28 Feb 2016
• Total income up 5.4 percent to US$478.4 million
• Net income before provisions and taxation up 169.2 percent to US$77.9 million
• Net loss of US$60.8 million attributable to equity holders of the Bank, largely due to investment related impairment provisions
• Proposed new group structure, designed to more clearly show the growth achieved in the core business, to be presented to shareholders
MANAMA, BAHRAIN – 28 February 2016 – Ithmaar Bank, a Bahrain-based Islamic retail bank, reported today (ed note: 28/02/16) an increase in total income and operating income from its core retail banking operations during 2015 but this improved performance was impacted by recognition of certain investment related impairment provisions.
Net income before provisions for impairment and overseas taxation increased 169.2 percent including a 18 percent increase in Operating Income. Overall, the Bank recorded a net loss of US$46.4 million in 2015. This compares to a net loss of US$8.8 million in 2014. This was mainly due to significant impairment provisions of US$95 million in 2015, compared to provisions of US$26.1 million in 2014. The net loss attributable to equity holders of the Bank for the year 2015 was US$60.8 million, compared to a net loss of US$15 million reported over the same period in the previous year. The financial results include a net loss for the quarter ended 31 December 2015 of US$57.8 million, compared to a net loss of US$13.7 million for the same period last year. The net loss attributable to equity holders of the Bank for the quarter amounted to US$62.9 million, compared to the net loss of US$16.2 million reported for the same period last year.
The Bank is finalizing plans, subject to shareholder and regulatory approvals, to create a new holding company which will be listed on Bahrain Bourse and Kuwait Stock Exchange. The new holding company will retain 100 percent ownership of all assets presently owned by Ithmaar Bank. These assets will be divided into two wholly owned subsidiaries, the Islamic retail bank subsidiary will hold the core retail banking business and the investment assets will be held by an investment subsidiary. The holding company and these two subsidiaries will be licensed and regulated by the Central Bank of Bahrain (CBB). The proposed new structure is designed to assist the Bank in delivering its long term strategy for growth by making it easier for the Group to manage its investment assets and provide shareholders and analysts with greater insight into the strength of the Group’s core retail banking operations and the performance of its investment assets.
Commenting on the annual results for the year ended 31 December 2015, Ithmaar Bank Chairman, His Royal Highness Prince Amr Al Faisal said: “On behalf of the Board of Directors, I am pleased to report that Ithmaar Bank continues to report growing, sustainable income from its core retail banking operations. Net income, before provisions for impairment and overseas taxation, increased 169.2 percent to US$77.9 million in 2015, from US$28.9 million in 2014. This included a 17.8 percent increase in Operating Income to US$268.4 million in 2015, up from US$227.8 million in 2014. This was mainly due to sustainable revenue growth across most income streams,” he said.
“However, the recent significant decline in oil prices and the resultant new economic challenges in the region have impacted investment valuations, and consequently impacted Ithmaar Bank’s financial results,” said HRH Prince Amr. “To address this, the Bank has taken prudent investment impairment provisions, and the net loss for the year is due largely to the significantly higher provisions for impairment, which increased by US$68.9 million in 2015,” he said.
“Total expenses for the year ended 31 December 2015, at US$190.4 million, are 4.2 percent lower than 2014 expenses of US$198.8 million, despite the continued successful expansion of the Bank’s core retail banking operations.” said HRH Prince Amr. “This reduction is, largely, a result of the strategic decisions taken by the Bank in early 2014 that aimed at significantly transforming the Group’s operations,” he said.
“I am also pleased to report that the balance sheet remains stable and continues to grow,” said HRH Prince Amr. “Total assets increased by 3.5 percent to US$8.1 billion as at 31 December 2015, compared to US$7.9 billion as at 31 December 2014,” he said.
Speaking about the proposal to create a new group structure, HRH Prince Amr said: “Looking ahead, as part of the efforts we announced early in 2014 to significantly transform the Group’s operation, the Ithmaar Bank Board of Directors is proposing the creation of a new group structure. The proposal, which follows extensive internal review and discussion, is driven by our commitment to ensuring that the new banking entity is well positioned to benefit from new opportunities in the current market. It will help lower the risk profile of the new banking entity and enhance shareholder value by showing the growth achieved in the core business which is currently being adversely impacted by investment valuations and impairment provisions.”
“Adoption of the new structure remains subject to necessary regulatory approvals and will be formally presented to the shareholders for their approval at an Extraordinary General Meeting,” he said.
As per the proposed new structure, the core retail banking operations of Ithmaar Bank, both in Bahrain and in Pakistan as Faysal Bank Limited, will be retained as assets under new banking entity, an Islamic retail bank, while strategic investments and other investment assets including real estate, will be transferred to the new investment firm. This proposed resructure will help to separate the core assets from any negative impact of the investment assets.
Ithmaar Bank Chief Executive Officer, Ahmed Abdul Rahim, said that the Bank’s 2015 financial results illustrate the adverse impact that the Bank’s investment assets have on the Bank’s core retail banking business, and explained that the proposed new structure marks an important next step in efforts to significantly transform the Group’s operations.
“The stable, sustainable growth achieved in the Bank’s core retail business is evident with total income increasing 5.4 percent to US$478.4 million in 2015, when compared to US$453.9 million in 2014,” said Abdul Rahim. “This reconfirms that our efforts to significantly transform the Group’s operations and focus on developing our core business are paying off, and that we are on the right track. Our proposals to reorganise the group represent a further stage in this process and underlines our commitment to becoming one of the region’s leading Islamic retail banks,” he said.
“By dividing our assets into separate groups, we will be able to better focus on our core retail banking businesses held in new banking entity and at the same time facilitate independent and focussed disposal of investment assets held by the investment entity, when suitable opportunities arise,” said Abdul Rahim. “The proposed plan will further consolidate Ithmaar Bank’s position as a strong retail-focussed premier Islamic retail bank under the Ithmaar brand, better allowing the Bank to take advantage of new growth opportunities, and help to generate greater returns to our shareholders,” he said.
“The Bank’s 2015 financial results show that, during the year, the equity of unrestricted investment account holders grew by 10 percent to US$ 2.2 billion as at 31 December 2015, compared to US$2 billion as at 31 December 2014. Similarly, customers’ current accounts have increased by 4.6 percent to US$1.4 billion as at 31 December 2015, compared to US$1.37 billion as at 31 December 2014, due to the Bank’s focus on attracting and low cost deposits. Liquid assets, as at 31 December 2015, account for 10.6 percent of the balance sheet, compared to 9.3 percent as at 31 December 2014,” said Abdul Rahim. “The growth we have seen in the Bank’s core retail banking business is due largely to our continuous focus on improving products and services while also working to grow closer to our customers,” he said.
During 2015, Ithmaar Bank introduced a number of service improvements and new products for customers. These included commissioning a new Automated Teller Machine (ATM) at the Isa Town fuel station. This brings the total number of ATMs to 46, including 17 in full service branches, at strategic locations across Bahrain. In August, Ithmaar reopened its West Riffa branch after significantly enlarging the branch to accommodate additional tellers and customer service stations, as well as dedicated facilities for female customers.
A further successful program, pioneered in association with Eskan Bank, has been the social housing mortgage scheme, which has given thousands of Bahraini families the opportunity to achieve their dream of owning their own home.
In June 2015, on the occasion of the Holy Month of Ramadan, the Bank launched a first of its kind Qard Hasan (profit-free financing) for its low income loyal customers. In 2015, the Bank also introduced Bahrain’s most rewarding Credit Cards loyalty programme, Ithmaar Rewards, which is the most comprehensive of its kind in Bahrain. It also signed agreements with Gulf Air, as well as with a number of retailers and service providers, to provide exclusive discounts and other offers to card holders. In 2015, Ithmaar Bank also launched a new Sharia-compliant prepaid e-Card designed to provide customers a faster, safer and more convenient online shopping experience.