Islamic Bank of Britain Plc
22 March 2006
ISLAMIC BANK OF BRITAIN PLC
Annual results for year ended 31 December 2005
Financial Summary
• Income receivable from Murabaha and Wakala transactions increase to
£2,783,604 (six months to 30 June 2005 £1,178,740, five months to 31st
December 2004 £683,898)
• Income receivable from consumer finance £201,539 (six months to 30 June
2005 £17,351)
• Operating costs up from £3,783,768 to £8,605,400 reflecting investment
required to build the business operating structure, including the
development of the branch network with increasing customer facing staff.
• Loss on ordinary activities before tax of £6,449,507 (six months to 30
June 2005 £2,732,413, five months to 31st December 2004 £3,107,370)
• Loss per ordinary share 1.5p (six months to 30 June 2006 0.7p, five months
to 31st December 2004 0.9p)
Operational Summary
• Customer deposits increased to £48m (as at 31st December 2004, £2.1m)
• Strengthening customer recruitment profile
- Current customer base of 14,023 (5,962 at 30 June 2005)
- Total of 25,403 accounts opened (10,511 at 30 June 2005)
• Continued new product development with introduction of Islamic current
accounts, debit cards, consumer financing facilities and business banking
proposition. Home finance product and internet banking capability are
planned for launch second quarter 2006.
• Expanded distribution channels with opening of five new branches (Small
Heath Birmingham, London Road Leicester, Southall London, Whitechapel,
London, Alum Rock Birmingham) and introduction of a direct banking service.
Since period end a further branch has opened on Stockport Road Manchester.
Abdul Rahman Abdul Malik, Chairman, commented: 'I am pleased to announce our
results for the year ended 31st December 2005, our first full year of trading,
which demonstrate ongoing steady improvement in our financial and operational
performance. During the year, we have focused on development of our product
portfolio and the building of our delivery channel capabilities, and have seen a
corresponding impact on customer recruitment numbers.
'We have also been delighted to receive two prestigious awards, one for 'Best
New Islamic Bank' and one for 'Best Islamic Bank in Europe', following a global
poll of non-banking finance industry professionals carried out by Islamic
Finance News.
'Our focus in 2006 is to further expand our product set and distribution
capability, with new branch openings and the launch of internet banking
facility. Working with the treasury and HMRC, we have made good progress in
addressing tax legislative issues associated with Murabaha and Ijara financing
products and are optimistic that 2006 will herald the launch of a number of
products based on these principles as well as the introduction of an Islamic
home finance product which is imminent.'
-Ends-
Issued on behalf of Islamic Bank of Britain by McCann Erickson PR. McCann House,
Highlands Road, Shirley, Solihull, B90 4WE. Tel 0121 713 3500
For further information please contact Dawn Walker on 0121 713 3790,
dawn.walker@europe.mccann.com or Caroline Hosie on 0121 713 3829,
caroline.hosie@europe.mccann.com or Alison Love on 0121 713 3782,
alison.love@europe.mccann.com
Islamic Bank of Britain PLC
Annual Report and
Financial Statements
Registered number 4483430
31 December 2005
Chairman's statement
Islamic Bank of Britain PLC
Year ended 31 December 2005
I have much pleasure in presenting the Annual Report of the Islamic Bank of
Britain PLC (the 'Bank') to shareholders for the financial year ended 31
December 2005. The past year was effectively the first full year of real
trading following authorisation by the Financial Services Authority in August
2004.
The emphasis for the year has been the development of Islamic retail banking
products and the building of a distribution capability. In the product area we
are now able to offer, in addition to savings accounts, current accounts, with
debit cards and consumer financing accounts. Our Islamic home finance product
has received the appropriate regulatory approvals and will be introduced to the
market shortly. In the second half of 2005 we introduced our business banking
proposition for the small business customer.
A total of five new branches have been opened during the year. Our sixth unit
planned for 2005 actually opened in Manchester on 5 January 2006. This network
now establishes a presence for the Bank in London (3 branches), the Midlands (3
branches) and the North-West (1 branch). Direct banking through the medium of
the post and telephone was also launched during the year.
Within the 2005 interim report I advised you that the Bank had a total of 5,962
customers by 30 June 2005. In the second half of the year we accelerated
further with customer recruitment, activity here being supported by the
increasing distribution capability. As at 31 December 2005 our customer base
reached 14,023. Account volumes have increased from 10,511 reported in June
2005 to 25,403 by the end of the year.
Customer deposits have grown to £48m during the course of the year, increasing a
further 41% in the second half of the year. In contrast customer assets have
grown at a more modest pace, reaching £4.5m by the end of the year. This is a
reflection of the fact that we still do not have access to two of the key
Islamic financing principles of Murabaha and Ijara to make available asset
finance. In June 2005 I reported to you that good progress was being made in
addressing the tax legislative issues associated with these financing
principles. We have been working closely with the Treasury and HMRC on these
matters. Positive progress has been achieved in the past half year and the
Board is optimistic that we shall shortly have in place legislative adjustments
which will enable products based on these principles to enter the market.
Given the current modest customer asset base, the major income generator
continues to be profit from Commodity Murabaha and Wakala receivables. Returns
received have been consistent with market rates generally. Having regard to the
concerns with the escalation in personal debt in the UK, we have considered it
prudent to adopt a cautious approach in the area of consumer finance accounts.
The application approval rate has averaged around the 40% level.
The increase in costs during the year is reflective of the investment required
to build the business operating infrastructure, specifically in the second half
of the year. In particular the growth in staff costs has principally been in
the engagement of customer facing staff both in branches and at the central
Contact Centre.
The net loss on ordinary activities for the year amounts to £6.4m and is in line
with our 2005 forecast.
In the year ahead we intend to expand further both our product set and
distribution capability. Islamic home finance, as referred to above, will
shortly be introduced and, subject to legislative clearance, we should soon be
able to offer a much wider range of consumer and small business finance
products. The building of our internet banking capability is progressing well
and it is expected that this will be launched during the second quarter of 2006.
Developing our distribution capability remains a strategic objective. The
building of our branch network will continue although securing suitable premises
in the right location in key market areas is proving to be quite challenging.
I am delighted to inform you that in a global poll carried out by Islamic
Finance News, the Bank received two prestigious awards for 2005 by being voted
the 'Best New Islamic Bank' and the 'Best Islamic Bank in Europe'. The poll was
carried out amongst non-banking finance industry professionals and placed the
Bank top in a category of 34 competing Islamic banks.
With the Bank now operational we have taken the decision that the time is right
to reduce the size of the Board. Currently there are nine members of the Board
which was initially considered appropriate given the need for specialist
knowledge during the early period of development. Going forward we intend to
operate with a Board of seven Directors. Indeed, we consider any subsequent
increase in the size of the Board to be a matter for shareholders to opine and
therefore we have included such a resolution for consideration at the Annual
General Meeting in April.
In September 2005 Mr. Adnan Yousif stepped down from the Board on account of the
need to concentrate on other business demands. At the coming Annual General
Meeting Mr. David Gates will be retiring and will not be seeking re-election.
Mr. Ahmad Salam has also decided not to seek re-election and will be standing
down as a Director with effect from the Annual General Meeting next month. These
three gentlemen have made a tremendous contribution to the Bank's development to
date and I express our sincere thanks to them for their valuable services.
There have been two new appointments to the Board in the year and I take this
opportunity to welcome Mr. Mohsen Moustafa and Mr. Abdulaziz Al-Khulaifi. Both
these gentlemen bring considerable experience of Islamic financial services to
the business.
Throughout the year we have received invaluable guidance from our Sharia'a
Supervisory Committee, which provides to us the appropriate religious guidance
to ensure that our business operates in a wholly Sharia'a compliant way. A new
member of the Committee is Mufti Barkatullah, a UK based scholar, and we extend
to him a warm welcome.
Finally, I would wish to express our sincere appreciation to the management and
staff of the Bank. We commenced year 2005 with one product and one branch. The
conclusion of the year has seen a major transformation of the business with
products, distribution and the central operating capability being rapidly
expanded to enable the Bank to satisfy in a wholly Sharia'a compliant way the
financial needs of the modern consumer. There is still much to be done but the
enthusiasm and commitment of the staff is such that I believe we can move
forward with confidence.
Abdul Rahman Abdul Malik
Chairman
Report of the Sharia'a Supervisory Committee
In the name of Allah, the Most Gracious, the Most Merciful
Report of the Sharia'a Supervisory Committee
To the Shareholders of the Islamic Bank of Britain PLC
For the period from 1 January 2005 to 31 December 2005
In compliance with the Terms of Reference of our Committee, we submit the
following report:
We have reviewed the documentation relating to the products entered into by the
Islamic Bank of Britain PLC for the period from 1 January 2005 to 31 December
2005. According to management, the funds were raised and invested in this
period on the basis of agreements approved by us.
Therefore, based on the report of our representative and representations
received from management, in our opinion the transactions and the products
entered into by the Company during the period from 1 January 2005 to 31 December
2005 are in compliance with the Islamic Sharia'a rules and principles and also
the specific directives, rulings and guidelines issued by us.
We beg Allah the Almighty to grant us all the success and straight forwardness.
Dr Abdul Sattar Abu Ghuddah
Chairman of the Sharia'a Supervisory Committee
22 March 2006
Directors' report
The directors present their directors' report and financial statements for the
year ended 31 December 2005.
Principal activities
Islamic House of Britain PLC was incorporated with the intention of becoming the
first independent Islamic bank in the United Kingdom established and managed on
a wholly Sharia'a compliant basis providing banking services to Muslims in the
United Kingdom and other parts of Europe.
On 6 August 2004, the Company was granted permission under Part IV of the
Financial Services and Markets Act 2000 ('FSMA') by the Financial Services
Authority (FSA) which allows it to act as an authorised person under the
regulation of the FSA. Accordingly, the Company changed its name from Islamic
House of Britain PLC to Islamic Bank of Britain PLC with effect from 6 August
2004 and opened its first branch on Edgware Road London on 22 September 2004.
A further five branches were opened in 2005; Small Heath Birmingham, Leicester,
Whitechapel London, Southall London, and Alum Rock Birmingham. A direct
telephone and postal banking capability was also introduced during the year to
complement the branch network.
In addition the product offering was further developed in 2005 and at the end of
the year the Bank offers a range of Sharia'a compliant banking solutions for
both individual and business customers including current accounts, savings
accounts, high net worth treasury placement accounts and consumer finance
accounts.
A further branch in Manchester was opened subsequent to the reporting date, in
January 2006.
Financial Results
Subsequent to authorisation, Islamic Bank of Britain PLC changed its reporting
date from 31 July to 31 December with effect from the period ended 31 December
2004. Consequently, comparative figures presented in this report are for the 5
month period ended 31 December 2004.
For all periods up to and including the 5 month period ended 31 December 2004,
Islamic Bank of Britain PLC prepared its financial statements in accordance with
UK Generally Accepted Accounting Principles ('UK GAAP'). From 1 January 2005,
Islamic Bank of Britain PLC has elected to prepare its financial statements in
accordance with International Financial Reporting Standards as adopted by the EU
('adopted IFRSs') and effective for the reporting year ended 31 December 2005.
The transition to IFRS, from 1 August 2004, has had no material impact upon the
figures previously reported in the Islamic Bank of Britain PLC's financial
statements for the 5 month period ended 31 December 2004 nor on its opening
balance sheets as at 1 August 2004 and 1 January 2005. Consequently, no
material adjustments were required of the figures previously reported under UK
GAAP to those now reported under IFRS, and, hence, reconciliations of the UK
GAAP and IFRS figures have not been provided.
Details of the financial risk management objectives and policies and the
company's indicative exposure to financial risk are given in note 20.
The financial statements for the year ended 31 December 2005 are shown on pages
10 to 30. The loss for the year amounts to £6,449,507 (5 month period ended 31
December 2004: £3,107,370).
The directors do not recommend the payment of a dividend (5 month period ended
31 December 2004: £nil).
Directors and directors' interests
The directors who held office during the year were as follows:
Mr Abdul Rahman Abdul Malik (Chairman) ^
Dr Hussain Ali Al-Abdulla (Resigned as Director 8 February 2005)
Mr Abdulaziz Al-Khulaifi (Appointed as Director 28 September 2005)
Mr Abdulbasit Al Shaibei (Resigned as Alternate Director 8 February 2005)
Mr Christopher Hayward Davis *+^
Mr David Gates (also Company Secretary) (Appointed Company Secretary 31 January 2005, resigned
as Company Secretary 30 September 2005)
Mr Michael R. Hanlon
Mr Mohsen Tawfik Moustafa * (Appointed as Director 28 September 2005)
Mr Ashraf Piranie (also Company Secretary) (Appointed as Director 11 July 2005, appointed as
Company Secretary 1 October 2005)
Mr Shabir Randeree +
Mr Ahmad Salam *^
Mr Adnan Ahmed Yousif (Resigned as Director 30 September 2005)
* Denotes member of Audit Committee
+ Denotes member of Remuneration Committee
^ Denotes member of Nomination Committee
Mr Stephen Hinds acted as Company Secretary until 31 January 2005.
The directors who held office at the end of the financial year had the following
interests in the ordinary shares of the Company according to the register of
directors' interests:
Class of share Interest Interest at
at end of start of
year year or date
of appointment
Mr Abdul Rahman Abdul Malik (Chairman) Ordinary 1,000,000 1,000,000
Mr David Gates Ordinary 1,000,000 1,000,000
Mr Shabir Randeree (held in the name of Ordinary 30,058,013 30,058,013
DCD London & Mutual PLC)
Mr Ahmad Salam Ordinary 1,000,000 1,000,000
None of the other directors who held office at the end of the financial year had
any disclosable interest in the shares of the Company.
According to the register of directors' interests, no rights to subscribe for
shares in or debentures of the Company were granted to any of the directors or
their immediate families, or exercised by them, during the financial year.
Sharia'a Supervisory Committee members
The Sharia'a Supervisory Committee members during the year were as follows:
Justice Muhammad Taqi Usmani, Chairman (resigned 20 February 2005)
Dr. Abdul Sattar Abu Ghuddah (appointed Chairman 10 March 2005)
Sheikh Nizam Yacouby
Mufti Abdul Barkatullah (appointed 26 October 2005)
The report of the Sharia'a Supervisory Committee for the year is set out on page
3.
Creditor payment policy
The Company does not follow a code or standard on payment practice but seeks to
settle trade invoices promptly upon receipt. The amount due to the Company's
trade creditors as at 31 December 2005 represented 20 days (31 December 2004: 99
days) average daily purchases of goods and services calculated in accordance
with the Companies Act 1985, as amended by Statutory Instrument 1997/571.
Political and charitable contributions
The Company made no political contributions during the year (5 month period
ended 31 December 2004: £nil). Donations to UK charities amounted to £8,250 (5
month period ended 31 December 2004: £nil).
Auditors
In accordance with Section 384 of the Companies Act 1985, a resolution for the
re-appointment of KPMG Audit Plc as auditors of the company is to be proposed at
the forthcoming Annual General Meeting.
By order of the board
Ashraf Piranie Islamic Bank of Britain PLC
Finance Director and Company Secretary Edgbaston House
3 Duchess Place
Hagley Road
Birmingham
B16 8NH
22 March 2006
(Address of registered office)
Statement of directors' responsibilities in respect of the Annual Report and the
financial statements
The directors are responsible for preparing the Annual Report and the company
financial statements, in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare the
financial statements in accordance with IFRSs as adopted by the EU.
The financial statements are required by law and IFRSs as adopted by the EU to
present fairly the financial position and performance of the Company; the
Companies Act 1985 provides in relation to such financial statements that
references in the relevant part of that Act to financial statements giving a
true and fair view are references to their achieving a fair presentation.
In preparing the financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as
adopted by the EU; and
• prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that its financial statements comply with the
Companies Act 1985. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the company and to
prevent and detect fraud and other irregularities.
Under applicable law, the directors are also responsible for preparing a
Directors' Report that complies with that law.
The directors are responsible for the maintenance and integrity of the corporate
and financial information included on the company's website. Legislation in the
UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
KPMG Audit Plc
8 Salisbury Square
London
EC4Y 8BB
United Kingdom
Independent Auditors' Report to the Members of Islamic Bank of Britain PLC
We have audited the financial statements of the Islamic Bank of Britain PLC ('
the Company') for the year ended 31 December 2005 which comprise the Income
Statement, the Balance Sheet, the Cash Flow Statement and the Statement of
Change in Shareholders' Equity and the related notes. These financial statements
have been prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the Company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU are set out in the
Statement of Directors' Responsibilities on page 7. Our responsibility is to
audit the financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the financial statements have been properly prepared
in accordance with the Companies Act 1985. We also report to you if, in our
opinion, the Annual Report is not consistent with the financial statements, if
the Company has not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if information
specified by law regarding directors' remuneration and other transactions is not
disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. We consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do
not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance with
IFRSs as adopted by the EU, of the state of the Company's affairs as at 31
December 2005 and of its loss for the year then ended; and
• the financial statements have been properly prepared in accordance
with the Companies Act 1985.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
22 March 2006
Income statement
for year ended 31 December 2005
Note 12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Income receivable from:
Commodity Murabaha and Wakala transactions 2,783,604 683,898
Consumer finance accounts 201,539 -
Returns payable to customers (814,978) (7,500)
------------- ------------
Net income from Islamic financing transactions 2,170,165 676,398
------------- ------------
Fees and commissions receivable 40,963 -
Fees and commissions payable (3,167) -
------------- ------------
Net fee income 37,796 -
------------- ------------
Total operating income 2,207,961 676,398
Impairment charges and other credit risk provisions 14 (52,068) -
------------- ------------
Net operating income 2,155,893 676,398
------------- ------------
Employee compensation and benefits 2 (3,250,576) (867,769)
General and administrative expenses (3,859,216) (2,412,435)
Depreciation of property, plant and equipment 6 (1,495,608) (503,564)
------------- ------------
Total operating expenses (8,605,400) (3,783,768)
------------- ------------
Operating loss (6,449,507) (3,107,370)
Tax on operating loss 5 - -
------------- ------------
Loss for the year/period (6,449,507) (3,107,370)
============= ============
Earnings per ordinary share (basic and diluted) -pence 13 (1.5) (0.9)
============= ============
The notes on pages 14 to 30 form part of these financial statements.
Balance sheet
at 31 December 2005
Note 31 December 31 December
2005 2004
£ £
Assets
Cash 579,251 47,195
Commodity Murabaha and Wakala receivables and other 17 78,037,676 47,022,681
advances due from banks
Consumer finance accounts 4,454,369 -
Other assets 7 910,248 387,077
Property, plant and equipment 6 5,307,956 3,547,073
------------- ------------
Total assets 89,289,500 51,004,026
============= ============
Liabilities and equity
Liabilities
Customer liability accounts 18 47,714,593 2,124,790
Other liabilities 8 1,010,367 1,865,189
------------- ------------
Total liabilities 48,724,960 3,989,979
Equity
Called up share capital 16 4,190,000 4,190,000
Share premium 48,747,255 48,747,255
Retained earnings (12,372,715) (5,923,208)
------------- ------------
Total equity 40,564,540 47,014,047
------------- ------------
Total equity and liabilities 89,289,500 51,004,026
============= ============
These financial statements were approved by the board of directors on 22 March
2006 and were signed on its behalf by:
Ashraf Piranie
Finance Director
The notes on pages 14 to 30 form part of these financial statements.
Statement of changes in equity
for year ended 31 December 2005
Share Share Profit Total
capital premium and loss
account account
£ £ £ £
Balance at 1 August 2004 2,590,000 11,636,398 (3,089,436) 11,136,962
New share capital subscribed (net of 1,600,000 37,384,455 - 38,984,455
issue costs)
Transfer between reserves - (273,598) 273,598 -
Loss for the financial period (5
months) - - (3,107,370) (3,107,370)
----------- ----------- ----------- -----------
Balance at 31 December 2004 4,190,000 48,747,255 (5,923,208) 47,014,047
=========== =========== =========== ===========
Balance at 1 January 2005 4,190,000 48,747,255 (5,923,208) 47,014,047
Loss for the financial period (12 - - (6,449,507) (6,449,507)
months)
----------- ----------- ----------- -----------
Balance at 31 December 2005 4,190,000 48,747,255 (12,372,715) 40,564,540
=========== =========== =========== ===========
The notes on pages 14 to 30 form part of these financial statements.
Cash flow statement
for year ended 31 December 2005
Note 12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Cash flows from operating activities
Operating loss (6,449,507) (3,107,370)
Adjustments for:
Non cash items included in net loss:
Depreciation 1,495,608 503,564
Impairment charges and other credit risk provisions 52,068 -
(Increase) / decrease in other assets (523,171) 699,012
Increase in Commodity Murabaha and Wakala receivables (28,299,186) (35,486,075)
Decrease in other liabilities (854,822) (159,264)
Increase in customer liability accounts 45,589,803 2,124,790
Increase in consumer finance accounts (4,506,437) -
---------- -----------
Net cashflow from operating activities 6,504,356 (35,425,343)
---------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment 6 (3,256,491) (2,084,529)
---------- -----------
Net cash used in investing activities (3,256,491) (2,084,529)
---------- -----------
Cash flows from financing activities
Issue of ordinary share capital - 40,000,000
Expenses paid in connection with share issue - (1,015,545)
---------- -----------
Net cash from financing activities - 38,984,455
---------- -----------
Net increase in cash and cash equivalents 3,247,865 1,474,583
Cash and cash equivalents at beginning of year/period 1,692,012 217,429
---------- -----------
Cash and cash equivalents at the end of the year/period 19 4,939,877 1,692,012
========== ===========
The notes on pages 14 to 30 form part of these financial statements.
Notes
(forming part of the financial statements)
1 Accounting policies and basis of preparation
Islamic Bank of Britain PLC ('the Company') is a company incorporated in the UK.
For all periods up to and including the 5 month period ended 31 December 2004,
the Company prepared its financial statements in accordance with UK Generally
Accepted Accounting Principles ('UK GAAP'). These financial statements have
been prepared and approved by the directors in accordance with International
Financial Reporting Standards as adopted by the EU ('adopted IFRSs'). IFRSs
comprise accounting standards issued by the International Accounting Standards
Board, and its predecessor body as well as interpretations issued by the
International Financial Reporting Interpretations Committee, and its predecessor
body.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these financial statements and
in preparing an opening IFRS balance sheet at 1 August 2004 for the purposes of
the transition to adopted IFRSs.
Transition to adopted IFRSs
The Company is preparing its financial statements in accordance with adopted
IFRSs for the first time and consequently has applied IFRS 1 'First-time
Adoption of International Financial Reporting Standards'. In preparing these
financial statements Islamic Bank of Britain PLC has elected to take advantage
of certain transitional provisions within IFRS 1 which offer exemption from
presenting comparative information complying with adopted IFRSs or applying
IFRSs retrospectively. The most significant of these provisions applying to
these accounts is the exemption from presenting comparative information in
accordance with IAS 32 'Financial Instruments: Disclosure and Presentation' and
IAS 39 'Financial Instruments: Recognition and Measurement.' Comparative
information for financial instruments has been prepared on the basis of Islamic
Bank of Britain PLC's previous accounting policies.
The transition to adopted IFRSs has had no material impact upon the figures
previously reported in the Islamic Bank of Britain PLC's financial statements
for the 5 month period ended 31 December 2004 nor on its opening balance sheets
as at 1 August 2004 and 1 January 2005. Consequently, no material adjustments
were required of the figures previously reported under UK GAAP to those now
reported under IFRS, and, hence, reconciliations of the UK GAAP and IFRS figures
have not been provided.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the foreign exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in the income statement.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less any impairment
losses and depreciation. Depreciation of property, plant and equipment is
provided on a straight-line basis over estimated useful lives as follows:
Computer equipment, software and licences 3 years
Fixtures, fittings and office equipment 5 years
Leasehold improvements 10 years or over the life of the lease whichever is shorter
Property, plant and equipment is subject to review for impairment if there are
events or changes in circumstances that indicate that the carrying amount may
not be recoverable.
Commodity Murabaha and Wakala receivables and other advances due from banks
Commodity Murabaha is an Islamic financing transaction, which represents an
agreement whereby the Company buys a commodity and sells it to a counterparty
based on a promise received from that counterparty to buy the commodity
according to specific terms and conditions. The selling price comprises of the
cost of the commodity and a pre-agreed upon profit margin.
Wakala is an Islamic financing transaction, which represents an agreement
whereby the Company provides a certain sum of money to an agent, who invests it
according to specific conditions in order to achieve a certain specified return.
The agent is obliged to return the invested amount in case of default,
negligence or violation of any of the terms and conditions of the Wakala.
Commodity Murabaha receivables are recognised upon the sale of the commodity to
the counterparty. Wakala receivables are recognised upon placement of funds
with other institutions.
Income, on both Commodity Murabaha and Wakala receivables, is recognised on an
effective yield basis over the period of the contract. Commodity Murabaha and
Wakala receivables are initially recorded at fair value and are subsequently
measured at amortised cost, less impairment losses. The accrued income
receivable is classified under other assets.
Other advances due from banks are stated at cost and are non-return bearing.
Consumer finance accounts
Islamic consumer financing transactions represent an agreement whereby the
Company buys a commodity or goods and then sells it to the customer with an
agreed profit mark-up with settlement of the sale price being deferred for an
agreed period. The customer may subsequently sell the commodity purchased in
order to generate cash. Consumer finance accounts balances are initially
recorded at fair value and are subsequently measured at amortised cost, less
impairment losses. Income is recognised on an effective yield basis over the
period of the contract based on the principal amounts outstanding. The accrued
income receivable from the customer is classified under other assets.
Impairment of assets
An assessment is made at each balance sheet date to determine whether there is
evidence that a specific financial asset may be impaired. If such evidence
exists, the estimated recoverable amount of that asset is determined and any
impairment loss, based on the net present values of future anticipated cashflows
discounted at original rate of return, is recognised in the income statement.
In addition, a provision is made to cover impairment of financing transactions
assessed collectively. These are estimated based on historical patterns of
losses in each component, and the credit ratings allocated to the counterparties
and reflecting the current economic climate in which the counterparties operate.
The carrying amounts of other Company assets other than deferred tax assets, are
reviewed at each balance sheet date to determine whether there is any indication
of impairment. If any such indication exists, the asset's recoverable amount is
estimated.
Provisions
Provisions are recognised at the management's best estimate, when the Company
has a present obligation (legal or constructive) arising from a past event and
the costs to settle the obligation are both probable and able to be reliably
measured.
Customer liability accounts
Profit sharing accounts are based on the principle of Mudaraba whereby the bank
and the customer share an agreed percentage of any profit earned on the customer
deposit accounts. The customer's share of profit is paid in accordance with the
terms and conditions of the account. The profit calculation is undertaken at
the end of each calendar month.
Customer Murabaha deposits consist of an Islamic financing transaction involving
the Company arranging the purchase of an asset on behalf of the customer and the
purchase thereof from the same customer by the Company at cost plus an agreed
profit mark-up with settlement on a deferred payment basis. Customer Murabaha
deposit balances are included in the balance sheet under customer liability
accounts and the accrued returns payable to the customer is classified under
other liabilities. Returns payable on Customer Murabaha deposits are recognised
on an effective yield basis over the period of the contract.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes except for those arising on the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination. The amount of deferred tax provided is based on
the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Operating lease charges
Operating lease rentals, where the Company is the lessee, are accounted for on a
straight line basis over the period of the lease and included in general and
administrative expenses. The leased assets are not recognised on the balance
sheet.
Employee benefits
Defined contribution plans: Obligations for contributions to defined
contribution pension plans are recognised as an expense in the income statement
as incurred.
Short-term employee benefits, such as salaries, paid absences, and other
benefits, are accounted for on an accruals basis over the period for which
employees have provided services. Bonuses are recognised to the extent that the
Company has a present obligation to its employees that can be measured reliably.
All expenses related to employee benefits are recognised in the income statement
in staff costs, which is included within operating expenses.
Cash and cash equivalents
For the purposes of the statement of cashflows, cash and cash equivalents
comprises of cash and other advances due from banks which are readily
convertible to cash and are repayable in three months or less.
Other receivables
Trade and other receivables are stated at their nominal amount (discounted if
material) less impairment losses.
Standards and interpretations issued but not yet effective
The following Standards, amendments and interpretations have been adopted by the
EU but are not yet effective. The impact on the Company of these amendments has
yet to be fully quantified, but is expected to be mainly in relation to
disclosures in the financial statements and the impact on the financial position
or results of the Company is not expected to be significant.
• IAS 39 Financial Instruments: Recognition and Measurement: The Fair
Value Option
The new revisions limit the use of the fair value option to those financial
instruments that meet certain conditions. The amendments are effective for
annual periods beginning on or after 1 January 2006.
• IAS 39 and IFRS 4 Insurance Contracts
Under the amendments, financial guarantee contracts are generally within the
scope of IAS 39, in which case they are initially recognised at fair value and
are subsequently measured at the greater of:
(a) the amount determined in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets and
(b) the amount initially recognised less, where appropriate, cumulative
amortisation recognised in accordance with IAS 18 Revenue. However, if an issuer
of a financial guarantee contract has previously asserted specifically that it
regards such contracts as insurance contracts, the issuer may elect to apply
IFRS 4 instead of IAS 39 to such financial guarantee contracts. The issuer may
make that election contract by contract, but the election for each contract is
irrevocable. The amendments are effective for annual periods beginning on or
after 1 January 2006.
• IAS 1 Presentation of Financial Statements - Capital Disclosures
The amendments to IAS 1 set out additional requirements for disclosures of:
(a) the entity's objectives, policies and processes for managing capital
(b) quantitative data about what the entity regards as capital
(c) whether the entity has complied with any capital requirements; and
(d) if it has not complied, the consequences of such non-compliance.
The amendments are effective for annual periods beginning on or after 1 January
2007.
• IFRIC 4 Determining whether an agreement contains a lease
The interpretation specifies that an arrangement which contains a lease should
be accounted for in accordance with IAS 17 Leases. The amendments are effective
for annual periods beginning on or after 1 January 2006.
• IFRS 7 Financial Instruments Disclosure
This standard includes all the disclosure requirements related to financial
instruments and supersedes IAS 30 Disclosures in the Financial Statements of
Banks and Similar Financial Institutions and the disclosure requirements in IAS
32 Financial Instruments: Disclosure and Presentation. The objective of IFRS 7
is to require entities to disclose:
(a) the significance of financial instruments for an entity's financial position
and performance
(b) qualitative and quantitative information about the nature and extent of
risks arising from financial instruments and how the entity manages these risks.
IFRS 7 applies to annual periods beginning on or after 1 January 2007.
2 Staff numbers and costs
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
The average number of persons employed by the Company 102 63
during the year was:
£ £
The aggregate payroll costs of these persons were as
follows:
Wages and salaries 2,914,193 779,777
Social security costs 267,162 71,504
Other pension costs 61,615 16,488
Other staff costs 7,606 -
----------- -----------
Total 3,250,576 867,769
=========== ===========
3 Expenses and auditors' remuneration
Included within operating losses are the following payments made to the
auditors:
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Audit 88,362 36,620
Tax services 148,667 200,865
Other services 30,179 31,000
----------- -----------
Total 267,208 268,485
=========== ===========
4 Directors' emoluments
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Directors' emoluments 393,966 76,001
Company contributions to pension plans 13,680 5,000
----------- -----------
407,646 81,001
=========== ===========
The aggregate of emoluments of the highest paid director was £173,800 (5 month
period ended 31 December 2004: £46,666), and company pension contributions of
£12,180 (5 month period ended 31 December 2004:£5,000) were made on his behalf.
5 Taxation
There were no taxable profits or recoverable losses for the year ended 31
December 2005 (5 month period ended 31 December 2004: £nil) and, accordingly,
the Company has not provided for a tax charge or a tax debtor.
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Current tax expense
Current year - -
Adjustments for prior year - -
----------- -----------
- -
----------- -----------
Deferred tax expense - -
----------- -----------
Total income tax expense - -
=========== ===========
Reconciliation of effective tax rate
Loss before tax (6,449,507) (3,107,370)
Income tax at UK corporation tax rate (30%) (1,934,852) (932,211)
Non deductible expenses 47,621 60,775
Depreciation in excess of capital allowances on which
deferred tax not recognised 448,642 143,542
Unutilised tax losses 1,438,589 727,894
----------- -----------
- -
=========== ===========
Deferred tax assets have not been recognised in respect of the following items:
Capital allowances 646,645 197,962
Tax losses 2,690,896 1,252,347
----------- -----------
3,337,541 1,450,309
=========== ===========
In respect of the recognition of deferred tax assets, for the purposes of
applying the requirements of IAS 12 ('Income Taxes'), it has been considered
that the Company is not currently at a sufficiently advanced stage in its
development to confidently assert future offsetting tax liabilities. Capital
allowances to be claimed are being finalized and therefore the level of the
asset shown above may change.
6 Property, plant and equipment
Computer Office Leasehold Fixtures Total
equipment, equipment improve- and
software ments fittings
and
licenses
£ £ £ £ £
Cost
Balance at 1 January 2005 2,501,674 48,613 1,642,806 55,412 4,248,505
Acquisitions 1,237,148 30,269 1,827,947 161,127 3,256,491
----------- ----------- ----------- ----------- -----------
Balance at 31 December 2005 3,738,822 78,882 3,470,753 216,539 7,504,996
----------- ----------- ----------- ----------- -----------
Depreciation and impairment
Balance at 1 January 2005 541,721 6,501 141,329 11,881 701,432
Depreciation charge for the year 1,037,392 11,730 420,750 25,736 1,495,608
----------- ----------- ----------- ----------- -----------
Balance at 31 December 2005 1,579,113 18,231 562,079 37,617 2,197,040
----------- ----------- ----------- ----------- -----------
Net book value
----------- ----------- ----------- ----------- -----------
At 31 December 2005 2,159,709 60,651 2,908,674 178,922 5,307,956
=========== =========== =========== =========== ===========
Cost
Balance at 1 August 2004 1,650,096 29,798 459,004 25,078 2,163,976
Acquisitions 851,578 18,815 1,115,744 98,392 2,084,529
----------- ----------- ----------- ----------- -----------
Balance at 31 December 2004 2,501,674 48,613 1,574,748 123,470 4,248,505
----------- ----------- ----------- ----------- -----------
Depreciation and impairment
Balance at 1 August 2004 177,968 1,588 17,363 949 197,868
Depreciation charge for the period 363,753 4,913 123,966 10,932 503,564
----------- ----------- ----------- ----------- -----------
Balance at 31 December 2004 541,721 6,501 141,329 11,881 701,432
----------- ----------- ----------- ----------- -----------
Net book value
At 31 December 2004 1,959,953 42,112 1,433,419 111,589 3,547,073
=========== =========== =========== =========== ===========
7 Other assets
31 Dec 2005 31 Dec 2004
£ £
VAT recoverable debtor 353,047 197,568
Accrued income receivable 173,199 2,669
Prepayments 339,734 186,840
Other receivables 44,268 -
----------- -----------
Total 910,248 387,077
=========== ===========
There are no receivables within other assets that are expected to be recovered
in more than 12 months (31 December 2004: £nil).
8 Other liabilities
31 Dec 2005 31 Dec 2004
£ £
Returns payable to customers 52,407 2,637
Trade payables 422,968 1,252,012
Social security and income tax 83,802 57,440
Accruals 423,805 355,317
Other creditors 27,385 197,783
----------- -----------
Total 1,010,367 1,865,189
=========== ===========
Included within accruals is a balance of £72,000 payable over the remaining
lease term of 9 years relating to a branch property (31 December 2004: £nil).
This is paid in equal annual instalments and therefore £64,000 will be payable
in more than 12 months.
9 Employee benefits
The Company participates in a defined contribution stakeholder pension scheme.
The assets of the scheme are held separately from those of the Company in an
independently administered fund. The pension charge represents contributions
payable by the Company to the fund and amounted to £61,615 (5 month period ended
31 December 2004: £16,488).
10 Operating leases
Non-cancellable operating lease rentals are payable as follows:
31 Dec 2005 31 Dec 2004
Expiring: £ £
Less than one year 363,983 222,782
Between one and five years 1,752,864 1,437,623
More than five years 1,521,597 1,384,901
----------- -----------
Total 3,638,444 3,045,306
=========== ===========
During the year £299,058 was recognised as an expense in the income statement in
respect of operating leases (5 month period ended 31 December 2004: £102,556).
11 Capital commitments
During the year ended 31 December 2005, the Company entered into a contract to
purchase banking computer software and development totalling £220,200 (5 month
period ended 31 December 2004: £138,410). These commitments are expected to be
settled in the following financial year.
12 Segmental reporting
The company has one class of business and all other services provided are
ancillary to this. All business is conducted from the United Kingdom.
13 Earnings per ordinary share
Basic and diluted earnings per ordinary share are calculated by dividing the
loss for the financial year (2004: period) attributable to equity shareholders
by the weighted average number of ordinary shares in issue in the year ended 31
December 2005 of 419,000,000 (5 month period ended 31 December 2004:
343,705,882).
14 Impairment charges and other credit risk provisions
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Income statement charge
Financing impairment charges:
- collectively assessed provision allowance 52,068 -
----------- -----------
Total impairment charges and other credit risk
provisions 52,068 -
=========== ===========
This impairment provision relates to consumer finance accounts.
15 Related party disclosures
During the year the Company has undertaken transactions with Pelham Incorporated
Limited, The Support Store Limited and DCD London & Mutual PLC, related parties
by virtue of the fact that Mr Shabir Randeree is a director of these companies
and also serves on the board of Islamic Bank of Britain PLC. Details of these
transactions are as follows:
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Pelham Incorporated Limited
Property rental 7,175 727
Other 211 336
The Support Store Limited
IT expenses 2,523 7,859
Other 2,002 612
DCD London & Mutual PLC
Meeting costs 2,294 -
The amounts outstanding to these related parties included within trade payables
are:
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Pelham Incorporated Limited 1022 32
The Support Store Limited 413 1,368
DCD London & Mutual PLC - -
----------- -----------
Total 1,435 1,400
=========== ===========
During the year the Company has undertaken transactions with Islamic Joint
Venture Partners BSC (IJVP), a related party of the Company by virtue of the
fact that Adnan Yousif served on the boards of both companies during the year.
IJVP is based in Bahrain and transactions were limited to reclaims of costs
where work was arranged by either company on behalf of the other in the United
Kingdom or Bahrain.
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Expenses paid by IJVP on behalf of the Company and 188 11,496
subsequently reclaimed
Expenses paid by the Company on behalf of IJVP and
subsequently reclaimed 342 -
At 31 December 2005, there were no outstanding balances related to transactions
with IJVP (31 December 2004: £4,556) and the highest balance at any point during
the year was £188 (5 month period ended 31 December 2004: £7,316).
In addition to the above transactions, these related parties held bank accounts
with the Company under normal customer terms and conditions. A bank account was
also held by European Islamic Investment Bank PLC (EIIB), a related party by
virtue of the fact that Adnan Yousif and Shabir Randeree served on the boards of
both companies during the year. At 31 December 2005, these deposits balances
amounted to £5,031,793 (31 December 2004: £nil) and the highest balance during
the year was £9,847,534 (5 month period ended 31 December 2004: £nil).
As at 31 December 2005 one significant shareholder of the company had a deposit
balance operated under normal customer terms and conditions of £7,445,662 (31
December 2004: £nil). The highest balance held at any point during the year in
this account was £15,042,189. During the year ended 31 December 2005 total
returns paid for this account were £272,734 (5 month period ended 31 December
2004: £nil).
Company payments to the defined contribution stakeholder pension scheme during
the year are shown in note 9. Payments to the scheme are made on a monthly
basis immediately as they fall due and therefore there was no outstanding
balance during the year or as at 31 December 2005 (31 December 2004: £nil).
During the 5 month period ended 31 December 2004, transactions were made with 2
additional companies who were related parties during that period. The
transactions were IPO placement fees paid to ABC Islamic Bank of £88,724 and
Qatar International Islamic Bank (QIIB) of £133,627. In addition, the Company
received £172,186 from QIIB being the returns earned on the investment of the
IPO proceeds on behalf of the Company. ABC Islamic Bank was a related party by
virtue of the fact that Mr AbdulMagid Breish was a Director of ABC Islamic Bank
and also served as a Director of the Company during the period. QIIB is a
related party by virtue of the fact that Mr Abdul Basit Al-Shaibei served as
director of both QIIB and the Company during the period. QIIB also held 17% of
the issued share capital of the Company as at 31 December 2004.
No transactions were made with either of these companies in the year ended 31
December 2005.
Transactions with key management personnel
Directors of the Company and their immediate relatives control 8.37 per cent of
the voting shares of the Company. Key management of the Company are the Board of
Directors and Management Committee members.
Other related party transactions
The compensation of key management personnel including the directors is as
follows:
12 month 5 month
period ended period ended
31 Dec 2005 31 Dec 2004
£ £
Key management emoluments including social security 771,112 258,773
costs
Company contributions to pension plans 31,708 7,915
Compensation for loss of office 60,215 -
-------- --------
Total 863,035 266,688
======== ========
Deposit balances, operated under standard customer terms and conditions, held by
key management personnel, including directors, totalled £960,426 as at 31
December 2005 (31 December 2004 £5,327). The highest balance during the year was
£1,942,604 (5 month period ended 31 December 2004: £5,327). Total returns paid
on these accounts during the year totalled £15,495 (5 month period ended 31
December 2004: £53).
Outstanding consumer finance accounts balances relating to key management
personnel totalled £37,304 as at 31 December 2005 (31 December 2004: £nil).
Returns recognised during the year for these accounts were £594 (5 month period
ended 31 December 2004: £nil). All consumer finance accounts facilities taken
by key management personnel and staff were offered in line with standard
customer terms and conditions.
16 Called up share capital
31 Dec 2005 31 Dec 2004
£ £
Authorised
Equity: 500,000,000 ordinary shares of £0.01 each 5,000,000 5,000,000
=========== ===========
Allotted, called up and fully paid
Issued ordinary share capital 4,190,000 4,190,000
=========== ===========
17 Commodity Murabaha and Wakala receivables and other advances due from banks
(a) Residual maturity
31 Dec 2005 31 Dec 2004
£ £
Repayable on demand 4,360,626 1,644,817
3 months or less 72,099,015 44,241,373
1 year or less but over 3 months 1,578,035 1,136,491
----------- -----------
Total 78,037,676 47,022,681
=========== ===========
Balances maturing in 1 year or less but over 3 months include a balance of
£578,035 (31 December 2004: £521,921) representing a repayable security deposit
held by a bank that has issued a guarantee to cover the Company's future
customer card transactions with Mastercard. The deposit earns no return.
(b) Concentrations of exposure
The Company has the following credit concentrations:
31 Dec 2005 31 Dec 2004
£ £
Total Commodity Murabaha and Wakala receivables and
other advances due from banks located in:
Europe and North America 68,731,617 38,456,559
Middle East 9,306,059 8,566,122
----------- -----------
Total 78,037,676 47,022,681
=========== ===========
18 Customer liability accounts
31 Dec 2005 31 Dec 2004
£ £
With agreed maturity dates or periods of notice, by
remaining maturity:
Repayable on demand 23,043,084 1,390,550
3 months or less but not repayable on demand 20,196,750 264,740
1 year or less but over 3 months 4,474,759 469,500
----------- -----------
Total 47,714,593 2,124,790
=========== ===========
Comprising:
Non profit sharing accounts 8,931,963 6,593
Profit sharing accounts 38,782,630 2,118,197
----------- -----------
Total 47,714,593 2,124,790
=========== ===========
19 Cash and cash equivalents
31 Dec 2005 31 Dec 2004
£ £
Cash 579,251 47,195
Other advances due from banks 4,360,626 1,644,817
----------- -----------
Total cash and cash equivalents 4,939,877 1,692,012
=========== ===========
20 Risk management
Through its banking services the Company is exposed to a range of risks. The
Company's goal in risk management is to ensure that it understands, measures and
monitors the various risks that arise and that it adheres to the policies and
procedures which have been established to address these issues. As a bank, the
Company is primarily exposed to credit risk, profit rate risk, liquidity risk,
foreign exchange risk and operational risk. Committees of the Board of Directors
have been constituted to oversee various activities. Additionally, the Board of
Directors has delegated authority to the Managing Director, who is assisted by
executive management committees.
Major risks
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to
discharge an obligation and cause the other party to incur a financial loss.
The Banks' credit risk is primarily attributable to facilities receivable. The
Bank seeks to manage credit risk by monitoring credit exposures, limiting
transactions with specific counterparties and continually assessing the
creditworthiness of counterparties. Credit risk policies are applied by the
Credit Committee which operates within the authority granted to it by the Board.
Country and counterparty limits are established and monitored on a weekly basis,
with a detailed review at least once a year. Management receives regular reports
on the utilisation of these limits.
Profit rate risk
This risk primarily arises on the mis-matching of the banks assets with its
funding. This is monitored weekly and is managed by the Asset and Liability
Committee. Principal limits have been established for the Company's assets and
liabilities when allocated to time bands by reference to the next contractual
re-pricing date.
Liquidity risk
Liquidity risk arises on the mis-matching of the residual maturity of the
Company's assets and funding. This is also monitored weekly, and is managed by
the Asset and Liability Committee. Limits have been established for each time
band and incorporate FSA agreed limits where appropriate.
Foreign exchange risk
Foreign exchange risk is managed within the treasury function. Policies and
procedures are detailed in an operational procedures manual. This incorporates
FSA agreed limits where necessary, and other regulatory bodies requirements and
best practices. It is subject to periodic review by Internal Audit, and is
approved by the Board. Senior management also monitors the positions taken on a
weekly basis.
Operational risk
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events. The Company's
operational risk framework is subject to procedural policies and best practice
standards, with senior management being responsible for their implementation and
maintenance. Adherence to these policies is also subject to periodic review by
Internal Audit.
Profit rate re-pricing schedule
At 31 December 2005, the profit rate sensitivity exposure of the Company, along
with the effective profit rate of those financial instruments not carried at
fair value through income and expense, are shown below:
Denominated Effective Less than 3 More than 3 More than More than Non return Total
currency profit months months but not 6 months one year earning
rate more than 6 but not but not
months more than more than
one year 5 years
Assets
Cash £ - - - - - 579,251 579,251
Commodity Murabaha
and Wakala
receivables and
other advances due
from banks £ 4.21% 64,584,564 1,000,000 - - 4,360,626 69,945,190
Commodity Murabaha
and Wakala
receivables and
other advances due
from banks US$ 3.83% 7,514,451 - - - 578,035 8,092,486
Gross consumer
finance accounts £ 10.9% 1,415 24,646 76,671 4,403,705 - 4,506,437
Impairment
provision (52,068) (52,068)
Property, plant and
equipment £ - - - - - 5,307,956 5,307,956
Other assets £ - - - - - 910,248 910,248
--------- --------- ---------- --------- --------- --------- --------- ---------
Total assets 72,100,430 1,024,646 76,671 4,403,705 11,684,048 89,289,500
--------- --------- ---------- --------- --------- --------- --------- ---------
Liabilities
Customer liability
accounts £ 2.62% 26,862,208 3,953,259 521,500 - 8,931,964 40,268,931
Customer liability
accounts US$ 3.62% 7,445,662 - - - - 7,445,662
Other liabilities £ - - - - - 1,010,367 1,010,367
Shareholders' funds £ - - - - - 40,564,540 40,564,540
--------- --------- ---------- --------- --------- --------- --------- ---------
Total liabilities 34,307,870 3,953,259 521,500 - 50,506,871 89,289,500
--------- --------- ---------- --------- --------- --------- --------- ---------
Gap 37,792,560 (2,928,613) (444,829) 4,403,705 (38,822,823) -
Cumulative 37,792,560 34,863,947 34,419,118 38,822,823 - -
========= ========= ========== ========= ========= ========= ========= =========
Commodity Murabaha and Wakala receivables and consumer finance accounts are
recorded in the balance sheet using the effective yield method, less any
provisions for impairment as required by IAS 39. The carrying value of
Commodity Murabaha and Wakala receivables and customer liability accounts are
considered by management to be a good approximation of fair value as most of
these instruments are short term in nature. Management also does not consider
the current carrying value of consumer finance accounts balances to be
materially different to its fair value due to the size and nature of the
portfolio.
Profit rates for Commodity Murabaha or Wakala receivables are agreed with the
counterparty bank at the time of each transaction and this effective rate is
fixed for that transaction.
Effective rates applied to new consumer finance transactions are agreed on a
monthly basis by the Assets and Liability Committee. Rates for each individual
transaction will then be fixed for the term of the contract.
The rate at which returns are payable on customer deposit accounts is calculated
at each month-end in line with the Mudaraba principle and customer terms and
conditions.
At 31 December 2004, the profit rate risk comprises:
Less than 3 More than 3 More than 6 More than Non return Total
months months but not months but one year but earning
more than 6 not more not more
months than one than
year 5 years
Assets
Cash - - - - 47,195 47,195
Commodity Murabaha
and Wakala
receivables and
other advances due
from banks 44,241,373 614,570 - - 1,644,817 46,500,760
Commodity Murabaha
and Wakala
receivables and
other advances due
from banks (held in
US $) - - 521,921 521,921
Property, plant and
equipment - - - - 3,547,073 3,547,073
Other assets - - - - 387,077 387,077
---------- ----------- ---------- ---------- ---------- ----------
Total assets 44,241,373 614,570 - - 6,148,083 51,004,026
---------- ----------- ---------- ---------- ---------- ----------
Liabilities
Customer liability
accounts 1,656,197 462,000 - - 6,593 2,124,790
Other liabilities - - - - 1,865,189 1,865,189
Shareholders' funds - - - - 47,014,047 47,014,047
---------- ----------- ---------- ---------- ---------- ----------
Total liabilities 1,656,197 462,000 - - 48,885,829 51,004,026
---------- ----------- ---------- ---------- ---------- ----------
Gap 42,585,176 152,570 - - (42,737,746) -
Cumulative 42,585,176 42,737,746 42,737,746 42,737,746 - -
========== =========== ========== ========== ========== ==========
21 Assets and liabilities denominated in foreign currency
As at 31 December 2005, assets equivalent to £8,092,486 were denominated in US
Dollars and are included within Commodity Murabaha and Wakala receivables and
other advances due from banks (31 December 2004: £521,921).
Customer liability accounts of £7,445,662 were denominated in US Dollars (31
December 2004: £nil).
The functional currency of the Company's operations is Sterling.
This information is provided by RNS
The company news service from the London Stock Exchange