Islamic Bank of Britain - Annual Report and Financial Statements 2008
31 December 2008
Registered number 4483430
Report of the Sharia’a Supervisory Committee
Statement of directors’ responsibilities in respect of the Annual Report and the Financial Statements
Independent auditors’ report to the Members of Islamic Bank of Britain PLC
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
I am pleased to present the Annual Report for Islamic Bank of Britain PLC for the year ended 31 December 2008. It has been a year where, despite deteriorating market conditions, the Bank has continued to show steady growth and delivered some notable achievements, particularly within product development and risk management framework.
Some of the highlights of the performance in 2008 include:
- Loss for year reduced by 15%
- Customer numbers increased by 10% to over 47,000
- Deposits increased by 15% to £158m
- Customer financing increased by 48% to £23.5m
- Home Purchase Plan product launched in September 2008
- Wakala Treasury deposit and Notice Savings accounts launched
- IT infrastructure improvements including new Data Centre, upgraded systems and website enhancements
- Completion of a sound risk-management and control framework covering all major business segments and activities
Current environment and trading performance
The past twelve months have seen some of the most challenging market conditions experienced in the financial services sector in decades. The UK is now officially in a recession, experiencing rising unemployment and falling commercial and residential property values.
Despite this challenging environment, the loss for the year was reduced by 15% to £5.9m (2007: £6.9m). This was achieved through growth of Operating income to £4.9m (2007: £4.7m), primarily due to growth in fee and commission income. Additionally, Operating expenses declined to £10.8m (2007: £11.6m) as a result of careful management of costs and impairment charges. It is pleasing to note the Bank fared well during the year due to its minimum exposure to higher risk assets, prudent credit policies and robust risk management. Impairment charges in the unsecured consumer finance portfolio fell by 50% to £0.3m (2007: £0.6m), and there are currently no arrears within the secured finance portfolios.
While some growth in fee and commission income has been achieved, the Bank’s main revenue source remains the profits it earns on deposits. As notified to the market on 5 February 2009, net margins on these deposits have been on the decline recently as the Bank of England reduced its bench mark rates to historical lows. This has had a significant negative effect on the income of the Bank. The Directors believe the results for 2009 will be further impacted. It now appears reaching break-even will extend beyond our recent plans and expectations.
The Board continues to assess and implement actions to mitigate the impact of the decline in revenues. In 2009 the Bank will continue to focus on growth of secured finance assets funded by longer term deposits. Additionally, the creation of a dedicated premier banking channel and the introduction of distribution services of investment products are strategic initiatives with promising positive impact on revenues and profitability.
During 2008 the bank made strong additions to its product portfolio, helping to enhance both asset and deposit growth. In September 2008, the Bank launched its Sharia-compliant Home Purchase Plan ("HPP"). The HPP product provides IBB the opportunity to grow its customer-finance assets in a capital efficient manner. Progress is underway to further widen the appeal of this product during 2009.
To further support the funding of asset growth, the Wakala Treasury Deposit Account was launched in April and the 60 Day Notice Savings Account was launched in December. It was particularly pleasing to see the Notice Savings Account attract significant balances in an environment where banks’ savings deposits in the UK in general were retracting.
During 2008, the Board took the decision to raise new capital, via a placing of new shares to an existing shareholder. Proceeds of £7.5m were received in January 2009. Whilst the Bank has sufficient capital for its current requirements, the Board intends to raise additional capital at an appropriate time to support expected growth in existing and new areas. The Board aims to strengthen the Bank’s capital base to ready it for the coming growth cycle and support its strategic plan.
The economic environment undoubtedly makes 2009 a challenging year. However, the Directors believe IBB will be well positioned to benefit from the eventual recovery particularly with a reinforced capital base. The Bank will continue to focus on growth in lower risk secured customer finance funded by longer term deposits. We will continue to assess new and innovative products and services to enhance our customer offering and increase revenue.
Directors and Advisers
I would like to extend my sincere appreciation to Mr Abdulaziz Al-Khulaifi, who resigned as a Non-Executive Director in January 2009 due to other business demands, for his contribution to the Bank over the past 3 years. I would also like to convey my thanks and gratitude on behalf of the Bank to our Sharia’a Supervisory Committee scholars: Dr. Abdul Sattar Abu Ghuddah, Sheikh Nizam Yaqoobi, and Mufti Barkatullah for their continued guidance and support.
Finally, I would like to thank Islamic Bank of Britain’s customers, employees, and shareholders for their continued support and commitment to the Bank.
12 March 2009
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