RNS Number:1806Q
Islamic Bank of Britain Plc
17 March 2008
Islamic Bank of Britain PLC
Annual Report and
Financial Statements
Registered number 4483430
31 December 2007
Chairman's statement
Assalamu Alaikum,
I am pleased to present the Annual Report for Islamic Bank of Britain PLC for
2007, a year of significant achievements setting the bank on course to attain
its strategic objectives. During the year we made strong progress in all areas,
including deposit growth, customer acquisition and launching new initiatives.
IBB has an established status as the Pioneer of Islamic banking in the UK, and
remains the only stand alone full fledged Sharia'a compliant retail bank in the
UK. IBB's vision is to strengthen its core competencies and maintain its
leadership position in the Sharia'a compliant banking industry in the UK. In
addition the bank plans to build on the ethical base of its product offering to
appeal to a wider segment of the market. IBB's strategic goal is to become a
mainstream bank catering to the financial requirements of a diverse cross
section of the UK market.
As always, we remain focused on finding means to better serve our customers. One
important initiative in 2007 was the establishment of Commercial Centres
operating primarily as sales channels focusing on addressing the financial
requirements of the customers at a personalised level. The Commercial Centres
have become a cornerstone of our delivery channels and will enable us to promote
our product initiatives in an effective manner.
In 2007 we made major enhancements to our telephone and online banking
facilities. In the second quarter our telephone banking capability was enhanced
to offer customers automated access to their accounts around the clock. In
December, this service was further enhanced with the introduction of additional
features and benefits. In June online banking facilities, launched for Personal
Banking clients in 2006, were extended to our Business Banking customers.
Automated service delivery through our online and telephone banking channels
will remain a major growth driver in coming years as we focus on servicing our
clients through efficient and user friendly solutions.
Our Accomplishments
IBB achievements in 2007 eclipsed the accomplishments from 2006.
* Customer deposits increased by 61% (�51m) to �135m.
* Customer financing assets increased by 51% (�5.3m) to �15.8m.
* Customer numbers increased by 38% to over 42,000.
* Account numbers increased by 27% to over 64,000.
* Number of customers using online banking services increased by 193% to
10,200. This represents 24% of the total customer base.
* Number of customers using automated telephone banking services reached
8,400. This represents 20% of the total customer base.
The loss for the year ended 31 December 2007 was �6.9m (2006: �8.8m). This 22%
improvement was achieved through an increase in operating revenue of 56% to
�4.7m whilst maintaining a largely stable cost base.
Having a motivated and focused team is at the heart of our strategy. During 2007
a number of key appointments were made to strengthen the existing structure and
prepare the bank for the next phase of its ambitious growth strategy. In June
2007, Mr. Sultan Choudhury joined the board as Commercial Director, and in
October, we welcomed Mr. Abdul Hakim Al-Adhamy as a non-Executive Director. I
would like to extend my thanks to Mr. Shabir Randeree, who resigned as
non-Executive Director in February 2008, for his contribution to the bank's
success over the past four years.
As part of our commitment to the socio-economic well-being of our communities,
the bank has provided sponsorships to charitable and educational events
including Islamic Relief, Global Peace and Unity, Dawatul Islam, Al-Fitrah and
the Muslim Women's Network. In addition, the bank was principal sponsor of the
Muslim Power 100 initiative, which highlighted the positive contribution Muslims
have made to the social, cultural and economic well-being of the United Kingdom.
In 2008 we will continue to pursue new initiatives to address the financial
needs of our clients in a comprehensive manner. New services will be launched
within a robust risk/return framework consistent with regulatory requirements.
I wish to express my thanks to our Sharia'a Supervisory Committee scholars: Dr.
Abdul Sattar Abu Ghuddah, Sheikh Nizam Yaqoobi and Mufti Barkatullah for their
invaluable guidance and support throughout the year. We are grateful for their
contribution towards the development of the bank.
Finally, I would like to thank IBB's customers and shareholders for their
continued support and commitment to the bank. I would also like to thank the
bank's management and staff for their hard work and dedication. Their
determination and enthusiasm are the foundation upon which IBB will succeed. I
have been proud to serve as your Chairman in 2007, and I look forward with
confidence to our future.
Mohsen Moustafa 12 March 2008
Chairman
Report of the Sharia'a Supervisory Committee
(In the name of Allah, the Most Gracious, the Most Merciful)
To the Shareholders of the Islamic Bank of Britain PLC
For the period from 1 January 2007 to 31 December 2007
In compliance with the Terms of Reference of the Bank's Sharia'a Supervisory
Committee, we submit the following report:
We have reviewed the documentation relating to the products and transactions
entered into by the Islamic Bank of Britain PLC for the period from 1 January
2007 to 31 December 2007.
According to Management, the Sharia'a Compliance Officer of the Bank and
documents evidencing the facts, the Bank's funds were raised and invested during
this period on the basis of agreements approved by us.
Therefore, based on the report of our representative and representations
received from Management, in our opinion the transactions and the products
entered into by the Bank during the period from 1 January 2007 to 31 December
2007 are in compliance with the Islamic Sharia'a rules and principles and fulfil
the specific directives, rulings and guidelines issued by us.
We beg Allah the Almighty to grant us all the success and straightforwardness.
Dr Abdul Sattar Abu Ghuddah
Chairman of the Sharia'a Supervisory Committee
12 March 2008
Directors' report
The directors present their report and financial statements for the year ended
31 December 2007.
Principal activities
Islamic Bank of Britain PLC (the 'Company' or the 'Bank') was incorporated with
the intention of becoming the first independent Islamic bank in the United
Kingdom established and managed on a wholly Sharia'a compliant basis providing
banking services to Muslims in the United Kingdom and other parts of Europe. The
Company received authorisation in August 2004 by the Financial Services
Authority (FSA).
The first branch was opened on Edgware Road London on 22 September 2004. A
further seven branches were subsequently opened: Small Heath Birmingham,
Leicester, Whitechapel London, Southall London, Alum Rock Birmingham, Manchester
and East Ham London. Direct telephone and postal banking channels and internet
banking are also in place to further compliment the Branch network.
The Bank offers a range of Sharia'a compliant banking solutions for both
individual and business customers including current accounts, savings accounts,
high net worth treasury deposit accounts, consumer and business financing and
commercial property finance.
Financial Results
The financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU.
The financial statements for the year ended 31 December 2007 are shown on pages
9 to 36. The loss for the year amounts to �6,917,004 (2006: �8,833,253).
Details of the Company's performance and prospects are given within the
Chairman's statement on pages 1 and 2.
The directors do not recommend the payment of a dividend (2006: �nil).
Risks
The Company has exposure to the following risks arising from its use of
financial instruments:
* Credit risk. The Company's credit risk arises principally from its
financing products but also from other advances to customers and banks.
* Liquidity risk. Liquidity risk arises from the mismatch of the
Company's financial assets, including Commodity Murabaha and Wakala
receivables, consumer finance assets and commercial property finance
assets, and deposit liabilities.
* Market risk. The principal exposure is the risk of loss arising from
fluctuations in the future cash flows or fair values of financial assets
and liabilities because of a change in achievable rates.
* Operational risk. Operational risk is the risk of loss arising from a wide
variety of causes associated with the Company's processes, personnel,
technology and infrastructure, and from external factors other than credit,
market and liquidity risks. The principal external business risks that may
affect the Company would be a sustained downturn affecting performance
through reduced volumes and increased impairment losses, and increased
competition within Islamic finance in the UK bringing margins and pricing
under pressure.
* Settlement risk. The Company's activities may give rise to risk at the time
of settlement of transactions and trades. Settlement risk is the risk of
loss due to the failure of a company to honour its obligations to deliver
cash or other assets as contractually agreed.
A detailed explanation of the Bank's approach to financial and operational risk
management is set out in note 4 to the financial statements.
Creditor payment policy
The Company seeks to settle trade invoices in line with their payment terms.
The amount due to the Company's trade creditors as at 31 December 2007
represented 39 days (2006: 19 days) average daily purchases of goods and
services calculated in accordance with the Companies Act 1985.
Directors and directors' interests
The directors who held office during the year were as follows:
Mr. Abdul Rahman Abdul Malik (Resigned as director on 31 March 2007)
Mr. Mohsen Moustafa (Chairman) (c) (d)
Mr. Abdulaziz Al-Khulaifi (a) (b)
Mr. Christopher Davis (Resigned as director on 12 February 2007)
Mr. Ashraf Piranie (Resigned as director and company secretary on 31 March 2007)
Mr. Shabir Randeree (a) (b) (d)
Mr. Robert Owen (a) (b) (c) (Appointed as a director on 12 February 2007)
Mr. Abdul Hakim Al-Adhamy (a) (Appointed as a director on 1 October 2007)
Mr. Gerry Deegan (d) (Appointed as a director on 26 January 2007)
Mr. Sultan Choudhury (Appointed as a director on 28 June 2007)
(a) Denotes member of Audit Committee
(b) Denotes member of Remuneration Committee
(c) Denotes member of Nomination Committee
(d) Denotes member of Credit Committee
In addition to the above, Shabir Randeree resigned as a director of the Company
on 6 February 2008.
The directors who held office at the end of the financial year had the following
interests in the ordinary shares of the Company according to the register of
directors' interests:
Class of Interest Interest
share at end of at start of
year year
Mr. Mohsen Moustafa Ordinary 100,000 -
Mr. Shabir Randeree (held in the name of Ordinary 30,058,013 30,058,013
DCD London & Mutual PLC)
Mr. Gerry Deegan Ordinary 20,000 -
Mr. Sultan Choudhury Ordinary 34,000 4,000
In addition, the following directors were granted options on shares during the
year:
Interest Interest Earliest Latest exercise Exercise
at end of year at start of exercise date price
year date
Mr. Gerry Deegan 315,789 - 5 Nov 2010 4 Nov 2017 9.5p
Mr. Sultan Choudhury 315,789 - 5 Nov 2010 4 Nov 2017 9.5p
No options were exercised or cancelled during the year, and there were no
options awarded in prior years.
None of the other directors who held office at the end of the financial year had
any disclosable interest in the shares of the Company.
Significant Shareholders
The following shareholders had interests in the ordinary shares of the Company
in excess of 3% as at 31 December 2007 (comparatives only shown if holding as at
31 December 2006 was greater than 3%):
2007 2006
(%) (%)
HRH Sheikh Hamad Bin Khalifa Bin Hamad Al Thani 17.37 17.37
Qatar International Islamic Bank 14.63 14.63
HSBC Global Custody Nominee (UK) 9.31 8.47
Vidacos Nominees Limited 8.83 -
HE Sheikh Thani Bin Abdulla Bin Thani Jasim Al Thani 8.69 8.69
DCD London & Mutual PLC 7.17 7.17
Qatar Islamic Insurance Co. 4.93 4.93
Securities Services Nominees Ltd 2710000 3.71 3.72
HSBC Client Holdings Nominee (UK) Limited 3.30 -
Sharia'a Supervisory Committee members
The Sharia'a Supervisory Committee members during the year were as follows:
Dr. Abdul Sattar Abu Ghuddah (Chairman)
Sheikh Nizam Yaqoobi
Mufti Abdul Kadir Barkatullah
The report of the Sharia'a Supervisory Committee is set out on page 3.
Political and charitable contributions
The Company made no political contributions during the year (2006: �nil).
Donations to UK charities amounted to �9,360 (2006: �1,720). Payments in 2007
include �4,360 (2006: �1,090) of fees and charges relating to late payment on
personal finance accounts that were paid to charity in accordance with product
terms as agreed with the Sharia'a Supervisory Committee. A further payment of
�1,380 is to be made in 2008 in respect of similar charges incurred in 2007.
Disclosure of information to 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 Company's auditors are unaware; and each director has
taken all the steps that they ought to have taken as a director to make
themselves aware of any relevant audit information and to establish that the
Company's auditors are aware of that information.
Auditors
KPMG Audit Plc have indicated their willingness to continue in office and a
resolution concerning their re-appointment and authorising the directors to fix
their remuneration will be proposed at the Annual General Meeting.
By order of the board
Islamic Bank of Britain PLC
Edgbaston House
3 Duchess Place
Birmingham
B16 8NH
Gerry Deegan
Managing Director 12 March 2008
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 financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with IFRSs as adopted by the EU and applicable laws.
The financial statements are required by law to present fairly the financial
position and the performance of the Company; the Companies Act 1985 provides in
relation to such financial statements that references in the relevant part of
that Act to financial statements giving a true and fair view are references to
their achieving a fair presentation.
In preparing these 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 Company will continue in business.
The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that its financial statements comply with the
Companies Act 1985. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website. Legislation in the
UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Independent Auditors' Report to the Members of Islamic Bank of Britain PLC
We have audited the financial statements of Islamic Bank of Britain PLC ('the
Company') for the year ended 31 December 2007 which comprise the Income
Statement, the Balance Sheet, the Cash Flow Statement, the Statement of Changes
in Equity and the related notes. These financial statements have been prepared
under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with section 235 of the Companies Act 1985. 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
The directors' responsibilities for preparing the financial statements in
accordance with applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the EU are set out in the Statement of Directors'
Responsibilities on page 7.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the financial statements have been properly prepared
in accordance with the Companies Act 1985. We also report to you whether in our
opinion the information given in the Director's Report is consistent with the
financial statements.
In addition we report to you if, in our opinion, the Company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.
We read the other information contained in the Annual Report and consider
whether it is consistent with the audited financial statements. We consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do
not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
* the financial statements give a true and fair view, in accordance with
IFRSs as adopted by the EU, of the state of the Company's affairs as at 31
December 2007 and of its loss for the year then ended;
* the financial statements have been properly prepared in accordance with the
Companies Act 1985; and
* the information given in the Directors' Report is consistent with the
financial statements.
KPMG Audit Plc 12 March 2008
8 Salisbury Square, London, EC4Y 8BB
Chartered Accountants
Registered Auditor
Income Statement
For the year ended 31 December 2007
Note 2007 2006
� �
Income receivable from:
Islamic financing transactions 6 4,554,578
7,804,290
Returns payable to customers and banks 6 (1,705,389)
(3,208,871)
Net income from Islamic financing transactions 4,595,419 2,849,189
Fee and commission income 7 240,062 174,554
Fee and commission expense 7 (138,619) (12,764)
Net fee and commission income 101,443 161,790
Operating income 4,696,862 3,010,979
Net impairment loss on financial assets 14 (644,071) (445,089)
Personnel expenses 8 (5,138,376) (4,241,778)
General and administrative expenses (3,978,992) (5,430,902)
Depreciation 15 (746,353) (621,462)
Amortisation 16 (1,106,074) (1,105,001)
Total operating expenses (11,613,866) (11,844,232)
Loss before income tax (6,917,004) (8,833,253)
Income tax expense 11 - -
Loss for the year (6, 917,004) (8,833,253)
Loss per ordinary share
Basic (pence) 24 (1.7) (2.1)
Diluted (pence) 24 (1.6) (2.1)
Balance sheet
As at 31 December 2007
Note 2007 2006
� �
Assets
Cash 509,769 451,492
Commodity Murabaha and Wakala receivables and other 13 141,768,471 100,286,964
advances to banks
Consumer finance accounts and other advances to 14 9,663,295 8,092,326
customers
Net investment in commercial property finance 14 6,091,882 2,338,401
Property and equipment 15 3,443,355 3,965,370
Intangible assets 16 1,262,231 1,894,272
Other assets 17 2,197,824 983,270
Total assets 164,936,827 118,012,095
Liabilities and equity
Liabilities
Deposits from banks 18 2,498,304 240,164
Deposits from customers 19 134,640,612 83,853,383
Other liabilities 20 2,972,602 2,187,261
Total liabilities 140,111,518 86,280,808
Equity
Called up share capital 22 4,190,000 4,190,000
Share premium 48,747,255 48,747,255
Retained deficit (28,137,072) (21,205,968)
Profit stabilisation reserve 25,126 -
Total equity 24,825,309 31,731,287
Total equity and liabilities 164,936,827 118,012,095
These financial statements were approved by the Board of Directors on 12 March
2008 and were signed on its behalf by:
Gerry Deegan
Managing Director
Statement of changes in equity
For the year ended 31 December 2007
Share Share Profit Profit Total
capital premium and loss stabilisation
account account reserve
� � � � �
Balance at 1 January 2006 4,190,000 48,747,255 (12,372,715) - 40,564,540
Loss for the year - - (8,833,253) - (8,833,253)
Balance at 31 December 2006 4,190,000 48,747,255 (21,205,968) - 31,731,287
Balance at 1 January 2007 4,190,000 48,747,255 (21,205,968) - 31,731,287
Loss for the year - - (6,917,004) - (6, 917,004)
Credit in respect of share based - - 11,026 - 11,026
payments charge
Transfer to profit stabilisation - - (25,126) 25,126 -
reserve
Balance at 31 December 2007 4,190,000 48,747,255 (28,137,072) 25,126 24,825,309
Statement of cash flows
For the year ended 31 December 2007
Note 2007 2006
� �
Cash flows from operating activities
Loss for the year (6,917,004) (8,833,253)
Adjustments for:
Depreciation 15 746,353 621,462
Amortisation 16 1,106,074 1,105,001
Impairment on financial assets 14 644,071 445,089
Share based payments charge 22 11,026 -
Change in Commodity Murabaha and Wakala receivables and (38,065,860) (24,870,824)
other advances to banks
Change in consumer finance accounts and other advances (2,215,040) (4,083,046)
to customers
Change in net investment in commercial property finance (3,753,481) (2,338,401)
Change in other assets (1,214,554) (73,022)
Change in deposits from banks 2,258,140 240,164
Change in deposits from customers 50,787,229 36,138,790
Change in other liabilities 785,341 1,176,894
Net cash generated from / (used in) operating 4,172,295 (471,146)
activities
Cash flows from investing activities
Purchase of property and equipment 15 (224,338) (787,881)
Purchase of intangible assets 16 (474,033) (1,490,268)
Net cash used in investing activities (698,371) (2,278,149)
Net change in cash and cash equivalents 3,473,924 (2,749,295)
Cash and cash equivalents at 1 January 2,190,582 4,939,877
Cash and cash equivalents at 31 December 12 5,664,506 2,190,582
Notes to the financial statements
1 Reporting entity
Islamic Bank of Britain PLC ('the Company') is a company domiciled in the UK.
The address of the Company's registered office is Edgbaston House, 3 Duchess
Place, Hagley Road, Birmingham B16 8NH. The financial statements of the Company
are presented as at and for the year ended 31 December 2007. The Company is a
retail bank offering Sharia'a compliant banking products and services.
2 Basis of preparation
(a) Statement of compliance
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the EU and approved by the
directors.
The financial statements were approved by the Board of Directors on 12 March
2008.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these financial statements.
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis.
(c) Functional and presentation currency
The financial statements are presented in Sterling, which is the Company's
functional currency.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make judgements,
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
estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty
and critical judgements in applying accounting policies that have the most
significant effect on the amount recognised in the financial statements are
described in note 5.
3 Significant accounting policies
The accounting policies set out below have been applied consistently to all
periods presented in these financial statements.
(a) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated
depreciation and impairment losses. Cost includes expenditure that is directly
attributable to the acquisition of the asset.
(ii) Subsequent costs
The cost of replacing part of an item of property or equipment is recognised in
the carrying amount of the item if it is probable that the future economic
benefits embodied within the part will flow to the Company and its cost can be
measured reliably. The costs of the day-to-day servicing of property and
equipment are recognised in the income statement as incurred.
(iii) Depreciation
Depreciation is recognised in the income statement on a straight line basis over
the estimated useful lives of each part of an item of property and equipment.
Leased assets are depreciated over the shorter of the lease term and their
useful lives.
Computer equipment 3 years
Fixtures, fittings and office equipment 5 years
Leasehold improvements 10 years or over the life of the
lease whichever is shorter
Depreciation methods, useful lives and residual values are reassessed at the
reporting date.
(b) Intangible assets
Software and computer licences acquired by the Company are stated at cost less
accumulated amortisation and accumulated impairment losses.
Expenditure on internally developed software is recognised as an asset when the
Company is able to complete the development and use the software in a manner
that will generate future economic benefits, and can reliably measure the costs
to complete the development. The capitalised costs of internally developed
software include all costs directly attributable to developing the software, and
are amortised over its useful life. Internally developed software is stated at
capitalised cost less accumulated amortisation and impairment.
Subsequent expenditure on software assets and computer licences is capitalised
only when it increases the future economic benefits embodied in the specific
asset to which it relates. All other expenditure is expensed as incurred.
Amortisation is recognised in the income statement on a straight line basis over
the estimated useful life of the software or the licence term, from the date
that it is available for use. The estimated useful life of software is three
years.
(c) Commodity Murabaha and Wakala receivables and other advances to banks
Commodity Murabaha is an Islamic financing transaction, which represents an
agreement whereby the Company buys a commodity and sells it to a counterparty
based on a promise received from that counterparty to buy the commodity
according to specific terms and conditions. The selling price comprises of the
cost of the commodity and a pre-agreed upon profit margin.
Wakala is an Islamic financing transaction, which represents an agreement
whereby the Company provides a certain sum of money to an agent, who invests it
according to specific conditions in order to achieve a certain specified return.
The agent is obliged to return the invested amount in case of default,
negligence or violation of any of the terms and conditions of the Wakala.
Commodity Murabaha receivables are recognised upon the sale of the commodity to
the counterparty. Wakala receivables are recognised upon placement of funds
with other institutions.
Income, on both Commodity Murabaha and Wakala receivables, is recognised on an
effective yield basis. The effective yield rate is the rate that exactly
discounts the estimated future cash payments and receipts through the agreed
payment term of the contract to the carrying amount of the receivable. The
effective yield is established on initial recognition of the asset and is not
revised subsequently.
The calculation of the effective yield rate includes all fees paid or received,
transaction costs, and discounts or premiums that are an integral part of the
effective yield rate. Transaction costs are incremental costs that are directly
attributable to the acquisition, issue or disposal of a financial asset or
liability.
Commodity Murabaha and Wakala receivables are initially recorded at fair value
and are subsequently measured at amortised cost using the effective yield
method, less impairment losses. The accrued income receivable is classified
under other assets.
Other advances to banks are stated at cost and are non-return bearing.
(d) Consumer finance accounts
Islamic consumer financing transactions represent an agreement whereby the
Company buys a commodity or goods and then sells it to the customer with an
agreed profit mark-up with settlement of the sale price being deferred for an
agreed period. The customer may subsequently sell the commodity purchased to
generate cash.
Consumer finance assets will be recognised on the date that the commodity or
good is sold by the Company. Consumer finance account balances are initially
recorded at fair value and are subsequently measured at amortised cost. The
amortised cost is the amount at which the asset is measured at initial
recognition, minus repayments received relating to the initial recognised
amount, plus the cumulative amortisation using an effective yield method of any
difference between the initial amount recognised and the agreed sales price to
the customer, minus any reduction for impairment.
Income is recognised on an effective yield basis over the period of the
contract. The effective yield rate is the rate that exactly discounts the
estimated future cash payments and receipts through the agreed payment term of
the contract to the carrying amount of the receivable. The effective yield is
established on initial recognition of the asset and is not revised subsequently.
The calculation of the effective yield rate includes all fees paid or received,
transaction costs, and discounts or premiums that are an integral part of the
effective yield rate. Transaction costs are incremental costs that are directly
attributable to the acquisition, issue or disposal of a financial asset or
liability.
The accrued income receivable from the customer is classified under other
assets.
(e) Commercial property finance
Commercial property finance is provided using the Diminishing Musharaka
(reducing partnership) principle of Islamic financing. The Company will enter
into an agreement to jointly purchase a property with another party and rental
income will be received by the Company relating to that proportion of the
property owned by the Company at any point in time. The other party to the
agreement will make separate payments to purchase additional proportions of the
property from the Company, thereby reducing the Company's effective share.
The transaction is recognised as a financial asset upon legal completion of the
property purchase and the amount receivable is recognised at an amount equal to
the net investment in the transaction. Where initial direct costs are incurred
by the Company such as commissions, legal fees and internal costs that are
incremental and directly attributable to negotiating and arranging the
transaction, these costs are included in the initial measurement of the
receivable and the amount of income over the term will be reduced. Rental
income is recognised at a constant periodic rate of return on the Company's net
investment.
(f) Deposits from customers
Profit sharing accounts are based on the principle of Mudaraba whereby the
Company and the customer share an agreed percentage of any profit earned on the
customer deposits. The customer's share of profit is paid in accordance with
the terms and conditions of the account. The profit calculation is undertaken
at the end of each calendar month.
Customer Murabaha deposits consist of an Islamic financing transaction involving
the Company arranging the purchase of an asset on behalf of the customer and the
purchase thereof from the same customer by the Company at cost plus an agreed
profit mark-up with settlement on a deferred payment basis. Customer Murabaha
deposit balances are included in the balance sheet under deposits from customers
and the accrued returns payable to the customer are classified under other
liabilities. Returns payable on Customer Murabaha deposits are recognised on an
effective yield basis over the period of the contract.
(g) Profit stabilisation reserve
The profit stabilisation reserve is used to maintain returns payable to
customers on Mudaraba based savings accounts. Returns payable on these profit
sharing accounts are credited to customers in accordance with the terms and
conditions of the account. Any surplus returns arising from the investment of
funds are then credited to this reserve. In the case of inadequate returns
generated by these funds, the Company will maintain the return to depositors by
utilising this reserve.
(h) Derecognition of financial assets and liabilities
The Company derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards or ownership of the financial asset are
transferred. Any remaining interest in transferred financial assets that is
created or retained by the Company is recognised as a separate asset or
liability.
The Company derecognises a financial liability when its contractual obligations
are discharged or cancelled or expire.
(i) Impairment of financial assets
At each balance sheet date the Company assesses whether there is objective
evidence that financial assets not carried at fair value through profit or loss
are impaired. Financial assets are impaired when objective evidence
demonstrates that a loss event has occurred after the initial recognition of the
asset, and that the loss event has an impact on the future cash flows on the
asset that can be estimated readily.
The Company considers evidence of impairment at both a specific asset and
collective level. All individually significant financial assets are assessed
for specific impairment. All significant assets found not to be specifically
impaired are then collectively assessed for any impairment that has been
incurred but not yet identified. Assets that are not individually significant
are then collectively assessed for impairment by grouping together financial
assets (carried at amortised cost) with similar risk characteristics.
Objective evidence that financial assets are impaired include default or
delinquency by the counterparty, extending or changing repayment terms,
indications that a counterparty may go into bankruptcy, or other observable data
relating to a group of assets such as adverse changes in the payment status of
counterparties, or economic conditions that correlate with defaults in the
group.
In assessing collective impairment the Company uses analysis of historical
trends to identify the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for management's judgement as to whether
current economic conditions are such that the actual losses are likely to be
greater or less than suggested by historical analysis. Default rates, loss
rates and the expected timing of future recoveries are regularly benchmarked
against actual outcomes to ensure that they remain appropriate.
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 the estimated cash flows discounted at the assets' original effective
yield rate. Losses are recognised in the income statement and reflected against
the asset carrying value.
When a subsequent event causes the amount of impairment losses to decrease, the
impairment loss is reversed through the income statement.
(j) Impairment of non-financial assets
The carrying amounts of the Company'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.
An impairment loss is recognised if the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. A cash-generating unit is
the smallest identifiable asset group that generates cash flows that largely are
independent from other assets and groups. Impairment losses are recognised in
the income statement.
The recoverable amount of an asset is the greater of its value in use and its
fair value less costs to resell. In assessing value in use, the estimated
future cash flows are discounted to their present value. 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.
(k) Provisions
A provision is recognised if, as a result of a past event, the Company has a
present legal or constructive obligation that can be estimated reliably, and it
is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of cost of
funds and, where appropriate, the risks specific to the liability.
(l) Fees and commissions
Fees and commission income that relate mainly to transaction and service fees
are recognised as the related services are performed. Fees and commission
expenses that relate mainly to transaction and service fees are expensed as
incurred.
Arrangement fees for commercial property finance deals are amortised over the
expected life of the transaction.
(m) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is
recognised in the income statement except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is
measured at the tax rates that are expected to be applied to the temporary
differences when they reverse, based on laws that have been enacted or
substantively enacted by the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
(m) Lease payments made
Payments made under operating leases are recognised in the income statement on a
straight-line basis over the term of the lease. Lease incentives received are
recognised as an integral part of the total lease expense, over the term of the
lease.
(o) Employee benefits
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement when they are due.
Short-term employee benefits, such as salaries, paid absences, and other
benefits, are accounted for on an accruals basis over the period for which
employees have provided services. Bonuses are recognised to the extent that the
Company has a present obligation to its employees that can be measured reliably.
(p) Cash and cash equivalents
Cash and cash equivalents include notes and coins on hand, unrestrictive
balances held with central banks and highly liquid financial assets with
original maturities of less than three months, which are subject to
insignificant risk of changes in their fair value, and are used by the Company
in the management of its short-term commitments.
Commodity Murabaha and Wakala transactions, used by the Company for investment
purposes, are not included within cash and cash equivalents.
Cash and cash equivalents are carried at amortised cost in the balance sheet.
(q) Other receivables
Trade and other receivables are stated at their nominal amount (discounted if
material) less impairment losses.
(r) Earnings per share
The Company presents basic and diluted earnings per share (EPS) data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period. Diluted EPS is
determined by adjusting the profit or loss attributable to ordinary shareholders
and the weighted average number of ordinary shares outstanding for the effects
of all dilutive potential ordinary shares.
(s) Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency at
exchange rates ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate ruling at that
date. The foreign currency gain or loss on monetary items is the difference
between amortised cost in the functional currency at the beginning of the period
and the amortised cost in foreign currency translated at the exchange rate
ruling at the end of the period. Foreign currency differences arising on
retranslation are recognised in the income statement.
(t) Share based payments
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date on which they are granted. The fair value is
determined by an external valuer using an option pricing model, taking into
account the terms and conditions upon which the options were granted.
The cost of equity-settled transactions is expensed on a straight-line basis,
together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which
the relevant employees become fully entitled to the award ('the vesting date').
The cumulative expense recognised for equity settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Company's best estimate of the number of equity
instruments that will ultimately vest. The income statement charge or credit for
a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
The dilutive effect of outstanding options is reflected as additional share
dilution in the computation of earnings per share.
(u) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations relevant
to the Company have been issued, but are not yet effective within the EU and
have not been applied in preparing these financial statements.
* IAS 1* Presentation of financial statements (Amendment). This becomes
effective for accounting periods beginning on or after 1st January 2009.
The adoption of this standard will result in changes in the presentation of
the financial statements and is not expected to have any impact on the
financial position of the Company.
* IAS 23 Borrowing costs (Amendment). The amendment to this standard deals
with the accounting treatment of borrowing costs for certain qualifying
assets. The amendment is effective for accounting periods beginning on or
after 1 January 2009 and will have no impact on the Company.
* IAS 27* Investment in subsidiaries (Amendment). This becomes effective for
accounting periods beginning on or after 1st July 2009. The adoption of
this standard will result in no material changes in the presentation of the
financial statements and is not expected to have any impact on the
financial position of the Company.
* IFRS 2 Share based payments (Amendment). In October 2007 the International
Accounting Standards Board proposed an amendment to IFRS 2, dealing with
the recognition of certain cash settled share based payments. This
amendment becomes effective for accounting periods beginning on or after
1 January 2009. The adoption of this amendment will not have any impact on
the Company.
* IFRS 3* Business combinations (Amendment). This becomes effective for
accounting periods beginning on or after 1st July 2008. The adoption of
this standard will result in no material changes in the presentation of the
financial statements and is not expected to have any impact on the
financial position of the Company.
* IFRS 8 Operating segments. IFRS 8 becomes effective for accounting periods
beginning on or after 1st January 2009. This standard replaces IAS 14
- Segment Reporting and prescribes disclosure requirements in relation to
the Company's operating segments, products, services and geographical areas
in which it operates. The adoption of this standard is not expected to
have any material impact on the financial statements.
* IFRIC 12 Service concession arrangements. This was issued on 30 November
2006 and gives guidance on the accounting for public-to private service
concession arrangements. This interpretation is effective for accounting
periods beginning on or after 1 January 2008. The implementation of this
interpretation will have no impact on the Company.
* IFRIC 13 Customer loyalty programs. This was issued on 28 June 2007 and
addresses the accounting for awards provided to customers as incentives to
buy goods or services. This interpretation is effective for accounting
periods beginning on or after 1 July 2008. The implementation of this
interpretation will have no impact on the Company.
* IFRIC 14 The limit on a defined benefit asset, minimum funding requirements
and their Interaction. This becomes effective for accounting periods
beginning on or after 1st January 2008. This interpretation addresses
issues relating to IAS 19 - Employee Benefits on the amount of a surplus in
a pension plan that entities can recognise as an asset, how a minimum
funding requirement affects that limit, and when a minimum funding
requirement creates an obligation that should be recognised as a liability.
The adoption of this interpretation is not expected to have any material
impact on the financial statements.
* These standards have not yet been endorsed by the EU.
4 Financial risk management
The Company has exposure to the following risks arising from its use of
financial instruments:
* credit risk
* liquidity risk
* market risk
* operational risk
* settlement risk
The Company is not exposed to any material foreign currency risk.
This note presents information about the Company's exposure to each of the above
risks, its objectives, policies and processes for measuring and managing these
risks, and its management of capital.
Risk management framework
The Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Company has
established the Asset and Liability (ALCO), Credit and Risk Committees, which
are responsible for developing and monitoring risk management policies in their
specific areas.
The Company's risk management policies are established to identify and analyse
the risks faced by the Company, to set appropriate risk limits and controls, and
to monitor risks and adherence to limits. Risk management policies and systems
are reviewed regularly to reflect changes in market conditions, products and
services offered. The Company, through its training and management standards
and procedures, aims to develop a disciplined and constructive control
environment, in which all employees understand their roles and obligations.
Risk management controls and procedures are reviewed by Internal Audit, both as
part of the regular audit review programme and through ad-hoc reviews. The
results of these reviews are reported to the Audit Committee.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. The Company's credit risk arises principally from its financing
products but also from other advances to customers and banks.
(i) Management of credit risk
The Company seeks to manage credit risk by monitoring credit exposures, limiting
transactions with specific counterparties, countries or sectors and continually
assessing the creditworthiness of counterparties.
The Board of Directors has delegated responsibility for the management of credit
risk to the Credit Committee. A separate Credit Risk department, reporting to
the Credit Committee is responsible for oversight of the Company's credit risk,
including:
* Formulating credit policies in consultation with other business units,
covering credit assessments, collateral requirements, risk reporting, legal
requirements and compliance with regulatory and statutory requirements.
* Establishing authorisation limits and structures for the approval and
renewal of credit exposure limits.
* Reviewing and assessing credit risk prior to agreements being entered into
with customers.
* Limiting concentrations of exposure to counterparties and reviewing these
limits.
* Ongoing assessment of exposure and implementation of procedures to reduce
this exposure.
* Providing advice, guidance and specialist skills to all business areas to
promote best practice throughout the Company in the management of credit
risk.
Adherence to country and counterparty limits, for amounts due to other banks, is
monitored on an ongoing basis by the Company's Treasury department, with a
detailed review of all limits at least annually. Senior management receives
regular reports on the utilisation of these limits.
Regular reviews of the Credit Risk department's processes are undertaken by
Internal Audit.
(ii) Exposure to credit risk
Note Commodity Murabaha Consumer finance Net investment Total
and Wakala accounts and in commercial
receivables and other advances property
other advances to to customers finance
banks
� � � �
2007
Investment grade financial assets 13 141,768,471 - - 141,768,471
Unrated financial assets 14 - 10,676,312 6,091,882 16,768,194
Specific allowances for impairment 14 - (194,309) - (194,309)
Collective allowances for 14 - (818,708) - (818,708)
impairment
Carrying amount 141,768,471 9,663,295 6,091,882 157,523,648
2006
Investment grade financial assets 13 100,286,964 - - 100,286,964
Unrated financial assets 14 - 8,589,483 2,338,401 10,927,884
Specific allowances for impairment 14 - (357,081) - (357,081)
Collective allowances for 14 - (140,076) - (140,076)
impairment
Carrying amount 100,286,964 8,092,326 2,338,401 110,717,691
Investment grade financial assets have a minimum rating of BBB. As at 31
December 2007, the amount of unimpaired balances stood at �156,933,093 (2006:
�110,857,767). The maximum exposure to credit risk is the carrying amount of
the financial asset receivable balances as at 31 December 2007 and 31 December
2006.
(iii)Write-off policy
The Company writes off a balance (and any related allowances for impairment)
when the Credit Risk department determines that the balance is uncollectible.
This determination is reached after considering information such as the
occurrence of significant changes in the counterparty's financial position such
that the counterparty can no longer pay the obligation, or that proceeds from
collateral will not be sufficient to pay back the entire exposure.
(iv) Collateral
The Company holds collateral against secured advances made to businesses in the
form of charges over properties, other registered securities over assets, and
guarantees. Estimates of fair value are based on the value of collateral
assessed at the time of financing and are updated on a periodic basis. The
estimated fair value of collateral held against financial assets as at 31
December 2007 is �10.1m (2006: �5.3m). None of this amount was held against
impaired assets.
(v) Concentration of credit risk
The Company monitors concentrations of credit risk by sector and geographical
location. An analysis of concentrations of credit risk at the reporting date is
on the following page.
Commodity Murabaha and Consumer finance Net investment in
Wakala receivables and accounts and other commercial property
other advances to banks advances to customers finance
2007 2006 2007 2006 2007 2006
� � � � � �
Concentration by sector:
Individuals - - 9,522,801 7,989,887 1,931,552 -
Corporate - - 140,494 102,439 4,160,330 2,338,401
Bank 141,768,471 100,286,964 - - - -
141,768,471 100,286,964 9,663,295 8,092,326 6,091,882 2,338,401
Concentration by location:
United Kingdom 36,050,280 26,087,038 9,663,295 8,092,326 6,091,882 2,338,401
Europe 64,712,978 64,922,142 - - - -
Middle East 35,105,213 9,277,784 - - - -
South East Asia 5,900,000 - - - - -
141,768,471 100,286,964 9,663,295 8,092,326 6,091,882 2,338,401
(b) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting
obligations from its financial liabilities. The Company's approach to managing
liquidity is to ensure that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Company's reputation.
The Treasury department is responsible for monitoring the liquidity profile of
financial assets and liabilities and details of projected cash flows arising
from projected future business. The Treasury department will maintain a
portfolio of short-term liquid assets, made up of cash on demand and short term
Commodity Murabaha and Wakala transactions to ensure that sufficient liquidity
is maintained. All liquidity policies and procedures are subject to review and
approval by ALCO.
The key measure used by the Company for managing liquidity risk is the
comparison of liquid assets and maturity of assets against customer deposits.
This analysis is completed on a daily basis and reports are submitted for review
to ALCO. A similar calculation of mismatches is submitted to the Financial
Services Authority (the 'FSA') as part of the Company's quarterly regulatory
reporting.
Residual contractual maturities of financial liabilities
The table below shows the undiscounted cash flows on the Company's financial
liabilities on the basis of their earliest possible contractual maturity.
However, based on behavioural experience demand deposits from customers are
expected to maintain an increasing balance.
Note Carrying amount Gross maturity Less than 1 1-3 months 3 months -1
outflow month year
� � � � �
31 December 2007
Deposits from banks 18 2,498,304 2,542,208 14,820 2,278,432 248,956
Deposits from customers 19 134,640,612 135,586,802 111,124,101 14,687,992 9,774,710
137,138,916 138,129,010 111,138,921 16,966,424 10,023,666
31 December 2006
Deposits from banks 18 240,164 240,164 240,164 - -
Deposits from customers 19 83,853,383 84,349,000 70,259,000 6,889,000 7,201,000
84,093,547 84,589,164 70,499,164 6,889,000 7,201,000
A breakdown of the Company's Commodity Murabaha and Wakala receivables by
maturity date is shown in note 13.
(c) Market risk
Market risk is the risk that changes in market prices will affect the Company's
income. The objective of market risk management is to manage and control
exposures within acceptable parameters, whilst optimising returns. Given the
Company's current profile of financial instruments, the principle exposure is
the risk of loss arising from fluctuations in the future cash flows or fair
values of these financial instruments because of a change in achievable rates.
This is managed principally through monitoring gaps between effective profit and
rental rates and by having approved rates and bands reviewed at regular
re-pricing meetings:
* Profit rates for Commodity Murabaha and Wakala receivables are agreed with
the counterparty bank at the time of each transaction and the profit mark-up
and effective yield rate is consequently fixed for the duration of the
contract. Risk exposure is managed by reviewing maturity profiles of
transactions entered into.
* Effective rates applied to new consumer finance transactions are agreed on
a monthly basis by ALCO and the profit mark-up will then be fixed for each
individual transaction for the agreed deferred payment term.
* Rental for longer term commercial property financing is benchmarked
against a market measure, in agreement with the Company's Sharia'a
Supervisory Committee, and therefore amounts receivable are reassessed every
six months.
* Rates of return payable on customer deposit accounts are calculated at
each month-end in line with the Mudaraba profit model and the customer terms
and conditions.
All rates and re-pricings are reviewed and agreed at ALCO, which is principally
responsible for monitoring market risk. ALCO will also review sensitivities of
the Company's assets and liabilities to standard and non-standard changes in
achievable effective rates. Standard scenarios that are considered on a monthly
basis include a 1.00% or 0.50% rise or fall in effective average rates. An
analysis of the Company's income statement sensitivity to an increase or
decrease in effective rates (assuming no asymmetrical movement and a constant
balance sheet position) is as follows:
1.00% parallel 1.00% parallel 0.50% parallel 0.50% parallel
increase decrease increase decrease
31 December 2007 702,587 (702,587) 351,294 (351,294)
31 December 2006 1,219,894 (1,219,894) 609,947 (609,947)
(d) Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide
variety of causes associated with the Company's processes, personnel, technology
and infrastructure, and from external factors other than credit, market and
liquidity risks.
The Company's objective in managing operational risk is to implement an
integrated internal control structure that supports process efficiency and
customer needs, whilst effectively reducing the risk of error and financial loss
in a cost effective manner. The overall operational risk framework is set by
the Board of Directors. Primary responsibility for the development and
implementation of internal controls is assigned to senior management within each
business department. Adherence to overall operational risk policies and
procedures is regularly reviewed by Internal Audit and findings are reported to
the Audit Committee.
(e) Settlement risk
The Company's activities may give rise to risk at the time of settlement of
transactions and trades. Settlement risk is the risk of loss due to the failure
of a company to honour its obligations to deliver cash or other assets as
contractually agreed.
For certain types of transactions the Company mitigates this risk by conducting
settlements through a settlement / clearing agent to ensure that a trade is
settled only when both parties have fulfilled their contractual settlement
obligations. Settlement limits form part of the credit approval / limit
monitoring process described earlier.
(f) Capital management
The Company's capital requirements are set and monitored by the FSA. Regulatory
capital is analysed into two tiers:
* Tier 1 capital, which includes ordinary share capital, share premium and
retained earnings, less intangible assets.
* Tier 2 capital, which includes collective impairment allowances, restricted
to a maximum amount.
The level of total capital is matched against risk-weighted assets which are
determined according to specified requirements that seek to reflect the varying
levels of risk attached to assets. The Company has put in place processes to
monitor and manage capital adequacy.
The Company's regulatory capital position as at 31 December was as follows:
Note 2007 2006
� �
Tier 1 capital
Total equity 24,825,309 31,731,287
Less Intangible assets (1,262,231) (1,894,272)
23,563,078 29,837,015
Tier 2 capital
Collective allowances for impairment (restricted to a maximum 632,109 140,076
amount)
Total regulatory capital (a) 24,195,187 29,977,091
Risk weighted assets (b) 50,568,758 35,576,836
Total regulatory capital expressed as a percentage of risk weighted (a)/(b) 47.85% 84.26%
assets
The Company adopted the EU Capital Requirements Directive, implementing the
Basel II framework for calculating minimum capital requirements, on 1 January
2008. There is no significant impact on the Company's capital ratios from
adopting the Basel II capital requirements.
5 Critical accounting policies
Management discussed with the Audit Committee the development, selection and
disclosure of the Company's critical accounting policies and estimates, and the
application of these policies and estimates. The critical accounting policies
are set out below.
Allowance for credit losses
Assets accounted for at amortised cost are evaluated for impairment on a basis
described in accounting policy (i).
The specific counterparty component of the total allowances for impairment
applies to claims evaluated individually for impairment and is based upon
management's best estimate of the present value of the cash flows that are
expected to be received. In estimating these cash flows, management makes
judgements about each counterparty's financial situation and the realisable
value of any underlying collateral. Each impaired asset is assessed on its
merits, and the estimates of cash flows considered recoverable are approved by
the Credit Risk function.
Collectively assessed impairment allowances cover credit losses inherent in
portfolios of claims with similar economic characteristics when there is
objective evidence to suggest that they contain impaired claims, but the
individual impaired items cannot yet be identified. In assessing the need for
collective loss allowances, management considers factors such as credit quality,
portfolio size, concentrations, and economic factors. In order to estimate the
required allowance, assumptions are made to define the way inherent losses are
modelled and to determine the required input parameters, based on historical
experience and current economic conditions.
6 Net income from Islamic financing transactions
2007 2006
� �
Income received
Commodity Murabaha and Wakala transactions 6,658,628 3,880,252
Consumer finance accounts 793,861 640,257
Commercial property finance 351,801 34,069
Total income received from Islamic financing 7,804,290 4,554,578
transactions
Returns payable
Deposits from banks (225,851) (4,988)
Deposits from customers (2,983,020) (1,700,401)
Total returns payable to banks and customers (3,208,871) (1,705,389)
Net income from Islamic financing transactions 4,595,419 2,849,189
7 Net fee and commission income
2007 2006
� �
Fee and commission income
Retail customer banking fees 164,854 130,585
Home finance introduction fees 28,324 1,750
Arrangement fees 7,300 633
ATM commission 31,910 34,719
Other 7,674 6,867
Total fee and commission income 240,062 174,554
Fee and commission expense
Electronic transaction fees (19,005) (12,764)
ATM interchange fees (119,614) -
Total fee and commission expense (138,619) (12,764)
Net fee and commission income 101,443 161,790
8 Personnel expenses
2007 2006
� �
Wages and salaries 4,344,913 3,777,164
Social security costs 713,840 401,482
Contributions to defined contribution pension plans 50,308 52,094
Share based payments charge 11,026 -
Other staff costs 18,289 11,038
Total 5,138,376 4,241,778
The average number of persons employed by the Company
during the year was: 175 144
9 Auditors' remuneration
Included within operating losses are the following payments made to the
auditors:
2007 2006
� �
Amounts receivable by the auditors and their associates in
respect of:
Audit of financial statements pursuant to legislation 98,538 90,000
Under-accrual for prior year audit fees - 35,403
Other services relating to taxation 239,492 52,430
All other services 8,966 30,390
Total 346,996 208,223
10 Directors' emoluments
2007 2006
� �
Directors' emoluments 482,979 503,492
Company contributions to pension plans 24,225 21,831
Total 507,204 525,323
The aggregate of emoluments in 2007 of the highest paid director was �167,456
(2006: �177,620) and Company pension contributions of �14,900 (2006: �12,561)
were made on his behalf.
11 Income tax expense
There were no taxable profits or recoverable losses for the year ended 31
December 2007 (2006: �nil) and, accordingly, the Company has not provided for a
tax charge or a tax debtor.
2007 2006
� �
Reconciliation of effective tax rate
Loss before tax (6,917,004) (8,833,253)
Income tax at UK corporation tax rate (30%) (2,075,101) (2,649,978)
Non deductible expenses 15,099 47,108
Depreciation in excess of capital allowances on which 389,646 417,939
deferred tax not recognised
Adjustment to prior year tax - (33,242)
Unutilised tax losses 1,670,356 2,218,173
- -
Deferred tax assets have not been recognised in
respect of the following items:
Capital allowances 1,147,840 1,064,584
Tax losses 6,156,185 4,909,069
7,304,025 5,973,653
In respect of the recognition of deferred tax assets, for the purposes of
applying the requirements of IAS 12 ('Income Taxes'), it has been considered
that the Company is not currently at a sufficiently advanced stage in its
development to confidently assert future offsetting tax liabilities. Capital
allowances to be claimed are being finalised and therefore the level of the
asset shown above may change.
The corporation tax rate used to calculate potential deferred tax assets was 28%
(2006: 30%).
12 Cash and cash equivalents
2007 2006
� �
Cash 509,769 451,492
Other advances to banks 5,154,737 1,739,090
Total cash and cash equivalents 5,664,506 2,190,582
13 Commodity Murabaha and Wakala receivables and other advances to banks
2007 2006
� �
Repayable on demand 5,154,737 1,739,090
3 months or less but not repayable on demand 136,114,234 98,038,968
1 year or less but over 3 months 499,500 508,906
Total Commodity Murabaha and Wakala receivables and 141,768,471 100,286,964
other advances to banks
A breakdown of Commodity Murabaha and Wakala receivables and other advances to
bank by geographic regions is shown in note 4. Balances maturing in 1 year or
less but over 3 months include a balance of �499,500 (2006: �508,906)
representing a repayable security deposit held by a bank that has issued a
guarantee to cover the Company's future customer card transactions with
MasterCard. The deposit earns no return.
14 Advances to customers
Gross Impairment Carrying Gross Impairment Carrying
amount allowance amount amount allowance amount
2007 2007 2007 2006 2006 2006
Retail customers: � � � � � �
Consumer finance accounts and other 10,535,818 (1,013,017) 9,522,801 8,487,044 (497,157) 7,989,887
advances to customers
Corporate customers:
Consumer finance accounts and other 140,494 - 140,494 102,439 - 102,439
advances to customers
Total consumer finance accounts and 10,676,312 (1,013,017) 9,663,295 8,589,483 (497,157) 8,092,326
other advances to customers
Net investment in commercial 6,091,882 - 6,091,882 2,338,401 - 2,338,401
property finance
2007 2006
� �
Specific allowances for impairment
Balance at 1 January 357,081 -
Transfer to collective allowances for impairment (302,938) -
Charge for the year 140,166 357,081
Balance at 31 December 194,309 357,081
Collective allowances for impairment
Balance at 1 January 140,076 52,068
Transfer from specific allowances for impairment 302,938 -
Charge for the year 503,905 88,008
Amounts written off during the year (128,211) -
Balance at 31 December 818,708 140,076
Total allowances for impairment
Balance at 1 January 497,157 52,068
Charge for the year 644,071 445,089
Amounts written off during the year (128,211) -
Balance at 31 December 1,013,017 497,157
This impairment allowance relates to consumer finance accounts and other
advances to retail customers. Following a review of the impairment calculation
during the year, a transfer was made from the specific allowance to the
collective allowance, as shown in the table above.
The gross investment in commercial property finance comprises:
Less than one year 592,391 242,367
Between one and five years 2,397,607 954,392
More than five years 9,516,134 3,055,194
Total gross investment in commercial property finance 12,506,132 4,251,953
Unearned future rental on commercial property finance (6,414,250) (1,913,552)
Net investment in commercial property finance 6,091,882 2,338,401
The net investment in commercial property finance comprises:
Less than one year 112,867 141,331
Between one and five years 616,859 552,668
More than five years 5,362,156 1,644,402
Net investment in commercial property finance 6,091,882 2,338,401
As at 31 December 2007 there is no material difference between the carrying
value and the fair value of any financial assets or liabilities (2006: �nil).
15 Property and equipment
Computer Office Leasehold Fixtures & Total
equipment equipment Improvements fittings
� � � � �
Cost
Balance at 1 January 2007 1,251,615 87,617 4,035,562 257,405 5,632,199
Additions 106,110 10,350 43,536 64,342 224,338
Balance at 31 December 2007 1,357,725 97,967 4,079,098 321,747 5,856,537
Depreciation
Balance at 1 January 2007 814,872 34,578 724,760 92,619 1,666,829
Depreciation charge for the year 311,256 17,549 348,404 69,144 746,353
Balance at 31 December 2007 1,126,128 52,127 1,073,164 161,763 2,413,182
Net book value
At 31 December 2007 231,597 45,840 3,005,934 159,984 3,443,355
Cost
Balance at 1 January 2006 1,078,144 78,882 3,470,753 216,539 4,844,318
Additions 173,471 8,735 564,809 40,866 787,881
Balance at 31 December 2006 1,251,615 87,617 4,035,562 257,405 5,632,199
Depreciation
Balance at 1 January 2006 427,440 18,231 562,079 37,617 1,045,367
Depreciation charge for the year 387,432 16,347 162,681 55,002 621,462
Balance at 31 December 2006 814,872 34,578 724,760 92,619 1,666,829
Net book value
At 31 December 2006 436,743 53,039 3,310,802 164,786 3,965,370
The Company leases its branch and office premises under operating leases. The
leases typically run for 10 years, with options to renew the lease after that
date. Lease payments are reviewed after periods stipulated in the agreements to
reflect market rentals.
16 Intangible assets
Computer Purchased & Total
licences developed
software
� � �
Cost
Balance at 1 January 2007 681,808 3,469,138 4,150,946
Additions 2,229 471,804 474,033
Balance at 31 December 2007 684,037 3,940,942 4,624,979
Amortisation
Balance at 1 January 2007 359,698 1,896,976 2,256,674
Amortisation charge for the year 144,791 961,283 1,106,074
Balance at 31 December 2007 504,489 2,858,259 3,362,748
Net book value
At 31 December 2007 179,548 1,082,683 1,262,231
Cost
Balance at 1 January 2006 363,507 2,297,171 2,660,678
Additions 318,301 1,171,967 1,490,268
Balance at 31 December 2006 681,808 3,469,138 4,150,946
Amortisation
Balance at 1 January 2006 180,604 971,069 1,151,673
Amortisation charge for the year 179,094 925,907 1,105,001
Balance at 31 December 2006 359,698 1,896,976 2,256,674
Net book value
At 31 December 2006 322,110 1,572,162 1,894,272
17 Other assets
2007 2006
� �
VAT recoverable 1,502,964 505,611
Accrued income 281,490 105,414
Prepayments 413,370 372,245
Total 2,197,824 983,270
There are no receivables within other assets that are expected to be recovered
in more than 12 months (2006: �nil).
18 Deposits from banks
2007 2006
� �
Repayable on demand 14,820 240,164
3 months or less but not repayable on demand 2,247,752 -
1 year or less but over 3 months 235,732 -
Total deposits from banks 2,498,304 240,164
Comprising:
Non profit sharing accounts 6,000 -
Profit sharing / paying accounts 2,492,304 240,164
Total deposits from banks 2,498,304 240,164
19 Deposits from customers
2007 2006
� �
Repayable on demand 77,626,003 52,159,169
3 months or less but not repayable on demand 47,586,495 24,687,830
1 year or less but over 3 months 9,428,114 7,006,384
Total deposits from customers 134,640,612 83,853,383
Comprising:
Non profit sharing 27,094,505 19,304,662
Profit sharing / paying accounts 107,546,107 64,548,721
Total deposits from customers 134,640,612 83,853,383
20 Other liabilities
2007 2006
� �
Returns payable to customers 374,032 170,553
Trade payables 534,118 358,652
Social security and income tax 114,926 134,628
Accruals 1,157,599 558,441
Instalment payable in respect of commercial property finance - 725,000
facility
Other creditors 791,927 239,987
Total 2,972,602 2,187,261
Included within accruals is a balance of �56,000 payable over the remaining
lease term of 7 years relating to refurbishment of a branch property (2006:
�64,000). This is paid in equal annual instalments and therefore �48,000 will
be payable in more than 12 months.
21 Operating leases
Non-cancellable operating lease rentals are payable as follows:
2007 2006
� �
Less than one year 439,305 457,085
Between one and five years 2,219,023 1,780,779
More than five years 1,845,376 2,289,680
Total 4,503,704 4,527,544
During the year �506,470 was recognised as an expense in the income statement in
respect of operating leases (2006: �413,899).
22 Called up share capital
2007 2006
� �
Authorised
Equity: 500,000,000 ordinary shares of �0.01 each 5,000,000 5,000,000
Allotted, called up and fully paid
Issued ordinary share capital 4,190,000 4,190,000
Company Share Option Plan
During the year, the Company established an HMRC approved Company Share Option
Plan ('CSOP') under which options to subscribe for the Company's ordinary shares
of 1p each have been awarded to certain employees ('Optionholders').
All options have a vesting period of 3 years, and are subject to the achievement
of specific performance criteria.
Options are forfeited if they remain unexercised after a period of more than 10
years from the date of grant. Options are also forfeited if the Optionholder
ceases to hold office with the Company before the options vest, with certain
exceptions ("good leaver" provisions). All options are non-transferable and
there are no cash settlement alternatives.
The following options were granted during the year under the CSOP and remain
outstanding at the end of the year:
Number of options Exercise price Date of grant Date of exercise
First Last
2,982,053 9.5p 5 Nov 2007 5 Nov 2010 4 Nov 2017
218,421 9.5p 11 Dec 2007 11 Dec 2010 10 Dec 2017
No options were exercised or cancelled during the year, and there were no
options awarded in prior years.
The fair value of the equity-settled share options granted under the CSOP are
estimated at the date of grant using a Black-Scholes model, taking into account
the terms and conditions upon which the options were granted. There are no
market conditions which need to be taken into account in measuring the fair
value of the share options. The assumptions used in the model are as follows:
Input Assumption
Share price Price at date of grant
Expected share price volatility 70% (Expected volatility is based on the Company's historic share price
volatility over the previous 260 days)
Option life Per scheme rules
Expected dividends Nil
Risk free rate 4.9%
The expense recognised in the income statement for share based payments and the
corresponding movement within reserves during the year was �11,026 (2006: �nil).
23 Related parties
Transactions with directors
During the year the Company has undertaken transactions with DCD London & Mutual
PLC, a related party by virtue of the fact that Mr Shabir Randeree is a director
of that company and also served on the board of Islamic Bank of Britain PLC.
2007 2006
� �
DCD London & Mutual PLC
Meeting costs 48 2,394
Other - 777
There were no amounts outstanding to DCD London & Mutual PLC included within
trade payables as at 31 December 2007 (2006: �nil).
In addition to the above transactions, DCD London & Mutual PLC, Pelham
Incorporated Limited, DCD Properties Limited and European Islamic Investment
Bank PLC (EIIB) (related parties by the same virtue) held bank accounts with the
Company under normal customer terms and conditions:
* As at 31 December 2007, DCD London & Mutual PLC deposit balances amounted
to �nil (2006: �nil) and the highest balance during the year was �nil (2006:
�nil). Total returns paid during the year were �nil (2006: �nil).
* As at 31 December 2007, Pelham Incorporated Ltd deposit balances amounted
to �622,949 (2006: �6,584,292) and the highest balance during the year was
�6,626,311 (2006: �6,584,292). Total returns paid on these deposits during the
year totalled �65,151 (2006: �46,357).
* As at 31 December 2007, DCD Properties Ltd deposit balances amounted to
�86,543 (2006: �526,291) and the highest balance during the year was �526,291
(2006: �526,291). Total returns paid on these deposits during the year totalled
�3,787 (2006: �nil).
* As at 31 December 2007, European Islamic Investment Bank PLC (EIIB) deposit
balances amounted to �244,552 (2006: �240,164) and the highest balance during
the year was �260,806 (2006: �4,719,055). Total returns paid on these deposits
during the year totalled �57,943 (2006: �4,988).
At 31 December 2007, directors of the Company and their immediate relatives
control 7.21% of the voting shares of the Company (2006: 7.41%).
Transactions with key management personnel
Key management of the Company are the Board of Directors and senior management.
The compensation of key management personnel including the directors is as
follows:
2007 2006
� �
Key management emoluments including social security 1,064,355 1,081,128
costs
Company contributions to pension plans 38,980 38,432
Total 1,103,335 1,119,560
In addition to the above compensation, key management personnel were granted
share options during the year as set out in note 22. No options were exercised
or cancelled during the year, and there were no options awarded in prior years.
Deposit balances, operated under standard customer terms and conditions, held by
key management personnel, including directors, totalled �116,664 as at 31
December 2007 (2006: �151,894). The highest balance during the year was �143,305
(2006: �151,894). Total returns paid on these accounts during the year totalled
�944 (2006: 1,084).
Outstanding consumer finance account balances relating to key management
personnel totalled �51,994 as at 31 December 2007 (2006: �34,670). Returns
recognised during the year for these accounts were �2,404 (2006: �1,602). All
consumer finance account facilities taken by key management personnel and staff
were offered in line with standard customer terms and conditions.
24 Earnings per ordinary share
2007 2006
� �
Loss for the year (6,917,004) (8,833,253)
No. No.
Weighted average number of shares used for basic loss per share 419,000,000 419,000,000
Dilutive effect of share option plan 3,200,474 -
Diluted weighted average number of shares used for diluted loss per share 422,200,474 419,000,000
pence pence
Basic loss per share 1.7 2.1
Diluted loss per share 1.6 2.1
The difference between the weighted average number of ordinary shares in the
basic and dilutive loss per share calculations represents the dilutive effect of
the potential conversion of all ordinary shares under option. The total number
of ordinary shares under option, which could have a dilutive effect in the
future, is analysed in note 22.
25 Capital commitments
There were no capital commitments outstanding as at 31 December 2007 or 31
December 2006.
26 Segmental reporting
The Company has one class of business and all other services provided are
ancillary to this. All business is conducted from the United Kingdom.
27 Assets and liabilities denominated in foreign currency
As at 31 December 2007, assets equivalent to �3,714,866 were denominated in US
Dollars and are included within Commodity Murabaha and Wakala receivables and
other advances to banks (2006: �1,046,795).
Customer liabilities of �3,143,377 were denominated in US Dollars (2006:
�472,481).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BLGDXDDBGGIS
Islamic Bank Of Britain (LSE:IBB)
Graphique Historique de l'Action
De Avr 2024 à Mai 2024
Islamic Bank Of Britain (LSE:IBB)
Graphique Historique de l'Action
De Mai 2023 à Mai 2024
