FIN323: Commercial Banking Summer 2021-22 It is a group project with a minimum of 10 students not more than 11 where students are required to analyze the financial condition of two

CONSOLIDATED FINANCIAL

STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31st December 2021

CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 1

CONSOLIDATED STATEMENT OF INCOME 2

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 3

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4

CONSOLIDATED STATEMENT OF CASH FLOWS 5

1 Incorporation and registration 6

2 Basis of preparation 6

3 Accounting policies 8

4 New and amended standards and interpretations 19

5 Accounting judgements estimates and assumptions 23

6 Classification of assets and liabilities 24

7 Cash and other liquid assets 25

8 Securities purchased under agreements to resell 25

9 Placements 25

10 Trading securities 25

11 Investment securities 25

12 Loans and advances 27

13 Other assets 29

14 Post retirement benefits 29

15 Deposits 33

16 Securities sold under agreements to repurchase 33

17 Other liabilities 34

18 Senior term financing 34

19 Share capital 34

20 Reserves 35

21 Dividends 35

22 Net interest income 36

23 Fee and commission income 36

24 Trading income 37

25 Foreign exchange income 37

26 Other income 37

27 Provision for expected credit losses 38

28 Taxation and zakat 38

29 Segmental information 39

30 Risk management 41

31 Geographical distribution of assets 52

32 Maturities of assets and liabilities 53

33 Interest rate risk 55

34 Derivatives and foreign exchange instruments 56

35 Credit-related financial instruments 61

36 Contingent liabilities 61

37 Capital adequacy 62

38 Fiduciary activities 62

39 Related party transactions 63

40 Fair value of financial instruments 64

41 Earnings per share 66

42 Principal subsidiaries 66

43 Non-controlling interest 67

44 Average consolidated statement of financial position 68

45 Shariah compliant assets and liabilities 68

46 Comparatives 69

SUPPLEMENTARY DISCLOSURES TO THE CONSOLIDATED FINANCIAL INFORMATION 70

31st December 2021 GULF INTERNATIONAL BANK B.S.C.

A member firm of Ernst & Young Global Limited

Ernst & Young — Middle East P.O. Box 140 East Tower — 10th floor Bahrain World Trade Center Manama Kingdom of Bahrain

Tel: +973 1753 5455 Fax: +973 1753 5405 [email protected] www.ey.com/mena C.R. no. 29977-1

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. Report on the Audit of the Consolidated Financial Statements Opinion We have audited the accompanying consolidated financial statements of Gulf International Bank B.S.C. (the “Bank”) and its subsidiaries (together the “Group”), which comprise the consolidated statement of financial position as at 31 December 2021, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2021, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”) as modified by the Central Bank of Bahrain (“CBB”). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in the Kingdom of Bahrain, and we have fulfilled our other ethical responsibilities in accordance with these requirements and IESBA. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended 31 December 2021. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9

Key audit matter How the key audit matter was addressed in the audit

The Group exercises significant judgment using subjective assumptions over both when and how much to record as loan impairment, and estimation of the amount of the Expected Credit Losses (“ECL”) for loans and advances.

The COVID-19 pandemic has impacted management determination of the ECL. This has resulted in an increased level of uncertainty associated with management judgement, which may result in outputs significantly different from the future credit losses and staging of the customers.

Loans and advances form a major portion of the Group’s assets, and due to the significance of the judgments used in classifying loans and advances into various stages stipulated in IFRS 9 and determining related ECL requirements, this audit area is considered a key audit risk.

As at 31 December 2021, the Group’s gross loans and advances amounted to US$ 11,952.6 million and the related impairment provisions amounted to US$ 295.1 million, comprising of US$ 128.7 million of provision against Stage 1 and 2 exposures and US$ 166.4 million against exposures classified under Stage 3.

The accounting policies relating to estimating ECL are presented in the accounting policies, and the associated credit risk disclosure is presented in Note 30 to the consolidated financial statements.

• We gained an understanding of the Group’s key credit processes comprising granting, booking, monitoring and provisioning, including an understanding of the design and operating effectiveness of relevant controls over the ECL model, including model build and approval, ongoing monitoring/validation, model governance and mathematical accuracy.

• We read the Group’s IFRS 9 based impairment provisioning policy and compared it with the requirements of IFRS 9 as well as relevant regulatory guidelines and pronouncements.

• We assessed the soundness of the Group’s loan grading processes.

Stage 1 and Stage 2 Provisions:

• For ECL against exposures classified as Stage 1 and Stage 2, we obtained an understanding of the Group’s provisioning methodology, the underlying assumptions and the sufficiency of the data used by management.

• We obtained an understanding of the Group’s internal rating model for loans and advances. We have read the annual external validation report on the internal rating model to assess the appropriateness of the rating model.

• We checked the appropriateness of the Group’s determination of significant increase in credit risk and the resultant basis for classification of exposures into various stages.

• For forward looking assumptions used by the Group in its ECL calculations, we held discussions with management and corroborated the assumptions using publicly available information. We also assessed the reasonableness of changes made to the economic scenarios to reflect the effect of COVID-19.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9 (continued)

Key audit matter How the key audit matter was addressed in the audit

• For a sample of exposures, we checked the appropriateness of the Group’s staging.

• For Probability of Default (“PD”) used in the ECL calculations we checked the Through the Cycle (“TTC”) PDs with internal historical data and checked the appropriateness of conversion of the TTC PDs to Point in Time PDs.

• We checked the appropriateness of the Loss Given Default used by the Group’s management in the ECL calculations.

• For a sample of exposures, we checked the appropriateness of determining Exposure at Default, including the consideration of repayments in the cash flows and the resultant arithmetical calculations.

• We checked the completeness of loans and advances and credit related contingent items included in the ECL calculations as of 31 December 2021.

• We involved Financial Services Risk Management and Information System specialists to verify the appropriateness of the model.

• We considered the adequacy of the disclosures in the consolidated financial statements in accordance with IFRS 9. Refer to the accounting policies, accounting judgements, estimates and assumptions, disclosures of loans and advances and credit risk management in notes 3, 5, 12 and 30 respectively to the consolidated financial statements.

• We assessed the basis of determination of the management overlays considering the impact of the COVID-19 global pandemic against the requirements of the Group’s ECL policy.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9 (continued)

Key audit matter How the key audit matter was addressed in the audit

Stage 3 (Specific) Provisions:

• For a sample of exposures determined to be individually impaired, we obtained an understanding of the latest developments in the counterparty’s situation and examined management’s estimate of future cash flows and checked the resultant provision calculations.

• For each exposure in the sample selected, we re-performed the provision calculation by considering the appropriateness of the management assumptions used and where possible benchmarked the provision held to that across the industry.

Other information included in the Group’s 2021 Annual Report Other information consists of the information included in the Group’s 2021 Annual Report, other than the consolidated financial statements and our auditor’s report thereon. The Board of Directors is responsible for the other information. Prior to the date of this auditor’s report, we obtained the Chairman’s Statement which will form part of the annual report, and the remaining sections of the annual report are expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of the auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors for the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS as modified by the CBB and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued) Report on the Audit of the Consolidated Financial Statements (continued) Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

• Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Auditor’s responsibilities for the audit of the consolidated financial statements (continued) We communicate with the Group’s Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Group’s Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate to them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or the safeguards applied. From the matters communicated with the Group’s Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements As required by the Bahrain Commercial Companies Law and Volume 1 of the Central Bank of Bahrain (CBB) Rule Book, we report that:

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

b) the financial information contained in the Chairman’s Statement is consistent with the consolidated financial statements;

c) we are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial Institutions Law, the CBB Rule Book (Volume 1 and applicable provisions of Volume 6) and CBB directives, or the terms of the Bank’s memorandum and articles of association during the year ended 31 December 2021 that might have had a material adverse effect on the business of the Bank or on its consolidated financial position; and

d) satisfactory explanations and information have been provided to us by management in response to all our requests.

The partner in charge of the audit resulting in this independent auditor’s report is Nader Rahimi.

Partner's registration no.115 24 February 2022 Manama, Kingdom of Bahrain

31st December 2021

Consolidated Statement of Financial Position

31.12.21 31.12.20 Note US$milions US$ millions

ASSETS

Cash an<I other fiquld assets 7 6,735.6 6,368.9-

Securities purchased under agreements to resell 8 200.0 1,170.0

Placements 9 6,396.1 5,953.4 Trading securities 10 121.1 107.0

Investment securities 11 5,968.5 4,689.8

Loans and advances 12 11,857.5 10,489.7 Other assets 13 718.2 827.5

Total assats 31,797.0 29,606.3

LIABILmes

Deposits from banks 15 991.3 708.6

Deposits from customers 15 20,994.8 19,577.9

Securities sold under agreements to repurchase 16 685.2 175.2

Other liabilities 17 932.6 1,207.2

Senior term financing 18 5,100.1 4,924.9

Total lablities 28,704.0 26,593.8

EQUITY

Share capital 19 2,500.0 2,500.0 Reserves 20 435.5 379.2

Retained earnings (790.1) (807.4)

Equity attrlbutabfe to the shareholders of the Bank 2,145.4 2,071.8

Non-controling Interest 43 947.6 940.7

Total equity 3,093.0 3,012.5

Total liabilities & equity 31,797.0 29,606.3

The consolidated financial statements were approved by the Board of Directors on 24111 February 2022 and signed on its behalf by:

Abdllle Mohammed Al ZamD Chaimian of the Board

Rajeev Kakar Chairman of the Board Audit Comninee

The notes on pages 6 to 69 form part of these consolidated financial statements.

1

AbdulaZlz A. N-Halaislli Group Chief Executive Officer

•

•

•

•

•

•

I

• •

,31• December 2021

Consolidated Statement of Income

Note

Interest income 22 Interest expense 22

Net interest income

Fee and commission income 23 Trading income I (loss) 24 Foreign exchange income 25

Other Income 26

Tolal operating Income

Staff expenses Premises expenses Other operating expenses

TOC:11 operating expensa.

Net Income before provisions and tax

Impairment of leased asse1s Provision for expected credit losses 27

Net Income I (loss) before tax

Taxation reversal 28

Net income I (loss)

Atlributable to: Shareholders of the Bank Non-controlling interest

RajeeYKakar Abdula Mohammad M Zsmll Chairman of the Board Chairman of the Board Audit Committee

The notes on pages 6 to 69 form part of these consotidsted financial statements.

2

Year ended Yeareruled 31.12.21 31.12.20

US$ mil&ons US$ millions

420.8 505.9 174.5 T/3.1

248.1 232.8

72.5 59.0 ■

32.2 (14.2) 18.5 15.8

25.4 14.3 .

394.7 307.7

176.8 157.9 23.3 25.8

96.8 93.2

298.7 276.9

98.0 30.8

(1.2) (44.5) (340.5)

52.3 (309.7)

0.4 1.7

52.7 (308.0)

37.9 {249.6) 14.8 (58.4}

52.7 (308.0)

Consolidated Statement of Comprehensive Income

Year ended Year ended

31.12.12 31.12.21 31.12.20

Note US$ millions US$ millions

Net income / (loss) 52.7 (308.0)

to consolidated statement of income:

Net changes in fair value of cash flow hedges 20 – (0.1)

– (0.1)

Items that will not be reclassified to

consolidated statement of income:

Net changes in fair value of equity investments classified as

fair value through other comprehensive income (FVTOCI) 3.9 9.9

Remeasurement of defined benefit pension fund 20 32.1

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