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International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
International Investment Bank Annual Report 2006
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International Investment Bank Annual Report 2006

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  • 1. IntroductIon International Investment Bank Annual Report 2006 International Investment Bank (IIB) was incorporated as an Islamic investment bank on 6 October 2003, under commercial registration number 51867 as a Bahrain Joint Stock Company (closed). The Bank commenced its investment activity on 13 International Investment Bank B.S.C.(c) October 2003, and operates under a Wholesale Banking 37th Floor, Almoayyed Tower, Al Seef District, P.O. Box 11616, Manama, Kingdom of Bahrain. Licence issued by the Central Bank of Bahrain. Telephone: +973 1756 5000 IIB has an authorised capital of US$ 200 million and a paid-up Fax: +973 1756 5050 capital of US$ 43 million. Subject to regulatory and shareholder www.iib-bahrain.com approval, this is expected in the near future to increase to US$ 100 million. The Bank’s shareholders are high net worth individuals, business houses and institutions from the GCC states. The core business activities of the Bank include investing on its own account; investment, underwriting and placement in real estate and private equity; and corporate finance, all in conformity with Islamic Shari’ah. It aims to offer its clients an internationally diversified range of investments generated through its network of strategic partnerships. Vision and Mission 2 Financial Highlights in 2006 3 Principal Investment Offerings 2004 - 2006 4 Financial Summary 5 Board of Directors’ Report 6 Board of Directors 8 Corporate Governance 10 Chief Executive Officer’s Review of Operations 15 Financial Review 24 Risk Management 26 Shari’ah Supervisory Board Report 31 Independent Auditors’ Report to the Shareholders 32 Statement of Income 34 Balance Sheet 35 Statement of Cash Flows 36 Statement of Changes in Equity 37 Notes to the Financial Statements 38 Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 2. VIsIon and MIssIon To be a regional leader in private equity investment, real estate investment, asset management and corporate finance, mainly through the provision and management of high-quality, globally-diversified investment offerings in accordance with the principles of Islamic Shari’ah; to maximize shareholder value; to generate superior risk-adjusted returns for clients; to provide excellent career opportunities to all employees; and to deal fairly with all other stakeholders. To originate, manage and ultimately exit from a well-diversified range of innovative investment products in association with leading international strategic partners; to provide high-quality advisory services to clients; to operate in accordance with the highest standards of corporate governance, risk management, due diligence and ethical standards; and to attract and retain the best-qualified employees available. | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 3. FInancIal HIgHlIgHts In 2006 +92.2% Net Income for the year rose by 92.2% over 2005 to US$ 13.5 million +49.2% Total Assets increased by 49.2% over the year 2005 to reach US$ 94.5 million +54.5% Total Assets under Management reached US$ 181.7 million - up by 54.5% over 2005 +62.2% Return on Average Equity increased by 62.2% during 2006 to 24.0% +93.8% Earnings per Share of US$0.31 increased by 93.8% compared to 2005 Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 4. PrIncIPal InVestMent oFFerIngs 2004 - 2006 Summary of Principal Investment Offerings 2004-2006 Year Investment Location Private Other Total Description Equity Funds Transaction Raised ** Size US$ Millions US$ Millions US$ Millions 1 2004 Property fund Bahrain 18.6 18.3 36.9 2 2004/5 Independent power producer Asia 23.0 217.0 240.0 3 2005 Housing development company Bahrain 22.6 - 22.6 4 2005 Commercial property * UK 14.6 286.1 300.7 5 2005 Commercial tower development * Dubai 16.4 77.7 94.1 6 2005 Islamic investment bank UK 19.5 175.5 195.0 7 2005 Paper manufacturing company Abu Dhabi 12.0 35.1 47.1 8 2006 Commercial property portfolio France 44.0 61.6 105.6 9 2006 Real estate development company Saudi Arabia 20.9 85.8 106.7 10 2006 Commercial tower development Dubai 25.0 64.1 89.1 Totals 216.6 1,021.2 1,237.8 * Investment realized and funds distributed to investors in 2006 ** Comprises partners’ contributions, borrowings and equity from IPO Principal Bankers and Professional Advisors Principal Bankers Ahli United Bank, Bahrain External Auditors Ernst Young, Bahrain External Legal Counsel Hassan Radhi and Associates, Bahrain 31 31 31 13.5 13.5 13.5 61.4 61.4 61.4 60 60 60 US$ Millions US$ Millions Millions US$ 12 12 12 US$ Millions US$ Millions Millions US$ 25 25 Cents CentsUS$ Cents 25 US$ US$ 50.8 50.8 50.8 50 50 43.8 50 43.8 43.8 20 20 20 9 9 9 40 40 40 7.0 7.0 7.0 16 16 16 15 15 15 30 30 30 6 6 6 10 10 10 20 20 20 3 3 3 5 5 5 10 10 10 0.8 0.8 0.8 2 2 2 0 0 0 0 0 0 0 0 0 2004 2004 2005 2005 2006 2006 2004 2005 2006 2004 2004 2005 2005 2006 2006 2004 2005 2006 2004 2004 2005 2005 2006 2006 2004 2005 2006 Net Income Net Income Net Income Earnings per ShareShare Share Earnings per Earnings per Equity Equity Equity 200% 200% 200% 200 200 200 PercentPercent Percent 24.0% 24.0% 24.0% 17.1% 17.1% 17.1% 20 Percent 20 20 Percent Percent 150 150 150 15 15 Percent 15 Percent Percent 134% 134% 134% 13.0% 13.0% 13.0% 14.8% 14.8% 14.8% | International Investment Bank B.S.C.(c) | Annual Report 2006 15 15 15 101% 101% 101% 100 100 100 10 10 10 10 10 10
  • 5. FInancIal suMMary Three-year Financial Summary 2006 2005 2004 Earnings (US$ Millions) Total income 24.6 12.4 4.2 Operating income 23.6 11.2 3.5 Operating expenses 10.1 4.2 2.7 Net income 13.5 7.0 0.8 Dividend (%) 10.0 8.0 - Financial Position (US$ Millions) Total assets 94.5 63.4 44.4 Due from Financial Institutions 53.5 26.2 28.0 Investments 16.4 13.7 14.1 Due to Financial Institutions 20.0 - - Equity 61.4 50.8 43.8 Ratios Profitability Return on average equity (%) 24.0 14.8 1.8 Return on average assets (%) 17.1 13.0 1.8 Earnings per share (cents) 31 16 2 31 31 31 Cost-to-income ratio (%) 13.5 13.5 13.5 45.2 43.5 61.4 61.4 61.4 81.5 Capital US$ Millions Millions 60 60 60 US$ Millions Millions Millions US$ US$ 12 12 US$ Millions12 US$ 25 US$ Cents 25 Cents 25 US$ US$ Cents 50.8 50.8 50.8 Capital adequacy (regulatory minimum 12%) 50 134 50 43.8 50 43.8 43.8 101 200 20 20 20 9 9 9 40 40 40 Equity/total7.0 assets (%) 7.0 7.0 16 16 16 65.0 80.2 98.5 15 15 15 Liquidity and Other 30 30 30 6 6 6 10 10 10 Investments/total assets (%) 20 17.4 20 20 21.6 31.7 3 3 3 Liquid assets/total assets (%) 5 5 5 10 66.4 10 10 43.0 63.3 0.8 0.8 0.8 2 2 2 0 0 under management (US$ Millions) 0 Assets 0 0 0 0181.7 0 0 117.6 19.6 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 NumberNetemployees of Net IncomeIncomeIncome Net Earnings per Share Share Share Earnings per Earnings per 40 Equity Equity Equity 20 17 200% 200% 200% 200 200 200 Percent Percent Percent 24.0% 24.0% 24.0% 17.1% 17.1% 17.1% 20 20 20 Percent Percent Percent 150 150 150 15 15 15 Percent Percent Percent 134% 134% 134% 13.0% 13.0% 13.0% 14.8% 14.8% 14.8% 15 15 15 101% 101% 101% 100 100 100 10 10 10 10 10 10 50 50 50 5 5 5 5 5 5 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 0 0 0 0 0 0 0 0 0 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 Return Return Return on Average Equity on Average Equity Equity on Average CapitalCapitalCapital Adequacy Ratio Adequacy Ratio Ratio Adequacy Return Return Return on Average Assets on Average Assets Assets on Average Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 6. Board oF dIrectors’ rePort Dear Shareholders, On behalf investments in the UK and Dubai. of the Board of Directors, A 67% IRR was generated in only 18 it gives me great pleasure months on the UK property, and the to report to you on the Dubai investment yielded a 25% IRR performance of International over a period of 11 months. These exits Investment Bank (‘IIB’) during represented important milestones in 00. IIB’s development, as they are tangible evidence of the Bank’s capabilities in Regional economic developments delivering exceptional performance. IIB’s As I foresaw in last year’s Directors’ strategy of investing across a diversified Report, there were major corrections range of countries and industries has in the GCC stock markets during the also paid dividends over the past year, course of the year, with some indices as it has helped to cushion investors falling by more than 50% from their all- against the fall in the US Dollar. time highs only 12-15 months earlier. Financial performance Although these falls have inevitably Saeed Abdul Jalil Al Fahim damaged investor confidence in the Following the strong contribution short term, they have not had a material from both the new and the existing impact on the overall economies investments arranged by the Bank, Total of the region, which continue to be Income rose by 98.1%, from US$ 12.4 bolstered by high oil and gas revenues. million in 2005 to US$ 24.6 million in Governments have exercised prudence 2006. During the year, IIB continued in their spending, and have brought to build up its staff and its operating down their debt levels. They have also infrastructure, as a result of which embraced a variety of economic and Total Expenses increased by 105.8%. political reforms, which contributed to Net Income at US$ 13.5 million was a favorable investment climate in IIB’s 92.2% higher than in 2005, representing target countries and sectors in 2006. a very creditable 31.3% return on However, the geopolitical situation in paid-up capital. The Cost-to-Income the wider Middle East region is a cause Ratio increased from 43.5% in 2005 for concern, and could seriously dent to 45.2% in 2006, which still compares investor confidence, not only in the very favorably with our regional and Arab World but also internationally, if it international peers. deteriorates further. The growth in business volumes was Investment achievements also reflected in the total footings increasing by 49.2% to US$ 94.5 2006 was IIB’s third full year of million. The Bank continued to operations. In addition to arranging maintain a high degree of liquidity, several new major real estate with surplus funds being placed on investments in Dubai, France and short term murabaha with selected Saudi Arabia, the Bank made strategic investment-grade banks, and its Capital direct investments in Islamic financial Adequacy Ratio remained comfortably services institutions in the UK and above the regulatory requirement. This Kuwait, which will complement its prudent approach to liquidity and existing stake in European Islamic solvency is a cornerstone of the risk Investment Bank. IIB’s investors and management policy laid down by the shareholders are already reaping the Board of Directors, and is designed rewards of the Bank’s highly selective to ensure that IIB can withstand any and rigorous investment strategy, external financial or economic shocks with two very profitable early exits that may arise. being achieved from recent real estate | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 7. Board oF dIrectors’ rePort Given these excellent results, the Outlook for 2007 Appreciations Board is proposing to distribute a cash Whilst the business prospects for 2007 On behalf of the Board of Directors, dividend for 2006 of US$ 4.3 million, appear bright, with a strong pipeline I would like to thank the Bahrain representing 10% of paid-up share of deals already under review, and the Government and the Central Bank of capital, to transfer US$ 1.3 million to regional economies remaining very Bahrain for their pro-active support statutory reserve and to retain US$ 7.8 buoyant, the Bank faces a number of for the financial services sector, and our million to further strengthen the Bank’s challenges. Supported by the massive shareholders, Shari’ah Board, clients, capital base. As in the previous two amount of liquidity and strong demand business partners and employees, who years, the Board is also proposing that for Shari’ah-compliant investments in have all made invaluable contributions the shareholders pay their respective the GCC countries, there is intense to IIB’s success. We look forward to Zakat on their equity investment in the competition from both regional and continuing our mutually beneficial Bank. international investment banks for new relationship in the years ahead. It is proposed that the Board of business. This is driving down yields, Directors should receive a total and putting further upward pressure remuneration of US$ 330,000 in on regional and international asset respect of 2006, in addition to the prices, to levels which may not prove usual reimbursement of their travel and sustainable. There is also a shortage accommodation expenses incurred in of qualified investment banking connection with IIB-related business professionals, which has pushed up during the year. remuneration levels, and which could affect IIB’s ambitious growth plans. The Saeed Abdul Jalil Al Fahim Capital increase Chairman Bank is therefore introducing a share As announced at the last Annual incentive scheme which is designed General Meeting, it is intended to to attract and retain key staff, while significantly increase the Bank’s capital aligning the interests of shareholders through a “rights issue” for existing and employees. shareholders and an invitation, on a During 2007 the Bank plans to acquire selective basis, to certain investors in a core banking system in order to our deals to enable them to share in the enhance and automate a number of its success of the Bank. An independent key processes, including accounting, valuation of the Bank is currently being financial control, risk management and undertaken by external consultants. customer relationship management. Subject to final shareholder and Whilst this will represent a major regulatory approval, the capital increase investment, it is considered essential is scheduled to proceed during the to the Bank’s long-term growth and first half of 2007, and it will enable the development. Additional premises Bank to scale up its activities in terms have also been leased in order to of both the number and the size of the accommodate the Bank’s increased transactions that it can arrange. headcount, which is expected to rise from 40 to 60 during 2007. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 8. Board oF dIrectors 1 Mr. Ahmed Salem 4 Mr. Abdul Wahab 8 Mr. Fahad Fouad Bugshan, Vice Chairman Mohammed Al Wazzan, Bubshait, Director President, Saudi Industrial Director Chairman CEO Projects Company (SIPCO), Chairman of Kuwait Real of Audeo Maxima Saudi Arabia; Member of the Estate Bank; Chairman of International Ltd., UAE; Board, Pepsi Cola, Egypt; Social Development Office, Chairman of BubbleDeck Chairman, Savoy Hotels, Kuwait; Vice Chairman Middle East LLC, UAE; Sharm Al-Sheikh. of National International Foreign Investments Holding Company, Advisor of Abdulla 2 Mr. Aamer Abdul Jalil Al Kuwait; Former Minister Fouad Holding Co. Ltd.; Fahim, Director of Commerce Industry, Former General Manager Managing Director of Al Kuwait; Former Minister of Mantech Real Estate Fahim Group, UAE; Board of Social Affairs Labour, Fouad Travel Agency Mr. Saeed Abdul Jalil Al Member of Abu Dhabi Kuwait. (Abdulla Fouad Holding Fahim, Chairman Commercial Bank; Board Company Ltd.), Saudi Member of Al Wathba 5 Mr. Ali Hashim Sadiq Chairman of Al Fahim Arabia. Insurance Company; Hashim, Director Group, UAE; President of Member of Federal National President CEO, Gulf 9 Mr. Sulaiman Haider Sh. Khalifa Excellence Award Council, UAE; Board United Investment, Saudi Sulaiman, Director (Abu Dhabi Chamber of Commerce and Industry); Member of Abu Dhabi Arabia; Chairman, Gulf Chairman, Sulaiman Former Deputy President Chamber of Commerce and Packaging Systems, Saudi Bros, Qatar; Board of Abu Dhabi Chamber of Industry; Board Member of Arabia; Member of the Member, Qatar Commerce and Industry; Al Qudra Holdings; Board Board, Middle East Telecom Chamber of Commerce; Former Member of Board Member of Al Safwa Islamic (METCO), Saudi Arabia. Board Member, Qatar of National Bank of Abu Financial Services; Chairman Navigation; Board 6 Mr. Khalid Othman Abu Dhabi; Former Member of of Aradi Properties P.J.S.C. Member, Qatar German Hemed, Director Board of United Arab Bank. Medical Company; Area 3 Mr. Ebrahim Eshaq President, Owma Trading Manager, Qatar National Abdulrahman, Director Co. Ltd, Saudi Arabia. Bank. Managing Director, 7 Mr. Abdulla Ahmed 1 2 3 Investment and Trading Balamsh, Director (Gulf ) Enterprises, Bahrain; Director, Bahrain Car Park Proprietor and Chairman of 4 5 6 Hosoon Najd Group, Saudi Co. B.S.C.; Director, United Gulf Industries B.S.C.; Arabia; Regional Manager 7 8 9 Founder Shareholder and of Saeed Mohammed Al- former Managing Director of Amoudi Company; Member Bank of Bahrain and Kuwait. of the Board of Emmar Al Wattan Real Estate Company. | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 9. Board oF dIrectors Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 10. corPorate goVernance The Board of Directors is responsible for the overall governance of the Bank through continuous review Board of Directors Audit Committee and adherence to international best Shari’ah Committee practice and standards. The Board determines the Bank’s strategy, provides direction to the Executive Management, Executive Committee ensures that the control framework Chief Executive Officer Internal Audit is functioning in accordance with Nominations best practice and monitors Executive Committee Management’s performance. The interaction between Directors and Manager, Chief Financial Officer Management through the Board and HR Administration Management Committees is shown on the organization chart. Head, Manager, Legal Compliance Risk Management 1. Board of Directors The Board meets regularly throughout the year in order to control strategic, Chief Operating Management Executive Director, financial, operational, internal control Officer Committee Banking Support and compliance issues. It currently comprises ten “non-executive directors”, Executive Director, Banking Support as defined by the “High Level Controls” Private Equity and module (HC-1.3.5) of the CBB Corporate Finance Investor Services (Vacant) Rulebook Volume II, profiles of whom are provided at Page 8. Engineering Services Executive Director, Board Committees Investment and IT Services The Board has established three Business Development sub-committees and a Shari’ah Board Corporate Communications comprising expert, independent scholars to assist it in carrying out its Executive Director, Investment Placement responsibilities. The Nominations (Vacant) Committee was set up in 2006. This committee structure ensures appropriate oversight by the Board of Committee Members Summary Terms of Reference Directors while permitting efficient day- to-day management of the Bank. Executive Committee Mr. Aamer Abdul Jalil Al Fahim Assists the Board to review the Bank’s strategy, (Chairman) annual budget and forecasts, risk policies and Mr. Ebrahim Eshaq Abdulrahman management committees’ activities and Mr. Khalid Othman Abu Hemed actions. Audit Committee Mr. Abdul Wahab Mohammed Assists the Board to review the integrity of the Al-Wazzan financial statements, compliance with legal and (Chairman) regulatory requirements, the Bank’s internal Mr. Sulaiman Haider Sulaiman, audit function and the independent auditor’s Mr. Fahad Fouad Bubshait qualifications, independence and performance. Nominations Committee Mr. Ahmed Salem Bugshan Assists the Board to assess candidates and to (Chairman) make management appointments. Mr. Aamer Abdul Jalil Al Fahim Mr. Ali Hashim Sadiq Hashim Shari’ah Supervisory Board Sheikh Nizam Yaquby Assists the Board to ensure that the Bank (Chairman) operates in accordance with Shari’ah rules and Sheikh Abdul Sattar Abu Ghuddah principles through a review of interim and annual Sheikh Osama Mohammed financial statements and a detailed analysis Saad Bahar of each type of transaction with its relevant documentation and the procedures adopted by the Bank. 0 | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 11. corPorate goVernance Shari’ah Supervisory Board 2. Executive Management Executive Management Profiles Being an Islamic Bank, IIB’s Shari’ah Management Committees a). General Management Supervisory Board regularly reviews The Board has approved the formation Aabed Al-Zeera, Chief Executive all investment products and business of an Executive Management Officer activities to ensure compliance with Committee, which is summarised in the the Islamic Shari’ah, approves the Mr. Al-Zeera has over twenty five years table below. Bank’s financial statements and also of international banking experience participates with management in the Arising from the rapid growth in with major financial institutions in the development of suitable investment the Bank during its first three years Kingdom of Bahrain and the United products and services. of operations, a comprehensive Arab Emirates. They include American review of corporate governance and Express Banking Corporation, Arab IIB’s Shari’ah Supervisory Board the committee structure has been Banking Corporation (ABC), Standard comprises three prominent GCC completed. It is anticipated that the Chartered Bank and First Islamic Islamic scholars who provide the Bank Board at its next meeting will approve Investment Bank (now Arcapita). He with pragmatic Islamic opinions: the formation of an Assets and was instrumental in setting up ABC’s Sheikh Nizam Yaquby Liabilities Committee, an Investment Representative Office in Abu Dhabi in Committee and a Risk Management 1996, where he served as Vice President Sh. Yaquby is a member of the Islamic Committee, which are planned to and Chief Representative. supervisory board of several Islamic be fully functional by 30 June 2007. institutions, including the Arab Islamic Mr. Al-Zeera was one of the key These committees will comprise senior Bank and the Abu Dhabi Islamic Bank. promoters of IIB who, together with management and heads of departments He is also a board member of the Dow the Al Fahim Group, conceived and who are best qualified to make decisions Jones Islamic Index. His work has successfully set up the Bank. He is a on such issues as funding, asset appeared in the following publications: board member of several companies of utilization, investment purchase/sale Risalah Fi al-Tawbah, Qurrat al-Ainayn IIB and is a Non-Executive Director of and management of all types of risk, fi Fada il Birr al-Walidayn, Irshad European Islamic Investment Bank Plc, including market, credit, liquidity al-Uqala’ila Hukum al-Qira’h min al- London. and operational risks. In addition, an Mushaf fi al-Salah, Tahqia al-Amal fi Information Technology Committee Salah Nooruddin, Chief Operating Ikhraj Zakat al-Fitr bi al-Mal. will be formed to supervise the selection Officer Sheikh Abdul Sattar Abu Ghuddah and implementation of a core banking Mr. Nooruddin holds a Masters Degree Sh. Abu Ghuddah holds a Ph.D. in system. in International Banking Finance and Islamic law and comparative Fiqh from A Management Committee will has over twenty years of international Al Azhar University Cairo, Egypt. approve each committee’s terms of banking experience with major financial He has taught at various institutes, reference, membership, delegated institutions such as Chase Manhattan including Imam Al Da’awa Institute authorities and policies. All Bank and Arab Banking Corporation. (Riyadh), Religious Institute (Kuwait) management committees are expected In 1997, he established a financial and the Shari’ah College of the Law to meet at least monthly and a quarterly advisory firm, Trust Securities, which is Faculty at Kuwait University. report highlighting the major activities today known as Gulfinvest Bahrain. He and decisions will be provided to the joined IIB when operations commenced Sheikh Osama Mohammed Saad Executive Committee for review and in 2003 and is a board member of Bahar ratification. This enhanced structure several companies of IIB and of Islamic Sh. Al Bahar holds a Bachelor degree in will ensure that IIB meets or exceeds Finance Consultants. Islamic Shari’ah and was an Associate the best industry standards of Lecturer at the BIBF, Bahrain. He is a governance and its activities, strategy, Member of the Shari’ah Board of the performance and risks are effectively National Investor Fund of Abu Dhabi managed. and is a Shari’ah Advisor to Khaleej Finance and Investments. From 1994 to Committee Members Summary Terms of 2005, he was Manager of the Shari’ah Reference Department at Shamil Bank, Bahrain. Management Mr. Aabed Al-Zeera Focuses on the Committee (Chairman) execution of the Since 2005, Sh. Osama has been Mr. Salah Nooruddin strategic business Shari’ah Compliance Officer at ABC Mr. Frederick Stonehouse plan via regular review Islamic Bank, Bahrain and is currently Mr. Michael Ross-McCall and monitoring of the Mr. Mohamed Hadi Mejai tasks and initiatives Head of Shari’ah Compliance at Al- undertaken to fulfill the Salam Bank, Bahrain. plan’s objectives. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 12. corPorate goVernance Eihab Ahmed, Head, Legal c). Finance, Administration and Audit Hakan Gunay, Director Compliance Michael Ross-McCall, Chief Mr. Gunay holds a B.Sc. in Management Mr. Ahmed graduated in 1994 with Financial Officer from the Middle East Technical a Law Degree from the University University in Turkey and an MBA Mr. Ross-McCall holds a Law Degree of Khartoum, following which he from Cass Business School, London from Edinburgh University and is a spent 5 years as Legal Consultant at City University (UK). Prior to joining member of The Institute of Chartered the Ministry of Justice of Sudan. He IIB, he spent 15 years in the field of Accountants of Scotland. He has was a Public Prosecutor and for four appraisal, development and financing worked in the banking sector for over years a Legal Advisor at the Bank of of infrastructure projects, located in 20 years, including positions at Wells Khartoum. He then worked as Legal Turkey, Belgium and Saudi Arabia. Fargo Bank, Bank of Bahrain Kuwait Consultant at BDO Jawad Habib, and Bahraini Saudi Bank. 3. Incentive Structure Bahrain and most recently as Head of Legal Department at Khaleej Finance Nader Asad, Director, Finance and The Bank conducts a formal written Investment Bank, Bahrain. Administration appraisal for management at least once per year. Depending on the b). Banking Support Mr. Asad holds a B.Sc. in Accounting Bank’s performance and individual and an M.B.A. from a UK university. Frederick Stonehouse, Executive goal achievement, management and His professional qualifications include Director staff are eligible to receive an annual CPA and CFA. He spent eight years discretionary performance bonus Mr. Stonehouse has more than providing audit and advisory services at and/or a salary increment. Management 30 years of international banking PricewaterhouseCoopers and Arthur and staff are also eligible to co-invest experience with major UK, US, Arab Andersen and before joining the Bank in the Bank’s investment offerings. and Spanish institutions in London, in 2005, he was Deputy Financial The Board of Directors approves the Bahrain and Madrid, including Controller at Bahrain Islamic Bank. aggregate amount of discretionary National Westminster Bank, Lloyds Ali Redha, Head, Internal Audit bonuses, together with the specific Bank International, Arab Banking Mr. Redha is a member of the payments made (if any) to the Chief Corporation, Arab Bank and Banco American Institute of Certified Public Executive Officer and the Chief Atlantico. He has been closely involved Accountants (AICPA). He has over Operating Officer. The Board approves with Arab institutions since 1978 10 years of experience in auditing and the aggregate amount of planned and has occupied senior management banking at KPMG , Daar Al-Maal increments as part of its approval of the positions for the past 20 years. Al-Islami (DMI Group), Shamil Bank, annual budget. Hasan Abu-Hasan, Head, Ithmaar Bank and Bahraini Saudi Bank. A proposal to implement a stock option Engineering Services He joined IIB in 2005 and helped co- scheme available to management and Mr. Abu-Hassan holds a Master’s ordinate policies and procedures and selective staff will be presented to an Degree in Engineering Management the setup of controls and guidelines. extraordinary general meeting for from Bahrain University and a Master’s approval during the first quarter of d). Investment and Business Development Certificate in Project Management from 2007. The George Washington University Mohamed Hadi Mejai, Executive School of Business. Prior to joining Director IIB in November 2005, as a Civil Prior to joining IIB in 2005, Mr. Mejai Engineer and a Government Executive, spent several years with the Islamic he spent more than 20 years working Development Bank Group and affiliated in developing the electricity and water investment companies and funds in the infrastructures for the Kingdom of Kingdom of Saudi Arabia and UAE. Bahrain. He started his banking career in France and the UK. Mr. Mejai’s track record is mainly in aquisition structuring and monitoring of investments. He holds a Masters of Science from the University of London, UK and completed his executive education at the Theseus International Institute, France, and the London Business School, UK. | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 13. corPorate goVernance 4. Communications Strategy 6. Shareholders and Directors’ Interests A summary of the Bank’s quarterly and annual financial statements Shareholders are published in local and regional Distribution Schedule of Equity newspapers. All other published communications including investment The ordinary shares in issue at offerings and exits are handled by 31 December 2006 comprised 43 the Corporate Communications million shares of US$ 1 each. The Department, under the direction of the concentration of the 45 shareholders is Executive Director, Banking Support. as follows: Enquiries are received via the IIB e-mail address enquiries@iib-bahrain.com. Category Number of Number of Percentage Shares Shareholders Holding The Bank maintains a website www.iib-bahrain.com which contains Less than 1% 2,550,000 12 5.93 1% up to less than 5% 25,209,649 30 58.62 the latest Annual Report, together 5% up to less than 10% 4,801,754 2 11.17 with summary financial data covering 20% up to less than 25% 10,438,597 1 24.28 the previous two years and interim Total 43,000,000 45 100 quarterly financial statements. It also contains a profile of the Bank, details Directors of the principal products and services, profiles of the senior managers and Shareholding by Directors and their regular press releases concerning related parties investment transactions and other The number of shares held by Directors developments. and their related parties at 31 December 5. Additional Governance Controls 2006 aggregated to 49.98% of the issued share capital. The Board has approved a number of policies which are communicated to 7. Management Team management and all staff. They cover General Management subjects including risk management, Aabed Al-Zeera Chief Executive Officer anti-money laundering, ethical Salah Nooruddin Chief Operating Officer behavior, personal conduct, financial Eihab Ahmed Head, Legal Compliance control, human resources and business Banking Support continuity. Frederick Stonehouse Executive Director, Banking Support Murtaza Ghulam Principal, Banking Support Corporate governance is also supported Saba Al-Khalifa Principal, Investor Services Mazar Jalal Principal, Acting Manager, Risk Management by the ongoing reviews performed by Hasan Abu-Hasan Head, Engineering Services the Internal Audit Department and the Finance, Administration and Audit External Auditors. The reviews confirm Michael Ross-McCall Chief Financial Officer that the policies and internal control Nader Asad Director, Finance and Administration Ali Redha Head, Internal Audit procedures conform to best practice and Business Development are being fully complied with by all staff. Mohamed Hadi Mejai Executive Director, Investment Business Development Hakan Gunay Director Nader Al-Khilili Principal Nasser Bayoun Principal Fadi Qassim Project Manager Investment Placement Alyas Al-Meftah Principal, KSA, Western Province Ebrahim Al-Shaibeh Principal, Kuwait Fawzan Alnaser Principal, Bahrain, Qatar and KSA, Eastern Province Jassim Alshaikh Principal, KSA, Riyadh Rayan Kazerooni Principal, UAE and Oman Bader Ali Associate, KSA Eastern Province Bashar Ali Al-Shaikh Associate, KSA Eastern Province AbdulJabbar Al-Kooheji Associate, UAE Saud Al Yahya Associate, Kuwait Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 14. 120 US$ Millions 20 US$ Millions 16.4 100 16 14.1 13.7 80 12 60 44.4 8 40 4 20 0 0 2004 2005 2006 2004 Investments Total Asset 100 Percent 81.5% 181.7 181.7 75 120 120 US$ Millions US$ Millions 180 180 US$ Millions US$ Millions 94.5 94.5 16.4 16.4 100 100 150 150 80 80 120 120 117.6 117.6 50 43.5% 45.2% 63.4 63.4 60 60 90 90 44.4 44.4 40 40 60 60 25 20 20 30 30 19.6 19.6 0 0 0 0 0 2006 2006 2004 2004 2005 2005 2006 2006 2004 2004 2005 2005 2006 2006 2004 2005 2006 Total Assets Assets under Management Cost / Income Ratio 45.2% 45.2% 2006 2006 | International Investment Bank B.S.C.(c) | Annual Report 2005 atio
  • 15. cHIeF executIVe oFFIcer’s reVIew oF oPeratIons Bahrain’s economy performed During the course of 2006, IIB arranged well in 2006 in conjunction five new investments and successfully with the robust growth in exited two transactions. In keeping with other GCC countries. This was the Bank’s strategy, the new investments supported by record oil prices were diversified by asset type, by and high production levels, economic sector and by country. They strong corporate earnings, included a commercial office tower in particularly in the banking Dubai, a housing development company sector, low inflation and in Saudi Arabia and a portfolio of high levels of liquidity. Most commercial properties in France. regional economies posted Another important milestone was record budget and current reached by the Bank during 2006 account surpluses. Despite when we achieved the first exits from a number of IPOs that were investments, being a prime office oversubscribed, most regional building in the West End of London stock market indices posted and a commercial tower development Aabed Al-Zeera declines in 2006. in Dubai, in both cases delivering The Central Bank of Bahrain issued outstanding returns to our investors banking licenses to several new several years ahead of schedule. These institutions during the year, further two highly successful exits have helped intensifying the competition for retail to cement IIB’s reputation both and commercial customers. New with investors and with institutional entrants are attracted by the reputation partners, and to establish a clear for transparency, firm Central Bank track record for the Bank in both the supervision and strong ties to the origination, structuring, management surging economies in the GCC and and delivery of profitable Shari’ah- MENA regions. compliant investments. Summary In keeping with best practice, corporate governance is being further enhanced 2006 represented IIB’s third full year through changes to the board and of operations, and the Bank achieved management committee structure. further important milestones in its Details can be found at pages 10-11. development. These include a very strong financial performance, several During the course of the year the new investment transactions, highly Internal Auditor undertook several profitable exits well ahead of plan, the audits in accordance with the audit recruitment of additional staff and programme approved by the Audit the implementation of policies and Committee. The Bank also underwent procedures prepared in association with a routine examination by the Central external consultants. I am confident Bank of Bahrain which revealed no that solid foundations have now been material regulatory concerns. laid for the Bank to move to the next IIB, through our strong global network stage of its development, which will of contacts, continues to gain access to be given strong impetus by a material high quality investments. We subject increase in our paid-up capital during each project to various stress tests, and the first half of 2007. This is a tangible benefit from the input of reputable demonstration of the excellent support external advisors to assess their viability. that the Bank has always enjoyed from its shareholders, and it will enable IIB to scale up its operations in a prudent and sustainable manner. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 16. cHIeF executIVe oFFIcer’s reVIew oF oPeratIons Selecting the right deals and working in the proposed state-of-the-art West Among these are the Saudi Arabian with world class partners from within Bay Tower, which is being developed in Pension Fund and the Alzahid Group. the region and internationally to partnership with SNASCO, a GCC- Ewaan will explore a broad range of maximize value is critical to the ongoing based real estate development company, opportunities in the Saudi Arabian real success of IIB. Real estate continues and will form part of the Business Bay estate market, in particular the mid- to be an attractive asset class and we District in Dubai, UAE. The 30-storey market housing segment, where demand are well placed to offer a broad and X-shaped West Bay Tower provides far outstrips supply and into which well balanced portfolio of properties, 75,702 sq. metres of floor space and is little investment has been channeled to both from within this region and other due for completion in the fourth quarter date. According to recent projections, strong performing markets. We seek out of 2008. It offers investors the potential it is expected that over the next ten attractive assets that are diversified by early realization of their investment years the gap between housing supply country, sector and asset type, and we through pre-sales of office units during and demand in Saudi Arabia will reach have thereby been able to provide our the construction period of the Tower. some 1 million units. Ewaan believes investors with a balanced portfolio, as This is IIB’s second investment in the mid-market segment represents a well as superior risk-adjusted returns, Dubai’s Business Bay development, large proportion of this requirement. during a period when regional stock which is being planned by the Dubai markets have suffered sharp corrections. The IRR for investment in the company Government as the new dynamic Rigorous due diligence and efficient is expected to be in excess of 22% over ‘downtown’ area of Dubai, the pre- execution provide the solid foundations a three to five year horizon. Further, eminent business hub in the UAE on which all of IIB’s investment there is scope for significantly enhanced and the region. The projected Internal decisions are based. returns through capital appreciation Rate of Return (IRR) on the West at exit should the company be floated Investment Transactions Bay Tower project is 21.6% over an through an Initial Public Offering investment horizon of 36 months and In 2004, its first full year of operation, (IPO). was heavily oversubscribed by investors IIB established a property fund based from across the GCC in June 2006. IIB France Investment in Bahrain and purchased an equity Holding B.S.C. investment in an independent power IIB KSA Investments Total transaction size: US$ 105.6 million company in Asia. During 2005, the Ewaan Bank successfully arranged and placed Total transaction size: US$ 106.7 million In December 2006, IIB acquired a six investments. These comprised high-quality portfolio of commercial In July 2006, IIB and its co- opportunities across a number of real estate properties in France. IIB investors formed Ewaan, a real estate asset classes and geographic locations, and its investors are taking a 90% development company for investment including commercial real estate stake in the portfolio, which comprises in the Saudi Arabian real estate market. investments in the UK and Dubai, a six commercial properties that are To be based in Saudi Arabia, and with strategic direct investment in an Islamic strategically located in France’s two an authorized capital of SR 400 million investment bank in Europe, a housing largest cities, Paris and Lyon. There is (US$ 106 million), the company development company in Bahrain, a strong demand for office space in the plans to invest SR2 billion (US$ 533 new paper mill plant in Abu Dhabi French commercial property sector and million) in the fast-developing Saudi and placement of the equity investment particularly in these key commercial Arabian property sector over the next in the independent power company hubs. three years. The strategic partners in Asia set up in 2004. In 2006, the In making the acquisition, IIB has include the Islamic Corporation for Bank arranged and placed five new partnered with a renowned asset Development of the Private Sector investments and successfully exited manager with extensive experience (ICD), a multilateral investment affiliate from two investments that it arranged in the structuring and management of the Islamic Development Bank, and and placed in 2005. A summary of these of Shari’ah-compliant real estate the Saudi Economic and Development seven transactions is as follows: investments in Europe, and who holds Company (SEDCO), a Saudi-based New Transactions in 2006 investment group. the remaining 10% share ownership in the portfolio. The investment represents IIB UAE Investment Limited Included in Ewaan’s strategic IIB’s third European investment and its West Bay Tower shareholder base is a well diversified mix second real estate acquisition in Europe. Total transaction size: US$ 89.1 million of highly regarded investors, including high net worth individuals and financial In April 2006, IIB took a 65% stake institutions, multilateral businesses as well as government organisations. | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 17. cHIeF executIVe oFFIcer’s reVIew oF oPeratIons (FroM leFt to rIgHt) Mr. MoHaMed HadI MejaI, executIVe dIrector, InVestMent and BusIness deVeloPMent; Mr. FrederIck stoneHouse, executIVe dIrector, BankIng suPPort; Mr. aaBed al-Zeera, cHIeF executIVe oFFIcer; Mr. salaH nooruddIn, cHIeF oPeratIng oFFIcer; Mr MIcHael ross-Mccall, cHIeF FInancIal oFFIcer The projected IRR on the investment is British Islamic Insurance Sabaak Leasing and Investment in the region of 12% over an investment Holding Limited Company horizon of five years, with cash yields Total transaction size: US$ 33.0 million Total transaction size: US$ 51.7 million ranging from 8.6% to 9.2% per annum. The company is the first independent The company is incorporated in Kuwait UK entity to provide insurance and provides operating and financial (“Takaful”) products that are wholly leases, as well as new and innovative Shari’ah compliant. IIB took a strategic products, all under Islamic principles. investment of US$ 1.9 million to IIB took a small strategic investment of increase its presence in the Shari’ah- US$ 0.4 million to increase its presence compliant Takaful insurance sector, and to build a privileged relationship with the other founders for possible larger future investments. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 18. (from Left to right) Nasser eLdiNe BayouN, PriNciPaL, BusiNess deveLoPmeNt; hakaN guNay, director, BusiNess deveLoPmeNt; ashwiN kumar,iNvestmeNt associate; atif Naveed, iNvestmeNt associate; Nader aL-khaLiLi,PriNciPaL, BusiNess deveLoPmeNt; saLah NooruddiN, chief oPeratiNg officer; aL imraN khaN, iNvestmeNt associate; mohamed hadi mejai, executive director, iNvestmeNt aNd BusiNess deveLoPmeNt; fadi aL Qassim, Project maNager; Bishayer aL-khaja, iNvestmeNt associate | International Investment Bank B.S.C.(c) | Annual Report 2005
  • 19. (from Left to right) aLi redha, head of iNterNaL audit; michaeL ross-mccaLL, chief fiNaNciaL officer; sushiL jaiN, PriNciPaL-risk maNagemeNt; Nader asad, director-fiNaNce admiNistratioN; haLeema eBrahim, accouNtaNt; hassaN aBBas, accouNtaNt Annual Report 2005 | International Investment Bank B.S.C.(c) |
  • 20. cHIeF executIVe oFFIcer’s reVIew oF oPeratIons in the Sharia’ah compliant financial IIB Belgravia Property Company sector, to deepen its knowledge about Limited the leasing sector and to fortify its Total transaction size in 2005: presence in the corporate sector in US$ 300.7 million Kuwait. In June 2005, IIB acquired a landmark Exits in 2006 commercial property occupying a prime IIB France Investments Holding B.S.C.(c) IIB Business Bay Properties site in the prestigious Belgravia area of Limited London, in conjunction with SEDCO, One@Business Bay a leading private Islamic investment Total transaction size in 2005: company in Saudi Arabia. The property US$ 94.1 million benefited from a long-term lease to the In November 2005, IIB acquired a UK subsidiary of one of the world’s 50% equity stake in One @ Business leading energy companies. IIB placed Bay, a 30-storey high-end office tower the investment with its investors on the in the rapidly developing Business Bay basis of a five year investment holding district in Dubai, being developed in period, a cash dividend of 7.5% p.a. and partnership with Dubai-based Omniyat an IRR in excess of 10%. The London Group. The Bank recognized that commercial real estate market then the spectacular growth in other UAE strengthened and the Bank achieved sectors would provide an attractive an equity release in November 2006 of growth potential in the commercial real 55% of the original investment and an estate sector because of an imbalance increased cash dividend to investors of in the supply / demand equation for 10% p.a. on both the original and the prime offices in Dubai.The investment remaining equity. was successfully placed with IIB’s The building was sold for US$ 409 investors in early 2006 with a target million in December 2006, achieving a IRR of approximately 23%. Not only total return of 98% in only 17 months, was it oversubscribed, but during the equivalent to an IRR of 67% for our placement period all 30 office floors in investors. We not only far exceeded the Tower were pre-sold at the target initial projections, but also delivered price. this exceptional result well in advance of In December 2006, IIB achieved a the original five year investment holding profitable early exit for its investors period. from the project, following the sale Outlook for 2007 of their 50% equity stake to their The Bank enters 2007 with a strong joint-venture partners in the project. investment pipeline developed in The sale achieved a highly attractive conjunction with its broad network IRR of 25% only 11 months after of high-caliber financial institutions the original investment was made, and technical partners from around compared with the planned minimum the world. IIB expects to announce investment holding period of 18 a number of compelling deals across months. The combination of IIB’s multiple industry sectors and asset financial, structuring and placement classes internationally in the months capabilities with Omniyat’s marketing ahead. This will include further and development expertise proved to be investment opportunities in real estate an extremely successful formula. and private equity, but we will continue to be highly selective, targeting market segments and countries where there are still good growth prospects. We are confident that we will be able to continue delivering attractive risk- adjusted returns for our investors. 0 | International Investment Bank B.S.C.(c) | Annual Report 2005
  • 21. cHIeF executIVe oFFIcer’s reVIew oF oPeratIons Information Technology and benefits remained in line with the market, including a bonus scheme The Bank continued to invest in linked to both corporate and individual information technology systems in performance. parallel with the growth in business activity and staff numbers. A committee Recognising that staff are a key is being formed to select and implement asset of the Bank, it continued to a state-of-the-art core banking system significantly invest in staff welfare and with the help of external consultants. the provision of all necessary training It is anticipated that the new systems and development opportunities. Most will be operational at the end of 2007 or employees attended courses in Bahrain early 2008 and will significantly enhance and elsewhere during the year. the Bank’s operational efficiency, its Capital Increase capacity to process larger transactions, and its customer relationship Our current intention is to have a rights management. issue for existing shareholders and to invite, on a selective basis, certain Human Resources strategic investors who have invested As the scale of the Bank’s operations in our deals to enable them to share has grown, its organization structure in the success of the Bank. This move One@Business Bay has also evolved in order to maintain is in response to strong demand from business momentum, and to ensure both current shareholders and other sound corporate governance and an strategic investors who are keen to effective control environment. The total acquire an equity stake in IIB. Subject head count increased from 20 to 40 to regulatory and shareholder approvals, at the end of 2006 and is expected to it is planned to increase the paid-up increase to around 60 by year end 2007 capital from US$ 43 million to US$ in order to handle the planned increase 100 million by mid 2007. With the in business. associated share premium, this will expand the Bank’s equity base to over Bahrain Property Fund Experienced specialist staff have been US$ 175 million.With increased capital recruited to key positions, including a resources at its disposal, IIB will be in Chief Financial Officer, a Director of an enhanced position to identify and Business Development, a Head of Legal arrange a number of more sizeable Compliance, a Head of Investor transactions across diverse industry Services, an Engineer as Project sectors and countries. Manager and a Head of I.T. During the first half of 2007 we expect to complete the senior management team with the appointment of a Head of Human Resources, an Executive Director of Private Equity and Corporate Finance, and an Executive Director of Investment Placement. Aabed Al-Zeera Chief Executive Officer The recruitment process has been very challenging, as the competition for qualified staff remains very strong, both regionally and internationally. The retention of key staff is therefore also a major challenge, making it essential to have attractive remuneration structures in place. Specific initiatives were taken to ensure that compensation Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 22. the comPaNy PLaNs to iNvest Diversified sr2 BiLLioN (us$ 533 miLLioN) investments iN the fast-deveLoPiNg saudi araBiaN ProPerty across many sector over the Next three different sectors years including energy IIB KSA Investments IIB Power Company Ewaan Limited | International Investment Bank B.S.C.(c) | Annual Report 2006 2005
  • 23. the BuiLdiNg iN Private equity IIB acquired BeLgravia was soLd a high quality for us$ 409 miLLioN finance of West Bay Tower portfolio of iN decemBer 2006 commercial achieviNg aN irr aggregated to real estate in of 67% iN oNLy 17 moNths US$ 25 million France valued at US$106 million IIB Belgravia Property IIB UAE Investment IIB France Investment Company Limited Limited Holding BSC West Bay Tower Annual Report 2006 | International Investment Bank B.S.C.(c) | 2005
  • 24. FInancIal reVIew During the year ended st Expenses Liabilities and equity December 00, the Bank Profit on due to financial institutions, Due to financial institutions at the end recorded net income of US$ representing payments made for funds of 2006 represented murabaha contracts . million, compared to US$ received on the principles of murabaha payable (2005: nil). Equity increased .0 million during 00 - an contracts, totaled US$ 0.3 million by 20.9% to US$ 61.4 million, mainly increase of .%. Total assets (2005: nil). Staff compensation and from the 2006 net income less the 2005 at year-end 00 aggregated to benefits of US$ 7.4 million were dividend of US$ 3.4 million transferred US$ . million, up .% or significantly higher than in 2005, to liabilities following the shareholders’ US$ . million as compared on account of the doubling of the approval. to year-end 00. Net cash from headcount from 20 to 40 and the operating activities was US$ Capital adequacy payment of higher bonuses linked to the 0. million (00: negative US$ higher total income and achievement of As compared to the minimum capital . million) and cash and cash individual performance goals. General adequacy ratio of 12% prescribed by equivalents were a healthy US$ and administration expenses more Central Bank of Bahrain (CBB), the . million at the end of 00. than doubled to US$ 2.1 million, Bank’s ratio at year-end 2006 was 134% The key financial ratios were strong being mainly travel, legal, professional (2005: 101%). This ratio, reflecting and further improved in 2006. Return fees, printing and advertising linked credit and market risk, is based on on average equity rose from 14.8% in to the higher level of business activity. guidelines issued by CBB which are 2005 to 24.0%, while return on average Depreciation increased by US$ 0.2 compatible with those of the Basel assets increased from 13.0% to 17.1%. million from the capital expenditure Committee on Banking Supervision. Earnings per share improved from 16 in 2005 on fitting out the new offices. The ratio measures total qualifying cents to 31 cents. Directors’ remuneration of US$ 0.15 capital held by an institution in relation million was expensed in 2006 in respect to its risk- weighted assets. Income of 2005 services. The cost-to-income CBB has stated that all banks The Bank’s total income increased ratio increased in 2006 to 45.2% incorporated in Bahrain should adopt by 98.1% during 2006 to US$ 24.6 from 43.5% in 2005 but compares the Basel II rules commencing from million. This was driven mainly by very favourably with regional and 1 January 2008. Pending clarification significantly higher investment fees international investment banks. of the rules by CBB, the Bank has not which increased from US$ 10.9 million conducted a detailed impact study Assets in 2005 to US$ 17.1 million, earned under Basel II. However, in the opinion from the structuring, underwriting and Cash balances with banks and due of management, the adoption of Basel II placement of new investments. Exit from financial institutions at year-end is expected to leave its ratio well above income, representing performance fees 2006 of US$ 9.3 million and US$ 53.5 the minimum required. earned by the Bank for exceeding pre- million respectively were in aggregate determined hurdle rates, aggregated to 130% higher than a year earlier. The US$ 4.3 million (2005: nil). This is a extra liquidity was provided from clear validation of the business model retained profit, lower net receivables and that IIB has put in place, which is higher murabaha payables. founded principally on the generation of Investments increased by US$ 2.7 fee income from arranging and placing million (20.0%) to US$ 16.4 million, investments. The net gain on sale of represented by the Bank’s retention in investments in 2006 was US$ 1.0 investment deals offered to investors million (2005: nil). Income on due from in 2006, less sales and part disposals financial institutions, being the profit on during the year. commodity murabaha and income on investment in mudaraba , was US$ 1.8 Resulting from the new investment million versus US$ 1.0 million in 2005. offerings in 2006 less the two exits, assets under management increased by 54.5% from US$ 117.6 million to US$ 181.7 million. | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 25. FInancIal reVIew Total assets by Maturity Profile US$ Millions 17.2 Up to 1 month 62.7 1 to 3 months 3 months to 1 year 2.1 No fixed maturity 12.5 3.2 Investment Type US$ Millions Carried at Fair Value through Statement of Income 1.9 Available for Sale Investment Property 11.3 1.0 5.6 Total Assets by Region US$ Millions Europe 120 US$ Millions 20 US$ Millions GCC 16.4 100 87.9 16 14.1 Far East 13.7 80 63.4 12 60 44.4 8 40 4 20 0 0 2004 2005 2006 2004 2005 Total Assets by Industry Sector 24.1 Investments Total Assets US$ Millions Power Generation 67.2 100 Percent Real Estate Banking Finance Others 75 1.0 2.2 64.3% 50 41.5% 33.9% 25 0 2004 2005 2006 Cost / Income Ratio Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 26. rIsk ManageMent The Board of Directors has overall 1. Market Risk 1.1 Investment Risk responsibility for risk management. Market Risk is the risk to earnings Investment (or Equity Price) Risk is The Board approves and periodically resulting from adverse movements the risk of loss arising out of either reviews the risk policies and strategy in foreign exchange rates, profit deterioration in the market price of a of the Bank. rate yield curves, equity prices and marketable investment or the capital A Risk Management Committee commodity prices for assets held in erosion of the Bank’s investment in a (RMC) is being formed which will its portfolio. The size of Market Risk business entity where the shares are not be responsible for submitting policy is not considered significant, as the traded on any exchange. amendments to the Board and for Bank does not trade in investments or The Bank does not have a trading ensuring the approved policies are foreign exchange and does not have any portfolio at present and Investment implemented in accordance with the derivatives. Risk arises from various co-investments risk management procedures. The Risk To enable effective monitoring and that IIB makes in the deals offered to Manager is responsible for identifying, managing of exposures, all Market investors. These investments are long- measuring and managing the risks Risks associated with the Bank’s term and associated with private equity, relating to the Bank’s activities. Regular investments are properly measured. The real estate and asset management. The reports submitted to the Board enables following factors are taken into account risks are controlled in the following it to ensure that risk levels are in fact when measuring the Market Risk in the manner: within the policy limits set by it. Bank’s investment portfolio: • Business Plan and Risk Strategy: The efficient and timely management • Volatility: the extent of fluctuation each line of business will prepare its of risks involved in the Bank’s business in the value of the investment is an annual business plan to outline its is critical to its financial soundness important factor in determining and risk capital requirements, targeted and profitability. The Risk Manager measuring the extent of Market Risk markets and the processes to address maintains standards to ensure: embedded in it; Investment Risk; • Risks are well defined; • Liquidity: the availability of • Risk Review of New Deals: The • Quantitative assessments are widely ready buyers or a market in which Risk Manager will review and used; investments may be liquidated is evaluate risks associated with all new • Control is active; equally essential to assess the Market investment deals; • Measures are accurate; and Risk involved. In the absence of a • Management of risks is proactive and • Diversification of the Investment liquid market, the investments may integrated. Portfolio: to avoid concentration of have to be sold at a ‘distressed price’; investments in one particular country, The risk framework adopts the best • Concentration: the diversification of industry or sector, the Bank follows industry practices in risk management the Bank’s exposure across different exposure limits set by its Board of to provide: countries and sectors and in different Directors, which are within the limits • A risk focus which will enhance types of investments helps avoid specified by the Central Bank of shareholder value through concentration risk; Bahrain; maximizing return on risk-adjusted • Independent Source: when valuing • Investment Retention: only a certain capital; and an asset, it is preferred to have an percentage of the total investment • A framework that supports the independent specialist source from portfolio will be retained by the Bank; current decision-making process and which prices are obtained to enhance culture of strong internal controls in the credibility of the valuation; and the Bank. • Independent Valuation: the The Bank’s risk management process individual or department responsible encompasses various dimensions of risk, for valuing or marking-to-market the as follows. In addition, data in respect of investments is independent of the the principle risks affecting IIB is shown individual or department responsible at note 3 to the financial statements. for the investment. | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 27. rIsk ManageMent • Additional Investments: all The Bank manages Foreign Exchange 2. Credit Risk additional investments in transactions Risk through the following process: Credit Risk is the risk to earnings or will be treated as new deals in the • Net Open Positions: developing net capital from the potential that a loss Bank’s investment portfolio; open positions in relation to foreign will be incurred if a counterparty fails • Limits and Limit Monitoring: currency exposures based on the to perform on a financial obligation allocation of maximum limits Bank’s risk appetite; and as it falls due. It takes into account available to each business for the probability of involuntary • Limits and Limit Monitoring: investment and the continuous default, where the counterparty does setting and maintaining limits on monitoring of any breaches; not possess the financial means to foreign currency net open positions. repay and strategic default, where a • Valuation of Investments: periodic IIB is pursuing suitable hedging counterparty with the ability to repay valuation of all investments to current strategies that are in accordance with deliberately defaults. fair market value by Financial Control Shari’ah principles. Department; and The Bank manages Credit Risk 1.3 Profit Rate Risk through the following process: • Governance Over Existing Deals: quarterly comparison of existing Profit Rate Risk is the risk of a decrease • Credit Risk Scoring and Grading: investment deals with pre-acquisition in the Bank’s net present value in the development of a counterparty risk investment criteria. event of a variation in market reference grading model to assess potential rates. The net present value of the clients prior to undertaking 1.2 Foreign Exchange Risk Bank is affected by an unfavourable exposures. Foreign Exchange Risk is the risk of movement of market reference rates • Developing Counterparty, loss arising from adverse movements in when the Bank carries profit-bearing Country and Sector Limits: foreign exchange rates. In the ordinary assets and liabilities on its balance sheet. setting of maximum counterparty course of business, a foreign exchange The primary source of Profit Rate Risk exposure limits based on the position will arise through investments for IIB is the ‘mismatch risk’, which counterparty risk grading. in foreign countries and nostro balances. arises on account of differences in • Monitoring Credit Exposure: The Bank faces Foreign Exchange Risk principal amounts, profit rates, maturity ongoing review of exposure limits from the following exposures: dates or re-pricing dates, in respect to assigned to each counterparty and its profit-bearing assets and liabilities. • Transaction Exposure: the risk that continuous monitoring to avoid the domestic cost or proceeds of a The Bank employs the following limit breaches. transaction may change; techniques to manage Profit Rate Risk: • Translation Exposure: the risk • Profit Rate Risk Strategy: to forecast that the value of foreign-currency- and assess the risk sources; denominated assets is affected by • Measurement of Profit Rate Risk: to exchange rate movements; and classify the Bank’s profit rate sensitive • Economic Exposure: the risk that assets and liabilities into time buckets exchange rate movements may affect to determine the Bank’s risk exposure; the present value of future income and streams. • Profit Rate Gap Analysis: the development, implementation and monitoring of gap limits to manage the Bank’s exposure against changing profit rates. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 28. rIsk ManageMent 3. Liquidity Risk 4. Operational Risk 5. Legal Risk Liquidity Risk is the risk that the Bank Operational Risk is the risk of direct Legal Risk is the risk arising from the may not be able to meet its obligations or indirect loss resulting from breaches potential that unenforceable contracts, or commitments with regard to in internal controls, processing errors, lawsuits, or adverse judgements can financing or the repayment of maturing inadequate information systems, fraud, disrupt or otherwise negatively affect debts. IIB has access to geographically or external events. Its impact can be the operations of the Bank. IIB has diversified funding sources and manages in the form of a financial loss, loss sought to mitigate its exposure to its assets with liquidity in mind, of reputation or loss of competitive Legal Risk by establishing a Legal and including the maintenance of healthy position. The Bank minimises its Compliance Department headed by balances of cash and cash equivalents. exposure by ensuring that appropriate a qualified and experienced lawyer. In The Bank groups all assets and liabilities infrastructure, controls, systems and addition, it has relationships with well- into specific maturity time buckets and trained, competent people are in place. established local and international law monitors the mismatches between the In particular: firms. inflows and outflows against approved • Internal Audit Department issues limits. regular reports including an annual The Bank uses a combination of organization-wide risk assessment; the following techniques to manage • External auditors make Liquidity Risk: recommendations on internal controls • Funding Strategy - any projected and processes; liquidity shortfalls are highlighted in • Business units are responsible for the mismatch report and appropriate managing the operational risks remedial action is taken. relevant to their activities; and • Liquidity Gap Limits - mismatch • A well-established disaster recovery limits are regularly reviewed and program exists covering computer updated to reflect IIB’s business backup, data recovery and premises requirements and risk appetite. continuity. • Liquidity Contingency Plan - the Bank’s liquidity profile is evaluated under different market conditions and any adverse liquidity scenarios are addressed. | International Investment Bank B.S.C.(c) | Annual Report 2006
  • 29. Risk Management (from Left to right) saBa aL-khaLifa, PriNciPaL-iNvestor reLatioNs; murtaza ghuLam, PriNciPaL-BaNkiNg suPPort; hassaN aBu hassaN, eNgiNeeriNg services head; frederick stoNehouse, executive director, BaNkiNg suPPort; mazar jaLaL, PriNciPaL-BaNkiNg suPPort Annual Report 2006 | International Investment Bank B.S.C.(c) |
  • 30. (from Left to right) iNvestmeNt PLacemeNt team memBers: hashim jaNahi, fawzaN aL-Naser, aLyas aLmeftah, Bader aLi, saudi aL yahya, aBduLjaBBar aL- kooheji, rayaN kazerooNi, eBrahim aLshaiBeh, Bashar aL-shaikh, jassim aL shaikh with saLah NooruddiN, chief oPeratiNg officer (ceNtre). 0 | International Investment Bank B.S.C.(c) | Annual Report 2005
  • 31. sHarI’aH suPerVIsory Board rePort Shari’ah Supervisory Board Asslam Alaikum Wa Rahmat Allah In our opinion: Report to the Shareholders of Wa Barakatuh • The Bank’s contracts, transactions and International Investment Bank In compliance with the terms of our deals for the year ending December B.S.C. (c) letter of appointment, we are required 31, 2006 are in compliance with the to report as follows: rules and principles of the Islamic Shari’ah. We have reviewed the principles and contracts relating to the transactions • The Bank’s allocation of profit conducted by International Investment and charging of losses relating to Bank B.S.C. (c) (the “Bank”) during investment accounts are in compliance the course of the year ended December with the rules and principles of the 31, 2006. Our review was conducted Islamic Shari’ah. in order to judge whether the Bank • Earnings that have been realized followed the principles of the Islamic from sources that are non-Shari’ah Shari’ah, specific fatwas, and guidelines compliant were donated to charity. issued by the Shari’ah Supervisory Board. The Bank’s management • The Bank’s calculation of Zakat is is responsible for ensuring that its in compliance with the rules and operations are carried out in compliance principles of the Islamic Shari’ah. with our rulings. It is our responsibility We beseech the Almighty to grant us to present an independent view of the excellence and success. Bank’s operations and to communicate it to the shareholders. Wassalam Alaikum Wa Rahmat Allah Wa Barakatuh Our review included a detailed analysis of each type of transaction with its relevant documentation and procedures adopted by the Bank. The review was planned and performed so as to obtain all necessary information and explanations to provide sufficient evidence proving that the Bank has not Sheikh Nizam Yaquby violated any rules and principles of the Chairman of the Shari’ah Supervisory Islamic Shari’ah. Board 28 Muharram 1428 15 February 2007 Annual Report 2005 | International Investment Bank B.S.C.(c) |
  • 32. IndePendent audItors’ rePort to tHe sHareHolders Auditors’ Responsibility the year then ended in accordance with Financial Accounting Standards Our responsibility is to express an issued by the Accounting and Auditing Independent Auditors’ Report to opinion on these financial statements Organisation for Islamic Financial the Shareholders of International based on our audit. We conducted Institutions and the Islamic Shari’ah Investment Bank B.S.C. (c) our audit in accordance with both Rules and Principles as determined by the International Standards on We have audited the accompanying Shari’ah Supervisory Board of the Bank. Auditing and Auditing Standards for financial statements of International Islamic Financial Institutions. Those In addition, in our opinion, the financial Investment Bank B.S.C (c) (the ‘Bank’) standards require that we comply statements present fairly, in all material which comprise the balance sheet as at with the relevant ethical requirements respects, the financial position of the 31 December 2006 and the statement and plan and perform the audit to Bank as of 31 December 2006 and of its of income, statement of cash flows and obtain reasonable assurance whether financial performance and its cash flows statement of changes in equity for the the financial statements are free from for the year then ended in accordance year then ended, and a summary of material misstatement. with International Financial Reporting significant accounting policies and other Standards. explanatory notes. An audit involves performing procedures to obtain audit evidence Other Regulatory Matters Board of Directors’ Responsibility for about the amounts and disclosures in the Financial Statements We confirm that, in our opinion, the financial statements. The procedures proper accounting records have been The Board of Directors is responsible selected depend on the auditors’ kept by the Bank and the financial for the preparation and fair presentation judgment, including the assessment statements, and the contents of the of these financial statements in of the risks of material misstatement Report of the Board of Directors accordance with both the Financial of the financial statements, whether relating to these financial statements, Accounting Standards issued by the due to fraud or error. In making those are in agreement therewith. We further Accounting and Auditing Organisation risk assessments, the auditor considers report, to the best of our knowledge for Islamic Financial Institutions internal controls relevant to the entity’s and belief, that no violations of the to operate in accordance with preparation and fair presentation Bahrain Commercial Companies Law, Islamic Shari’ah and International of the financial statements in order nor of the Central Bank of Bahrain Financial Reporting Standards. This to design audit procedures that are and Financial Institutions Law, nor responsibility includes: designing, appropriate for the circumstances, of the memorandum and articles of implementing and maintaining internal but not for the purpose of expressing association of the Bank have occurred controls relevant to the preparation an opinion on the effectiveness of the during the year ended 31 December and fair presentation of financial entity’s internal control. An audit also 2006 that might have had a material statements that are free from material includes evaluating the appropriateness adverse effect on the business of the misstatement, whether due to fraud of accounting policies used and the Bank or on its financial position and or error; selecting and applying reasonableness of accounting estimates that the Bank has complied with the appropriate accounting policies; and made by the Board of Directors, as well terms of its banking licence. making accounting estimates that as evaluating the overall presentation of are reasonable in the circumstances. the financial statements. In addition the Board of Directors is We believe that the audit evidence responsible for the Bank’s undertaking we have obtained is sufficient and to operate in accordance with Islamic appropriate to provide a basis for our Shari’ah Rules and Principles. audit opinion. 15 February 2007 Manama Opinion Kingdom of Bahrain In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as of 31 December 2006 and of its financial performance and its cash flows for | International Investment Bank B.S.C.(c) | Annual Report 2005

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