the Bank‟s budgets and plans; significant credit exposures; significant capital expenditure items; significant
investments and disposals; the organisational structure of the Bank; the arrangements for ensuring that the Bank
manages risk effectively; any significant change in accounting policies or practices; the appointment of the Bank‟s main
professional advisers; and the appointment of senior executives within the organisation.
The Board has delegated to the Committees of the Bank the power to make decisions on operational matters, including
those relating to credit, liquidity, operational and market risk, within an agreed framework.
All Directors have access to the services of the Company Secretary, and independent professional advice is available
to the Directors at the Bank‟s expense, where they judge it necessary to discharge their duties as Directors.
The Board reviews and approves its composition and charter in order to set the risk management framework of the
Bank at least annually. To assist the Board in executing its functions, it reviews and approves the composition and
charters of the following Board sub-committees:
AUDIT COMMITTEE
John Wright assumed the chairmanship of the Audit Committee on 7 September 2012. The Audit Committee
comprises John Wright (Chairman) and Mohammed Al Sarhan. In discharging its duties, the committee is required to
review the auditors‟ remuneration and, in discussion with them, to assess their independence and recommend their reappointment at the Annual General Meeting. The committee also reviews the financial statements published in the
name of the Board and the quality and acceptability of the related accounting policies, practices and financial reporting
disclosures; the scope of work of the internal auditor, reports from the internal auditor and the adequacy of their
resources; the effectiveness of the systems for internal control, risk management and compliance with financial
services legislation and regulations; procedures by which staff may raise concerns in confidence; and the results of the
external audit and reports from the external auditor and their findings on accounting and internal control systems.
21
European Islamic Investment Bank plc
NOMINATION AND RENUMERATION COMMITTEE
The Nomination and Remuneration Committee, which comprises Mohammed Al Sarhan (Chairman) and Abdallah AlMouallimi, reviews the composition of the Board, taking into account the skills, knowledge and experience of Directors
and considers and makes recommendations to the Board on potential candidates for appointment as Directors. The
committee also makes recommendations to the Board concerning the re-appointment of any Non-Executive Director by
the Board at the conclusion of his or her specified term; the re-election of any Director by the shareholders under the
retirement provisions of the Articles of Association; any matters relating to the continuation in office of a Director; and
the appointment of any Director to executive or other office.
The Nomination and Remuneration Committee evaluates, normally the performance of the Board and its committees
and makes appropriate recommendations to the Board. This is conducted through a self-assessment process that
requires each Director to assess and rate the performance of the Board and its committees. The results of the exercise
are considered by the Board and appropriate steps agreed and implemented to remedy any areas of deficiency or
concern.
The Nomination and Remuneration Committee reviews the remuneration policy for senior management, to ensure that
members of the executive are provided with appropriate incentives to encourage them to enhance the performance of
the Bank and that they are rewarded for their individual contribution to the success of the organisation. It is also made
aware of, and advises on, major changes to employee benefits schemes.
BOARD RISK COMMITTEE
The Board Risk Committee comprises Abdallah Al-Mouallimi (Chairman), Martin Barrow and Zulfi Caar Hydari. The
Board Risk Committee assists the Board in fulfilling its investment risk management responsibilities; these
responsibilities include determining the Bank‟s risk profile and ensuring that management remains within the Board‟s
predetermined risk appetite. Meetings are held at least quarterly and include the Chief Executive Officer and senior
finance and risk management by standing invitation. The terms of reference include reviewing capital adequacy,
liquidity, credit risk, market risk, operational risk and approvals under the Board‟s delegated authority.
EXECUTIVE MANAGEMENT COMMITTEE
The Bank has an Executive Management Committee to assist the Chief Executive Officer in performing his duties. The
Executive Management Committee membership comprises the Chief Executive Officer and senior management from
finance, risk, treasury, principal investments, investment banking, legal, compliance and HR. Specifically, the
committee considers the development and implementation of strategy, operational plans, policies and budgets; the
monitoring of operating and financial performance; the assessment and control of risk; the prioritisation and allocation
of resources; human resources; and the monitoring of competitive forces in each area of operation. The committee,
assisted by its sub-committees (risk management, IT and asset and liability committees) also supports the Chief
Executive Officer in ensuring the development, implementation and effectiveness of the Bank‟s risk management
framework and the clear articulation of the Bank‟s risk policies, and in reviewing the Bank‟s aggregate risk exposures
and concentrations of risk. The committee may have specific powers delegated to it by the Board from time to time
and, following the exercise of these powers, it reports to the Board.
22
European Islamic Investment Bank plc
MEETINGS AND ATTENDANCE
Main
Board
Audit
Committee
Nomination and
Remuneration
Committee*
Board Risk
Committee
No. of meetings in year
Abdallah Yahya Al-Mouallimi
Aabed Al Zeera**
Mohammed Al Sarhan
Michael Willingham-Toxvaerd
John Robertson Wright
Zulfi Caar Hydari
Keith McLeod***
Martin Gilbert Barrow
6
3
6
4
6
6
1
4
1
4
4
4
-
5
1
5
5
-
4
2
4
1
2
Total number of meetings held
6
4
5
4
* Remuneration Committee and Nomination Committee were merged on 12 March 2012
** Aabed Al Zeera‟s engagement terminated on 27 November 2013
***Keith McLeod resigned from the Board on 28 May 2013
SHAREHOLDERS
The Board has appointed Mohammed Al Sarhan as the Senior Independent Director. He is available to shareholders if
they have concerns which contact through the normal channels of Chairman or Chief Executive Officer has failed to
resolve or for which such contact is inappropriate. The Board ensures the Directors develop an understanding of the
views of major shareholders by encouraging them to meet major shareholders and attend shareholder meetings;
making them aware of views and feedback received from shareholders; and providing them with analysts‟ and brokers‟
briefings on the Bank.
23
European Islamic Investment Bank plc
STATEMENT OF DIRECTORS‟ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT
AND THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and the Group and Parent company financial statements
in accordance with applicable laws and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year.
As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial
statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent
company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and Parent company and of their profit or loss for that period. In
preparing each of the Group and Parent company financial statements, the directors are required to:




select suitable accounting policies and then apply them consistently;
make judgments and estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
group and the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Parent company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent
company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and
to prevent and detect fraud and other irregularities.
By order of the Board,
Zulfi Caar Hydari
Chief Executive Officer,
2 May 2014
Registered Office:
Milton Gate
60 Chiswell Street
London EC1Y 4SA
24
European Islamic Investment Bank plc
REPORT OF THE SHARIA‟A SUPERVISORY BOARD
In the name of Allah, The Beneficent, The Merciful
To the Shareholders of European Islamic Investment Bank plc (“EIIB”)
For the period 1 January 2013 to 31 December 2013 (the “Period”)
Assalamu Alaikum Wa Rahmat Allah Wa Barakatuh
In compliance with our letters of appointment with EIIB, we are required to submit this report.
We have reviewed the principles and the contracts relating to a sample of transactions conducted by EIIB during the
Period. We have conducted our review to form an opinion as to whether EIIB has complied, during the Period, with
Sharia‟a rules and principles and also with the specific fatwas, rulings and guidelines issued by us.
EIIB‟s management is responsible for ensuring that EIIB conducts its business in accordance with Sharia‟a rules and
principles. It is our responsibility to form an independent opinion, based on our review of the operations of EIIB in the
Period, and to report to you.
We conducted our review which included examining, on a test basis, each type of transaction, the relevant
documentation and procedures adopted by EIIB for the transaction during the Period. Based on this we are of the
opinion that the contracts, transactions and dealings entered into by EIIB during the Period that were reviewed are in
compliance with Sharia‟a rules and principles.
We beg Allah the Almighty to grant us all success and straight-forwardness.
Wassalam Alaikum Wa Rahmat Allah Wa Barakatuh
24 April 2014
Signed on behalf of the Sharia‟a Supervisory Board of European Islamic Investment Bank plc.
_______________________
Dr. Abdul Sattar Abu Ghuddah
(Chairman)
_______________________
Sh. Nizam Yacouby
(Deputy Chairman)
______________________
Dr. Aznan Hasan
(Member)
25
European Islamic Investment Bank plc
INDEPENDENT AUDITOR‟S REPORT TO THE MEMBERS OF EUROPEAN ISLAMIC
INVESTMENT BANK PLC
We have audited the financial statements of European Islamic Investment Bank plc for the year ended 31 December 2013 which
comprise the consolidated and company statement of financial position, the consolidated statement of income, the consolidated and
company statement of cash flows, the consolidated and company statement of changes in equity and the related notes. The
financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the company‟s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company‟s members those matters we are required to
state to them in an auditor‟s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company‟s members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the statement of directors‟ responsibilities, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Financial Reporting Council‟s (FRC‟s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of
www.frc.org.uk/auditscopeukprivate.
an
audit
of
financial
statements
is
provided
on
the
FRC‟s
website
at
Opinion on financial statements
In our opinion:




the financial statements give a true and fair view of the state of the group‟s and the parent company‟s affairs as at 31 December
2013 and of the group‟s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the strategic report and directors‟ report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or

the parent company financial statements are not in agreement with the accounting records and returns; or

certain disclosures of directors‟ remuneration specified by law are not made; or

we have not received all the information and explanations we require for our audit.
Neil Griggs (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
United Kingdom
2 May 2014
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)
26
European Islamic Investment Bank plc
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2013
2013
£
2012
£
2,491,520
(206,830)
2,284,690
2,519,480
(340,632)
2,178,848
3,154,350
1,190,493
2,480,687
324,953
746,079
10,181,252
2,683,401
1,636,890
(3,094,754)
227,589
267,727
3,899,701
202,831
(5,780,633)
(187,100)
(2,921,197)
(10,379)
1,484,774
(262,624)
1,222,150
(4,270,712)
(5,718,129)
(266,742)
(3,707,462)
(14,170)
(10,077,514)
200,106
(9,877,408)
(1,249,584)
(1,143,511)
(27,434)
(11,020,919)
137,575
(165,009)
(27,434)
(10,086,141)
(934,778)
(11,020,919)
0.01p
0.01p
(0.57p)
(0.54p)
Notes
Income
Income from financing and investing activities
Returns to financial institutions and customers
Net income
4
5
Net fees and commission income
Income on financial assets
Income/(loss) on private equity investments designated at fair value
Income on investment property designated at fair value
Other operating income
Total operating income
Expenses
Credit/(provision) on impairment of financing arrangements
Staff costs
Depreciation and amortisation
Other operating expenses
Third party interest in consolidated funds
Operating income/(loss) before tax
Tax (charge)/credit
Income/(loss) from continued operations
Loss from discontinued operations
6
7
8
9
23,24
10
11
12
20
Loss for the year
Income/(loss) attributable to:
Equity holders of the Bank
Non-controlling interest
39
Earnings per share
- basic
- diluted
13
13
The notes on pages 35 to 96 form an integral part of the financial statements.
27
European Islamic Investment Bank plc
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2013
2013
£
2012
£
(27,434)
(11,020,919)
(383,595)
(413,904)
(824,933)
816,761
(200,106)
(10,404,264)
(561,830)
(263,103)
(824,933)
(9,469,486)
(934,778)
(10,404,264)
Notes
Loss for the year
Other comprehensive income
Net change in fair value of available-for-sale securities
Foreign exchange loss on net investment in foreign operations
Tax charge
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Equity holders of the Bank
Non-controlling interest
12
The notes on pages 35 to 96 form an integral part of the financial statements.
28
European Islamic Investment Bank plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2013
2013
£
2012
£
9,488,406
40,244,300
27,266,475
26,457,774
11,450,067
15,864,665
1,377,797
910,109
1,742,156
10,165,750
4,368,976
193,589
13,409
4,060,019
153,603,492
13,624,694
62,547,116
24,633,472
33,989,114
13,315,897
797,669
5,821,454
1,738,458
11,546,400
331,227
27,471
3,322,473
171,695,445
13,000,806
2,819
848,866
26,731,508
95,637
39,309
3,144,191
28
6,274,656
6,499,725
26,626,872
8,921,872
3,831,361
42,763,878
29
19,720,892
101,815,459
599,040
(2,117,015)
20,000,000
219,111
(315,810)
(16,987,349)
122,934,328
17,790,994
96,569,263
599,040
(2,117,015)
20,000,000
602,706
(10,814)
(13,673,201)
119,760,973
4,042,292
126,976,620
9,170,594
128,931,567
153,603,492
171,695,445
Notes
Assets
Cash and balances with banks
Due from financial institutions
Financial assets designated at fair value
Available-for-sale securities - sukuk
Financing arrangements
Private equity assets designated at fair value
Fair value of foreign exchange agreements
Assets held for sale
Investment properties
Goodwill
Operating lease assets held for sale
Property, plant and equipment
Intangible assets
Other assets
Total assets
14
15
16
17
18
19
20
22
38.3
21
23
24
25
Liabilities
Due to financial institutions
Due to customers
Fair value of foreign exchange agreements
Liabilities held for sale
Other liabilities
Third party interest in consolidated funds
Total liabilities
26
27
19
20
Shareholders' equity
Share capital
Share premium account
Capital redemption reserve
Treasury shares
Special reserve
Fair value reserve on available-for-sale securities
Share based payment reserve
Foreign exchange reserve
Accumulated losses
Total equity attributable to the Bank's equity
holders
29
29
30
31
39
Non-controlling interest
Total equity
Total equity and liabilities
Abdallah Y. Al-Mouallimi, Chairman
Zulfi Caar Hydari, Chief Executive Officer
2 May 2014
The notes on pages 35 to 96 form an integral part of the financial statements.
29
European Islamic Investment Bank plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013
Balance at 1 January 2012
New shares issued
Cost of share based payment arrangements
Share premium transfer
Transfer relating to share based payments
NCI arising on business acquisition
Share
capital
£
Share
premium
account
£
Capital
redemption
reserve
£
Treasury
shares
£
17,656,585
134,409
17,790,994
116,219,800
349,463
(20,000,000)
96,569,263
599,040
599,040
(2,117,015)
(2,117,015)
Special
reserve
£
Share
based
payment
reserve
£
Fair value
reserve
on AFS
securities
£
Foreign
exchange
reserve
£
Accumulated
losses
£
Non
controlling
interest
£
Total equity
– Group
£
20,000,000
20,000,000
376,138
87,998
(464,136)
-
(13,949)
(13,949)
(10,814)
(10,814)
(4,051,196)
464,136
(3,587,060)
1,680,165
9,946,081
11,626,246
130,349,568
483,872
87,998
9,935,267
140,856,705
816,761
(200,106)
616,655
-
( 10,086,141)
(10,086,141)
(934,778)
(1,520,874)
(2,455,652)
816,761
(200,106)
(11,020,919)
(1,520,874)
(11,925,138)
Net change in fair value of available-for-sale
securities
Tax
Loss for the year
Distributions
Total comprehensive income
Balance at 31 December 2012
17,790,994
96,569,263
599,040
(2,117,015)
20,000,000
-
602,706
(10,814)
(13,673,201)
9,170,594
128,931,567
Balance at 1 January 2013
New shares issued
Acquisition of NCI
Adjustment on premium paid over acquisition of
non-controlling interest
Capital distribution by Rasmala subsidiaries
Reallocation of NCI (note 38.3)
Other
17,790,994
1,929,898
-
96,569,263
5,246,196
-
599,040
-
(2,117,015)
-
20,000,000
-
-
602,706
-
(10,814)
-
(13,673,201)
-
9,170,594
(2,561,405)
128,931,567
7,176,094
(2,561,405)
19,720,892
101,815,459
599,040
(2,117,015)
20,000,000
-
602,706
10,814
-
(3,451,723)
(17,124,924)
(1,086,807)
(1,216,987)
4,305,395
(3,451,723)
(1,086,807)
(1,216,987)
10,814
127,801,553
(383,595)
-
-
-
(383,595)
(383,595)
(315,810)
(315,810)
137,575
137,575
(98,094)
(165,009)
(263,103)
(413,904)
(27,434)
(824,933)
219,111
(315,810)
(16,987,349)
4,042,292
126,976,620
Net change in fair value of available-for-sale
securities
Foreign exchange loss on conversion of foreign
operations
Loss for the year
Distributions
Total comprehensive income
Balance at 31 December 2013
19,720,892
101,815,459
599,040
(2,117,015)
30
20,000,000
-
European Islamic Investment Bank plc
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER
2013
2013
£
2012
£
1,484,774
(1,249,584)
(10,077,514)
(1,143,511)
(202,830)
(2,480,687)
(840,956)
187,100
28,212
(177,000)
-
4,270,712
3,094,754
(693,042)
266,742
87,998
22,505,646
(6,466,921)
(11,450,067)
9,434,349
2,388,270
(68,081)
173,302
(6,216,839)
29,319,786
(21,181,336)
(6,487,420)
(207,851)
(1,738,458)
(12,615,263)
(13,730,702)
(95,637)
6,005,586
11,508,366
(4,364)
5,185,607
(772,065)
(9,011,800)
(9,426,594)
(4,368,976)
(1,600,000)
(63,612)
(6,032,588)
(469,291)
(469,291)
2,668,365
2,668,365
9,946,081
(1,520,874)
3,831,362
12,256,569
Net (decrease)/increase in cash and cash equivalents
(4,136,288)
2,360,684
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
13,624,694
9,488,406
11,264,010
13,624,694
Cash flows from operating activities
Operating loss
Operating loss on discontinued operations
Adjusted for:
Net provision for impairment of financing arrangements
(Gain)/loss on private equity investments designated at fair value
Gain on investment in funds and sukuk designated at fair value
Depreciation and amortisation
Loss on disposal of plant & equipment
Fair value gain on investment property
Charges for share awards
Net (increase)/decrease in operating assets:
Due from financial institutions
Quoted equity investments designated at fair value
Financing arrangements
Sukuk
Investment in funds designated at fair value
Private equity financial assets designated at fair value
Investment property
Other assets
Net increase/(decrease) in operating liabilities:
Due to financial institutions
Due to customers
Other liabilities
Taxation:
Corporation tax settled
Net cash outflow from operating activities
Cash flows from investing activities
Purchase of Operating lease assets
Payment on acquisition of a subsidiary (cash consideration)
Purchase of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Capital from minority shareholders on acquisition
Payments to minority shareholders
Net subscriptions to consolidated funds
Net cash inflow from financing activities
The notes on pages 35 to 96 form an integral part of the financial statements.
31
European Islamic Investment Bank plc
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2013
2013
£
2012
£
3,330,188
38,001,173
26,457,774
18,776,878
4,543,467
11,450,067
1,377,797
66,378,641
28,390
13,409
567,168
170,924,952
4,037,638
62,547,116
33,989,114
17,400,705
797,669
60,903,627
60,965
27,471
1,665,526
181,429,831
4,279,725
38,231,018
2,819
2,025,339
44,538,901
13,618,944
95,637
42,150,959
39,309
5,753,195
61,658,044
19,720,892
101,815,459
599,040
(2,117,015)
20,000,000
219,111
(13,851,436)
126,386,051
17,790,994
96,569,263
599,040
(2,117,015)
20,000,000
602,706
(13,673,201)
119,771,787
170,924,952
181,429,831
Notes
Assets
Cash and balances with banks
Due from financial institutions
Available-for-sale securities - sukuk
Financial assets designated at fair value
Financial assets held for sale
Financing arrangements
Fair value of foreign exchange agreements
Investments in subsidiaries
Property, plant and equipment
Intangible assets
Other assets
Total assets
14
16
15
21
17
19
38
23
24
25
Liabilities
Due to financial institutions
Due to customers
Due to group entities
Fair value of foreign exchange agreements
Other liabilities
Total liabilities
26
27
40.3
19
28
Shareholders' equity
Share capital
Share premium account
Capital redemption reserve
Treasury shares
Special reserve
Fair value reserve on available-for-sale securities
Share based payment reserve
Accumulated losses
Total equity attributable to the Bank's equity holders
29
29
29
30
31
Total equity and liabilities
Abdallah Y. Al-Mouallimi, Chairman
2 May 2014
Zulfi Caar Hydari, Chief Executive Officer
The notes on pages 35 to 96 form an integral part of the financial statements.
32
European Islamic Investment Bank plc
COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013
Balance at 1 January 2012
Cost of share based payment arrangements
New shares issued
Share premium transfer
Transfer relating to share based payments
Share
capital
£
Share
premium
account
£
Capital
redemption
reserve
£
Treasury
shares
£
17,656,585
134,409
17,790,994
116,219,800
349,463
(20,000,000)
96,569,263
599,040
599,040
(2,117,015)
(2,117,015)
Special
Reserve
£
Share
based
payment
reserve
£
Fair value
reserve
on AFS
securities
£
Accumulated
losses
£
Total
Equity –
Company
£
20,000,000
20,000,000
376,138
87,998
(464,136)
-
(13,949)
(13,949)
(4,051,196)
464,136
(3,587,060)
128,669,403
87,998
483,872
129,241,273
816,761
(200,106)
616,655
(10,086,141)
(10,086,141)
816,761
(200,106)
(10,086,141)
(9,469,486)
Net change in fair value of available-for-sale securities
Tax
Loss for the year
Total comprehensive income
Balance at 31 December 2012
17,790,994
96,569,263
599,040
(2,117,015)
20,000,000
-
602,706
(13,673,201)
119,771,787
Balance at 1 January 2013
New shares issued
17,790,994
1,929,898
19,720,892
96,569,263
5,246,196
101,815,459
599,040
599,040
(2,117,015)
(2,117,015)
20,000,000
20,000,000
-
602,706
602,706
(13,673,201)
(13,673,201)
119,771,787
7,176,094
126,947,881
(383,595)
(383,595)
(178,235)
(178,235)
(383,595)
(178,235)
(561,830)
219,111
(13,851,436)
126,386,051
Net change in fair value of available-for-sale securities
Tax
Loss for the year
Total comprehensive income
Balance at 31 December 2013
19,720,892
101,815,459
599,040
(2,117,015)
33
20,000,000
-
European Islamic Investment Bank plc
COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013
2013
£
2012
£
(178,235)
(10,086,141)
(875,875)
(202,830)
(661,846)
48,526
-
4,442,936
4,270,712
(716,954)
72,802
87,998
24,748,772
(11,450,067)
7,147,746
(5,257,795)
381,087
29,319,786
(3,928,434)
(16,683,750)
2,660,078
(13,219,434)
(39,726)
(95,637)
549,753
894,439
2,276,017
(5,018,342)
(4,364)
(913,386)
5,778,958
(1,600,000)
(1,889)
(1,601,889)
(10,310,275)
7,193,848
(5,090)
(3,121,517)
-
-
Net (decrease)/increase in cash and cash equivalents
(707,450)
2,657,441
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
4,037,638
3,330,188
1,380,197
4,037,638
Cash flows from operating activities
Operating loss
Adjusted for:
Fair value (gain)/loss on subsidiary investments
Net provision for impairment of financing arrangements
Gain on investment in funds
Depreciation and amortisation
Charges for share awards
Net (increase)/decrease in operating assets:
Due from financial institutions
Quoted equity investments designated at fair value
Financing arrangements
Available-for-sale securities - sukuk
Investment in funds designated at fair value
Other assets
Net increase/(decrease) in operating liabilities:
Due to financial institutions
Due to group entities
Due to customers
Other liabilities
Net cash inflow from operating activities
Cash flows from investing activities
Payment on acquisition of a subsidiary (cash consideration)
Repayment of a loan by subsidiary
Purchase of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Net cash outflow from financing activities
The notes on pages 35 to 96Error! Bookmark not defined. form an integral part of the financial statements.
34
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
1
Principal activities, definitions and authorisation of the financial statements
European Islamic Investment Bank plc („EIIB‟ or „Bank‟ or „Company‟) is a London listed specialist investment banking
and asset management group focused on the oil rich markets of the Gulf Cooperation Council (GCC) countries. The
Bank‟s primary focus is to provide investment management and financing solutions to pension funds, family groups,
corporations and financial and government institutions.
The Bank is a company incorporated in the United Kingdom which was established on 11 January 2005 and received
authorisation from the FSA on 8 March 2006 to carry on activities as an investment bank. The Bank is authorised by
the Prudential Regulatory Authority and the Financial Conduct Authority in the United Kingdom.
The consolidated financial statements of the Bank as at and for the year ended 31 December 2013 comprise the Bank
and its subsidiaries (together referred to as the „Group‟ and individually as ‟Group entities‟).
The following terms are used in the financial statements:
Murabaha (notes 14 and 26) is a sale of goods at a cost plus an agreed profit mark up under which a party (the seller)
purchases goods at cost price from a supplier and sells the goods to another (the buyer) at a cost plus an agreed mark
up. Commodity murabaha, whereby commodities are bought and sold are a common form of Islamic financing
transaction.
Sukuk (note 16) are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct
and services or (in the ownership of) the assets of particular projects or special investment activities. Sukuk are usually
tradable and yield periodic profit distributions.
Wakala (notes 14, 26 and 27) means agency and can be used in an arrangement whereby one party (the principal)
places funds with another (the agent) for investment by the agent on the principal‟s behalf in return for an agreed fee or
commission.
The financial statements of European Islamic Investment Bank plc for the year ended 31 December 2013 were
authorised for issue by the Board of Directors on 30 April 2014.
2
2.1
Accounting policies
Basis of preparation
The financial statements have been prepared under the historical cost accounting convention except for financial
assets stated at their fair value comprising available-for-sale securities, financial assets designated at fair value and
fair value of foreign exchange agreements, investment properties, and assets and liabilities held for sale.
As permitted by section s.408 of the Companies Act 2006 the income statement of the parent entity is not presented as
part of the financial statements. The parent entity‟s loss after tax for the year ended 31 December 2013 was £178,235
(2012: loss £10,086,141).
2.2 Compliance with International Financial Reporting Standards
The consolidated financial statements and the financial statements of the Bank have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the European Union.
35
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
2.3 New accounting policy, disclosures and changes to the accounting policies
The accounting policies applied by the Group in these consolidated financial statements are the same as those applied
by the Group in its financial statements as at and for the year ended 31 December 2012.
2.4 Accounting for business combinations
The Group has adopted IFRS 3, Business Combinations and IFRS 10, Consolidated Financial Statements for
consolidation of Group entities.
Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The
acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the
acquisition date and determining whether control is transferred from one party to another.
The Group measures goodwill as the fair value of the consideration transferred, less the net recognised amount of the
identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
The Group measures non-controlling interest at its proportionate share of the recognised amount at fair value of the
identifiable net assets at the acquisition date.
2.5 Basis of consolidation
Subsidiaries
The consolidated financial statements of the Bank comprise the financial statements of the European Islamic
Investment Bank plc and the entities the Bank controls. Control exists where the Bank has the power to govern the
financial and operating policies of the entity so as to obtain benefits from its activities. Controlled entities are
consolidated from the date on which control is transferred to the Bank and they are deconsolidated from the date the
control ceases. All intra-group balances, transactions, income and expenses and profits and losses resulting from intragroup transactions are eliminated in full upon consolidation.
Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and
operating policies. Investments that are held as part of the Group's investment portfolio are carried in the balance sheet
at fair value even though the Group may have significant influence over those companies. This treatment is permitted
by IAS 28 Investment in Associates, which requires private equity type investments to be excluded from its scope
where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted
for in accordance with IAS 39. Changes in fair value of these investments are recognised in the income statement in
the period of the change. The Group has no interests in associates through which it carries on its business.
Assets under management
The Group manages assets held in Funds and other investment vehicles on behalf of investors. The financial
statements of these entities are not included in these consolidated financial statements unless these qualify as
subsidiaries or associates. Information about the Group‟s assets under management is set out in note 32.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from inter-company transactions, are
eliminated in preparing these consolidated financial statements. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence of impairment.
2.6 Determination and presentation of operating segments
The Group has adopted IFRS 8 Operating Segments as of 1 January 2009. This Standard requires the presentation of
36
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
financial information for segments based on information that is internally presented to the decision making function for
the purposes of resource allocation and performance assessment. An operating segment is a component of the Group
that engages in business activities from which it may earn revenues and incur expenses.
2.7 Presentation of financial statements
The Group has applied IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January
2009.
2.8 Disclosure pertaining to fair values and liquidity risk for financial instruments
The Group has applied Improving Disclosures about Financial Instruments (Amendments to IFRS 7) issued in March
2009, that require enhanced disclosures about fair value measurements and liquidity risk in respect of financial
instruments.
The amendments require that fair value measurement disclosures use a three-level fair value hierarchy that reflects the
significance of the inputs used in measuring fair values of financial instruments. Specific disclosures are required when
fair value measurements are categorised as Level 3 (significant unobservable inputs) in the fair value hierarchy. The
amendments require that any significant transfers between Level 1 and Level 2 of the fair value hierarchy be disclosed
separately, distinguishing between transfers into and out of each level. Furthermore, changes in valuation techniques
from one period to another, including the reasons therefore, are required to be disclosed for each class of financial
instruments.
Disclosures in respect of fair values of assets are included in note 41.
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another financial asset.
Disclosures in respect of liquidity risk are included in note 42.5
2.9 New standards and interpretations effective for the year
New standards and interpretations to existing standards which have been published by IASB and IFRIC which the
bank has adopted this year are:
IFRS 10
IFRS 11
IFRS 13
Consolidated Financial Statements
Joint Arrangements
Fair Value Measurement
These have not had any material impact on the business during the year.
2.10 Standards and interpretations issued but not yet effective
New standards, amendments and interpretations to existing standards which have been published by IASB and IFRIC
with an effective date after the date of these financial statements and, which the Bank has not early adopted, are as
follows:
Standards
Description
Effective *
IAS 36 (Amendment)
Non-Financial Assets
1 January 2014
IFRIC
Levies
1 January 2014
IFRS 12
Disclosure of Interests in Other Entities
1 January 2014
IFRS 9
Financial Instruments
1 January 2017 (provisionally)
37
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
The Group anticipates that the accounting pronouncements (not yet adopted by the EU), which have not been early
adopted will have no material effect on the financial statements except for IFRS 9 and 12. The Group is currently in the
process of evaluating the potential effect of these standards.
*for financial periods starting on or after this date
2.11 Significant accounting judgements and estimates
The preparation of these consolidated financial statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in any future periods affected. The most significant are
set out below.
2.11.1 Goodwill
The carrying value of goodwill is determined in accordance with IFRS 3 Business Combinations and IAS 36
Impairment of Assets. Goodwill arises on the acquisition of subsidiaries, associates and joint ventures, and represents
the excess of the fair value of the purchase consideration over the fair value of the Group‟s share of the assets
acquired and the liabilities and contingent liabilities assumed on the date of the acquisition.
Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have
occurred. The test involves comparing the carrying value of goodwill with the present value of the pre-tax cash flows,
discounted at a rate of interest that reflects the inherent risks, of the cash generating unit to which the goodwill relates,
or the cash generating unit‟s fair value if this is higher. Please see note 2.11.4 for further details.
2.11.2 Fair value of financial instruments
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing
parties in an arm's length transaction on the measurement date.
When available, the Group measures the fair value of an instrument using quoted prices in an active market for that
instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and
regularly occurring market transactions on an arm's length basis.
If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique.
Valuation techniques include using recent arm's length transactions between knowledgeable, willing parties (if
available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow
analysis and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as
little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in
setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to
valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the
financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from
observable current market transactions in the same instrument or based on other available observable
market data.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e., the fair
value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with
other observable current market transactions in the same instrument (i.e., without modification or repackaging) or
based on a valuation technique whose variables include only data from observable markets. When transaction price
provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the
transaction price and any difference between this price and the value initially obtained from a valuation model is
subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when
38
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
the valuation is supported wholly by observable market data or the transaction is closed out.
Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price.
Where the Group has positions with offsetting risks, mid-market prices are used to measure the offsetting risk
positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values
reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity
and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors,
such as liquidity risk or model uncertainties, to the extent that the Group believes a third-party market participant would
take them into account in pricing a transaction.
The Directors consider the fair value of the financial assets and liabilities held at amortised cost to be materially equal
to the carrying value of those assets and liabilities in the balance sheet as at 31 December 2013.
2.11.3 Provisions for impairment of financial assets
At each reporting date the Group assesses whether there is objective evidence that financial assets are impaired. A
financial asset or a group of financial assets is/are impaired when objective evidence demonstrates that a loss event
has occurred after the initial recognition of the asset/s, and that the loss event has an impact on the future cash flows
of the asset/s that can be estimated reliably.
Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or
issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group
would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an
active market for a security, or other observable data relating to a group of assets such as adverse changes in the
payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group.
In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is
objective evidence of impairment.
The Group considers evidence of impairment for assets carried at amortised cost at specific asset level. All individually
significant assets carried at amortised cost are assessed for specific impairment.
Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of
the financial asset and the present value of estimated future cash flows discounted at the asset's original effective
profit rate. Impairment losses are recognised in profit or loss and reflected in an allowance account. Profit on impaired
assets continues to be recognised through the unwinding of the discount. When a subsequent event causes the
amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that
has been recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative
loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition
cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously
recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component
of profit income.
If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can
be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment
loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the
fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. The Group
writes off certain investment securities when they are determined to be uncollectible.
2.11.4 Impairment of other non-financial assets
The carrying amounts of the Group's non-financial assets are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated.
For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable
amount is estimated each year at the same time.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less
39
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of
other assets or groups of assets (the "cash-generating unit" or "CGU"). Subject to an operating segment ceiling test,
for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so the
the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting
purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit
from the synergies of the combination.
The Group's corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset
may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognised if the carrying amount of an asset or a CGU exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first
to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the
other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed.
In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
2.11.5 Income tax
The Group is subject to direct and indirect taxation in a number of jurisdictions in which it operates. Some transactions
and calculations for which a tax charge or asset is computed have an inherent uncertainty given the judgements
involved. The Group objectively estimates these amounts and any difference in the final determination will impact the
period in which such determination is made.
2.12 Other significant accounting policies
2.12.1 Foreign currency
The financial statements are presented in Sterling, which is the Bank‟s functional and presentation currency.
Transactions in foreign currencies are initially recorded at the rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated into the functional currency at the
rate of exchange ruling at the balance sheet date. Non-monetary assets and liabilities are translated into Sterling at the
effective historical rate used on the date of initial recognition. All differences are taken to the income statement.
2.12.2 Revenue recognition
(a)
Net Margin
Sukuk, murabaha and wakala income and expense
Sukuk, murabaha and wakala are Islamic financing transactions. Sukuk are certificates of equal value
representing undivided shares in ownership of tangible assets, usufruct and services or (in the ownership of) the
assets of particular projects or special investment activities. Murabaha is a contract for sale or purchase of goods
where there is an agreed mark-up and deferred settlement. Wakala derives income and expense in the form of
agency fee or commission. Income and expense for these arrangements are recognised on an effective yield
basis over the periods of the contracts. The calculation of income and expense include any fees and incremental
costs that are directly attributable to the financial instrument and are an integral part of the purchase or sale.
40
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
(b)
Net fees and commission income
(i) Investment management fees, performance fees, brokerage fees, placement fees and other advisory fees are
recognised on accrual basis, when the related services are performed and when it is probable that the economic
benefit will flow to the Bank
(ii) Fees and commissions which are not recognised on an effective yield basis over the life of the financial
instrument to which they relate, such as fees for negotiating transactions for third parties and underwriting fees
and commission, are recognised in revenue when it is probable that the economic benefit will flow to the Bank.
This will normally be from the point at which the act to which the fees and commissions relate has been
completed.
(c)
Net fees and commission income
Trading income
Trading income consists of realised profits and losses on sukuk and equity available-for-sale securities.
Dividend income
Dividend income is recognised when the right to receive income is established. Dividends are reflected as a
component of net investment income, net income on other financial instruments at fair value or other operating
income, based on the underlying classification of the equity instrument
2.12.3 Cash and cash equivalents
The captions Cash and cash equivalents and Cash and balances with banks represent cash and current account
balances with banks and clearing exchanges.
2.12.4 Financial instruments
(a) Recognition of financial instruments
Financial instruments are recognised in the balance sheet on the trade date, that is, the date on which the Bank
commits to buy or sell the financial instrument. All financial instruments are recognised initially at fair value. In the case
of financial instruments not recognised at fair value through the income statement, that value will include direct costs of
acquisition or issue. For financial instruments carried at fair value through the income statement, transaction costs are
expensed immediately.
(b)
Due from financial institutions, Financing arrangements, Due to financial institutions, Due to group
entities and Due to customers
Financial assets included within Due from financial institutions and Financing arrangements, as well as financial
liabilities included within Due to financial institutions, Due to group entities and Due to customers comprise nonderivative financial assets with fixed or determinable repayments that are not quoted in an active market. They are not
entered into with the intention of immediate or short-term resale and are not designed as „available-for-sale securities‟
or „financial assets designated at fair value‟. Financial assets included under these captions are initially recognised at
fair value plus any directly related transaction costs. They are subsequently measured at amortised cost less any
impairment losses. Amortised cost is calculated by taking into account any discount or premium on acquisition and
fees and costs that are an integral part of the effective rate of return. The amortisation is included in Income from
financing and investing activities and Returns to financial institutions and customers in the income statement.
At each reporting date the Bank reviews the carrying values of its financial assets; a financial asset is considered to be
impaired if there is objective evidence of events since initial recognition of the asset that will adversely affect the
amount or timing of future cash flows from the asset. The amount of the impairment loss will be the difference between
the carrying value of the financial asset and the present value of the estimated future cash flows. The amount of the
impairment loss will be recognised in the income statement, and the carrying value of the financial asset will be written
down and the impairment loss allowance will be recognised in a reserve for that purpose. Where subsequent events
indicate that the impairment loss allowance is not required, or not required in full, the loss allowance made will be
reversed.
41
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
(c) Available-for-sale securities
Available-for-sale („AFS‟) securities are investments that are designated as available-for-sale or are not classified as
another category of financial assets. These include sukuk and quoted equity.
AFS securities are recognised at cost at the point of acquisition or at fair value which is considered cost for assets
transferred from other IAS 39 classifications. Cost on acquisition is considered as the fair value of the investment
including any acquisition charges. AFS securities are then carried in the balance sheet at fair value. Income accruals
on AFS securities are recognised in the income statement. Changes in the fair value are recognised directly in equity in
the Fair value reserve in the accounting period in which they arise. Where the value of a security is considered to be
impaired, the losses are recognised in the income statement; otherwise, the gains and losses previously recognised in
equity are recognised through the income statement when the investment matures or is sold; these are included under
Trading income. Fair value gains and losses are recognised in equity net of any tax effect.
(d) Financial assets designated at fair value
Quoted equity investments, investment in funds and private equity investments that are managed and evaluated on a
fair value basis in accordance with an agreed investment strategy and reported to key personnel on that basis are
classified under this category. These assets are recognised initially at fair value and subsequent gains and losses
arising from changes in the fair value are recognised directly in the income statement.
Financial assets classified in this category are designated by management on initial recognition given that the financial
assets are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk
management or investment strategy.
(e) Foreign exchange commitments
The valuation of forward foreign exchange commitments held at fair value through the income statement is recognised
in the balance sheet under Fair value of foreign exchange agreements on either the asset or liability side of the
balance sheet dependent on whether the valuation is positive or negative respectively. Revaluation gains and losses
are included in the income statement under Foreign exchange gains and losses.
2.12.5 Investments in subsidiaries in Parent‟s books
The Bank‟s investments in subsidiaries are designated for recognition and measurement in the financial statements as
„fair value through income statement‟. Accordingly these assets are fair valued using suitable valuation techniques and
the gain or loss is included in the income statement of the parent entity.
2.12.6 Investment property
Investment properties are held either to earn rental income, for capital appreciation or for both. Investment properties
are measured at fair value with any change therein recognised in the consolidated statement of income.
Fair value measurement
The determination of fair values of investment properties are based on valuation by an independent professional
valuer. The fair value of investment reflects the current prices for similar property in the same location and condition.
When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date of
reclassification becomes its cost for subsequent accounting.
2.12.7 Property, plant and equipment
Plant and equipment is stated at cost less accumulated depreciation and impairment losses if any. Depreciation is
provided on a straight line basis over estimated useful lives as follows:
Leasehold improvements
Motor vehicles
Fixtures, fittings and office equipment
42
5 years
4 years
3 - 5 years
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Computer hardware
Buildings
3 years
40 years
2.12.8 Intangible assets
Intangible assets consist of computer licences and software development costs including capitalised staff costs.
Intangible assets are stated at cost less accumulated amortisation and impairment losses if any. Amortisation is
provided on a straight line basis over a current estimated useful life of five years.
2.12.9 Operating leases
Operating lease rentals are charged to the income statement on a straight line basis over the period of the lease.
2.12.10 Pension cost
The Bank operates a defined contribution pension scheme for all staff. The cost of the scheme is equal to the
contributions payable to the scheme for the accounting period and is recognised within Staff costs in the income
statement. The Bank has no further obligation once the contributions have been paid.
2.12.11 Share-based payments
EIIB engaged in equity settled share based transactions in respect of services received from certain of its employees.
The fair value of the services received is measured by reference to the fair value of the shares or the share options
granted on the date of the grant. The cost of the employee services received in respect of the shares or share options
granted is recognised in the income statement with the corresponding credit to the „share based payment reserve‟ over
the period that the services are received, which is the vesting period.
Employee share incentive plan 2010 (2010 ESIP)
The value of options granted under this scheme were determined using option pricing models, which takes into
account the exercise price of the option, the current share price, the risk free rate of return, the expected volatility of the
share price over the life of the option and other relevant factors.
2.12.12 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement
except to the extent that it relates to items recognised directly in shareholders‟ equity, in which case it is recognised in
shareholders‟ equity.
(a) Current tax
Current tax is provided on taxable profits at the current rate.
(b) Deferred tax
Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in the
balance sheet and the amount attributed to such assets and liabilities for tax purposes. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that
future taxable profits will be available against which deductible temporary differences can be utilised.
2.13 Assets and liabilities held for sale
Assets and liabilities held for sale comprises assets and liabilities that are classified as held-for-sale or the distribution
of such is highly probable such that they will be recovered primarily through sale or distribution rather than through
continuing use.
Immediately before classification as held-for-sale or held-for-distribution, the assets, or components of a disposal
group, are re-measured in accordance with the Group‟s other accounting policies. Thereafter, generally the assets are
measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal
43
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no
loss is allocated to financial assets, employee benefits assets or investment property, which continue to be measured
in accordance with the Group‟s other accounting policies. Impairment losses on re-measurement are recognised in
profit or loss. Gains are not recognised in excess of any cumulative impairment loss.
Once classified as held-for-sale or held-for-distribution, intangible assets, and property and equipment are no longer
amortised or depreciated, and any equity-accounted investee is no longer equity accounted.
2.14 Going concern
In approving the financial statements the Directors have reviewed the current and potential future business activities
and financial position of the Group, including an assessment of the capital adequacy and liquidity forecasts.
EIIB had total assets of £154m at 31 December 2013 (£172m at 31 December 2012). Regulatory capital resources of
the Group as at 31 December 2013 was £101m (£100m at 31 December 2012) and the total risk weighted assets was
£117m (£128m at 31 December 2012). The capital adequacy ratio as at 31 December 2013 stood at 86% (2012: 78%).
The balance sheet of EIIB remains highly liquid. As at 31 December 2013, the net cash excess (calculated as a
percentage of deposits) is +40% (31 December 2012: +49%) in the 8 days and under category, and +60% (31
December 2012: +60%) in the 1 month and under category, against minimum requirements of 0% and -5%
respectively.
Based upon the above, the Directors are satisfied that the Group has adequate resources to continue in business for
the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the
financial statements.
44
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
3
Segmental information
The Bank focuses on MENA markets and for 2013 centred on the following three core businesses:
(a) Investment Banking – encompassing provision of financing, debt capital market, structured debt finance,
investing in funds and Islamic products.
(b) Asset Management – investment management solutions encompassing equities, fixed income and real
estate; and business advisory services.
(c) Private Equity – includes a diversified portfolio of legacy assets
These core business lines were the Group‟s strategic business units („SBU‟). Each SBU offers different products and
services, and was managed separately based on the Group‟s management and internal reporting structure. SBU
activities are monitored by the Bank‟s management committees and the Board which is provided with internal
management reports on a monthly basis.
Information regarding the results of each reportable segment is included below. Performance is measured based on
segment profit before tax and is reviewed by Group executive management and the board of directors. Segment
results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
2013
Revenue from external customers
Returns to external customers
Fair value (loss)/gain on investments
Operating income
Loss after tax from continuing
activities
Loss from discontinued operations
Other comprehensive income after
tax
Total comprehensive income
Depreciation and amortisation
Segment assets
Segment liabilities
Capital expenditure
Plant and equipment
Intangible assets
Banking
£
Asset
Management
£
4,339,650
(206,829)
(134,740)
3,998,081
Private Discontinued
Equity
Operations
£
£
Total
£
3,377,531
3,377,531
147,651
2,657,989
2,805,640
-
7,864,832
(206,829)
2,523,249
10,181,252
70,605
-
(774,356)
-
1,925,901
-
(1,249,584)
1,222,150
(1,249,584)
(383,594)
(312,989)
(413,905)
(1,188,261)
1,925,901
(1,249,584)
(797,499)
(824,933)
(38,820)
(110,859)
(37,421)
-
(187,100)
124,824,018
10,262,544
17,606,821
910,109
153,603,492
14,902,087
4,032,556
6,843,363
848,866
26,626,872
38,167
-
25,445
-
-
-
63,612
-
45
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
2012
Revenue from external customers
Returns to external customers
Fair value gain on investments
Operating income
Loss after tax from continuing
activities
Loss from discontinued operations
Other comprehensive income after
tax
Total comprehensive income
Depreciation and amortisation
Segment assets
Segment liabilities
Capital expenditure
Plant and equipment
Intangible assets
Banking
£
Asset
Management
£
3,924,012
(340,632)
693,043
4,276,423
Private Discontinued
Equity
Operations
£
£
Total
£
2,490,092
2,490,092
1,427,940
(4,294,754)
(2,866,814)
-
7,842,044
(340,632)
(3,601,711)
3,899,701
(3,349,826)
-
(2,285,448)
-
(4,242,134)
-
(1,143,511)
(9,877,408)
(1,143,511)
616,655
-
-
-
616,655
(2,733,171)
(2,285,448)
(4,242,134)
(1,143,511)
(10,404,264)
(66,791)
(168,104)
(31,847)
-
(266,742)
142,178,706
10,379,388
13,315,897
5,821,454
171,695,445
34,969,202
4,650,485
-
3,144,191
42,763,878
609,678
-
-
-
-
609,678
-
46
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
4
Income from financing and investing activities
Group
Due from financial institutions - murabaha and wakala
Financing arrangements - murabaha
Available-for-sale investments - sukuk
Sukuk designated at fair value
Other income
5
2012
£
251,385
258,261
1,137,504
844,370
2,491,520
457,275
82,156
1,529,422
394,967
55,660
2,519,480
2013
£
2012
£
(206,830)
(206,830)
(307,537)
(33,095)
(340,632)
2013
£
2012
£
263,704
2,603,211
1,592,828
3,038,296
714,048
(1,149,133)
1,910,731
175,000
(492,903)
287,435
3,154,350
343,857
494,759
251,957
2,683,401
2013
£
2012
£
225,949
840,955
123,589
1,190,493
1,069,535
567,355
1,636,890
Returns to financial institutions and customers
Group
Due to financial institutions – murabaha, wakala and other
Due to customers - murabaha and wakala
6
Net fees and commission income
Group
Investment banking fees
Asset management fees (net)
-
Management fees
Performance fees
Introducers fees
Brokerage fees
Research income
Other income
7
2013
£
Income on financial assets
Group
Realised income/(losses) on investment in equity, sukuk and funds
Unrealised income/(losses) on investment in equity, sukuk and funds
Dividends
47
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
8
Other operating income
Group
Net gains/(loss) on foreign currency differences
Net (losses)/gains on translation of balances denominated in foreign
currency
Net gains/(losses) on translation of forward foreign exchange
agreements
Other
48
2013
£
2012
£
274,444
(89,260)
(342,174)
(1,660,417)
616,618
1,571,157
471,635
746,079
356,987
267,727
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
9
Staff costs, Directors‟ emoluments, number of employees and share based payments
Group
Staff costs
Directors‟ salaries, fees and other
Directors‟ pension contributions
Share based payments to Directors (2010 ESIP)
Staff salaries
Bonus
Staff pension contributions
Share based payments to staff (2010 ESIP)
Social security costs
Sharia‟a Supervisory Board (SSB) fees
Recruitment costs
Staff redundancy cost
Other staff costs / adjustments
Total of Directors' emoluments
Amounts in respect of highest paid Director
Emoluments
Benefits-in-kind
Pension contribution
Number of employees at year end excluding staff on notice
Average number of employees
Bank
Staff costs
Directors‟ salaries, fees and other
Directors‟ pension contributions
Share based payments to Directors (2010 ESIP)
Staff salaries
Staff pension contributions
Share based payments to staff (2010 ESIP)
Social security costs
Sharia‟a Supervisory Board (SSB) fees
Recruitment costs
Staff redundancy cost
Other staff costs/adjustment
Number of employees at year end excluding staff on notice
Average number of employees
49
2013
£
2012
£
933,565
10,500
3,999,405
406,644
57,153
194,959
47,400
67,251
63,756
5,780,633
514,946
25,200
30,386
3,980,456
142,204
85,606
57,614
234,502
65,500
185,662
67,861
328,192
5,718,129
944,065
572,733
409,544
14,323
423,867
210,000
2,201
25,200
237,401
71
72
84
126
2013
£
2012
£
605,580
10,500
933,002
57,153
182,251
47,400
61,805
(86,079)
1,811,612
447,633
25,200
30,386
1,297,394
85,606
57,614
221,855
65,500
173,529
67,861
71,764
2,544,342
13
14
14
17
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
9.1
Share based payments
Employee share incentive plan 2010 (2010 ESIP)
The 2010 ESIP introduced in April 2010 expired in November 2012 without vesting. This was the result of the EIIB
share price not meeting the main vesting condition, the price of 4.5p, on any of the three vesting dates (30 November
2010, 30 November 2011 and 30 November 2012). The total number of shares included in the plan was 33.7 million.
(see note 30 for details). Shares are held in an independent trust.
10
Other operating expenses
Group
Legal and professional fees
Rent and other occupancy costs
Communications and IT costs
Advertising and market development
Travel
Consultancy
Board and SSB related expenses
Other operating charges
Bank
Legal and professional fees
Rent and other occupancy costs
Communications and IT costs
Advertising and market development
Travel
Consultancy
Board and SSB related expenses
Other operating charges
Charges by Group companies
50
2013
£
2012
£
826,419
934,282
269,024
35,150
79,002
149,223
84,449
543,648
2,921,197
1,001,450
856,414
526,622
21,376
305,947
634,191
112,779
248,683
3,707,462
2013
£
2012
£
463,949
418,110
200,040
24,258
79,002
149,223
84,449
7,804
628,122
2,054,957
764,203
415,650
235,553
2,512
174,896
487,601
112,779
(94,154)
2,099,040
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
11
Operating loss before tax
This is stated after charging:
Audit of group financial statements pursuant to legislation
- Fees payable to the Group‟s auditor for the audit of the
Group‟s annual accounts
- Audit fees related to the prior period
Other fees payable to Group auditor:
- Other services pursuant to legislation (FCA CASS audit)
- Agreed upon procedures
Fees payable to associates of the Group auditor for other services:
- The audit of the Group‟s subsidiaries and branches pursuant
to legislation
Fees payable to auditors of the subsidiary entities :
- The audits of the subsidiaries and branches pursuant to
legislation
51
2013
£
2012
£
90,000
-
119,000
-
2,500
-
7,000
20,000
-
70,000
79,061
-
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
12
Taxation
2013
£
2012
£
262,624
262,624
(200,106)
(200,106)
1,484,775
(10,077,514)
345,210
85,863
(2,468,991)
141,575
(443,917)
(89,186)
364,654
262,624
837,273
1,290,037
(200,106)
262,624
262,624
(9,011,800)
9,011,800
-
Tax on profit on ordinary activities charged in the income statement
Current tax charge/(credit) for the period
Adjustments to prior period tax
Tax charge/(credit) in the income statement
Reconciliation of the total tax charge
Operating income/(loss) before tax
UK corporation tax at the standard rate (24% and 23%)
Expenses not deductible for tax purposes
Fair value movements on non-UK investments and other nontaxable amounts
Different taxation rate in foreign jurisdictions
Taxable other comprehensive income
Other adjustments
Deferred tax not recognised in Income statement **
Tax charge/(credit)
Current tax liability
Opening balance
Current tax charge on ordinary activities
Current tax settlements
Current tax payable
**Deferred tax assets of £8.1m (2012: £9.1m) on tax losses carried forward of £40.6m (2012: £39.5m) are not
recognised in these financial statements given the current level of uncertainty surrounding the Bank‟s future taxable
profits. Deferred tax assets on the UK tax losses are computed at 20%.
Factors that may affect future current and total tax charge
The main rate of UK corporation tax fell from 24% to 23% with effect from 1 April 2013. Further reductions in the rate
from 23% to 21%, to take effect from 1 April 2014 and from 21% to 20%, to take effect from 1 April 2015, was
substantively enacted on 2 July 2013 and it is this rate (20%) that has been applied in calculating the Group‟s
unrecognised deferred tax assets as at 31 December 2013.
It has not been possible to fully quantify the effect of these further rate reductions because of the uncertainty over the
timing of suitable future profits against which the company‟s losses may be offset. It is expected, however, that these
changes will reduce both any future current tax charge and the Group's unrecognised deferred tax assets.
52
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
13
Earnings per share (“EPS”)
Basic earnings per share is calculated by dividing the gain or loss for the year by the weighted average number of
ordinary shares outstanding during the year. The agreement to issue further shares as part of the consideration for the
Rasmala acquisition as described in note 38.1 has resulted in dilution of shares during 2012. These shares were
settled in 2013. Income or loss after tax and discontinued operations attributed to the equity holders of the Bank is
used as the numerator for computing the EPS.
Weighted average number of shares for Basic EPS
Weighted average number of shares for Diluted EPS
14
2013
„000
2012
„000
1,750,648
1,750,648
1,722,622
1,814,468
Due from financial institutions
Group
Murabaha placements
Wakala placements
Other
Impairment provision
Bank
Murabaha placements
Wakala placements
Impairment provision
2013
£
2012
£
32,101,034
5,900,139
2,243,127
40,244,300
67,542,173
8,801,156
(13,796,213)
62,547,116
2013
£
2012
£
32,101,034
5,900,139
38,001,173
67,542,173
8,801,156
(13,796,213)
62,547,116
The impairment provision as at 31 December 2012 relates to a term financing facility that was due to mature in March
2012. This entity filed for “Chapter 11” bankruptcy protection. During 2013 EIIB disposed of this legacy exposure for a
cash consideration of £5m (US$8m).
53
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
15
Financial assets designated at fair value
Group
2013
£
2,425,984
16,506,958
8,333,533
27,266,475
Navis Islamic Investment Fund
Fixed Income Funds
Equity funds
Bank
2013
£
12,233,761
6,543,117
18,776,878
Rasmala Global Sukuk Fund
Rasmala Leasing Fund
Rasmala GCC Islamic Equity Income Fund
2012
£
3,266,047
19,526,291
1,841,134
24,633,472
2012
£
16,271,038
1,129,667
17,400,705
The Group‟s fund portfolio represents its investment in various open-ended and closed-ended schemes specialising in
Asian, MENA and USA based public and private equities and fixed income products. The main objectives of all these
funds are medium to long-term capital appreciation and periodic income generation.
These include high quality stocks, sukuk and other fixed income products. All investments are prudently diversified by
issuer, sector, geography and duration.
The Bank disposed its interest in Rasmala Leasing Fund (“RLF”) on 31 April 2014. RLF is classified as an entity held
for sale in 2013 (note 21).
The fixed income fund figure for 2012 includes an amount which had previously being incorrectly classified as available
for sale securities. Fair value movement had been accounted for as fair value through profit and loss, so there is no
impact on consolidated income statement.
16
Available-for-sale securities - Sukuk
Group & Bank
Sovereign and central bank exposures
Financial institutions
Corporate and other counterparties
17
2013
£
7,368,997
16,128,642
2,960,135
26,457,774
2012
£
11,505,358
14,546,925
7,936,831
33,989,114
2013
£
3,025,627
8,424,440
11,450,067
2012
£
-
Financing arrangements
Group & Bank
Sovereign and central bank exposures
Corporate and other counterparties
54
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
The above financing arrangements are designed based on Murabaha, Wakala and Syndicated Ijarah structures. An
exposure of £5.4m of the above is collateralized with a first charge on a property portfolio valued at £10.9m.
18
Private equity financial assets designated at fair value
Group
Opening book value
Additions (due to acquisition of subsidiary)
Exchange gain/(loss)
Fair value gain /(loss) during the year
Redemptions
Transfers to Investment in Funds
Closing book value
2013
£
2012
£
13,315,897
68,081
2,480,687
15,864,665
16,202,800
5,969,496
(762,922)
(3,094,754)
(1,200,000)
(3,798,723)
13,315,897
These investments are measured at fair value having been designated at „fair value through profit and loss‟ at
inception.
19
Fair value of foreign exchange agreements
Group and Bank
Foreign exchange commitments used for
matching currency exposures
2013
Maturing in 0-3 months
Maturing in 3-6 months
2012
Maturing in 0-3 months
Maturing in 3-6 months
20
Assets
£
Liabilities
£
Notional
amount
£
1,377,797
1,377,797
2,819
2,819
80,046,579
80,046,579
672,627
125,042
797,669
39,309
39,309
65,502,340
12,498,247
78,000,587
Discontinued operation and assets and liabilities held for sale
On 05 May 2012, the brokerage license of Rasmala Egypt Securities (“RES”) was suspended by Egyptian Financial
Supervisory Authority and the management of the Group has decided to dispose-off all assets and liabilities of RES.
Therefore these assets and liabilities have been classified as held for sale and have been valued at the lower of cost
and fair value less cost to sell.
At 31 December 2013, net assets of RES amounts to £ 0.7m (2012: £2.0m). Net loss from RES for the year ended 31
December 2013 amounts to £ 0.9m (2012: £0.7m).
On 1 December 2012, the Board of Directors of Rasmala Investment Saudi (“RIS”) resolved to liquidate RIS; therefore,
all the asset and liabilities of RIS have been classified by Group management as held for sale and have been valued at
55
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
lower of cost and fair value less cost to sell. Rasmala Group owns 80.41% shares in RIS and it was established on 7
April 2007 and commenced its operations on 17 September 2008.
At 31 December 2013, net assets of RIS amounts to £0.5m (2012: £6.5m). Net loss from RIS for the year ended 31
December 2013 amounts to £ 0.3m (2012: £0.4m).
In 2011, Rasmala Group management decided to liquidate Delta Rasmala Investment (“DRI”) and classified all the
assets and liabilities as held for sale and valued at lower of cost or fair value less cost to sell. The net liability of DRI at
31 December 2013 amounted to £0.3m (2012: £0.4m). Net loss from DRI for the year ended 31 December 2013
amounts to £0.03m (2012: £0.02m).
All gains or losses arising from the above entities from the day their operations were discontinued have been classified
as discontinued operations.
The net assets above reflect the standalone amounts of the company before the exclusion of cash and balances with
banks and intercompany balances.
20.1 Loss after tax from discontinued operations
Group
Revenue
Expenses
Net loss
Tax
Total
2013
£
2012
£
95,414
(1,344,998)
(1,249,584)
(1,249,584)
731,006
(1,970,995)
(1,239,989)
96,478
(1,143,511)
A net loss is generated by discontinued activities in the year as a result of ongoing costs associated with the liquidation
and closure of these entities.
20.2 Assets held for sale
Group
Property, plant and equipment
Investment property
Financial assets available for sale
Other assets
Total
2013
£
438,716
124,051
347,342
910,109
2012
£
1,282,042
3,888,180
144,720
506,512
5,821,454
2013
£
6,051
842,815
848,866
2012
£
2,183,120
961,071
3,144,191
20.3 Liabilities held for sale
Group
Payables
Accruals and other liabilities
Total
56
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
21
Lease assets held for sale
Lease assets represents the operating lease asset portfolio held at Bank‟s subsidiary, Rasmala Leasing Fund, a US
based leasing vehicle. The Bank disposed of its interest in Rasmala Leasing Fund on 31 March 2014 for £ 5.5m. The
carrying value of Bank‟s holding on the date of disposal was £5.3m (including additional investment of £0.7m made in
March 2014).
Bank
Rasmala Leasing Fund
Group
Lease assets
2013
£
4,543,467
4,543,467
2012
£
-
2013
£
4,368,976
4,368,976
2012
£
-
Lease assets at 31 December 2013 consisted a diversified portfolio of agricultural, material handling, transportation,
food processing, rail and construction equipment.
22
Investment properties
Group
Opening book value
Value at the date of acquisition of subsidiary
Additions during the year
Disposals during the year
Transferred to property and equipment
Transferred to assets held for sale
Change in fair value
Exchange loss
Closing book value
2013
£
2012
£
1,738,458
494,387
(778,191)
324,952
(37,450)
1,742,156
6,658,030
(502,180)
(3,888,185)
(227,589)
(301,618)
1,738,458
The investment properties include 7 units (2012: 14) of one floor in I-rise Tower (Dubai, UAE) covering the total area of
9,935 square feet (2012: 16,613 square feet). These units are stated at fair value, which has been determined based
on a valuation performed by an independent firm of professional valuers.
57
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
23
Property, plant and equipment
Land and
Buildings
Motor
Vehicles
Leasehold
Improvements
Computer
Hardware
£
Fixtures,
Fittings
and office
equipment
£
£
£
£
£
55,660
55,660
107,596
42,964
(73,825)
76,735
1,403,721
13,313
(241,445)
1,175,589
908,196
616
(317,462)
591,350
1,065,302
6,719
(4,236)
1,067,785
3,540,475
63,612
(636,968)
2,967,119
Depreciation
At 1 January 2013
Charge for the year
Disposals
At 31 December 2013
2,421
2,421
94,499
12,708
(73,221)
33,986
1,307,832
67,169
(232,368)
1,142,633
816,971
40,711
(300,747)
556,935
989,946
50,029
(2,420)
1,037,555
3,209,248
173,038
(608,756)
2,773,530
Net Book Value
At 31 December 2013
53,239
42,749
32,956
34,415
30,230
193,589
Land and
Buildings
Motor
Vehicles
Leasehold
Improvements
Computer
Hardware
£
£
£
Fixtures,
Fittings
and office
equipment
£
£
£
-
-
-
167,300
213,635
380,935
1,625,282
580,723
(642,568)
329,633
6,170
(91,530)
1,575,188
5,410
(61,846)
1,022,914
9,889
(24,737)
1,217,106
7,486
(19,173)
5,770,123
609,678
(839,854)
(1,507,777)
55,660
(136,677)
107,596
(115,031)
1,403,721
(267,170)
908,196
(353,752)
1,065,302
(2,380,407)
3,540,475
-
-
-
123,788
157,936
281,724
252,945
273,354
1,363,059
775,534
1,051,362
3,716,254
-
11,008
85,160
46,906
94,200
237,274
Group
Cost
At 1 January 2013
Additions/Transfers
Disposals
At 31 December 2013
Group
Cost
At 1 January 2012
Assets acquired on
acquisition of
subsidiary
Additions/Transfers
Disposals
Reclassification
to
assets held for sale
At 31 December 2012
Total
Total
Depreciation
At 1 January 2012
Charge for the year
Assets acquired on
acquisition of
subsidiary
-Continued
operations
-Discontinued
operations
Additions/Transfers
Disposals
Reclassification
to
assets held for sale
At 31 December 2012
52,568
106,992
-
11,133
(85,346)
12,370
(12,369)
(35,870)
29,065
(618)
(24,119)
34,634
(3,092)
(12,987)
139,770
90,913
(158,322)
(412,505)
-
(115,650)
94,499
(104,518)
1,307,832
(133,585)
816,971
(332,107)
989,946
(1,098,365)
3,209,248
Net Book Value
At 31 December 2012
55,660
13,097
95,889
91,225
75,356
331,227
58
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Bank
Fixtures,
Fittings and
office
equipment
Computer
Hardware
Total
£
£
£
Cost
At 1 January 2013
Additions
Disposals
At 31 December 2013
169,209
616
169,825
216,814
1,273
218,087
386,023
1,889
387,912
Depreciation
At 1 January 2013
Charge for the year
Disposals
At 31 December 2013
136,003
10,455
146,458
189,055
24,009
213,064
325,058
34,464
359,522
Net Book Value
At 31 December 2013
23,367
5,023
28,390
Fixtures,
Fittings and
office
equipment
Computer
Hardware
Total
£
£
£
Cost
At 1 January 2012
Additions
Disposals
At 31 December 2012
167,301
1,908
169,209
213,634
3,180
216,814
380,935
5,088
386,023
Depreciation
At 1 January 2012
Charge for the year
Disposals
At 31 December 2012
123,787
12,216
136,003
157,937
31,118
189,055
281,724
43,334
325,058
Net Book Value
At 31 December 2012
33,206
27,759
60,965
Bank
59
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
24
Intangible assets
Group and Bank
2013
£
2012
£
Cost
At 1 January
Additions
At 31 December
1,492,765
1,492,765
1,492,765
1,492,765
Amortisation
At 1 January
Charge for the year
At 31 December
1,465,294
14,062
1,479,356
1,435,826
29,468
1,465,294
13,409
27,471
Net Book Value
At 31 December
Intangible assets consist of the costs of computer licences and software development including capitalised staff costs.
25
Other assets
2013
£
2012
£
2,296,665
1,479,657
283,697
4,060,019
499,702
1,085,498
986,868
750,405
3,322,473
2013
£
2012
£
359,207
156,025
51,936
567,168
306,086
223,404
986,868
90,520
58,648
1,665,526
Group
Accrued income receivable
Sundry debtors
Escrow deposit
Prepayments
Bank
Accrued income receivable
Sundry debtors
Escrow deposit
Prepayments
Related party receivable - RHL
60
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
26
Due to financial institutions
Group
Commodity murabahas
Wakala acceptances
Term facility of subsidiary
Facilities payable on demand of subsidiary
Bank
Commodity murabahas
Wakala acceptances
2013
£
2012
£
1,000,000
3,279,725
6,843,363
1,877,718
13,000,806
10,276,720
3,342,224
10,491,118
2,621,446
26,731,508
2013
£
2012
£
1,000,000
3,279,725
4,279,725
10,276,720
3,342,224
13,618,944
Term facilities of subsidiary
(a) Commercial Bank of Dubai - £24.7m facility
Rasmala had obtained a revolving term facility from Commercial Bank of Dubai (“CBD”), amounting to £24.7m, for the
purpose of acquiring companies and developing projects. £16.7m of this facility was drawn down by year end 2011 and
£6.2m was repaid in January 2012 with the funds made available by EIIB on acquisition of Rasmala.
The following were the principal terms of the facility:
 a variable interest rate cost based on 3-month LIBOR + 3.5% with a minimum interest cost of 4.5%;
 the debt to equity ratio for acquisition of companies or projects to be 75:25 ;
 the loan was to be repaid in semi-annual instalments over four years commencing 2 years after each drawdown
date; and
 loan repayments had been deferred until December 2011, at which time the remaining semi-annual instalments for
why each drawdown should have resumed.
On 26 January 2012, Rasmala repaid £6.2m to CBD and renegotiated the terms of the rest of the outstanding facility of
£10.5m. The significant changes made during the renegotiation were as follows:


a revised variable cost of 6-month LIBOR, without minimum; and
repayment commenced from June 2013 (six semi-annual instalments of £1.7m each until December 2015)
(b) First Gulf Bank - £3.3m
During 2012, the loan from First Gulf Bank (“FGB”) was cleared through a repayment of £2.9m and a loan waiver
amounting to £0.3m.
61
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
27
Due to customers
Group and Bank
Wakala acceptances
28
2013
£
2012
£
-
95,637
95,637
2013
£
2012
£
4,745,675
50,977
62,341
262,624
1,153,039
6,274,656
4,462,869
32,923
25,441
43,564
2,917,593
1,439,482
8,921,872
1,558,959
50,977
62,341
353,062
2,025,339
1,911,151
32,923
25,441
43,564
2,917,593
822,523
5,753,195
Other liabilities
Group
Accrued expenses
Accrued returns payable
Deferred income
Social security and PAYE payable
Deferred consideration in respect of Rasmala acquisition (note 38.1)
Tax payable by a subsidiary
Sundry creditors
Bank
Accrued expenses
Accrued returns payable
Deferred income
Social security and PAYE payable
Deferred consideration in respect of Rasmala acquisition (note 38.1)
Sundry creditors
29
Share capital, share premium and capital redemption reserve
Authorised
£
5,000,000,000 ordinary shares of £0.01 each
50,000,000
Allotted, called up and fully paid
Number
of shares
Share
capital
£
Capital
redemption
reserve
£
Share
premium
£
At 31 December 2013
1,972,089,151
19,720,892
599,040
101,815,459
At 31 December 2012
1,779,099,413
17,790,994
599,040
96,569,263
62
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Events of 2013
During 2013, EIIB issued 40,681,003 (represents 2.12% of the current total shares) ordinary shares of 1 pence each at
a premium price of 3.6p as per its agreement (note 38.1) as part and final settlement of the consideration due in
connection with the strategic investment by the Company in Rasmala. These shares were issued in two intervals,
13,440,860 and 27,240,143 and were admitted to AIM on 1 May 2013 and 25 July 2013 respectively.
A further share issue of 152,308,735 (represents 7.92% of the current total shares) ordinary shares was made in
December 2013 (note 38.2) in exchange of Rasmala shares of 42,307,982. These were admitted to trading on AIM on
30 December 2013.
Following this issuance, the new total number of shares in the capital of EIIB has increased to 1,972,089,151 ordinary
shares. The number of shares with voting rights is 1,922,332,657 and the balance represents Treasury shares.
Events of 2012
During 2012, EIIB issued 13,440,860 ordinary shares of 1 pence each at a premium price of 3.6p as per its agreement
(note 38.1) as part settlement of the consideration due in connection with the strategic investment by the Company in
Rasmala. These were admitted to trading on AIM during September 2012. Following this issuance, the total number of
shares in the capital of EIIB with voting rights increased to 1,779,099,413 ordinary shares in 2012.
Following an application by EIIB, the Court of the Chancery Division approved a £20m transfer from share premium to
a non-capital reserve during July 2012 (note 31)
30
Treasury shares
The EIIB General Employee Benefit Trust (the „GEBT‟) purchased £2.1m worth of shares (50m shares) during 2010 at
an average price of 4.25p in order to facilitate the establishment of the 2010 employee share incentive plan (the „2010
ESIP‟). The total value of these shares is presented, at cost, in equity within a treasury shares reserve in accordance
with IAS32.
Part of the above shares (34m shares) was allocated to the 2010 ESIP Trust to facilitate the scheme (see note 9.1 for
details). The 2010 ESIP expired in November 2012 without vesting. These shares are currently held in the Trust
created to facilitate the 2010 ESIP.
31
Special reserve
Following an application by EIIB, the Court of the Chancery Division approved a £20m transfer from share premium to
a non-capital reserve during July 2012. The capital reduction and tender offer were approved by shareholders by
special resolution at a General Meeting held on 25 June 2012.
32
Assets under management
Total AUM of external clients as at 31 December 2013 is £686m (2012: £549m). These funds are invested without
recourse to the Group.
Assets under management including capital seeded by the Group amounted to £712m (2012: £570m) as at 31
December 2013. On the date of acquisition of Rasmala by EIIB the AUM totalled £391m.
The funds invested by the Group as at 31 December 2013 stood at £27m (2012: £21m) of which funds with a net asset
value of £39m (2012: £17m) are consolidated in these Group financial statements.
63
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
33
Maturity analysis of assets and liabilities
The tables below show an analysis of assets and liabilities analysed between those expected to be recovered or
settled within or after more than twelve months of the balance sheet date.
2013
Group
Assets
Cash and balances with banks
Due from financial institutions
Financial assets designated at fair value
Available-for-sale securities - Sukuk
Financing arrangements
Private equity assets designated at fair
value
Fair value of foreign exchange agreements
Assets held for sale
Investment properties
Goodwill
Operating lease assets
Plant and equipment
Intangible assets
Other assets
Total assets
Liabilities
Due to financial institutions
Fair value of foreign exchange agreements
Liabilities held for sale
Other liabilities
Third party interest in consolidated funds
Total liabilities
2012
Group
Assets
Cash and balances with banks
Due from financial institutions
Available-for-sale securities - Sukuk
Investment in funds designated at fair value
Private equity financial assets designated at
fair value
Goodwill
Fair value of foreign exchange agreements
Assets held for sale
Investment properties
Plant and equipment
Intangible assets
Other assets
Total assets
Less than 12
months
£
9,488,406
40,244,300
27,266,475
5,199,925
3,024,442
More than 12
months
£
21,257,849
8,425,625
Total
£
9,488,406
40,244,300
27,266,475
26,457,774
11,450,067
1,377,797
910,109
3,248,015
90,759,469
15,864,665
1,742,156
10,165,750
4,368,976
193,589
13,409
812,004
62,844,023
15,864,665
1,377,797
910,109
1,742,156
10,165,750
4,368,976
193,589
13,409
4,060,019
153,603,492
9,600,806
2,819
848,866
5,019,725
15,472,216
3,400,000
1,254,931
6,499,725
11,154,656
13,000,806
2,819
848,866
6,274,656
6,499,725
26,626,872
Less than 12
months
£
13,624,694
62,547,116
3,076,764
3,914,419
More than 12
Months
£
48,365,358
3,266,045
Total
£
13,624,694
62,547,116
51,442,122
7,180,464
7,365,398
797,669
5,821,454
1,738,458
15,925
2,279,965
101,181,862
5,950,499
11,546,400
315,302
27,471
1,042,508
70,513,583
13,315,897
11,546,400
797,669
5,821,454
1,738,458
331,227
27,471
3,322,473
171,695,445
64
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Liabilities
Due to financial institutions
Due to customers
Fair value of foreign exchange agreements
Other liabilities
Liabilities held for sale
Third party interest in consolidated funds
Total liabilities
19,738,089
95,637
39,309
7,381,235
3,144,191
30,398,461
6,993,419
1,540,637
3,831,361
12,365,417
Less than 12
months
£
More than 12
months
£
Total
£
Assets
Cash and balances with banks
Due from financial institutions
Available-for-sale securities - sukuk
Financials assets designated at fair value
Financial assets held for sale
Financing arrangements
Investments in subsidiaries
Fair value of foreign exchange agreements
Plant and equipment
Intangible assets
Other assets
Total assets
3,330,188
38,001,173
5,199,925
4,543,467
3,024,442
48,453,815
1,377,797
453,734
104,384,541
21,257,849
18,776,878
8,425,625
17,924,826
28,390
13,409
113,433
66,540,410
3,330,188
38,001,173
26,457,774
18,776,878
4,543,467
11,450,067
66,378,641
1,377,797
28,390
13,409
567,168
170,924,952
Liabilities
Due to financial institutions
Due to group entities
Fair value of foreign exchange agreements
Other liabilities
Total liabilities
4,279,725
38,231,018
2,819
1,620,272
44,133,834
405,067
405,067
4,279,725
38,231,018
2,819
2,025,339
44,538,901
Less than 12
months
£
More than 12
months
£
Total
£
4,037,638
62,547,116
3,076,779
797,669
1,665,526
72,124,728
30,912,335
17,400,705
60,903,627
60,965
27,471
109,305,103
4,037,638
62,547,116
33,989,114
17,400,705
60,903,627
797,669
60,965
27,471
1,665,526
181,429,831
2013
Bank
2012
Bank
Assets
Cash and balances with banks
Due from financial institutions
Available-for-sale securities - sukuk
Investment in funds
Investments in subsidiaries
Fair value of foreign exchange agreements
Plant and equipment
Intangible assets
Other assets
Total assets
65
26,731,508
95,637
39,309
8,921,872
3,144,191
3,831,361
42,763,878
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Liabilities
Due to financial institutions
Due to customers
Due to group entities
Fair value of foreign exchange agreements
Other liabilities
Total liabilities
34
13,618,944
95,637
42,150,959
39,309
5,753,195
61,658,044
-
13,618,944
95,637
42,150,959
39,309
5,753,195
61,658,044
Pension commitments
The Bank provides a defined contribution scheme for all staff. The assets of the scheme are held separately from those
of the Bank in independently administered funds. Total costs of 2013 and 2012 are fully settled.
35
Commitments under operating leases
There is a commitment at the year-end under an operating lease for the Bank‟s main premises at Milton Gate, 60
Chiswell Street, London EC1Y 4SA for a seven-year period from 21 December 2010 to 20 December 2017, at an
annual rent and service charge of £279,150 net of VAT (includes a sixteen-month rent free period).
Rasmala has lease commitments in Dubai, Egypt and Oman expiring in March 2017, June 2015 and February 2015
respectively. These cost the Group £551,482, £62,893 and £22,656 annually.
Future rentals are as follows:
Group
Within one year
One to five years
More than five years
Bank
Within one year
One to five years
More than five years
66
2013
£
2012
£
1,293,227
3,416,729
4,709,956
809,114
1,262,643
2,071,757
2013
£
2012
£
198,958
908,628
1,107,586
279,150
1,108,950
1,388,100
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
36
Contingent liabilities and commitments
No contingent liabilities or contractually obligatory commitments are outstanding as at the balance sheet date and up to
the date that these financial statements were approved, other than the operating lease obligations disclosed in note 35
and items listed below.
a) As at 31 December 2013 the Bank had undrawn funding commitments of £1.3m (2012: Nil) to the Rasmala
Leasing Fund. Upon the sale of EIIB‟s investment in Rasmala Leasing Fund on 31 March 2014, EIIB‟s
commitment to fund Rasmala Leasing Fund has increased to its full commitment of £6.1m as at the date of this
report.
b) Rasmala has a contingent liability in the form of financial guarantees which are issued to the UAE markets for
£3.3m (31 December 2012: £3.4m) against fixed deposits under lien of £1.2m (31 December 2012: £1.3m).
c) Rasmala‟s outstanding £6.8m loan from Commercial Bank of Dubai is agreed to be repaid in semi-annual
instalments of £1.7m each, up to December 2015.
37
Assets and liabilities in foreign currency
The Bank manages its exposure to foreign exchange rate fluctuations by matching assets with liabilities in the same
currency as far as possible, with similar maturities and the use of appropriate off-balance sheet instruments.
Group
2013
£
2012
£
Denominated in sterling
Denominated in currencies other than sterling
Total assets
49,558,702
104,044,791
153,603,493
62,179,330
109,516,115
171,695,445
Denominated in sterling
Denominated in currencies other than sterling
Total liabilities
3,079,750
23,547,123
26,626,873
6,929,414
35,834,464
42,763,878
Bank
2013
£
2012
£
Denominated in sterling
Denominated in currencies other than sterling
Total assets
46,770,632
124,154,320
170,924,952
60,210,642
121,219,189
181,429,831
Denominated in sterling
Denominated in currencies other than sterling
Total liabilities
3,079,750
41,459,151
44,538,901
6,902,444
54,755,600
61,658,044
67
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
38
Subsidiaries
The Bank‟s subsidiaries as at 31 December 2013 are as follows:
Subsidiaries
Principal activity
% held
Rasmala Holdings Limited
Investment banking and Asset Management
EIIB InvestCo SPC
Investment holding
Country
of registration
76.30
UAE
100.00
Bahrain
EIIB ServiceCo WLL
General partner for diamond mining investment 100.00
Bahrain
EIIB ServiceCo 1 WLL
Inactive
100.00
Bahrain
EIIB ServiceCo 2 WLL
Inactive
100.00
Bahrain
EIIB ServiceCo 3 WLL
General Partner for oil and gas investment
100.00
Bahrain
EIIB ServiceCo 4 WLL
Inactive
100.00
Bahrain
Rasmala Global Sukuk Fund Investing in sukuk
70.64
Luxembourg
Rasmala GCC Islamic
Equity Income Fund
Investing in equity
82.28
Luxembourg
Rasmala Leasing Fund
Investing in leased assets
100.00
Cayman Islands
All of the above subsidiaries and sub-subsidiaries of the Group are consolidated.
Investments in subsidiaries
Bank
2013
2012
£
£
60,903,627
62,203,675
5,711,577
13,854,425
-
(7,193,848)
875,875
(4,442,936)
Exchange (loss)/gain
(1,112,438)
(3,517,689)
At 31 December
66,378,641
60,903,627
At 1 January
Additions
Repayment
Fair value gain/(loss) during the year
68
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
38.1 Acquisition of a controlling stake in Rasmala Holdings Limited (“Rasmala”)
Rasmala is the Holding Company of a financial services group operating in the Middle East, specialising in asset
management. Rasmala Investment Bank Limited was one of the first regional investment banks to be licensed by the
Dubai Financial Services Authority.
On the 5th January 2012, EIIB acquired a majority (67%) of management shares (the "Management Shares") in
Rasmala. Rasmala Holding Limited‟s constitution provides that the holders of the Management Shares have the right
to appoint the majority of directors to the board of Rasmala. These management shares provide the basis for control,
however EIIB‟s percentage holding for consolidation of Rasmala is dependent on its ordinary share holding as detailed
in the paragraph below (31 Dec 2013: 76.3% and 31 Dec 2012: 56.8%). The consideration payable £3.6m (US$5.5m)
in respect of the management shares is to be satisfied over a period of up to two years by the issue of new ordinary
shares of EIIB ("EIIB Shares") of 1 pence each issued at a price of 3.6 pence per share. EIIB issued 13,440,860 (note
29) and 40,681,003 (note 29) ordinary shares (total value £2.0m) respectively in 2012 and 2013 and made cash
settlement of £1.6m to settle the total liability (£3.6m). These shares were admitted to trading on AIM during
September 2012 and April and July 2013 (note 29). This represents 2.82% of total EIIB shares.
EIIB also extended a convertible financing facility of £10.4m (US$16m) to Rasmala, with a maturity of 12 months from
5 January 2012. The financing facility was convertible into newly issued ordinary shares in Rasmala Holdings Limited
("Rasmala Shares"). EIIB converted this financing facility into 123 million Rasmala Shares, representing 56.8%, during
June 2012.
EIIB further acquired 6.9m of ordinary shares in Rasmala from a single corporate shareholder. The agreement
between EIIB and the company provides that during the two year period from 5th January 2012 EIIB has the option to
sell all of the holding acquired under this agreement to the company, for the original consideration, if the loan notes are
redeemed or an offer has been made by EIIB to acquire the entire shareholding of Rasmala. If the option is not
exercised, during the two year period, EIIB will transfer these shares back to the company at the expiry of the two year
period at the same price. This arrangement is not considered to be „sale‟ of shares in accordance with IAS 39.AG 50
as the seller continues to hold the risks and rewards of the ordinary shares for the two year period. The acquisition of
these shares was therefore ignored in arriving at the total purchase consideration. These shares were transferred back
to the company upon the full settlement of the £3.6m consideration payable.
The total Comprehensive income and loss for the periods in the consolidated statement of comprehensive income
since the acquisition date contributed by Rasmala amounted to a loss of £0.4m in 2013 and a loss of £1.6m in 2012.
38.2 Additional acquisition of Rasmala Non-Controlling Interest
On 23 December 2013 EIIB acquired a further 42,307,982 of Rasmala shares for a consideration of 152,308,735 EIIB
ordinary shares (note 29). The value of these shares was assessed by the management at £5,711,578 which
represents a price of 3.75p per share. With this further acquisition EIIB currently holds 165,479,652 of Rasmala‟s total
ordinary shares that represents 76.3% of its total shares.
The carrying values of the controlling and non-controlling interests are adjusted to reflect the change in interests in the
subsidiary. The resulting £3,451,723 difference between the value of consideration paid, of £5,711,578 and the value
of consideration received from Non-controlling Interest, of £2,259,854 is recognised directly in equity and attributed to
the owners of the Bank. No adjustment is made to the goodwill and no loss is recognised in the consolidated income
statement.
69
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
38.3 Goodwill
Group
Opening book value
Goodwill created on acquisition of Rasmala Holdings Limited
Reallocation of NCI (note 39)
Foreign exchange loss
Closing book value
2013
£
2012
£
11,546,400
(1,216,987)
(163,663)
10,165,750
12,144,212
(597,812)
11,546,400
Goodwill created on the Rasmala acquisition is principally attributable to the value expected to be derived from the
acquired group through future growth, additional business from new clients and the operational synergies and savings
derived therefrom.
During the year it was identified that Rasmala‟s non-controlling interest computation was overstated due to error in a
pre-acquisition period. This was adjusted in the current year financial statements of the Group. The resulting
adjustment has reduced the Goodwill and the corresponding non-controlling interest by £ 1.2m.
The 2012 consolidated statement of financial position, consolidated statement of changes in equity, Investment in
subsidiary, goodwill and other respective notes in these financials statement are restated to reflect this change.
38.4 Goodwill recognised on acquisition
The following table summarises the consideration paid on the acquisition of Rasmala and the value of the recognised
assets acquired and liabilities assumed at the acquisition date as well as the acquisition date non-controlling interest in
Rasmala.
2012
Consideration at 5 January 2012
£
Cash
10,310,268
Equity instruments
3,544,157
Total consideration
13,854,425
Acquisition related costs
426,331
Recognised fair value amounts of identifiable assets acquired and liabilities assumed
at 5 January 2012
Cash and balances with banks
26,249,315
Investments in funds designated at fair value
4,193,060
Private equity financial assets designated at fair value
5,982,537
Investment properties
6,623,063
Property, plant and equipment
2,140,026
Other assets
2,555,015
Due to financial institutions
(24,120,889)
Other liabilities
(11,504,822)
Total identifiable net assets
Non-controlling interest
12,117,305
(10,407,092)
70
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Identifiable net assets acquired by EIIB
1,710,213
Goodwill
12,144,212
Under IFRS 3, a measurement period of up to one year can be utilised to assess the valuation of net assets acquired
as a result of the acquisition. There has been no reassessment of the net assets during this period.
38.5 Impairment testing of goodwill
Testing goodwill for impairment involves a significant amount of estimation. This includes the identification of
independent cash generating units and the allocation of goodwill to these units based on which units are expected to
benefit from the acquisition. The allocation is reviewed following business reorganisation. Cashflow projections
necessarily take into account changes in the market in which a business operates including the level of growth,
competitive activity and the impacts of regulatory change. Determining both the expected pre-tax cashflows and the
risk adjusted interest rate appropriate to the operating unit require the exercise of judgement. The estimation of pre-tax
cashflows is sensitive to the periods for which detailed forecasts are available and to assumptions regarding the long
term sustainable cashflows.
No impairment charges were recognised during the year.
Key assumptions
The key assumptions used for impairment testing of goodwill created on the acquisition of Rasmala are stated below.



Rasmala Group together with its subsidiaries was considered to be one cash generating unit („CGU‟)
The recoverable amount of the CGU has been determined using cashflow predictions based on financial budgets
approved by management and covering a five-year period, with a terminal growth rate of 2.5% applied thereafter
The forecast cashflows have been discounted at a pre-tax rate of 10.9%
Based on these assumptions, the recoverable amount exceeded the carrying amount.
Management believes that any reasonably possible change in the key assumptions above would not cause the
recoverable amount of the Goodwill to the fall below the balance sheet carrying value.
39
Non-controlling interest
Group
Opening book value
Acquisition of non-controlling interest of Rasmala by EIIB (note 38.2)
NCI arising on business acquisition
Loss for the year
Other comprehensive loss for the year
Distributions
Reallocation of NCI (note 38.3)
Foreign exchange loss
Closing book value
71
2013
£
2012
£
9,170,594
(2,259,854)
(165,009)
(98,094)
(1,086,807)
(1,216,987)
(301,551)
4,042,292
1,680,165
9,946,081
(934,778)
(1,520,874)
9,170,594
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
40
Related party disclosures
40.1 Compensation of key management personnel
Short-term employee benefits
Compensation for loss of office
Post-employment pension costs
Share-based expenses and other
Executive
Zulfi Caar Hydari
Keith McLeod
Salary
£
Benefits
in kind
£
Pension
contributio
ns
£
409,544
192,500
602,044
14,323
1,436
15,759
10,500
10,500
2013
£
2012
£
898,565
35,000
10,500
944,065
514,946
25,200
32,587
572,733
Compen
sation
for loss
of office
£
Total
2013
£
Total
2012
£
35,000
35,000
423,867
239,436
663,303
130,338
267,787
398,125
Fixed fees
£
Attendance
fees
£
Total
2013
£
Total
2012
£
34,826
25,667
40,000
88,766
29,167
17,336
235,762
10,000
6,000
4,000
11,000
9,000
5,000
45,000
44,826
31,667
44,000
99,766
38,167
22,336
280,762
27,405
33,000
37,000
33,500
25,703
18,000
174,608
Non-executive
Abdallah Y Al-Mouallimi
Aabed Al Zeera
Michael Willingham-Toxvaerd
Mohammed Al Sarhan
John Wright
Martin Barrow
Shabir Randeree (resigned)
72
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
40.2 Other Directors‟ interests
The Bank enters into transactions, arrangements and agreements involving Directors and their related concerns in the
ordinary course of business. Management believes that all such business is conducted on an arms-length basis.
(a) HBG Group owns 16.11% of EIIB ordinary shares, and a number of its partners and connected parties hold
key managerial positions and directorships at the EIIB Group.




Abdallah Al-Mouallimi – Chairman of EIIB
Zulfi Caar Hydari – CEO of EIIB and Group CEO of Rasmala group
Michael Willingham-Toxvaerd – Non-Executive Director of EIIB
Imtiaz Hydari – Chairman of Rasmala
EIIB settled £442,062 of HBG consultancy charges during 2013. This amount was accrued in the 2012
financial statements.
Mr. Imtiaz Hydari drew £208,705 from the Group during 2013 (2012: nil) for the services he rendered as
the Chairman of Rasmala.
Other payments made to HBG group by Rasmala during 2013 are £51,523 (2012: nil)
(b) An impairment provision created in 2011 by Rasmala of £3.8m, relating to a receivable from iHilal Baghlaf
Development Company, a related party, which represents accrued management fees in connection with a real
estate project based in Dubai, was written-off during 2012.
40.3 Intra Group transactions
(a) The Bank has accepted Wakala deposits from EIIB InvestCo, EIIB ServiceCo 3 WLL and Rasmala Investment
Saudi during the year on an arms-length basis. Deposits outstanding as at 31 December 2013 amount to
£38.2m (2012: £42.2m). As at 31 Dec 2013, the outstanding Wakala deposits from these three entities stood at
£36.9m (2012: £37.6m) and £0.7m (2012: £0.7m) respectively. The respective profit accruals on these were
£159k (2012: £121k) and £1k (2012: £1k).
(b) The following intercompany transactions between EIIB and Rasmala took place during the year:
2013
£
168,910
498,275
90,769
77,140
75,127
910,221
Charged by Rasmala
Fee for managing EIIB's sukuk portfolio and funds
Advisory services
Investment banking fee charges
Salary recharges
Other recharges
Total
2012
£
83,551
204,830
288,381
(c) The following intercompany charges were made by Rasmala from the three funds of EIIB (that are
consolidated to the Group financial statements):
73
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
2013
£
181,614
181,614
Charged by Rasmala
Management fees
Total
2012
£
90,624
90,624
(d) The following intercompany payments were made by the three EIIB funds (that are consolidated to the Group
financial statements) to EIIB:
2013
2012
Paid to EIIB
£
£
Fees
119,498
58,648
119,498
Total
58,648
40.4 Transaction with non-controlling interests
On 23 December 2013 EIIB acquired a further 42,307,982 of Rasmala shares for a consideration of 152,308,735 EIIB
ordinary shares. The value of these shares was assessed by the management at £5,711,578 which represents a price
of 3.75p per share (note 38.2). None of the parties listed in note 40.1 and 40.2 receive EIIB shares on this transaction.
Rasmala shareholders agreed that the shares would be issued to their pooled investment vehicles, Fortek Investments
Ltd and Vallford Limited. These SPVs comprised individuals who are employees of Rasmala.
40.5 Other related party transactions
EIIB‟s acquisition of Rasmala‟s 67% of management shares at a consideration of £3.6m (US$5.5m) was fully settled by
the end of 2013. EIIB issued 54,121,863 new ordinary shares of EIIB ("EIIB Shares") of 1 pence each issued at a price
of 3.6 pence per share and made cash settlement of £1.6m to settle the total liability (note 38.1).
Management considers all above transactions with related parties have been conducted on an arm‟s-length basis.
74
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
41
Valuation of assets measured at fair value
The Group's accounting policy on fair value measurements is discussed in note 2.11.2 .
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used
in making the measurements:
Level 1: Quoted market price (unadjusted) in an active market for an identical instrument
Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e.
derived from prices)
This category includes instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets that are considered less than active;
or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs
This category includes all instruments where the valuation technique includes inputs not based on observable
data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes
instruments that are valued based on quoted prices for similar instruments where significant unobservable
adjustments or assumptions are required to reflect differences between the instruments.
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market
prices or dealer price quotations. For all other financial instruments the Group determines fair values using valuation
techniques.
Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for
which market observable prices exist and other valuation models. Assumptions and inputs used in valuation
techniques include risk-free and benchmark rate of returns, credit spreads and other premia used in estimating
discount rates, bond and equity prices, foreign currency exchange rates and net asset valuations. The objective of
valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the
reporting date that would have been determined by market participants acting at arm's length.
The Group has an established control framework with respect to the measurement of fair values. This framework
includes independent price verification and reporting by the Group‟s Risk department to the Chief Executive Officer,
and the Group‟s Risk and Audit committees. The Risk department has overall responsibility for independently verifying
the transactions, assets and all significant fair value measurements.
The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in
the fair value hierarchy into which the fair value measurement is categorised.
75
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Group
At 31 December 2013
Assets
Financial assets designated at fair value
Available-for-sale securities – sukuk
Private equity financial assets designated at fair value
Fair value of foreign exchange arrangements
Level 1
£
6,466,921
6,466,921
Level 2
£
20,799,553
22,431,090
2,788,071
1,377,797
47,396,511
Level 3
£
4,026,684
13,076,594
17,103,278
Total
£
27,266,475
26,457,774
15,864,665
1,377,797
70,966,711
-
2,819
2,819
-
2,819
2,819
Liabilities
Fair value of foreign exchange arrangements
Bank
At 31 December 2013
Assets
Available-for-sale securities – sukuk
Investments in funds designated at fair value
Investments in subsidiaries
Fair value of foreign exchange arrangements
Level 1
£
-
Level 2
£
22,431,090
18,776,878
1,377,797
42,585,765
Level 3
£
4,026,684
4,543,467
66,378,641
74,948,792
Total
£
26,457,774
23,320,345
66,378,641
1,377,797
117,534,557
-
2,819
2,819
-
2,819
2,819
Liabilities
Fair value of foreign exchange arrangements
The above table does not include financial instruments within the „Assets held for sale‟ and „Liabilities held for sale‟
categories.
Group
At 31 December 2012
Assets
Sukuk
Investments in funds designated at fair value
Private equity financial assets designated at fair value
Fair value of foreign exchange arrangements
Level 1
£
-
Level 2
£
50,046,990
3,914,418
2,802,781
797,669
57,561,858
Level 3
£
1,395,132
3,266,046
10,513,116
15,174,294
Total
£
51,442,122
7,180,464
13,315,897
797,669
72,736,152
-
39,309
39,309
-
39,309
39,309
Level 1
£
-
Level 2
£
32,593,982
16,271,038
797,669
49,662,689
Level 3
£
1,395,132
1,129,667
60,903,627
63,428,426
Total
£
33,989,114
17,400,705
60,903,627
797,669
113,091,115
39,309
39,309
-
39,309
39,309
Liabilities
Fair value of foreign exchange arrangements
Bank
At 31 December 2012
Assets
Available-for-sale securities – sukuk
Investments in funds designated at fair value
Investments in subsidiaries
Fair value of foreign exchange arrangements
Liabilities
Fair value of foreign exchange arrangements
-
The above table does not include financial instruments within the „Assets held for sale‟ and „Liabilities held for sale‟
categories.
76
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
The following table reconciles the opening balances to the closing balances for fair value measurements in Level 3 of
the fair value hierarchy.
Private equity
financial assets
Available-forInvestments in
designated at fair
Group
sale securities –
funds designated
value
2013
sukuk
at fair value
Total
Balance at 1 January
Transfer
Purchases/Additions
Disposal/Redemptions
Total gains or losses:
- in income statement
- in other comprehensive
income
Settlements and other
movements
Balance at 31 December
Bank
2013
Balance at 1 January
Purchases/Additions
Disposals/Redemptions
Total gains or losses:
- in income statement
- in other comprehensive
income
Settlements and other
movements
Balance at 31 December
1,395,132
3,025,627
(378,203)
14,183
-
3,266,046
(3,266,046)
-
10,513,116
1,026,092
1,923,073
1,923,073
15,174,294
(2,239,954)
3,025,627
(378,203)
1,937,256
1,923,073
14,183
-
-
14,183
(30,055)
4,026,684
-
(385,687)
13,076,594
(415,742)
17,103,278
Investments in
Subsidiaries
Total
Available-forsale securities –
sukuk
Investments in
funds designated
at fair value
1,395,132
3,025,627
(378,203)
14,183
-
1,129,667
3,570,240
-
60,903,627
5,711,577
875,875
875,875
63,428,426
12,307,444
(378,203)
890,058
875,875
14,183
-
-
14,183
(30,055)
4,026,684
(156,440)
4,543,467
(1,112,438)
66,378,641
(1,298,933)
74,948,792
77
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Group
2012
Balance at 1 January
Transfer
Purchases/Additions
Total gains or losses:
- in income statement
- in other comprehensive
income
Settlements and other
movements
Balance at 31 December
Bank
2012
Balance at 1 January
Purchases/Additions
Total gains or losses:
- in income statement
- in other comprehensive
income
Settlements and other
movements
Balance at 31 December
Private equity
financial assets
designated at fair
value
Available-forsale securities –
sukuk
Investments in
funds designated
at fair value
1,846,214
(56,174)
(78,744)
3,798,723
(57,461)
(57,461)
16,202,800
(3,798,723)
3,620,683
(5,511,644)
(5,511,644)
18,049,014
3,620,683
(5,625,279)
(5,647,849)
22,570
-
-
22,570
(394,908)
1,395,132
(475,216)
3,266,046
10,513,116
(870,124)
15,174,294
Investments in
Subsidiaries
Total
Available-forsale securities –
sukuk
Investments in
funds designated
at fair value
Total
1,846,214
(56,174)
(78,744)
1,236,897
(107,230)
(107,230)
62,203,675
13,854,425
(7,960,626)
(7,960,626)
64,049,889
15,091,322
(8,124,030)
(8,146,600)
22,570
-
-
22,570
(394,908)
1,395,132
1,129,667
(7,193,847)
60,903,627
(7,588,755)
63,428,426
78
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or
assumptions could lead to different measures of fair value. For fair value measurements in Level 3, changing one or
more of the assumptions used, to reasonably possible alternative assumptions would have the following effects:
Effect on profit or loss
Group
31 December 2013
Available-for-sale securities – sukuk *
Private equity financial assets designated
at fair value **
Favourable
£
(Unfavourable)
£
-
-
201,334
(201,334)
1,307,659
1,307,659
(1,307,659)
(1,307,659)
201,334
(201,334)
Effect on profit or loss
Bank
31 December 2013
Available-for-sale securities – sukuk *
Investments in funds designated at fair
value *
Investments in subsidiaries ***
Effect on comprehensive
income
Favourable
(Unfavourable)
£
£
Favourable
£
(Unfavourable)
£
Effect on comprehensive
income
Favourable
(Unfavourable)
£
£
-
-
201,334
(201,334)
227,173
1,327,573
1,554,746
(227,173)
(1,327,573)
(1,554,746)
201,334
(201,334)
Appropriate change for each asset measurement based on
* applicable % change to the market price (5%)
** applicable % change to the market price (10%)
*** 2% change in book value
Effect on profit or loss
Group
31 December 2012
Available-for-sale securities – sukuk *
Investments in funds designated at fair
value *
Private equity financial assets designated
at fair value **
Favourable
£
(Unfavourable)
£
-
-
72,474
(72,474)
163,302
(163,302)
-
-
1,051,312
1,214,614
(1,051,312)
(1,214,614)
72,474
(72,474)
Effect on profit or loss
Bank
31 December 2012
Available-for-sale securities – sukuk *
Investments in funds designated at fair
value *
Investments in subsidiaries ***
Effect on comprehensive
income
Favourable
(Unfavourable)
£
£
Favourable
£
(Unfavourable)
£
Effect on comprehensive
income
Favourable
(Unfavourable)
£
£
-
-
72,474
(72,474)
56,483
1,218,073
1,274,556
(56,483)
(1,218,073)
(1,274,556)
72,474
(72,474)
79
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Appropriate change for each asset measurement based on
* applicable % change to the market price (5%)
** applicable % change to the market price (10%)
*** 2% change in book value
80
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
42
Risk management
42.1 Introduction
The Board of Directors have set an overall risk framework in line with risk appetite, documented within a set of risk
management policies which are approved by the Board or mandated risk committees. Ultimate responsibility for risk
resides with the Board of Directors.
The Bank is exposed mainly to credit risk, market risk, operational risk and liquidity risk.
(1)
Structure
The Board of Directors is ultimately accountable for risk within the Bank and for ensuring a strong control environment.
The Board has mandated a number of committees tasked with managing and monitoring risks within the Bank.
(a) Board of Directors
The Board of Directors has overall responsibility for risk management and for approving the risk appetite, tolerances,
strategies and principles.
(b) Board Risk Committee (“BRC”)
The BRC is a sub-committee of the Board of Directors which assists the Board in fulfilling its risk management
responsibilities from day to day. The committee‟s responsibilities include advising on risk strategy, providing oversight
and challenge supporting a risk culture, reviewing and approving risk policies and assessing, reviewing, and approving
all exposures that are within its delegated authority.
(c)
Risk Management Committee (“RMC”)
The RMC assists the Executive Management Committee and the Board of Directors in managing and controlling risk in
all areas of the Bank, through proactive identification, measurement, evaluation, control, monitoring, and reporting of:




Credit risk
Market risk
Operational risk including other residual risks
Liquidity risk
(d) Asset and Liability Committee (“ALCO”)
The ALCO is constituted to assist the Executive Management Committee and the Board in proactively managing the
capital, liquidity, assets and liabilities of the Bank. It is also mandated to manage the risk-reward relationship that exists
between solvency, liquidity and profit rate risk.
(e) Internal Audit
Internal Audit‟s primary role is to provide assurance to the Audit Committee and the Board that the risk management,
internal control, corporate governance and other key business processes and controls, as appropriate, are operating
effectively and meeting the ongoing and changing needs of the Bank. This includes providing management with
independent appraisals of systems of internal control and supporting development of a sound control culture
throughout the Bank.
81
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
(2)
Measurement and reporting
The risks within the Bank are assessed using quantitative and qualitative methodologies. Losses are calculated using
assumptions based on consideration of the economic environment in which the Bank operates, stress scenarios and
conditions in the Islamic banking market.
Risk is managed by a set of comprehensive limits, triggers and processes. These reflect the business strategy, risk
appetite and market environment in which the Bank operates and its overall risk capacity in relation to capital and
regulatory requirements set by the UK Regulatory Authorities.
Information is compiled by the Risk department from all business areas and is then presented to the Executive
Management Committee and Board on a monthly basis. The Risk Report includes detailed reporting of credit
exposures by internal ratings, geographical regions, industry sectors, asset maturities, liquidity, and market risk
exposures for profit rates, foreign exchange, money and capital market instruments and the results of the stress tests.
Daily reports on credit exposures and market risks are compiled and distributed by the Risk department to senior
management.
(3)
Risk mitigation
Risk mitigants are used where possible. However the Bank cannot use conventional derivative products to mitigate
risk. Consequently as part of its overall risk management framework the Bank utilises Sharia‟a compliant products to
hedge currency risk and profit rate risk.
(4)
Concentration risk
Concentration risk arises when a number of counterparties are engaged in similar business activities, or activities in the
same geographic regions, or have similar economic characteristics that would cause their ability to meet contractual
obligations to be similarly affected by a change in economic, political or other conditions.
In order to avoid excessive concentration risk the Bank has specific guidelines and limits in place to restrict large
exposure to Group, Obligor, Country and Industry sector exposures.
(5)
Basel 3
A number of regulatory changes were introduced during 2013 as EU Regulations and Directives. The phasing in
period is from 2014 until 2019. The changes are designed to:



Improve the quantity and quality of capital resources;
Limit leverage;
Improve liquidity management.
Although certain of the Basel III definitions and requirements have not yet been finalised and implemented, the
provisional capital and liquidity requirements are being monitored. The Bank is of the opinion that it will be Basel III
compliant without the need for additional capital and liquidity resources.
82
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
42.2 Credit risk
Credit risk is the risk that the Bank‟s customers, clients or counterparties will not be able or willing to repay capital
and/or profit or otherwise be unable to meet their contractual obligations under credit facilities or in respect of other
agreements.
The Bank has a standard credit approval process for all customers, clients and counterparties and all are assigned an
internal risk rating. Exposures are subject to regular review. All exposures are allocated to a country within a preapproved country limit.
(1)
Exposure
Exposures by asset class were:
Assets carried at amortised cost
Cash and balances with banks
Due from financial institutions
- Wakala
- Murabaha
- Other
Financing arrangements
Assets carried at fair value
Available for sale securities - sukuk
Assets held for sale
Assets held for sale
Lease assets held for sale
Fair value through income statement
Investment in funds designated at fair value
Private equity financial assets designated at
fair value
Fair value of foreign exchange agreements
Investments in subsidiaries
Investment properties
Investment properties
Total credit exposure
2013
Group
£
2013
Bank
£
2012
Group
£
2012
Bank
£
9,488,406
40,244,300
5,900,139
32,101,034
2,243,127
11,450,067
3,330,188
38,001,173
5,900,139
32,101,034
11,450,067
13,624,694
62,547,116
8,801,156
53,745,960
-
4,037,638
62,547,116
8,801,156
53,745,960
-
26,457,774
26,457,774
51,442,122
33,989,114
910,109
4,368,976
4,543,467
5,821,454
-
27,266,475
18,776,878
7,180,464
17,400,705
15,864,665
1,377,797
-
1,377,797
66,378,641
13,315,897
797,669
-
797,669
60,903,627
1,742,156
139,170,725
170,315,985
1,738,458
156,467,874
179,675,869
83
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
(2)
Geographical regions
Exposures by geographical region were:
GCC countries
Bahrain
UAE
Kuwait
Saudi Arabia
Qatar
Middle East (Other)
Europe
USA
Turkey
Asia
Australasia
Africa
Total credit exposure
(3)
2013
Group
£
2013
Bank
£
2012
Group
£
2012
Bank
£
67,849,155
7,382,235
44,440,717
110,671
8,589,770
7,325,762
7,424,707
31,092,892
21,531,818
2,807,599
3,626,467
288,180
4,549,907
139,170,725
120,298,652
51,496,830
63,504,866
5,296,956
3,024,443
31,092,890
15,900,000
170,315,985
88,199,852
23,603,187
47,736,895
4,957,760
11,902,010
2,989,980
28,057,758
17,029,666
4,742,334
5,990,584
288,183
9,169,517
156,467,874
131,044,266
67,794,091
53,743,444
2,229,506
7,277,225
28,019,026
15,900,000
3,092,242
1,620,335
179,675,869
Industry Sector
Exposures by industry sector were:
Financial services
GCC banks
Europe/Other banks
Manufacturing & engineering
Government
Real estate
Other financial
Oil & gas
Mining
Food
Healthcare
Telecommunication
Agricultural
Information & Communication technology
Media & entertainment
Other
Total credit exposure
2013
Group
£
2013
Bank
£
2012
Group
£
2012
Bank
£
73,786,507
25,341,579
48,444,928
6,568,394
11,158,646
12,601,017
21,306,396
139,661
2,788,070
299,156
92,029
220,523
2,763,348
7,446,978
139,170,725
55,812,173
16,294,089
39,518,084
1,328,250
7,368,997
7,031,900
92,724,596
6,050,069
170,315,985
99,206,084
43,918,412
55,287,672
8,662,846
18,658,028
6,738,511
16,432,044
139,661
2,230,456
299,156
92,029
474,038
220,523
2,739,175
575,323
156,467,874
81,929,348
33,930,109
47,999,239
3,619,531
13,125,692
2,696,966
78,304,332
179,675,869
84
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
(4)
Credit quality
The credit quality of financial assets is managed by the Bank using internal credit ratings which are mapped to
external credit rating agencies‟ ratings including Fitch, Moody‟s and Standard & Poor‟s. The table below shows the
credit quality of the portfolio based on the Bank‟s internal credit rating.
£
NonInvestment
Grade
£
Total
£
Cash and balances with banks
9,480,513
7,893
9,488,406
Due from Financial Institutions
36,084,743
4,159,557
40,244,300
Investment in equity, funds and sukuk designated at fair value
18,486,651
8,779,824
27,266,475
Available for sale securities -sukuk
Investment
Grade
2013 Group
20,522,266
5,935,508
26,457,774
Financing arrangements
6,050,067
5,400,000
11,450,067
Private equity financial assets designated at fair value
1,187,613
14,677,052
15,864,665
Fair value of foreign exchange agreements
1,305,900
71,897
1,377,797
Assets held for sale
-
910,109
910,109
Investment properties
-
1,742,156
1,742,156
Leased assets held for sale
-
4,368,976
4,368,976
93,117,753
46,052,972
139,170,725
Cash and balances with banks
3,322,294
7,894
3,330,188
Due from Financial Institutions
35,001,173
3,000,000
38,001,173
Available for sale securities - sukuk
20,522,266
Total credit exposure
2013 Bank
5,935,508
26,457,774
Financial assets designated at fair value
-
18,776,878
18,776,878
Financial assets held for sale
-
4,543,467
4,543,467
6,050,067
5,400,000
11,450,067
1,305,900
71,897
1,377,797
66,378,641
66,378,641
104,114,285
170,315,985
Financing arrangements
Fair value of foreign exchange agreements
-
Investment in subsidiaries
Total credit exposure
66,201,700
2012 Group
Cash and balances with banks
12,343,466
1,281,228
13,624,694
Due from Financial Institutions
39,103,704
23,443,412
62,547,116
Available for sale securities - sukuk
44,380,327
7,061,795
51,442,122
3,266,047
3,914,417
7,180,464
Private equity financial assets designated at fair value
-
13,315,897
13,315,897
Assets held for sale
-
5,821,454
5,821,454
Investment properties
-
1,738,458
1,738,458
797,081
588
797,669
99,890,625
56,577,249
156,467,874
Investments in funds designated at fair value
Fair value of foreign exchange agreements
Total credit exposure
85
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
2012 Bank
Cash and balances with banks
4,031,065
6,573
4,037,638
Due from Financial Institutions
39,103,704
23,443,412
62,547,116
Available for sale securities - sukuk
31,611,119
2,377,995
33,989,114
Investments in funds designated at fair value
-
17,400,705
17,400,705
Investment in subsidiaries
-
60,903,627
60,903,627
797,081
588
797,669
75,542,969
104,132,900
179,675,869
Fair value of foreign exchange agreements
Total credit exposure
(5)
Aged analysis of impaired financial assets
No specific impairment provisions were made during 2013 (2012: £ 4.3m) or held at the year-end.
86
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
42.3 Market risk
The Bank had no trading portfolio during 2013 (2012: Nil). The commentary below relates to banking book positions.
42.3.1 Profit Rate Risk
Profit rate risk is the risk of loss arising from changes in profit rates. The Bank manages profit rate risk by using
maturity buckets to calculate the net profit rate gap whilst considering floating, fixed and non-sensitive rates of return.
2013
Profit Rate profile (£000)
Group
Assets
Total
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Assets
88,570
1,845
48,756
139,171
32,365
19,830
52,195
8,000
1,407
9,407
-
19,522
844
5,543
25,909
8,434
1,001
8,723
18,158
20,249
13,253
33,502
4,280
8,721
13,001
4,026
5,223
9,249
-
1,749
1,749
254
1,749
2,003
-
-
Net Gap
42,946
9,407
(1,749)
23,906
18,158
33,502
Cumulative Gap
42,946
52,353
50,604
74,510
92,668
126,170
Rate profile band
4-6
7-12
months
months
1-5
years
Over 5
Years
0-1
month
Rate profile band
4-6
7-12
months
months
2-3
months
1-5
years
Over 5
years
Liabilities
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Liabilities
2013
Profit Rate profile (£000)
Bank
Assets
Total
0-1
month
2-3
months
74,064
1,845
94,407
170,316
33,026
4,708
37,734
8,000
8,000
-
4,356
844
48,454
53,654
28,682
1,001
29,683
41,245
41,245
42,511
42,511
14,742
14,742
15,888
15,888
9,676
9,676
2,205
2,205
-
-
Net Gap
22,992
(7,888)
(9,676)
51,449
29,683
37,691
Cumulative Gap
22,992
15,104
5,428
56,877
86,560
124,251
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Assets
Liabilities
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Liabilities
87
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
2012
Profit Rate profile (£000)
Group
Assets
Total
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Assets
109,248
4,741
42,479
156,468
45,154
16,668
61,822
10,115
2,462
1,355
13,932
4,801
125
4,926
3,092
15,114
18,206
37,622
2,279
39,901
8,464
9,217
17,681
13,715
13,112
26,827
13,465
2,621
16,086
-
1,749
1,749
250
1,749
1,999
6,993
6,993
-
Net Gap
45,736
13,932
3,177
16,207
32,908
17,681
Cumulative Gap
45,736
59,668
62,845
79,052
111,960
129,641
Rate profile band
4-6
7-12
months
months
1-5
years
Over 5
years
0-1
month
Rate profile band
4-6
7-12
months
months
2-3
months
1-5
years
Over 5
years
Liabilities
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Liabilities
2012
Profit Rate profile (£000)
Bank
Assets
Total
0-1
month
2-3
months
91,795
4,742
83,139
179,676
45,154
4,417
49,571
10,115
2,463
293
12,871
4,801
125
4,926
3,092
3,092
26,458
2,279
28,737
2,175
78,304
80,479
55,866
55,866
22,433
22,433
10,862
10,862
14,750
14,750
7,821
7,821
-
-
Net Gap
27,138
2,009
(9,824)
(4,729)
28,737
80,479
Cumulative Gap
27,138
29,147
19,323
14,594
43,331
123,810
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Assets
Liabilities
Fixed Rate Items
Variable Rate Items
Non rate Sensitive
Total Liabilities
88
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Sensitivity to income
Profit rate risk is managed within profit rate gap limits on a daily basis. The sensitivity of the Income Statement to
various profit rate scenarios is considered on a daily basis. An analysis of sensitivity to an increase or decrease in
market profit rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows
at the financial year end;
2013
Group
Change in rates
(Basis points)
Effect on income statement
£ 000
Bank
Change in rates
(Basis points)
Effect on income statement
£ 000
2012
Group
Change in rates
(Basis points)
Effect on income statement
£ 000
Bank
Change in rates
(Basis points)
Effect on income statement
£ 000
-100 bp
-50 bp
-25 bp
+25 bp
+50 bp
+100bp
-181
-171
-101
+101
+203
+405
-100 bp
-50 bp
-25 bp
+25 bp
+50 bp
+100bp
-104
-95
-22
+22
+44
+88
-100 bp
-50 bp
-25 bp
+25 bp
+50 bp
+100bp
-325
-205
-102
+103
+205
+411
-100 bp
-50 bp
-25 bp
+25 bp
+50 bp
+100bp
-137
-59
-30
+30
+60
+120
Sensitivity to fair value of instruments
While the Bank does not hold or trade in profit rate products, the fair value of financial instruments held will be affected
by current market forces including profit rates. The table below sets out the sensitivity to changes in fair values of
related instruments assuming all other factors remain constant.
2013
Group and Bank
Change in rates
(Basis points)
Effect on fair value (equity)
£ 000
-100 bp
-50 bp
-25 bp
+25 bp
+50 bp
+100bp
+1,098
+549
+275
-275
-549
-1,098
2012
Group and Bank
Change in rates
(Basis points)
Effect on fair value (equity)
£ 000
-100 bp
-50 bp
-25 bp
+25 bp
+50 bp
+100bp
+1,429
+714
+357
-357
-714
-1,429
89
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
42.3.2 Currency Risk
Currency risk is the risk of loss arising from changes in foreign exchange rates. The Board has set limits on open
currency positions and these positions are monitored daily to ensure positions are maintained within the established
limits.
The Bank does not take significant currency positions as all positions other than the reporting currency are
substantially covered. Small residual currency exposures remain which are well within the Board approved limits.
2013
Group
Change in currency rates
(%)
Effect on income statement
£ 000
Bank
Change in currency rates
(%)
Effect on income statement
£ 000
2012
Group
Change in currency rates
(%)
Effect on income statement
£ 000
Bank
Change in currency rates
(%)
Effect on income statement
£ 000
-10%
-5%
-2%
+2%
+5%
+10%
-359
-180
-72
+72
+180
+359
-10%
-5%
-2%
+2%
+5%
+10%
-91
-45
-18
+18
+45
+91
-10%
-5%
-2%
+2%
+5%
+10%
-456
-228
-91
+91
+228
+456
-10%
-5%
-2%
+2%
+5%
+10%
-1,154
-577
-231
+231
+577
+1,154
42.3.3 Equities Risk
Equities risk is the risk of loss arising from changes in equity prices. No direct equity exposures were held as at 31
December 2013 (2012: none). Investments are made in equity funds from time to time. Exposure comprises indirect
exposure to a portfolio of equities held by a fund which is separately managed and administered.
42.3.4 Commodities Risk
Commodities risk is the risk of loss arising from changes in commodity prices. No commodities were held during 2013
(2012: none). Investments are made in trade finance funds from time to time. Exposure to a trade finance fund may
include indirect exposure to commodities held by a fund which is separately managed and administered.
90
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
42.4 Operational risk
Operational risk is the risk of loss arising from inadequate or failed systems, human error and fraud, processes and
external events. Operational risks can result in damage to reputation, have legal or regulatory implications or lead to
financial loss. The Bank has implemented a control framework to mitigate these risks.
Controls include effective segregation of duties, access, authorisation and reconciliation procedures, staff education
and assessment processes, including the use of internal audit. Risk registers and matrices have been developed for
each department which form part of a quality self-assessment process.
42.5 Liquidity risk
Liquidity risk is the risk that the Bank will be unable to meet its payment obligations when they fall due. To limit this risk
the Bank manages the maturities of its assets and liabilities and its cash flows on a daily basis and maintains a
portfolio of short-term bank deposits. Liquidity risk management is the responsibility of ALCO.
An Internal Liquidity Adequacy Assessment (ILAA) is performed on an annual basis or more frequently in the event of
material changes. A liquidity buffer is maintained and monitored on a daily basis.
91
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
42.5.1 Liquidity profile
Liquidity is managed based on contractual cash flows. The Group and Bank had the following liquidity profiles which
include forward foreign exchange commitments:
(Foreign currency amounts in sterling equivalents)
2013
Liquidity profile
(£000)
Cash flow band
0-1
2-3
4-6
7-12
1-5
Over 5
Total
month
months
months
months
years
years
133,048
66,442
40,210
18,208
-
8,188
-
Liabilities
87,954
35,262
34,194
18,244
254
-
-
Net
45,094
31,180
6,016
(36)
(254)
8,188
-
Assets
71,355
7,966
-
-
21,660
13,627
28,102
Liabilities
22,242
8,250
712
1,749
1,749
9,782
-
Net
49,113
(284)
(712)
(1,749)
19,911
3,845
28,102
111
111
-
-
-
-
-
-
-
-
-
-
-
-
111
111
-
-
-
-
-
15,499
11,829
36
-
1,892
1,742
-
Group
GBP
Assets
USD
Euro
Assets
Liabilities
Net
GCC currencies
Assets
-
-
-
-
-
-
-
15,499
11,829
36
-
1,892
1,742
-
3,209
-
852
-
2,357
-
-
849
-
-
-
849
-
-
2,360
-
852
-
1,508
-
-
Assets
223,222
86,348
41,098
18,208
25,909
18,157
33,502
Liabilities
111,045
43,512
34,906
19,993
2,852
9,782
-
Net
112,177
42,836
6,192
(1,785)
23,057
8,375
33,502
Liabilities
Net
Other currencies
Assets
Liabilities
Net
Total
2012
Liquidity profile
(£000)
Cash flow band
0-1
2-3
4-6
7-12
1-5
Over 5
Total
month
months
months
months
years
Years
139,092
81,445
42,794
12,623
2,230
-
-
Liabilities
84,164
33,247
38,298
12,369
250
-
-
Net
54,928
48,198
4,496
254
1,980
-
-
Group
GBP
Assets
92
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
USD
Assets
79,337
7,568
3,077
4,801
7,482
39,017
17,392
Liabilities
32,527
14,994
494
1,749
2,924
11,706
660
Net
46,810
(7,426)
2,583
3,052
4,558
27,311
16,732
32
32
-
-
-
-
-
-
-
-
-
-
-
-
32
32
-
-
-
-
-
8,691
5,277
19
-
2,511
884
-
281
-
-
-
281
-
-
8,410
5,277
19
-
2,230
884
-
Assets
7,314
-
1,043
-
5,983
-
288
Liabilities
3,026
-
149
-
2,877
-
-
Net
4,288
-
894
-
3,106
-
288
Assets
234,466
94,322
46,933
17,424
18,206
39,901
17,680
Liabilities
119,998
48,241
38,941
14,118
6,332
11,706
660
Net
114,468
46,081
7,992
3,306
11,874
28,195
17,020
Euro
Assets
Liabilities
Net
GCC currencies
Assets
Liabilities
Net
Other currencies
Total
2013
Liquidity profile
(£000)
Cash flow band
0-1
2-3
4-6
7-12
1-5
Over 5
Total
month
months
months
months
years
Years
130,214
66,915
39,691
18,208
-
5,400
-
Liabilities
87,649
35,262
33,889
18,244
254
-
-
Net
42,565
31,653
5,802
(36)
(254)
5,400
-
Assets
71,670
1,786
-
-
4,356
24,283
41,245
Liabilities
40,648
13,133
15,888
9,676
1,951
-
-
Net
31,022
(11,347)
(15,888)
(9,676)
2,405
24,283
41,245
94
94
-
-
-
-
-
-
-
-
-
-
-
-
94
94
-
-
-
-
-
52,389
3,091
-
-
49,298
-
-
659
659
-
-
-
-
-
51,730
2,432
-
-
49,298
-
-
Bank
GBP
Assets
USD
Euro
Assets
Liabilities
Net
GCC currencies
Assets
Liabilities
Net
93
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Total
Assets
254,367
71,886
39,691
18,208
53,654
29,683
41,245
Liabilities
128,956
49,054
49,777
27,920
2,205
-
-
Net
125,411
22,832
(10,086)
(9,712)
51,449
29,683
41,245
2012
Liquidity profile
(£000)
Bank
Cash flow band
0-1
2-3
4-6
7-12
1-5
Over 5
Total
month
months
months
months
years
Years
GBP
136,821
81,404
42,794
12,623
-
-
-
Liabilities
84,137
33,247
38,271
12,369
250
-
-
Net
52,684
48,157
4,523
254
(250)
-
-
Assets
71,541
555
3,077
4,801
3,092
27,853
32,163
Liabilities
50,874
17,487
11,066
14,750
7,571
-
-
Net
20,667
(16,932)
(7,989)
(9,949)
(4,479)
27,853
32,163
16
16
-
-
-
-
-
-
-
-
-
-
-
-
16
16
-
-
-
-
-
49,298
97
-
-
-
884
48,317
3,882
3,882
-
-
-
-
-
45,416
(3,785)
-
-
-
884
48,317
Assets
257,676
82,072
45,871
17,424
3,092
28,737
80,480
Liabilities
138,893
54,616
49,337
27,119
7,821
-
-
Net
118,783
27,456
(3,466)
(9,695)
(4,729)
28,737
80,480
Assets
USD
Euro
Assets
Liabilities
Net
GCC currencies
Assets
Liabilities
Net
Total
As at 31 December 2013 and at 31 December 2012, the Bank had no contingent liabilities. As at 31 December 2013
the Bank had undrawn funding commitments of £1.3m (2012: Nil) (note 36).
42.5.2 Liquidity ratios (unaudited)
The Bank manages its liquidity within the prudential limits of 0% for 8 days and under and -5% for 1 month and under.
The ratios at the year-end were:
8 days and under
1 month and under
31 December 2013
+40%
+60%
31 December 2012
+49%
+60%
94
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
42.6 Capital management and risk (unaudited)
The Group‟s lead regulator, the Prudential Regulatory Authority (“PRA”) (previously the Financial Services Authority
(“FSA”)) sets and monitors capital requirements for the Group. The Group complies with the regulatory framework in
respect of regulatory capital. To calculate capital requirements the Group uses the “standardised approach” for credit
risk, the “standardised approach” for market risk and the “basic indicator approach” for operational risk.
The Group‟s capital comprises ordinary share capital, share premium, capital redemption reserve, special reserve,
accumulated losses and fair value reserve subject to other regulatory adjustments. All banking operations are
categorised as „Banking book‟ business and accordingly the risk-weighted assets are calculated to reflect the varying
levels of risks attached to assets.
The Group‟s primary objective and policy is to maintain a strong capital base so as to maintain investor, depositor and
market confidence. The Group has complied with all regulatory capital requirements throughout the year.
£000
£000
2013
2012
Group
Regulatory Capital
100,965
99,538
Total Risk Weighted Assets
Credit Risk
Market Risk
Operational Risk
116,895
86,134
12,400
18,361
128,429
84,066
18,475
25,888
86%
78%
£000
£000
2013
2012
Bank
Regulatory Capital
36,687
41,457
Total Risk Weighted Assets
Credit Risk
Market Risk
Operational Risk
68,576
38,257
15,450
14,869
83,874
54,061
18,525
11,288
53%
49%
Capital Adequacy Ratio
Capital Adequacy Ratio
The current level of capital is considered to be adequate to support future growth.
.
Capital and risk-reward management are the responsibility of ALCO, which monitors capital and risk limits for the
various areas of the Bank‟s business. Currently capital is not a constraint on growth.
95
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
The PRA‟s approach to regulatory capital maintenance requirements is primarily based on monitoring the relationship
of the minimum Regulatory Capital Requirement to available capital resources. The PRA also requires each bank to
assess its own capital requirements in excess of the minimum Capital Requirement in terms of the Internal Capital
Adequacy Assessment Process (ICAAP). The ICAAP process is reviewed by the PRA which issues Individual Capital
Guideline for each bank.
43
Post balance sheet events
The Directors confirm that there are no significant events arising since the balance sheet date that should be reported
to shareholders other than the following.
(a) Disposal of the Bank‟s exposure to the Rasmala Leasing Fund on 31 March 2014 for £ 5.5m. The carrying value of
Bank‟s holding on the date of disposal was £ 5.3m (including addition investment of £0.7m made in March 2014).
(b) Subsequent liquidation of the following subsidiaries
I.
EIIB InvestCo SPC (Bahrain)
II.
EIIB ServiceCo WLL (Bahrain)
III.
EIIB ServiceCo 1 WLL (Bahrain)
IV.
EIIB ServiceCo 2 WLL (Bahrain)
V.
EIIB ServiceCo 3 WLL (Bahrain)
VI.
EIIB ServiceCo 4 WLL (Bahrain)
(c) Subsequent incorporation of the following subsidiaries
I.
EIIB InvestCo Ltd (Cayman)
II.
Rasmala Trade Finance Fund (Cayman)
96
European Islamic Investment Bank plc
Notes to the Financial Statements
At 31 December 2013
Registered No. 5328847
Bank information
Directors
Abdallah Al-Mouallimi Chairman
Mohammed Al Sarhan Senior Independent Director
Michael Willingham-Toxvaerd
John Wright
Martin Gilbert Barrow
Zulfi Caar Hydari Chief Executive Officer
Secretary
Al-Harith Sinclair
Registered office
Milton Gate
60 Chiswell Street
London EC1Y 4SA
Auditors
BDO LLP
55 Baker Street
London W1U 7EU
Correspondent bankers
Standard Chartered Bank
1 Basinghall Avenue
London EC2V 5DD
Registrars
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Nominated broker and advisor
Westhouse Securities Ltd
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
Solicitors
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London EC4R 9HA
97

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