TIDMIBB
RNS Number : 2269J
Islamic Bank of Britain Plc
25 March 2010
+------------------------------------------+
| Islamic Bank of Britain PLC |
+------------------------------------------+
| Annual Report and Financial Statements |
+------------------------------------------+
| |
| Registered number 4483430 |
+------------------------------------------+
| |
| 31 December 2009 |
+------------------------------------------+
| |
+------------------------------------------+
Chairman's statement
The Bank's financial performance for the year ended 31 December 2009 has
continued to be impacted by the challenging economic environment. The UK was in
recession for the majority of 2009, negatively impacting the housing market,
unemployment, disposable incomes and market yields. In addition, there has been
increased regulatory focus on minimum liquidity and capital adequacy
requirements.
Despite the difficult conditions, the past twelve months have seen strong growth
in both customer finance assets and customer deposits.
Highlights
· Customer financing increased by 97% to GBP46.2m
· Deposits increased by 18% to GBP186.6m
· Customer numbers increased by 6% to just under 50,000
· Launch of 12, 18 and 24 month term deposits
· Enhancements to the Home Purchase Plan product range
· Winner of Global Finance Best UK Islamic Financial Institution
2009 award
Current environment and trading performance
The major impact of the ongoing market conditions has been to reduce the Bank's
revenues throughout the year.
A significant source of revenue for the Bank is the return earned from investing
customer deposits on the Islamic interbank market. Yields in the interbank
markets declined during the first half of 2009 and have since remained at
historic low levels, resulting in a reduction in operating income to GBP1.6m
(2008: GBP4.9m) and a loss for the year of GBP9.5m (2008: GBP5.9m).
The directors implemented specific actions during the year to mitigate the
decline in revenues. These included growth in higher yielding customer finance
assets and achieving cost reductions through operational efficiencies that
regrettably involved a number of redundancies at the Bank's head office at the
end of 2009. These actions have continued in 2010.
Products
The Home Purchase Plan ("HPP") product achieved strong growth, resulting in a
near 100% increase in the Bank's customer finance assets. The HPP range was
expanded during the year with a fixed rental product and a product adapted for
the Scottish market. It is also pleasing to note that this new business was
achieved in accordance with prudent credit policies, with currently no arrears
within the HPP and commercial property finance portfolios.
The Bank continues to use retail deposits to fund all customer finance assets
and has no reliance on wholesale funding. Growth in longer-term savings products
was achieved during the year with the launch of a wider range of term deposits
in July 2009 and continued growth in the Notice Savings account launched in the
prior year.
Capital
As noted in the Interim Report, the Bank raised new capital of GBP7.5m via a
placing of new shares in January 2009. While the Bank continues to have
sufficient capital for its current requirements, the Board is in ongoing
discussions with its advisors and interested parties regarding the raising of
additional capital to support planned future growth. If additional capital is
not raised, the Bank will need to scale back its growth plans and operations
during 2010 in order to ensure that regulatory capital requirements continue to
be achieved.
Outlook
The challenging market conditions look set to persist into 2010 and the
directors and management will continue to identify opportunities to mitigate the
adverse effects. We will maintain tight cost control and focus on growth in low
risk secured customer finance assets funded by longer-term savings deposits.
Finally, I would like to extend my thanks and gratitude to Islamic Bank of
Britain's customers, employees, Sharia Supervisory Committee scholars and
shareholders for their continued support and commitment to the Bank.
+-------------------------------+------------------------------------+
| Mohsen Moustafa | 24 March 2010 |
| Chairman | |
+-------------------------------+------------------------------------+
Report of the Sharia Supervisory Committee
??? ???? ?????? ??????
(In the name of Allah, the Most Gracious, the Most Merciful)
To the Members of the Islamic Bank of Britain PLC
For the period from 1 January 2009 to 31 December 2009
?????? ????? ????? ???? ? ??????
In compliance with the Terms of Reference of the Bank's Sharia Supervisory
Committee, we submit the following report:
We have reviewed the documentation relating to the products and transactions
entered into by the Islamic Bank of Britain PLC for the period from 1 January
2009 to 31 December 2009.
According to Management, the Sharia Compliance Officer of the Bank and documents
evidencing the facts, the Bank's funds were raised and invested during 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 Bank during the period from 1 January 2009 to 31 December
2009 are in compliance with the Islamic Sharia rules and principles and fulfil
the specific directives, rulings and guidelines issued by us.
We beg Allah the Almighty to grant us all the success and straightforwardness.
? ?????? ????? ????? ???? ? ??????
+-------------------------------+------------------------------------+
| Dr Abdul Sattar Abu Ghuddah | 24 March 2010 |
| Chairman of the Sharia | |
| Supervisory Committee | |
+-------------------------------+------------------------------------+
Directors' report
The directors present their report and financial statements for the year ended
31 December 2009.
Principal activities
Islamic Bank of Britain PLC (the 'Company' or the 'Bank') is the only
independent Islamic retail bank in the United Kingdom established and managed on
a wholly Sharia compliant basis.
The Bank offers a range of Sharia compliant banking solutions for both
individual and business customers including current accounts, savings accounts,
and consumer and business financing. These are delivered through the Bank's
branch network, which is complemented by internet, telephone and postal banking
channels.
Financial Results
These financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU.
The financial statements for the year ended 31 December 2009 are shown on pages
9 to 37. The loss for the year amounts to GBP9,492,744 (2008: GBP5,910,700).
Details of the Company's performance and prospects are given within the
Chairman's statement on pages 1 and 2.
The directors do not recommend the payment of a dividend (2008: GBPnil).
Risks
The Bank has exposure to the following risks arising from its use of financial
instruments:
· Credit risk: Credit risk is the risk arising from the failure of a
customer or counterparty to meet their contractual obligations. The risk arises
from the Bank's secured and unsecured finance provided to customers and the
investment of surplus funds in Sharia compliant wholesale deposits with bank
counterparties;
· Liquidity risk: Liquidity risk is the risk that the Bank does not have
sufficient resources to meet its commitments when they fall due, or can secure
them only at excessive cost. The risk arises from the mismatch of the Bank's
financial assets and financial liabilities;
· Market risk: Market risk is the risk of loss of income arising from
unfavourable market movements, including foreign exchange rates and profit
rates. The Bank does not operate a trading book and therefore market risk
arises only within the banking book;
· Operational risk: Operational risk is the risk of loss arising from
inadequate or failed internal processes, people and systems or from external
events. It includes risks arising from product and service failures, legal and
regulatory risks, poor customer treatment, theft and fraud, the impact of
change, the use of third party suppliers and information technology failure;
· Concentration risk: Concentration risk is the risk of loss arising from
inadequate diversification of credit risk across sectors. The risk arises due
to exposure to particular geographic locations, industry sectors or particular
customers or institutions; and
· Sharia compliance risk: Sharia compliance risk is the risk of loss
arising from products or services not complying with Sharia requirements or in
accordance with Islamic principals.
A detailed explanation of the Bank's approach to financial and operational risk
management is set out in note 4 to the financial statements.
Creditor payment policy
The Company seeks to settle trade invoices in line with their payment terms.
The amount due to the Company's trade creditors as at 31 December 2009
represented 30 days (2008: 40 days) average daily purchases of goods and
services calculated in accordance with the Companies Act 2006.
Capital
On 19 December 2008, an ordinary resolution was passed at an extraordinary
general meeting increasing the authorised share capital of the Company from
GBP5,000,000 to GBP7,250,000 by the creation of an additional 225,000,000 new
Ordinary Shares. On 23 January 2009, an additional 127,470,000 shares were
allotted for consideration of GBP7,488,863 before expenses.
Directors and directors' interests
The directors who held office during the year were as follows:
+---------------------------+----------------------------------------+
| | |
+---------------------------+----------------------------------------+
| Mr. Mohsen Moustafa | |
| (Chairman) (c) | |
+---------------------------+----------------------------------------+
| Mr. Abdulaziz Al-Khulaifi | Resigned 19 January 2009 |
+---------------------------+----------------------------------------+
| Mr. Robert Owen (a) (b) | |
| (c) | |
+---------------------------+----------------------------------------+
| Mr. Abdul Hakim Al-Adhamy | |
| (a) (b) | |
+---------------------------+----------------------------------------+
| Mr. Gerry Deegan (c) | |
+---------------------------+----------------------------------------+
| Mr. Sultan Choudhury | |
+---------------------------+----------------------------------------+
(a) Denotes member of Audit Committee
(b) Denotes member of Remuneration Committee
(c) Denotes member of Nomination Committee
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:
+---------------------------+----------+------------+-------------------+
| | | | Interest at start |
| | | Class of | |
| | | share | and end of year |
+---------------------------+----------+------------+-------------------+
| Mr. Mohsen Moustafa | | Ordinary | 100,000 |
+---------------------------+----------+------------+-------------------+
| Mr. Gerry Deegan | | Ordinary | 20,000 |
+---------------------------+----------+------------+-------------------+
| Mr. Sultan Choudhury | | Ordinary | 34,000 |
+---------------------------+----------+------------+-------------------+
Details of the Executive Director's options to subscribe for ordinary shares are
given below. Further information on the share options is provided in note 22.
+------------------+----------+----------+----------+----------+----------+
| | Interest | Interest | Earliest | Latest | Exercise |
| | at | at end | exercise | exercise | price |
| | start of | of year | date | date | |
| | year | | | | |
+------------------+----------+----------+----------+----------+----------+
| Mr. Gerry Deegan | 157,894 | 157,894 | 5 Nov | 4 Nov | 9.5p |
| | | | 2010 | 2017 | |
+------------------+----------+----------+----------+----------+----------+
| Mr. Sultan | 157,894 | 157,894 | 5 Nov | 4 Nov | 9.5p |
| Choudhury | | | 2010 | 2017 | |
+------------------+----------+----------+----------+----------+----------+
No options were granted or exercised during the year by the directors.
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.
Significant Shareholders
The following shareholders had interests in the ordinary shares of the Company
in excess of 3% as at 31 December 2009 (comparatives only shown if holding as at
31 December 2008 was greater than 3%):
+----------------------------------------+------------+------+----------------------+
| | 2009 | | 2008 |
| | (%) | | (%) |
| | | | |
+----------------------------------------+------------+------+----------------------+
| HE Sheikh Thani Bin Abdulla Bin Thani | 29.99 | | 8.69 |
| Jasim Al Thani | | | |
+----------------------------------------+------------+------+----------------------+
| HRH Sheikh Hamad Bin Khalifa Bin Hamad | 13.32 | | 17.37 |
| Al Thani | | | |
+----------------------------------------+------------+------+----------------------+
| Qatar International Islamic Bank | 11.22 | | 14.63 |
+----------------------------------------+------------+------+----------------------+
| Vidacos Nominees Limited | 6.77 | | 8.67 |
+----------------------------------------+------------+------+----------------------+
| DCD London & Mutual PLC | 5.50 | | 7.17 |
+----------------------------------------+------------+------+----------------------+
| Lynchwood Nominees Limited | 4.69 | | 9.26 |
+----------------------------------------+------------+------+----------------------+
| Qatar Islamic Insurance Company | 3.78 | | 4.93 |
+----------------------------------------+------------+------+----------------------+
| UBS Private Banking Nominees Limited | 3.51 | | - |
+----------------------------------------+------------+------+----------------------+
Sharia Supervisory Committee members
The Sharia Supervisory Committee members during the year were as follows:
Dr. Abdul Sattar Abu Ghuddah (Chairman)
Sheikh Nizam Yaqoobi
Mufti Abdul Kadir Barkatullah
The report of the Sharia Supervisory Committee is set out on page 3.
Political and charitable contributions
The Company made no political contributions during the year (2008: GBPnil).
Donations to UK charities amounted to GBP1,200 (2008: GBP2,023) and consisted of
late payment fees received on personal finance accounts that were paid to
charity in accordance with product terms as agreed with the Sharia Supervisory
Committee.
Disclosure of information to auditors
The directors who held office at the date of approval of this directors' report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditors are unaware; and each director has
taken all the steps that they ought to have taken as a director to make
themselves aware of any relevant audit information and to establish that the
Company's auditors are aware of that information.
Auditors
In accordance with Section 489 of the Companies Act 2006, 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
+-------------------------------+------------------------------------+
| | Islamic Bank of Britain PLC |
| | Edgbaston House |
| | 3 Duchess Place |
| | Birmingham |
| | B16 8NH |
| Gerry Deegan | |
| Managing Director | 24 March 2010 |
+-------------------------------+------------------------------------+
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 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 they have elected to prepare the financial
statements in accordance with IFRSs as adopted by the EU and applicable law.
Under company law the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period. In
preparing these 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 adequate accounting records that are
sufficient to show and explain the Company's transactions and 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 2006.
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.
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.
Independent auditors' report to the Members of Islamic Bank of Britain PLC
We have audited the financial statements of Islamic Bank of Britain PLC for the
year ended 31 December 2009 set out on pages 9 to 37. The financial reporting
framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the EU.
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. 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
As explained more fully in the Director's Responsibilities Statement set out on
page 7, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's (APB's)
Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on
the APB's web-site at www.frc.org.uk/apb/scope/UKNP.
Opinion on financial statements
In our opinion the financial statements:
· give a true and fair view of the state of the Company's affairs
as at 31 December 2009 and of its loss for the year then ended;
· have been properly prepared in accordance with IFRSs as adopted
by the EU; and
· have been prepared in accordance with the requirements of the
Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report for the financial
year for which the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not visited by us;
or
· the financial statements are not in agreement with the accounting
records and returns; or
· certain disclosures of directors' remuneration required by law
are not made; or
· we have not received all of the information and explanations
required for our audit.
+--------------------------------------+------------------------------+
| Ian A Dewar (Senior Statutory | 24 March 2010 |
| Auditor) | |
+--------------------------------------+------------------------------+
| for and on behalf of KPMG Audit Plc, | |
| Statutory Auditor | |
+--------------------------------------+------------------------------+
| Chartered Accountants | |
+--------------------------------------+------------------------------+
One Canada Square
London
E14 5AG
Statement of comprehensive income
For the year ended 31 December 2009
+--------------------------------------+------+--------------+--+-------------------+
| | Note | 2009 | | 2008 |
+--------------------------------------+------+--------------+--+-------------------+
| | | GBP | | GBP |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Income receivable from Islamic | 6 | 3,017,012 | | 8,307,297 |
| financing transactions | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Returns payable to customers and | 6 | (1,807,271) | | (3,811,516) |
| banks | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Net income from Islamic financing | | 1,209,741 | | 4,495,781 |
| transactions | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Fee and commission income | 7 | 480,591 | | 527,212 |
+--------------------------------------+------+--------------+--+-------------------+
| Fee and commission expense | 7 | (86,939) | | (94,783) |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Net fee and commission income | | 393,652 | | 432,429 |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Operating income | | 1,603,393 | | 4,928,210 |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Net impairment loss on financial | 14 | (408,939) | | (325,971) |
| assets | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Personnel expenses | 9 | (5,241,104) | | (4,831,978) |
+--------------------------------------+------+--------------+--+-------------------+
| General and administrative expenses | | (4,314,807) | | (4,017,168) |
+--------------------------------------+------+--------------+--+-------------------+
| Depreciation | 15 | (724,477) | | (775,007) |
+--------------------------------------+------+--------------+--+-------------------+
| Amortisation | 16 | (406,810) | | (888,786) |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Total operating expenses | | (11,096,137) | | (10,838,910) |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Loss before income tax | | (9,492,744) | | (5,910,700) |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Income tax expense | 11 | - | | - |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Loss for the year | | (9,492,744) | | (5,910,700) |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Total comprehensive income for the | | (9,492,744) | | (5,910,700) |
| year | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Loss attributable to owners of the | | (9,492,744) | | (5,910,700) |
| Company | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Total comprehensive income attributable | (9,492,744) | | (5,910,700) |
| to owners of the Company | | | |
+---------------------------------------------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Loss per ordinary share | | | | |
+--------------------------------------+------+--------------+--+-------------------+
| Basic and diluted (pence) | 24 | (1.8) | | (1.4) |
+--------------------------------------+------+--------------+--+-------------------+
| | | | | |
+--------------------------------------+------+--------------+--+-------------------+
The notes on pages 13 to 37 are an integral part of these financial statements.
Statement of financial position
As at 31 December 2009
+---------------------------------+-+------+--------------+--+--------------+
| | | Note | 2009 | | 2008 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | GBP | | GBP |
+---------------------------------+-+------+--------------+--+--------------+
| Assets | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Cash | | | 577,273 | | 546,953 |
+---------------------------------+-+------+--------------+--+--------------+
| Commodity Murabaha and Wakala | | 13 | 155,951,375 | | 151,687,736 |
| receivables and other advances | | | | | |
| to banks | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Consumer finance accounts and | | 14 | 4,488,744 | | 7,878,292 |
| other advances to customers | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Net investment in home purchase | | 14 | 33,077,501 | | 6,980,840 |
| plans | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Net investment in commercial | | 14 | 8,611,393 | | 8,597,893 |
| property finance | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Property and equipment | | 15 | 2,660,754 | | 3,265,745 |
+---------------------------------+-+------+--------------+--+--------------+
| Intangible assets | | 16 | 315,541 | | 578,713 |
+---------------------------------+-+------+--------------+--+--------------+
| Other assets | | 17 | 1,340,277 | | 1,263,128 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Total assets | | | 207,022,858 | | 180,799,300 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Liabilities and equity | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Liabilities | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Deposits from banks | | 18 | 609,292 | | 5,094,119 |
+---------------------------------+-+------+--------------+--+--------------+
| Deposits from customers | | 19 | 185,975,992 | | 153,280,754 |
+---------------------------------+-+------+--------------+--+--------------+
| Other liabilities | | 20 | 3,623,541 | | 3,480,891 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Total liabilities | | | 190,208,825 | | 161,855,764 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Equity | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Called up share capital | | 22 | 5,464,700 | | 4,190,000 |
+---------------------------------+-+------+--------------+--+--------------+
| Share premium | | | 54,806,652 | | 48,747,255 |
+---------------------------------+-+------+--------------+--+--------------+
| Retained deficit | | | (43,502,640) | | (34,046,165) |
+---------------------------------+-+------+--------------+--+--------------+
| Profit stabilisation reserve | | | 45,321 | | 52,446 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Total equity | | | 16,814,033 | | 18,943,536 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
| Total equity and liabilities | | | 207,022,858 | | 180,799,300 |
+---------------------------------+-+------+--------------+--+--------------+
| | | | | | |
+---------------------------------+-+------+--------------+--+--------------+
The notes on pages 13 to 37 are an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 24 March
2010 and were signed on its behalf by:
Gerry Deegan
Managing Director
Islamic Bank of Britain PLC
Registration number: 4483430
Statement of changes in equity
For the year ended 31 December 2009
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | Share | | Share | | Profit | | Profit | | Total |
| | capital | | premium | | and | | stabilisation | | |
| | | | account | | loss | | reserve | | |
| | | | | | account | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | GBP | | GBP | | GBP | | GBP | | GBP |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Balance at 1 January | 4,190,000 | | 48,747,255 | | (28,137,072) | | 25,126 | | 24,825,309 |
| 2008 | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Total comprehensive | - | | - | | (5,910,700) | | - | | (5,910,700) |
| income for the year | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Credit in respect of | - | | - | | 28,927 | | - | | 28,927 |
| share based payments | | | | | | | | | |
| charge | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Transfer to profit | - | | - | | (27,320) | | 27,320 | | - |
| stabilisation reserve | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Balance at 31 December | 4,190,000 | | 48,747,255 | | (34,046,165) | | 52,446 | | 18,943,536 |
| 2008 | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Balance at 1 January | 4,190,000 | | 48,747,255 | | (34,046,165) | | 52,446 | | 18,943,536 |
| 2009 | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Total comprehensive | - | | - | | (9,492,744) | | - | | (9,492,744) |
| income for the year | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Credit in respect of | - | | - | | 29,144 | | - | | 29,144 |
| share based payments | | | | | | | | | |
| charge | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Transfer from profit | - | | - | | 7,125 | | (7,125) | | - |
| stabilisation reserve | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Issue of ordinary | 1,274,700 | | 6,059,397 | | - | | - | | 7,334,097 |
| share capital | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| Balance at 31 December | 5,464,700 | | 54,806,652 | | (43,502,640) | | 45,321 | | 16,814,033 |
| 2009 | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
| | | | | | | | | | |
+------------------------+-----------+-+------------+-+--------------+-+---------------+-+-------------+
The notes on pages 13 to 37 are an integral part of these financial statements.
Statement of cash flows
For the year ended 31 December 2009
+--------------------------------------+----------+------+--------------+---+--------------+
| | | Note | 2009 | | 2008 |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | GBP | | GBP |
+--------------------------------------+----------+------+--------------+---+--------------+
| Cash flows from operating activities | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Loss for the year | | | (9,492,744) | | (5,910,700) |
+--------------------------------------+----------+------+--------------+---+--------------+
| Adjustments for: | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Depreciation | | 15 | 724,477 | | 775,007 |
+--------------------------------------+----------+------+--------------+---+--------------+
| Amortisation | | 16 | 406,810 | | 888,786 |
+--------------------------------------+----------+------+--------------+---+--------------+
| Impairment on financial assets | | 14 | 408,939 | | 325,971 |
+--------------------------------------+----------+------+--------------+---+--------------+
| Share based payments charge | | 22 | 29,144 | | 28,927 |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in Commodity Murabaha and | | | (3,151,765) | | (12,784,885) |
| Wakala receivables | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in consumer finance accounts | | | 2,980,609 | | 1,459,032 |
| and other advances to customers | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in net investment in | | | (13,500) | | (2,506,011) |
| commercial property finance | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in net investment in home | | | (26,096,661) | | (6,980,840) |
| purchase plans | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in other assets | | | (77,149) | | 934,696 |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in deposits from banks | | | (4,484,827) | | 2,601,729 |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in deposits from customers | | | 32,695,238 | | 18,634,228 |
+--------------------------------------+----------+------+--------------+---+--------------+
| Change in other liabilities | | | 142,650 | | 508,289 |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Net cash used in operating | | | (5,928,779) | | (2,025,771) |
| activities | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Cash flows from investing activities | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Purchase of property and equipment | | 15 | (119,486) | | (597,397) |
+--------------------------------------+----------+------+--------------+---+--------------+
| Purchase of intangible assets | | 16 | (143,638) | | (205,268) |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Net cash used in investing | | | (263,124) | | (802,665) |
| activities | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Cash flows from financing activities | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Issue of ordinary share capital | | | 7,334,097 | | - |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Net cash generated from financing | | | 7,334,097 | | - |
| activities | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Net change in cash and cash | | | 1,142,194 | | (2,828,436) |
| equivalents | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Foreign exchange gains | | | (4,716) | | (221,586) |
+--------------------------------------+----------+------+--------------+---+--------------+
| Cash and cash equivalents at 1 | | | 2,614,484 | | 5,664,506 |
| January | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| Cash and cash equivalents at 31 | | 12 | 3,751,962 | | 2,614,484 |
| December | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
| | | | | | |
+--------------------------------------+----------+------+--------------+---+--------------+
The notes on pages 13 to 37 are an integral part of these financial statements.
Notes to the financial statements
1 Reporting entity
Islamic Bank of Britain PLC (the 'Company' or the 'Bank') is a company domiciled
in the UK. The address of the Company's registered office is Edgbaston House, 3
Duchess Place, Hagley Road, Birmingham B16 8NH. The financial statements of the
Company are presented as at and for the year ended 31 December 2009. The
Company is a retail bank offering Sharia compliant banking products and
services.
2 Basis of preparation
(a) Statement of compliance
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the EU and approved by the
directors.
These financial statements were approved by the Board of Directors on 24 March
2010.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these financial statements.
(b) Basis of measurement
The financial statements of the Company have been prepared on the going concern
basis. In making the going concern assessment, the directors have prepared
detailed financial forecasts for the Company, including its funding and capital
position, for the twelve months from the date of approval of these financial
statements.
As noted in the Chairman's statement, the Board is in ongoing discussions with
its advisors and interested parties regarding the raising of additional capital
to support planned future growth. The directors have considered the effect upon
the Company of more pessimistic scenarios on its business, in particular the
worsening of the economic environment and if new capital is not raised as
planned. The scenarios show that if new capital is not raised, the directors
will need to scale back the Bank's growth plans and operations during 2010 in
order to ensure that regulatory requirements continue to be achieved. The
directors are prepared to implement as appropriate management actions to address
any potential regulatory capital deficit as required, including a cost reduction
exercise.
Based on the forecasts, the directors are confident that the Company has
adequate resources to continue in operational existence and will continue to
comply with all relevant regulatory requirements for a period of at least the
next 12 months. Accordingly, they continue to adopt the going concern basis in
preparing the financial statements.
The financial statements have been prepared on the historical cost basis.
(c) Functional and presentation currency
The financial statements are presented in Sterling, which is the Company's
functional currency.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty
and critical judgements in applying accounting policies that have the most
significant effect on the amount recognised in the financial statements are
described in note 5.
3 Significant accounting policies
(a) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated
depreciation and accumulated impairment losses. Cost includes expenditure that
is directly attributable to the acquisition of the asset.
(ii) Subsequent costs
The cost of replacing part of an item of property or equipment is recognised in
the carrying amount of the item if it is probable that the future economic
benefits embodied within the part will flow to the Company and its cost can be
measured reliably. The costs of the day-to-day servicing of property and
equipment are recognised in the income statement as incurred.
(iii) Depreciation
Depreciation is recognised in the income statement on a straight line basis over
the estimated useful lives of each part of an item of property and equipment as
follows:
+----------------------------+--+------------------------------------+
| Computer equipment |3 | Years |
+----------------------------+--+------------------------------------+
| Fixtures, fittings and |5 | Years |
| office equipment | | |
+----------------------------+--+------------------------------------+
| Leasehold improvements |10 | years or over the life of the |
| | | lease whichever is shorter |
+----------------------------+--+------------------------------------+
Depreciation methods, useful lives and residual values are reassessed at each
reporting date.
(b) Intangible assets
Software and computer licences acquired by the Company are stated at cost less
accumulated amortisation and accumulated impairment losses.
Expenditure on internally developed software is recognised as an asset when the
Company is able to complete the development and use the software in a manner
that will generate future economic benefits, and can reliably measure the costs
to complete the development. The capitalised costs of internally developed
software include all costs directly attributable to developing the software, and
are amortised over its estimated useful life. Internally developed software is
stated at capitalised cost less accumulated amortisation and impairment.
Subsequent expenditure on software assets and computer licences is capitalised
only when it increases the future economic benefits embodied in the specific
asset to which it relates. All other expenditure on software or computer
licences is expensed as incurred.
Amortisation is recognised in the income statement on a straight line basis over
the estimated useful life of the software or the licence term, from the date
that it becomes available for use. The estimated useful life of software is
three years.
(c) Commodity Murabaha and Wakala receivables and other advances to
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 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. The effective yield rate is the rate that exactly
discounts the estimated future cash payments and receipts through the agreed
payment term of the contract to the carrying amount of the receivable. The
effective yield is established on initial recognition of the asset and is not
revised subsequently.
The calculation of the effective yield rate includes all fees paid or received,
transaction costs, and discounts or premiums that are an integral part of the
effective yield rate. Transaction costs are incremental costs that are directly
attributable to the acquisition, issue or disposal of a financial asset or
liability.
Commodity Murabaha and Wakala receivables are initially recorded at fair value
and are subsequently measured at amortised cost using the effective yield
method, less impairment losses. The accrued income receivable is classified
under other assets.
Other advances to banks are stated at cost and are non-return bearing.
(d) 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 to
generate cash.
Consumer finance assets will be recognised on the date that the commodity or
good is sold by the Company. Consumer finance account balances are initially
recorded at fair value and are subsequently measured at amortised cost. The
amortised cost is the amount at which the asset is measured at initial
recognition, minus repayments received relating to the initial recognised
amount, plus the cumulative amortisation using an effective yield method of any
difference between the initial amount recognised and the agreed sales price to
the customer, minus any reduction for impairment.
Income is recognised on an effective yield basis over the period of the
contract. The effective yield rate is the rate that exactly discounts the
estimated future cash payments and receipts through the agreed payment term of
the contract to the carrying amount of the receivable. The effective yield is
established on initial recognition of the asset and is not revised subsequently.
The calculation of the effective yield rate includes all fees paid or received,
transaction costs, and discounts or premiums that are an integral part of the
effective yield rate. Transaction costs are incremental costs that are directly
attributable to the acquisition, issue or disposal of a financial asset or
liability.
The accrued income receivable from the customer is classified under other
assets.
(e) Commercial property finance and home purchase plans
Commercial property finance and home purchase plans are provided using the
Diminishing Musharaka (reducing partnership) principle of Islamic financing.
The Company will enter into an agreement to jointly purchase a property and
rental income will be received by the Company relating to that proportion of the
property owned by the Company at any point in time. The other party to the
agreement will make separate payments to purchase additional proportions of the
property from the Company, thereby reducing the Company's effective share.
The transaction is recognised as a financial asset upon legal completion of the
property purchase and the amount receivable is recognised at an amount equal to
the net investment in the transaction. Where initial direct costs are incurred
by the Company such as commissions, legal fees and internal costs that are
incremental and directly attributable to negotiating and arranging the
transaction, these costs are included in the initial measurement of the
receivable and the amount of income over the term will be reduced. Rental
income is recognised to provide a constant periodic rate of return on the
Company's net investment.
(f) Deposits from customers
Profit sharing accounts are based on the principle of Mudaraba whereby the
Company and the customer share an agreed percentage of any profit earned on the
customer's deposit. 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 deposits from customers
and the accrued returns payable to the customer are classified under other
liabilities. Returns payable on customer Murabaha deposits are recognised on an
effective yield basis over the period of the contract.
Customer Wakala deposits consist of an Islamic financing transaction, which
represents an agreement whereby the customer appoints the Company as agent to
invest a certain sum of money, according to specific conditions in order to
achieve a certain specified return. The Company, as 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.
(g) Profit stabilisation reserve
The profit stabilisation reserve is used to maintain returns payable to
customers on Mudaraba based savings accounts. Returns payable on these profit
sharing accounts are credited to customers in accordance with the terms and
conditions of the account. Any surplus returns arising from the investment of
funds are then credited to this reserve. In the case of inadequate returns
generated by these funds, the Company will maintain the return to depositors by
utilising this reserve.
(h) Derecognition of financial assets and liabilities
The Company derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards or ownership of the financial asset are
transferred. Any remaining interest in transferred financial assets that is
created or retained by the Company is recognised as a separate asset or
liability.
The Company derecognises a financial liability when its contractual obligations
are discharged or cancelled or have expired.
(i) Impairment of financial assets
At each balance sheet date the Company assesses whether there is objective
evidence that financial assets are impaired. Financial assets are impaired when
objective evidence demonstrates that a loss event has occurred after the initial
recognition of the asset, and that the loss event has an impact on the future
cash flows of the asset that can be estimated reliably.
The Company considers evidence of impairment at both a specific asset and
collective level. All individually significant financial assets are assessed
for specific impairment. All significant assets found not to be specifically
impaired are then collectively assessed for any impairment that has been
incurred but not yet identified. Assets that are not individually significant
are then collectively assessed for impairment by grouping together financial
assets (carried at amortised cost) with similar risk characteristics.
Objective evidence that financial assets are impaired include default or
delinquency by the counterparty, extending or changing repayment terms,
indications that a counterparty may go into bankruptcy, or other observable data
relating to the group of assets such as adverse changes in the payment status of
counterparties, or economic conditions that correlate with defaults in the
group.
In assessing collective impairment the Company uses analysis of historical
trends to identify the probability of default, timing of recoveries and the
amount of loss incurred, adjusted for management's judgement as to whether
current economic conditions are such that actual losses are likely to be greater
or less than suggested by historical analysis. Default rates, loss rates and
the expected timing of future recoveries are regularly benchmarked against
actual outcomes to ensure that they remain appropriate.
Impairment losses on assets carried at amortised cost are measured as the
difference between the carrying amount of the financial asset and the present
value of the estimated cash flows discounted at the assets' original effective
yield rate. Losses are recognised in the income statement and reflected against
the assets carrying value.
When a subsequent event causes the amount of expected impairment losses to
decrease, the impairment loss is reversed through the income statement.
(j) Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets are reviewed at each
reporting date to determine whether there is any indication of impairment. If
any such indication exists then the asset's recoverable amount is estimated.
An impairment loss is recognised if the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. A cash-generating unit is
the smallest identifiable asset group that generates cash flows that largely are
independent from other assets and groups. Impairment losses are recognised in
the income statement.
The recoverable amount of an asset is the greater of its value in use and its
fair value less costs to resell. In assessing value in use, the estimated
future cash flows are discounted to their present value. An impairment loss is
reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been
recognised.
(k) Provisions
A provision is recognised if, as a result of a past event, the Company has a
present legal or constructive obligation that can be estimated reliably, and it
is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of cost of
funds and, where appropriate, the risks specific to the liability.
(l) Fees and commissions
Fee and commission income that relates mainly to transaction and service fees
are recognised as the related services are performed. Fees and commission
expenses that relate mainly to transaction and service fees are expensed as
incurred.
Arrangement fees for commercial property finance deals and home purchase plans
are amortised over the expected life of the transaction.
(m) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense 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 using the balance sheet method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on laws that have been enacted or
substantively enacted by the reporting 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. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
(n) Lease payments made
Payments made under operating leases are recognised in the income statement on a
straight-line basis over the term of the lease. Lease incentives received are
recognised as an integral part of the total lease expense over the term of the
lease.
(o) Employee benefits
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement when they are due.
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.
(p) Cash and cash equivalents
Cash and cash equivalents include notes and coins in hand, unrestricted balances
held with central banks and highly liquid financial assets with original
maturities of less than three months, which are subject to insignificant risk of
changes in their fair value, and are used by the Company in the management of
its short-term commitments.
Commodity Murabaha and Wakala transactions, used by the Company for investment
purposes, are not included within cash and cash equivalents. Cash and cash
equivalents are carried at amortised cost in the balance sheet.
(q) Other receivables
Trade and other receivables are stated at their nominal amount (discounted if
material) less impairment losses.
(r) Earnings per share
The Company presents basic and diluted earnings per share (EPS) data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period. Diluted EPS is
determined by adjusting the profit or loss attributable to ordinary shareholders
and the weighted average number of ordinary shares outstanding for the effects
of all dilutive potential ordinary shares.
(s) Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency at
exchange rates ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate ruling at that
date. The foreign currency gain or loss on monetary items is the difference
between amortised cost in the functional currency at the beginning of the period
and the amortised cost in foreign currency translated at the exchange rate
ruling at the end of the period. Foreign currency differences arising on
retranslation are recognised in the income statement.
(t) Share based payments
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date on which they are granted. The fair value is
determined by an external valuer using an option pricing model, taking into
account the terms and conditions upon which the options were granted.
The cost of equity-settled transactions is expensed on a straight-line basis,
together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which
the relevant employees become fully entitled to the award ('the vesting date').
The cumulative expense recognised for equity settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Company's best estimate of the number of equity
instruments that will ultimately vest. The income statement charge or credit for
a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
Any dilutive effect of outstanding options is reflected as additional share
dilution in the computation of earnings per share.
(u) New standards and interpretations effective in 2009
· IAS 1 (Revised), 'Presentation of Financial Statements'. This
standard revises the overall requirements for the presentation of financial
statements and provides guidance for their structure and minimum content
requirement. The revised standard requires the presentation of all non-owner
changes in equity within a statement of comprehensive income.
· IFRS 2 (Amendment), 'Share Based Payment'. This amendment
restricts the definition of vesting conditions to include only service
conditions and performance conditions and deals with the accounting consequences
of a failure to meet a condition other than a vesting condition including how to
deal with cancellations by the counterparty and the circumstances where neither
the entity nor the counterparty is in a position to choose whether or not to
meet a vesting condition.
· IAS 32 (Amendment), 'Financial Instruments: Presentation', and
IAS 1 (Amendment), 'Presentation of Financial Statements - Puttable Financial
Instruments and Obligations Arising on Liquidation'. The amended standards
require entities to classify puttable financial instruments and instruments, or
components of instruments, that impose on the entity an obligation to deliver to
another party a pro rata share of the net assets of the entity only on
liquidation as equity, provided the financial instruments have particular
features and meet specific conditions.
· IFRS 7 (Amendment), 'Financial Instruments: Disclosure'. This
amendment requires enhanced disclosures about the fair value measurements and
liquidity risks in respect of financial instruments. The main change relates to
fair value measurements which should now be disclosed in a three level hierarchy
that reflects the significance of model inputs. Specific disclosures are
required for Level 3 (significant unobservable inputs), movements between level
1 and 2, and around changes in valuation techniques between different periods.
As all of the Company's financial assets are carried at amortised cost the
requirement to provide hierarchy disclosures has no impact on these financial
statements.
· IFRS 8, 'Operating Segments'. IFRS 8 replaces IAS 14 'Segment
Reporting' and requires a 'management approach', under which segment information
is presented on the same basis as that used for internal reporting purposes.
· Improvements to IFRSs. This sets out minor amendments to IFRS
standards as part of an annual improvements process.
(v) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations relevant
to the Company have been issued, but are not yet effective within the EU and
have not been applied in preparing these financial statements.
· IAS 24 (Revised), 'Related Party Disclosures' (effective from 1
January 2011). This revised standard includes an exemption from the disclosure
requirements for related transactions between "state-controlled" entities and
includes a revised definition for related parties. The revised standard will
not have a material impact on the Company's financial results. (*)
· IFRS 9, 'Financial Instruments' (effective from 1 January 2013).
This standard deals with the classification and measurement of financial assets
and will replace IAS 39. The requirements of this standard represent a
significant change from the existing requirements in IAS 39. The standard
contains two primary measurement categories for financial assets: amortised cost
and fair value. The standard eliminates the existing IAS 39 categories of 'held
to maturity' and 'loans and receivables'. The potential effect of this standard
is currently being evaluated. (*)
* - The revised IAS 24 and IFRS 9 have not yet been endorsed by the EU.
4 Financial risk management
The Company has exposure to the following risks arising from its use of
financial instruments:
· Credit risk
· Liquidity risk
· Market risk
· Operational risk
· Sharia compliance risk
· Concentration risk
This note presents information about the Company's exposure to each of the above
risks, its objectives, policies and processes for measuring and managing these
risks, and its management of capital.
Risk management framework
The Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Company has
established the Asset & Liability (ALCO), Credit and Risk Committees, which are
responsible for developing and monitoring risk management policies in their
specific areas.
The Company's risk management policies are established to identify and analyse
the risks faced by the Company, to set appropriate risk limits and controls, and
to monitor risks and adherence to limits. Risk management policies and systems
are reviewed regularly to reflect changes in market conditions, products and
services offered. The Company, through its training and procedures, aims to
develop a disciplined and constructive control environment, in which all
employees understand their roles and obligations.
Risk management controls and procedures are reviewed by Internal Audit, both as
part of the regular audit review programme and through ad-hoc reviews. The
results of these reviews are reported to the Audit Committee.
(a) Credit risk
Credit risk is the risk of loss arising from the failure of a customer or
counterparty to meet their contractual obligations. The risk arises from the
Company's secured and unsecured finance provided to customers and the investment
of surplus funds in Sharia compliant wholesale deposits with bank
counterparties.
(i) Management of credit risk
The Board of Directors has delegated responsibility for the management of credit
risk to the Credit Committee. A separate Credit department, reporting to the
Credit Committee is responsible for oversight of the Company's credit risk,
including:
· Formulating credit policies in consultation with other business
units, covering credit assessments, collateral requirements, risk reporting,
legal requirements and compliance with regulatory and statutory requirements.
· Establishing authorisation limits and structures for the approval
and renewal of credit exposure limits.
· Reviewing and assessing credit risk prior to agreements being
entered into with customers.
· Limiting concentrations of exposure to counterparties, countries
or sectors and reviewing these limits.
· Ongoing assessment of exposure and implementation of procedures
to reduce this exposure.
· Providing advice, guidance and specialist skills to all business
areas to promote best practice throughout the Company in the management of
credit risk.
Adherence to country and counterparty limits, for amounts due from other banks,
is monitored on an ongoing basis by the Company's Treasury department, with a
detailed review of all limits at least annually. Senior management receive
regular reports on the utilisation of these limits.
(ii) Exposure to credit risk
+------------+--------+-------------+-----------+------------+------------+-------------+
| | Note | Commodity | Consumer | Net | Net | Total |
| | | Murabaha | finance | investment | investment | |
| | | and | accounts | in | in home | |
| | | Wakala | and | commercial | purchase | |
| | | receivables | other | property | plans | |
| | | and other | advances | finance | | |
| | | advances to | to | | | |
| | | banks | customers | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| | | GBP | GBP | GBP | GBP | GBP |
| 2009 | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Investment | 13 | 155,951,375 | - | - | - | 155,951,375 |
| grade | | | | | | |
| financial | | | | | | |
| assets | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Unrated | 14 | - | 5,300,564 | 8,611,393 | 33,077,501 | 46,989,458 |
| financial | | | | | | |
| assets | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Specific | 14 | - | (18,481) | - | - | (18,481) |
| allowances | | | | | | |
| for | | | | | | |
| impairment | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Collective | 14 | - | (793,339) | - | - | (793,339) |
| allowances | | | | | | |
| for | | | | | | |
| impairment | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Carrying | | 155,951,375 | 4,488,744 | 8,611,393 | 33,077,501 | 202,129,013 |
| amount | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| | | | | | | |
| 2008 | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Investment | 13 | 151,687,736 | - | - | - | 151,687,736 |
| grade | | | | | | |
| financial | | | | | | |
| assets | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Unrated | 14 | - | 8,963,907 | 8,597,893 | 6,980,840 | 24,542,640 |
| financial | | | | | | |
| assets | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Specific | 14 | - | (145,707) | - | - | (145,707) |
| allowances | | | | | | |
| for | | | | | | |
| impairment | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Collective | 14 | - | (939,908) | - | - | (939,908) |
| allowances | | | | | | |
| for | | | | | | |
| impairment | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
| Carrying | | 151,687,736 | 7,878,292 | 8,597,893 | 6,980,840 | 175,144,761 |
| amount | | | | | | |
+------------+--------+-------------+-----------+------------+------------+-------------+
Investment grade financial assets have a minimum rating of BBB. As at 31
December 2009, the amount of unimpaired balances stood at GBP201,997,391 (2008:
GBP174,587,812). The maximum exposure to credit risk is the carrying amount of
the financial asset receivable balances as at 31 December 2009 and 31 December
2008.
(iii) Write-off policy
The Company writes off a balance (and any related allowances for impairment)
when the Credit department determines that the balance is uncollectible. This
determination is reached after considering information such as the occurrence of
significant changes in the counterparty's financial position such that the
counterparty can no longer pay the obligation, or that proceeds from collateral
will not be sufficient to pay back the entire exposure.
(iv) Collateral
The Company holds collateral against secured advances made to businesses and
individuals in the form of charges over properties, other registered securities
over assets, and guarantees. Estimates of fair value are based on the value of
collateral assessed at the time of financing and are updated on a periodic
basis. The estimated fair value of collateral held against financial assets as
at 31 December 2009 is GBP68.0m (2008: GBP27.4m). None of this amount was held
against impaired assets.
(v) Concentration of credit risk
The Company monitors concentrations of credit risk by sector and geographical
location. An analysis of concentrations of credit risk at the reporting date is
shown below.
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| | Commodity | Consumer | Net investment | Net investment |
| | Murabaha and | finance | in commercial | in home |
| | Wakala | accounts and | property | purchase plan |
| | receivables and | other advances | finance | finance |
| | other advances | to customers | | |
| | to banks | | | |
+---------------+---------------------------+-----------------------+-----------------------+------------------------+
| | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
| | GBP | GBP | GBP | GBP | GBP | GBP | GBP | GBP |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| Concentration | | | | | | | | |
| by sector: | | | | | | | | |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| Individuals | - | - | 4,433,965 | 7,777,873 | 3,787,954 | 3,530,190 | 33,077,501 | 6,980,840 |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| Corporate | - | - | 54,779 | 100,419 | 4,823,439 | 5,067,703 | - | - |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| Bank | 155,951,375 | 151,687,736 | - | - | - | - | - | - |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| | 155,951,375 | 151,687,736 | 4,488,744 | 7,878,292 | 8,611,393 | 8,597,893 | 33,077,501 | 6,980,840 |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| Concentration | | | | | | | | |
| by location: | | | | | | | | |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| United | 30,797,199 | 8,758,617 | 4,488,744 | 7,878,292 | 8,611,393 | 8,597,893 | 33,077,501 | 6,980,840 |
| Kingdom | | | | | | | | |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| Europe | 63,369,582 | 65,248,731 | - | - | - | - | - | - |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| Middle | 61,784,594 | 77,680,388 | - | - | - | - | - | - |
| East | | | | | | | | |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
| | 155,951,375 | 151,687,736 | 4,488,744 | 7,878,292 | 8,611,393 | 8,597,893 | 33,077,501 | 6,980,840 |
+---------------+-------------+-------------+-----------+-----------+-----------+-----------+------------+-----------+
The asset quality underlying the commercial property finance and home purchase
plan portfolios is high, with financing decisions based on clear affordability
assessments and prudent finance-to-value (FTV) ratios. As at 31 December 2009
none of the facilities within the secured finance portfolios were in arrears.
(b) Liquidity risk
Liquidity risk is the risk that the Company does not have sufficient financial
resources to meet its commitments when they fall due, or can secure them only at
excessive cost. The Company's approach to managing liquidity is to ensure that
it will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Company's reputation.
The Treasury department is responsible for monitoring the liquidity profile of
financial assets and liabilities and preparing details of projected cash flows
arising from projected future business. The Treasury department maintains a
portfolio of short-term liquid assets, made up of cash on demand and short term
Commodity Murabaha and Wakala transactions to ensure that sufficient liquidity
is maintained. All liquidity policies and procedures are subject to review and
approval by ALCO.
The key measure used by the Company for managing liquidity risk is the
comparison of the maturity of assets and customer deposits. This analysis is
completed and monitored on a daily basis and reports are submitted each month
for review by ALCO. A similar calculation of mismatches is submitted to the
Financial Services Authority (the 'FSA') as part of the Company's quarterly
regulatory reporting.
Residual contractual maturities of financial liabilities
The following table shows the undiscounted cash flows on the Company's financial
liabilities on the basis of their earliest possible contractual maturity.
However, based on behavioural experience demand deposits from customers are
expected to maintain an increasing balance.
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| | Note | Carrying | Gross | Less | 1 - 3 | 3 | 1 year |
| | | amount | maturity | than 1 | months | months | - 2 |
| | | GBP | outflow | month | GBP | - | years |
| 2009 | | | GBP | GBP | | 1 year | GBP |
| | | | | | | GBP | |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| Deposits | 18 | 609,292 | 609,449 | 609,449 | - | - | - |
| from | | | | | | | |
| banks | | | | | | | |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| Deposits | 19 | 185,975,992 | 187,755,526 | 108,533,978 | 43,074,152 | 19,029,148 | 17,118,248 |
| from | | | | | | | |
| customers | | | | | | | |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| | | 186,585,284 | 188,364,975 | 109,143,427 | 43,074,152 | 19,029,148 | 17,118,248 |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| | | | | | | | |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| 2008 | | | | | | | |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| Deposits | 18 | 5,094,119 | 5,096,561 | 5,096,561 | - | - | - |
| from | | | | | | | |
| banks | | | | | | | |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| Deposits | 19 | 153,280,754 | 154,167,388 | 94,232,980 | 45,899,805 | 14,034,603 | - |
| from | | | | | | | |
| customers | | | | | | | |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
| | | 158,374,873 | 159,263,949 | 99,329,541 | 45,899,805 | 14,034,603 | - |
+-----------+--------+-------------+-------------+-------------+------------+------------+------------+
A breakdown of the Company's Commodity Murabaha and Wakala receivables by
maturity date is shown in note 13.
(c) Market risk
Market risk is the risk of loss of income arising from unfavourable market
movements, including foreign exchange rates and profit rates. The objective of
market risk management is to manage and control exposures within acceptable
parameters, whilst optimising returns. The Company is not exposed to any
material foreign currency risk. Given the Company's current profile of financial
instruments, the principle exposure is the risk of loss arising from
fluctuations in the future cash flows or fair values of these financial
instruments because of a change in achievable rates. This is managed
principally through monitoring gaps between effective profit and rental rates
and reviewing approved rates and bands at regular re-pricing meetings:
· Profit rates for Commodity Murabaha and Wakala receivables are
agreed with the counterparty bank at the time of each transaction and the profit
mark-up and effective yield rate is consequently fixed for the duration of the
contract. Risk exposure is managed by reviewing the maturity profiles of
transactions entered into.
· Effective rates applied to new consumer finance transactions are
agreed on a monthly basis by ALCO and the profit mark-up will then be fixed for
each individual transaction for the agreed deferred payment term.
· Rentals for longer term commercial property financing and home
purchase plans are benchmarked against a market measure, in agreement with the
Company's Sharia Supervisory Committee, subject to minimum rent levels.
· Profit rates payable on Mudaraba customer deposit accounts are
calculated at each month-end in line with the profit allocation model and the
customer terms and conditions. Profit rates payable on Murabaha and Wakala
deposits are agreed with the customer at the time of each transaction and the
profit mark-up and effective yield rate is consequently fixed for the duration
of the contract. Risk exposure is managed by reviewing the maturity profiles of
transactions entered into.
All rates and re-pricings are reviewed and agreed at ALCO, which is principally
responsible for monitoring market risk. ALCO will also review sensitivities of
the Company's assets and liabilities to standard and non-standard changes in
achievable effective rates. Standard scenarios that are considered on a monthly
basis include a 1.00% or 0.50% rise or fall in effective average rates. An
analysis of the Company's income statement sensitivity to an increase or
decrease in effective rates (assuming no asymmetrical movement and a constant
balance sheet position) is as follows:
+------------------------------+----------+-----------+----------+-----------+
| | 1.00% | 1.00% | 0.50% | 0.50% |
| | parallel | parallel | parallel | parallel |
| | increase | decrease | increase | decrease |
+------------------------------+----------+-----------+----------+-----------+
| | | | | |
+------------------------------+----------+-----------+----------+-----------+
| 31 December 2009 | 800,881 | (800,881) | 400,441 | (400,441) |
+------------------------------+----------+-----------+----------+-----------+
| | | | | |
+------------------------------+----------+-----------+----------+-----------+
| 31 December 2008 | 756,715 | (756,715) | 378,358 | (378,358) |
+------------------------------+----------+-----------+----------+-----------+
(d) Operational risk
Operational risk is the risk of loss arising from inadequate or failed internal
processes, people and systems or from external factors other than credit,
liquidity and market risks.
The Company's objective in managing operational risk is to implement an
integrated internal control structure that supports process efficiency and
customer needs, whilst effectively reducing the risk of error and financial loss
in a cost effective manner. The overall operational risk framework is set by
the Board of Directors. Primary responsibility for the development and
implementation of internal controls is assigned to senior management within each
business department, with the assistance of the Risk department. Adherence to
operational risk policies and procedures is monitored regularly by the Risk
Committee, through the use of key risk indicators, control related metrics and
reports from the Risk department.
(e) Sharia compliance risk
Sharia compliance risk is the risk of loss arising from products and services
not complying with Sharia requirements or in accordance with Islamic principles.
The Bank's purpose is to provide Sharia compliant banking to customers. The
Sharia compliant nature of each product and service offered is therefore
critical to the success of the Bank.
The Sharia compliance of each product and service offered is achieved via the
Sharia Supervisory Committee (SSC), which seeks to ensure that the Bank's
operations are in compliance with Islamic law. The SSC is comprised of experts
in the interpretation of Islamic law and its application to modern day Islamic
financial institutions. The SSC meets on a regular basis to review all material
contracts and agreements relating to the Bank's transactions, certifying every
product and service offered. On a day-to-day basis, the Bank's Sharia
Compliance Officer oversees the adherence of transactions, processes and
procedures to ensure that all are operated in accordance with Sharia
requirements.
(f) Concentration risk
Concentration risk is the risk of loss arising from inadequate diversification
of credit risk across sectors. The risk arises due to exposure to particular
geographical locations, industry sectors or particular customers or
institutions.
The Board sets counterparty, country and regional limits in respect of treasury
assets and adherence to these limits is monitored on a daily basis.
Concentrations exist within the commercial property finance and home purchase
plan portfolios due to their current small overall size. As these portfolios
grow, such concentrations are expected to reduce.
The Credit Committee monitors both sectoral and geographic concentration for
each finance asset class and regularly reviews counterparty, country and
regional limits in respect of treasury assets.
(g) Capital management
In accordance with the EU's Capital Requirements Directive (CRD) and the
guidance provided in the FSA Handbook (BIPRU 2.2), the Company's Individual
Capital Adequacy Assessment Process (ICAAP) is embedded in the risk management
framework of the Company. The ICAAP is reviewed on an annual basis as part of
the Company's strategic planning process and more frequently if business
requirements demand.
The Company's capital requirements are set by the FSA and monitored by the
Board. Regulatory capital is analysed into two tiers:
· Tier 1 capital, which includes ordinary share capital, share
premium and retained earnings, less intangible assets.
· Tier 2 capital, which includes collective impairment allowances,
restricted to a maximum amount.
The level of total capital is matched against risk-weighted assets which are
determined according to specified requirements that seek to reflect the varying
levels of risk attached to assets. The Company has put in place processes to
monitor and manage capital adequacy.
The FSA has reviewed and evaluated the ICAAP, and has provided Individual
Capital Guidance (ICG) to the Company. The FSA sets out ICG for all banks
operating in the United Kingdom by reference to its Capital Resources
Requirement. The FSA's approach is to monitor the available capital resources
in relation to the ICG requirement.
The Company's policy is to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain the future development
of the business. The Company has complied with all externally imposed capital
requirements throughout the period.
The Company's regulatory capital position as at 31 December was as follows:
+----------------------------------------+---------+------------+--+------------+
| | Note | 2009 | | 2008 |
| | | GBP | | GBP |
+----------------------------------------+---------+------------+--+------------+
| Tier 1 capital | | | | |
+----------------------------------------+---------+------------+--+------------+
| Total equity | | 16,814,033 | | 18,943,536 |
+----------------------------------------+---------+------------+--+------------+
| Less intangible assets | | (315,541) | | (578,713) |
+----------------------------------------+---------+------------+--+------------+
| | | | | |
+----------------------------------------+---------+------------+--+------------+
| | | 16,498,492 | | 18,364,823 |
+----------------------------------------+---------+------------+--+------------+
| | | | | |
+----------------------------------------+---------+------------+--+------------+
| Tier 2 capital | | | | |
+----------------------------------------+---------+------------+--+------------+
| Collective allowances for impairment | | 763,179 | | 744,027 |
| (restricted to a maximum amount) | | | | |
+----------------------------------------+---------+------------+--+------------+
| | | | | |
+----------------------------------------+---------+------------+--+------------+
| Total regulatory capital | (a) | 17,261,671 | | 19,108,850 |
+----------------------------------------+---------+------------+--+------------+
| | | | | |
+----------------------------------------+---------+------------+--+------------+
| | | | | |
+----------------------------------------+---------+------------+--+------------+
| Risk weighted assets | (b) | 61,054,328 | | 59,522,138 |
+----------------------------------------+---------+------------+--+------------+
| | | | | |
+----------------------------------------+---------+------------+--+------------+
| Total regulatory capital expressed as | (a)/(b) | 28.27% | | 32.10% |
| a percentage of risk weighted assets | | | | |
+----------------------------------------+---------+------------+--+------------+
| | | | | |
+----------------------------------------+---------+------------+--+------------+
5 Critical accounting policies
Management discussed with the Audit Committee the development, selection and
disclosure of the Company's critical accounting policies and estimates, and the
application of these policies and estimates. The critical accounting policies
are set out below.
(a) Allowance for credit losses
Assets accounted for at amortised cost are evaluated for impairment on the basis
described in accounting policy (i).
The specific counterparty component of the total allowances for impairment
applies to claims evaluated individually for impairment and is based upon
management's best estimate of the present value of the cash flows that are
expected to be received. In estimating these cash flows, management makes
judgements about each counterparty's financial situation and the realisable
value of any underlying collateral. Each impaired asset is assessed on its
merits, and the estimates of cash flows considered recoverable are approved by
the Credit function.
Collectively assessed impairment allowances cover credit losses inherent in
portfolios of claims with similar economic characteristics when there is
objective evidence to suggest that they contain impaired claims, but the
individual impaired items cannot yet be identified. In assessing the need for
collective loss allowances, management considers factors such as credit quality,
portfolio size, concentrations, and economic factors. In order to estimate the
required allowance, assumptions are made to define the way inherent losses are
modelled and to determine the required input parameters, based on historical
experience and current economic conditions.
(b) Financial Services Compensation Scheme
Based on its share of protected deposits, the Bank, in common with all regulated
UK deposit takers, pays levies to the Financial Services Compensation Scheme
(FSCS) to enable the FSCS to meet claims against it. The FSCS levy consists of
two parts - a management expenses levy and a compensation levy. The management
expenses levy covers the costs of running the scheme and the compensation levy
covers the amount of compensation the scheme pays, net of any recoveries it
makes using the rights that have been assigned to it. During 2008, claims were
triggered against the FSCS arising from defaults by the following deposit
takers:
· Bradford and Bingley plc (September 2008);
· Kaupthing Singer and Friedlander's internet deposit business
('Kaupthing Edge') (October 2008);
· Heritable Bank's deposit business, a subsidiary of Landsbanki
Islands hf (October 2008);
· Icesave, the UK branch of Landsbanki Islands hf (October 2008);
and
· London Scottish Bank plc (December 2008).
The FSCS has met the claims by way of loans received from the Bank of England
and HM Treasury. The FSCS has, in turn, acquired the rights to the realisation
of the assets of these banks. The FSCS is liable to pay interest on the loans
from the Bank of England. The FSCS may have a further liability if there are
insufficient funds available from the realisation of the assets of the banks to
fully repay the respective Bank of England loans.
As a result of notifications it has received from the Financial Services
Authority, the Bank recognised a provision in the prior year (within Other
liabilities) to reflect the Bank's best estimate of the amount that would be
payable. This provision has been reassessed at 31 December 2009 to reflect the
estimated amounts that will fall payable in respect of the 2009/10 and 2010/11
scheme years. The movement in the provision during the year is as follows:
+-----------------------------------+--+--------+----------+----+---------+
| | | | 2009 | | 2008 |
+-----------------------------------+--+--------+----------+----+---------+
| | | | GBP | | GBP |
| | | | | | |
+-----------------------------------+--+--------+----------+----+---------+
| Balance at 1 January | | | 224,000 | | - |
+-----------------------------------+--+--------+----------+----+---------+
| Utilised in respect of 2008/9 | | | (59,165) | | - |
| scheme year settlement | | | | | |
+-----------------------------------+--+--------+----------+----+---------+
| Increase in provision during year | | | 23,034 | | 224,000 |
+-----------------------------------+--+--------+----------+----+---------+
| | | | | | |
+-----------------------------------+--+--------+----------+----+---------+
| Balance at 31 December | | | 187,869 | | 224,000 |
+-----------------------------------+--+--------+----------+----+---------+
6 Net income from Islamic financing transactions
+----------------------------------+--+--------+-------------+----+-----------+-+
| | | | 2009 | | 2008 |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | GBP | | GBP |
| Income received | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Commodity Murabaha and Wakala | | | 1,239,825 | | 6,860,642 |
| transactions | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Consumer finance | | | 556,891 | | 800,600 |
+----------------------------------+--+--------+-------------+----+-------------+
| Commercial property finance | | | 370,618 | | 597,107 |
+----------------------------------+--+--------+-------------+----+-------------+
| Home purchase plans | | | 849,678 | | 48,948 |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Total income received from | | | 3,017,012 | | 8,307,297 |
| Islamic financing transactions | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | | | |
| Returns payable | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Deposits from banks | | | (16,116) | | (202,987) |
+----------------------------------+--+--------+-------------+----+-------------+
| Deposits from customers | | | (1,791,155) | | (3,608,529) |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Total returns payable to | | | (1,807,271) | | (3,811,516) |
| customers and banks | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Net income from Islamic | | | 1,209,741 | | 4,495,781 |
| financing transactions | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | | | | |
+----------------------------------+--+--------+-------------+----+-----------+-+
7 Net fee and commission income
+----------------------------------+--+--------+----------+----+----------+
| | | | 2009 | | 2008 |
+----------------------------------+--+--------+----------+----+----------+
| | | | GBP | | GBP |
| Fee and commission income | | | | | |
+----------------------------------+--+--------+----------+----+----------+
| Retail customer banking fees | | | 399,933 | | 446,779 |
+----------------------------------+--+--------+----------+----+----------+
| ATM commission | | | 30,140 | | 31,037 |
+----------------------------------+--+--------+----------+----+----------+
| Other | | | 25,585 | | 30,685 |
+----------------------------------+--+--------+----------+----+----------+
| Arrangement fees | | | 24,933 | | 18,711 |
+----------------------------------+--+--------+----------+----+----------+
| | | | | | |
+----------------------------------+--+--------+----------+----+----------+
| Total fee and commission income | | | 480,591 | | 527,212 |
+----------------------------------+--+--------+----------+----+----------+
| | | | | | |
| Fee and commission expense | | | | | |
+----------------------------------+--+--------+----------+----+----------+
| ATM interchange fees | | | (69,704) | | (77,440) |
+----------------------------------+--+--------+----------+----+----------+
| Electronic transaction fees | | | (17,235) | | (17,343) |
| | | | | | |
+----------------------------------+--+--------+----------+----+----------+
| | | | | | |
+----------------------------------+--+--------+----------+----+----------+
| Total fee and commission expense | | | (86,939) | | (94,783) |
+----------------------------------+--+--------+----------+----+----------+
| Net fee and commission income | | | 393,652 | | 432,429 |
+----------------------------------+--+--------+----------+----+----------+
8 Auditors' remuneration
Included within operating losses are the following amounts payable to the
auditors:
+-----------------------------------+--+--------+---------+----+---------+
| | | | 2009 | | 2008 |
+-----------------------------------+--+--------+---------+----+---------+
| | | | GBP | | GBP |
+-----------------------------------+--+--------+---------+----+---------+
| Amounts receivable by the auditors and their | | | |
| associates in respect of: | | | |
+-----------------------------------------------+---------+----+---------+
| | | | |
+-----------------------------------------------+---------+----+---------+
| Audit of financial statements pursuant to | 74,000 | | 74,000 |
| legislation | | | |
+-----------------------------------------------+---------+----+---------+
| Other services relating to taxation | 9,900 | | 74,258 |
+-----------------------------------------------+---------+----+---------+
| All other services | 13,000 | | 21,656 |
+-----------------------------------------------+---------+----+---------+
| | | | |
+-----------------------------------------------+---------+----+---------+
| Total | 96,900 | | 169,914 |
+-----------------------------------+--+--------+---------+----+---------+
9 Personnel expenses
+----------------------------------+--+---------+-----------+---+---------------------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+-----------+---+---------------------+
| | | | GBP | | GBP |
| | | | | | |
+----------------------------------+--+---------+-----------+---+---------------------+
| Wages and salaries | | | 4,647,751 | | 4,323,265 |
+----------------------------------+--+---------+-----------+---+---------------------+
| Social security costs | | | 434,179 | | 384,267 |
+----------------------------------+--+---------+-----------+---+---------------------+
| Contributions to defined | | | 116,103 | | 83,003 |
| contribution pension plans | | | | | |
+----------------------------------+--+---------+-----------+---+---------------------+
| Share based payments charge | | | 29,144 | | 28,927 |
+----------------------------------+--+---------+-----------+---+---------------------+
| Other staff costs | | | 13,927 | | 12,516 |
+----------------------------------+--+---------+-----------+---+---------------------+
| | | | | | |
+----------------------------------+--+---------+-----------+---+---------------------+
| Total | | | 5,241,104 | | 4,831,978 |
+----------------------------------+--+---------+-----------+---+---------------------+
| | | | | | |
+----------------------------------+--+---------+-----------+---+---------------------+
| The average number of persons | | | 147 | | 147 |
| employed by the Company during | | | | | |
| the year was: | | | | | |
+----------------------------------+--+---------+-----------+---+---------------------+
10 Directors' emoluments
+----------------------------------+--+---------+---------+---+---------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+---------+---+---------+
| | | | GBP | | GBP |
+----------------------------------+--+---------+---------+---+---------+
| | | | | | |
+----------------------------------+--+---------+---------+---+---------+
| Directors' emoluments | | | 525,593 | | 531,893 |
+----------------------------------+--+---------+---------+---+---------+
| Company contributions to pension | | | 24,500 | | 24,500 |
| plans | | | | | |
+----------------------------------+--+---------+---------+---+---------+
| | | | | | |
+----------------------------------+--+---------+---------+---+---------+
| Total | | | 550,093 | | 556,393 |
+----------------------------------+--+---------+---------+---+---------+
| | | | | | |
+----------------------------------+--+---------+---------+---+---------+
The Company made contributions to money purchase pension plans in respect of 2
directors (2008: 2).
The aggregate of emoluments during 2009 of the highest paid director was
GBP217,500 (2008: GBP225,000) and Company pension contributions of GBP15,000
(2008: GBP15,000) were made on his behalf.
11 Income tax expense
There were no taxable profits or recoverable losses for the year ended 31
December 2009 (2008: GBPnil) and accordingly the Company has not provided for a
tax charge or a tax debtor.
+----------------------------------+--+--------+-------------+----+-------------+
| | | | 2009 | | 2008 |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | GBP | | GBP |
+----------------------------------+--+--------+-------------+----+-------------+
| Reconciliation of effective tax | | | | | |
| rate | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Loss before tax | | | (9,492,744) | | (5,910,700) |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Income tax at UK corporation tax | | | (2,657,968) | | (1,684,550) |
| rate 28% (2008: 28.5%) | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Non deductible expenses | | | 20,938 | | 21,485 |
+----------------------------------+--+--------+-------------+----+-------------+
| Depreciation in excess of capital allowances | 205,162 | | 261,170 |
| on which deferred tax not recognised | | | |
+----------------------------------------------+-------------+----+-------------+
| Short term timing differences | (31,537) | | - |
+----------------------------------------------+-------------+----+-------------+
| Unutilised tax losses | | | 2,463,405 | | 1,401,895 |
| | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
| Income tax expense | | | - | | - |
+----------------------------------+--+--------+-------------+----+-------------+
| | | | | | |
+----------------------------------+--+--------+-------------+----+-------------+
Deferred tax assets have not been recognised in respect of the following items:
+----------------------------------+--+---------+------------+---+-----------+
| Capital allowances | | | 1,627,667 | | 1,437,613 |
+----------------------------------+--+---------+------------+---+-----------+
| Tax losses | | | 10,000,664 | | 7,555,394 |
| | | | | | |
+----------------------------------+--+---------+------------+---+-----------+
| | | | 11,628,331 | | 8,993,007 |
+----------------------------------+--+---------+------------+---+-----------+
| | | | | | |
+----------------------------------+--+---------+------------+---+-----------+
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 finalised and therefore the level of the
asset shown above may change.
The corporation tax rate used to calculate potential deferred tax assets was 28%
(2008: 28%).
12 Cash and cash equivalents
+----------------------------------+--+---------+-----------+---+-----------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+-----------+---+-----------+
| | | | GBP | | GBP |
+----------------------------------+--+---------+-----------+---+-----------+
| | | | | | |
+----------------------------------+--+---------+-----------+---+-----------+
| Cash | | | 577,273 | | 546,953 |
+----------------------------------+--+---------+-----------+---+-----------+
| Other advances to banks | | | 3,174,689 | | 2,067,531 |
+----------------------------------+--+---------+-----------+---+-----------+
| | | | | | |
+----------------------------------+--+---------+-----------+---+-----------+
| Total cash and cash equivalents | | | 3,751,962 | | 2,614,484 |
+----------------------------------+--+---------+-----------+---+-----------+
13 Commodity Murabaha and Wakala receivables and other advances to
banks
+----------------------------------+--+---------+-------------+---+-------------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+-------------+---+-------------+
| | | | GBP | | GBP |
+----------------------------------+--+---------+-------------+---+-------------+
| | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Repayable on demand | | | 6,174,689 | | 2,067,531 |
+----------------------------------+--+---------+-------------+---+-------------+
| 3 months or less but not | | | 149,154,176 | | 143,756,349 |
| repayable on demand | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| 1 year or less but over 3 months | | | 622,510 | | 5,863,856 |
| | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Total Commodity Murabaha and | | | 155,951,375 | | 151,687,736 |
| Wakala receivables and other | | | | | |
| advances to banks | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
A breakdown of Commodity Murabaha and Wakala receivables and other advances to
bank by geographic regions is shown in note 4. Balances maturing in 1 year or
less but over 3 months include a balance of GBP622,510 (2008: GBP691,085)
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. This deposit does not earn a return.
14 Advances to customers
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| | Gross | Impairment | Carrying | Gross | Impairment | Carrying |
| | amount | allowance | | amount | allowance | |
| | | | amount | | | amount |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| Retail customers: | GBP | GBP | GBP | GBP | GBP | GBP |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| Consumer finance | 5,245,785 | (811,820) | 4,433,965 | 8,863,488 | (1,085,615) | 7,777,873 |
| accounts and other | | | | | | |
| advances to customers | | | | | | |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| Corporate customers: | | | | | | |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| Consumer finance | 54,779 | - | 54,779 | 100,419 | - | 100,419 |
| accounts and other | | | | | | |
| advances to customers | | | | | | |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| Total consumer | 5,300,564 | (811,820) | 4,488,744 | 8,963,907 | (1,085,615) | 7,878,292 |
| finance accounts and | | | | | | |
| other advances to | | | | | | |
| customers | | | | | | |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| Net investment in | 8,611,393 | - | 8,611,393 | 8,597,893 | - | 8,597,893 |
| commercial property | | | | | | |
| finance | | | | | | |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
| Net investment in | 33,077,501 | - | 33,077,501 | 6,980,840 | - | 6,980,840 |
| home purchase plans | | | | | | |
+-----------------------+------------+------------+------------+-----------+-------------+-----------+
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | 2009 | | 2008 |
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | GBP | | GBP |
| Specific allowances for | | | | | |
| impairment | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Balance at 1 January | | | 145,707 | | 194,309 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Charge for the year | | | - | | 64,223 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Amounts written off during the | | | (127,226) | | (112,825) |
| year | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Balance at 31 December | | | 18,481 | | 145,707 |
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Collective allowances for | | | | | |
| impairment | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Balance at 1 January | | | 939,908 | | 818,708 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Charge for the year | | | 408,939 | | 261,748 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Amounts written off during the | | | (555,508) | | (140,548) |
| year | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Balance at 31 December | | | 793,339 | | 939,908 |
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Total allowances for impairment | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Balance at 1 January | | | 1,085,615 | | 1,013,017 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Charge for the year | | | 408,939 | | 325,971 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Amounts written off during the | | | (682,734) | | (253,373) |
| year | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Balance at 31 December | | | 811,820 | | 1,085,615 |
+-----------------------------------+--+--------+-----------+----+-----------+
This impairment allowance relates to consumer finance accounts.
The gross investment in commercial property finance comprises:
+----------------------------------+--+---------+-------------+---+-------------+
| Less than one year | | | 594,493 | | 848,175 |
+----------------------------------+--+---------+-------------+---+-------------+
| Between one and five years | | | 2,330,371 | | 3,317,679 |
+----------------------------------+--+---------+-------------+---+-------------+
| More than five years | | | 8,893,311 | | 12,778,920 |
+----------------------------------+--+---------+-------------+---+-------------+
| Total gross investment in | | | 11,818,175 | | 16,944,774 |
| commercial property finance | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Unearned future rental on | | | (3,206,782) | | (8,346,881) |
| commercial property finance | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Net investment in commercial | | | 8,611,393 | | 8,597,893 |
| property finance | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
The net investment in commercial property finance comprises:
+----------------------------------+--+---------+-----------+----+-----------+
| Less than one year | | | 326,317 | | 207,846 |
+----------------------------------+--+---------+-----------+----+-----------+
| Between one and five years | | | 1,367,151 | | 935,654 |
+----------------------------------+--+---------+-----------+----+-----------+
| More than five years | | | 6,917,925 | | 7,454,393 |
+----------------------------------+--+---------+-----------+----+-----------+
| Net investment in commercial | | | 8,611,393 | | 8,597,893 |
| property finance | | | | | |
+----------------------------------+--+---------+-----------+----+-----------+
+----------------------------------+--+--------+--------------+----+-------------+
| The gross investment in home | | | 2009 | | 2008 |
| purchase plans comprises: | | | | | |
+----------------------------------+--+--------+--------------+----+-------------+
| | | | GBP | | GBP |
| | | | | | |
+----------------------------------+--+--------+--------------+----+-------------+
| Less than one year | | | 2,459,386 | | 552,619 |
+----------------------------------+--+--------+--------------+----+-------------+
| Between one and five years | | | 9,837,544 | | 2,210,475 |
+----------------------------------+--+--------+--------------+----+-------------+
| More than five years | | | 42,286,737 | | 9,894,842 |
+----------------------------------+--+--------+--------------+----+-------------+
| Total gross investment in home | | | 54,583,667 | | 12,657,936 |
| purchase plans | | | | | |
+----------------------------------+--+--------+--------------+----+-------------+
| Unearned future rental on home | | | (21,506,166) | | (5,677,096) |
| purchase plans | | | | | |
+----------------------------------+--+--------+--------------+----+-------------+
| Net investment in home purchase | | | 33,077,501 | | 6,980,840 |
| plans | | | | | |
+----------------------------------+--+--------+--------------+----+-------------+
The net investment in home purchase plans comprises:
+----------------------------------+--+---------+------------+----+-----------+
| Less than one year | | | 951,605 | | 159,486 |
+----------------------------------+--+---------+------------+----+-----------+
| Between one and five years | | | 4,264,510 | | 736,042 |
+----------------------------------+--+---------+------------+----+-----------+
| More than five years | | | 27,861,386 | | 6,085,312 |
+----------------------------------+--+---------+------------+----+-----------+
| Net investment in home purchase | | | 33,077,501 | | 6,980,840 |
| plans | | | | | |
+----------------------------------+--+---------+------------+----+-----------+
As at 31 December 2009 there is no material difference between the carrying
value and the fair value of any financial assets or liabilities (2008: GBPnil).
15 Property and equipment
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | Computer | | Office | | Leasehold | | Fixtures | | Total |
| | Equipment | | equipment | | Improvements | | & | | |
| | | | | | | | fittings | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | GBP | | GBP | | GBP | | GBP | | GBP |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Cost | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 1 January | 1,754,591 | | 123,877 | | 4,245,070 | | 330,396 | | 6,453,934 |
| 2009 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Additions | 100,596 | | 11,365 | | 2,073 | | 5,452 | | 119,486 |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 31 December | 1,855,187 | | 135,242 | | 4,247,143 | | 335,848 | | 6,573,420 |
| 2009 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Depreciation | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 1 January | 1,338,160 | | 74,383 | | 1,548,256 | | 227,390 | | 3,188,189 |
| 2009 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Depreciation charge for | 222,560 | | 20,386 | | 421,925 | | 59,606 | | 724,477 |
| the year | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 31 December | 1,560,720 | | 94,769 | | 1,970,181 | | 286,996 | | 3,912,666 |
| 2009 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Net book value | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| At 31 December 2009 | 294,467 | | 40,473 | | 2,276,962 | | 48,852 | | 2,660,754 |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Cost | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 1 January | 1,357,725 | | 97,967 | | 4,079,098 | | 321,747 | | 5,856,537 |
| 2008 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Additions | 396,866 | | 25,910 | | 165,972 | | 8,649 | | 597,397 |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 31 December | 1,754,591 | | 123,877 | | 4,245,070 | | 330,396 | | 6,453,934 |
| 2008 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Depreciation | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 1 January | 1,126,128 | | 52,127 | | 1,073,164 | | 161,763 | | 2,413,182 |
| 2008 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Depreciation charge for | 212,032 | | 22,256 | | 475,092 | | 65,627 | | 775,007 |
| the year | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Balance at 31 December | 1,338,160 | | 74,383 | | 1,548,256 | | 227,390 | | 3,188,189 |
| 2008 | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| Net book value | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| At 31 December 2008 | 416,431 | | 49,494 | | 2,696,814 | | 103,006 | | 3,265,745 |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
| | | | | | | | | | |
+-------------------------+-----------+----------+-----------+----------+--------------+----------+----------+----------+-----------+
The Company leases its branch and office premises under operating leases. The
leases typically run for 10 years, with options to renew the lease after that
date. Lease payments are reviewed after periods stipulated in the agreements to
reflect market rentals.
16 Intangible assets
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | Computer | | Purchased | | Total |
| | licences | | & | | |
| | | | developed | | |
| | | | software | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | GBP | | | | GBP |
| | | | GBP | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Cost | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 1 January 2009 | 718,520 | | 4,111,727 | | 4,830,247 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Additions | 64,399 | | 79,239 | | 143,638 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 31 December 2009 | 782,919 | | 4,190,966 | | 4,973,885 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Amortisation | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 1 January 2009 | 655,086 | | 3,596,448 | | 4,251,534 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Amortisation charge for the year | 65,862 | | 340,948 | | 406,810 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 31 December 2009 | 720,948 | | 3,937,396 | | 4,658,344 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Net book value | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| At 31 December 2009 | 61,971 | | 253,570 | | 315,541 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Cost | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 1 January 2008 | 684,037 | | 3,940,942 | | 4,624,979 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Additions | 34,483 | | 170,785 | | 205,268 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 31 December 2008 | 718,520 | | 4,111,727 | | 4,830,247 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Amortisation | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 1 January 2008 | 504,489 | | 2,858,259 | | 3,362,748 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Amortisation charge for the year | 150,597 | | 738,189 | | 888,786 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| Balance at 31 December 2008 | 655,086 | | 3,596,448 | | 4,251,534 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | | | | | |
| Net book value | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| At 31 December 2008 | 63,434 | | 515,279 | | 578,713 |
+----------------------------------------+----------+----------+-----------+----------+-----------+
| | | | | | |
+----------------------------------------+----------+----------+-----------+----------+-----------+
17 Other assets
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | 2009 | | 2008 |
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | GBP | | GBP |
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| VAT recoverable | | | 70,565 | | 190,089 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Accrued income | | | 114,393 | | 238,284 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Prepayments | | | 961,319 | | 834,755 |
+-----------------------------------+--+--------+-----------+----+-----------+
| Other debtors | | | 194,000 | | - |
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
| Total | | | 1,340,277 | | 1,263,128 |
+-----------------------------------+--+--------+-----------+----+-----------+
| | | | | | |
+-----------------------------------+--+--------+-----------+----+-----------+
There are no receivables within other assets that are expected to be recovered
in more than 12 months (2008: GBPnil). Other debtors represent funds remitted
to solicitors for home purchase plans that had not completed at the year-end.
18 Deposits from banks
+----------------------------------+--+---------+---------+----+-----------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+---------+----+-----------+
| | | | GBP | | GBP |
+----------------------------------+--+---------+---------+----+-----------+
| | | | | | |
+----------------------------------+--+---------+---------+----+-----------+
| Repayable on demand | | | 78,652 | | 94,119 |
+----------------------------------+--+---------+---------+----+-----------+
| 3 months or less but not | | | 530,640 | | 5,000,000 |
| repayable on demand | | | | | |
+----------------------------------+--+---------+---------+----+-----------+
| | | | | | |
+----------------------------------+--+---------+---------+----+-----------+
| Total deposits from banks | | | 609,292 | | 5,094,119 |
+----------------------------------+--+---------+---------+----+-----------+
| | | | | | |
+----------------------------------+--+---------+---------+----+-----------+
| Comprising: | | | | | |
+----------------------------------+--+---------+---------+----+-----------+
| Non profit sharing accounts | | | 78,652 | | 94,119 |
+----------------------------------+--+---------+---------+----+-----------+
| Profit sharing / paying accounts | | | 530,640 | | 5,000,000 |
+----------------------------------+--+---------+---------+----+-----------+
| | | | | | |
+----------------------------------+--+---------+---------+----+-----------+
| Total deposits from banks | | | 609,292 | | 5,094,119 |
+----------------------------------+--+---------+---------+----+-----------+
19 Deposits from customers
+----------------------------------+--+---------+-------------+---+-------------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+-------------+---+-------------+
| | | | GBP | | GBP |
+----------------------------------+--+---------+-------------+---+-------------+
| | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Repayable on demand | | | 104,437,151 | | 94,232,981 |
+----------------------------------+--+---------+-------------+---+-------------+
| 3 months or less but not | | | 46,993,655 | | 45,392,618 |
| repayable on demand | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| 1 year or less but over 3 months | | | 18,664,345 | | 13,655,155 |
+----------------------------------+--+---------+-------------+---+-------------+
| 2 years or less but over 1 year | | | 15,880,841 | | - |
+----------------------------------+--+---------+-------------+---+-------------+
| | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Total deposits from customers | | | 185,975,992 | | 153,280,754 |
+----------------------------------+--+---------+-------------+---+-------------+
| | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Comprising: | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Non profit sharing | | | 34,215,366 | | 24,755,496 |
+----------------------------------+--+---------+-------------+---+-------------+
| Profit sharing / paying accounts | | | 151,760,626 | | 128,525,258 |
+----------------------------------+--+---------+-------------+---+-------------+
| | | | | | |
+----------------------------------+--+---------+-------------+---+-------------+
| Total deposits from customers | | | 185,975,992 | | 153,280,754 |
+----------------------------------+--+---------+-------------+---+-------------+
20 Other liabilities
+----------------------------------+--+---------+-----------+--+-----------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+-----------+--+-----------+
| | | | GBP | | GBP |
+----------------------------------+--+---------+-----------+--+-----------+
| | | | | | |
+----------------------------------+--+---------+-----------+--+-----------+
| Returns payable to customers | | | 348,708 | | 419,565 |
+----------------------------------+--+---------+-----------+--+-----------+
| Trade payables | | | 421,859 | | 646,183 |
+----------------------------------+--+---------+-----------+--+-----------+
| Social security and income tax | | | 395,540 | | 423,530 |
+----------------------------------+--+---------+-----------+--+-----------+
| Accruals | | | 1,125,441 | | 975,033 |
+----------------------------------+--+---------+-----------+--+-----------+
| Other creditors | | | 1,331,993 | | 1,016,580 |
+----------------------------------+--+---------+-----------+--+-----------+
| | | | | | |
+----------------------------------+--+---------+-----------+--+-----------+
| Total | | | 3,623,541 | | 3,480,891 |
+----------------------------------+--+---------+-----------+--+-----------+
| | | | | | |
+----------------------------------+--+---------+-----------+--+-----------+
Included within accruals is a balance of GBP32,000 payable over the remaining
lease term of 4 years relating to refurbishment of a branch property (2008:
GBP40,000). This is paid in equal annual instalments with GBP24,000 payable in
more than 12 months.
21 Operating leases
Non-cancellable operating lease rentals are payable as follows:
+----------------------------------+--+---------+-----------+---+-----------+
| | | | 2009 | | 2008 |
+----------------------------------+--+---------+-----------+---+-----------+
| | | | GBP | | GBP |
+----------------------------------+--+---------+-----------+---+-----------+
| | | | | | |
+----------------------------------+--+---------+-----------+---+-----------+
| Less than one year | | | 444,305 | | 444,305 |
+----------------------------------+--+---------+-----------+---+-----------+
| Between one and five years | | | 1,711,735 | | 1,777,218 |
+----------------------------------+--+---------+-----------+---+-----------+
| More than five years | | | 1,022,250 | | 1,401,071 |
+----------------------------------+--+---------+-----------+---+-----------+
| | | | | | |
+----------------------------------+--+---------+-----------+---+-----------+
| Total | | | 3,178,290 | | 3,622,594 |
+----------------------------------+--+---------+-----------+---+-----------+
During the year GBP502,085 was recognised as an expense in the income statement
in respect of operating leases (2008: GBP476,532). The comparative information
has been restated. In the prior year accounts the operating lease category
'Less than one year' was incorrectly disclosed as GBP441,805 and the 'Between
one and five years' category as GBP2,221,523.
22 Called up share capital
+------------------------------------------+----------+--+-----------+----+-----------+
| | | | 2009 | | 2008 |
+------------------------------------------+----------+--+-----------+----+-----------+
| | | | GBP | | GBP |
+------------------------------------------+----------+--+-----------+----+-----------+
| Authorised | | | | | |
+------------------------------------------+----------+--+-----------+----+-----------+
| Equity: 725,000,000 (2008: 725,000,000) | | | 7,250,000 | | 7,250,000 |
| ordinary shares of GBP0.01 each | | | | | |
+------------------------------------------+----------+--+-----------+----+-----------+
| | | | | | |
+------------------------------------------+----------+--+-----------+----+-----------+
| Allotted, called up and fully paid | | | | | |
+------------------------------------------+----------+--+-----------+----+-----------+
| Issued ordinary share capital | | | 5,464,700 | | 4,190,000 |
+------------------------------------------+----------+--+-----------+----+-----------+
| | | | | | |
+------------------------------------------+----------+--+-----------+----+-----------+
On 19 December 2008, an ordinary resolution was passed at an extraordinary
general meeting increasing the authorised share capital of the Company from
GBP5,000,000 to GBP7,250,000 by the creation of an additional 225,000,000 new
Ordinary Shares. On 23 January 2009, an additional 127,470,000 shares were
allotted for consideration of GBP7,488,863 before expenses.
Company Share Option Plan
In 2007 the Company established an HMRC approved Company Share Option Plan
('CSOP') under which options to subscribe for the Company's ordinary shares of
1p each were awarded to certain employees ('Optionholders').
All options have a vesting period of 3 years, and are subject to the achievement
of specific performance criteria.
Options are forfeited if they remain unexercised after a period of more than 10
years from the date of grant. Options are also forfeited if the Optionholder
ceases to hold office with the Company before the options vest, with certain
exceptions ("good leaver" provisions). All options are non-transferable and
there are no cash settlement alternatives.
The following options were granted during the prior year under the CSOP scheme
and represent all outstanding options issued by the Company:
+-------------+----------+--------+----------+----------+-----------+-------------+
| Number of | Exercise | Date | Date | Date | Cancelled | Number of |
| options | Price | of | of | of | during | options |
| outstanding | | grant | first | last | year | outstanding |
| at | | | exercise | exercise | | at |
| 1 January | | | | | | 31 December |
| 2009 | | | | | | 2009 |
+-------------+----------+--------+----------+----------+-----------+-------------+
| | | | | | | |
+-------------+----------+--------+----------+----------+-----------+-------------+
| 1,491,020 | 9.5p | 5 Nov | 5 Nov | 4 Nov | 119,197 | 1,371,823 |
| | | 2007 | 2010 | 2017 | | |
+-------------+----------+--------+----------+----------+-----------+-------------+
| 109,210 | 9.5p | 11 Dec | 11 Dec | 10 Dec | - | 109,210 |
| | | 2007 | 2010 | 2017 | | |
+-------------+----------+--------+----------+----------+-----------+-------------+
| | | | | | | |
+-------------+----------+--------+----------+----------+-----------+-------------+
During the year, 119,197 of the options granted in 2007 were cancelled due to
the employee to whom the options were granted leaving the employment of the
Company. No options were granted during the year and no options were exercised
during the current or prior years.
The fair value of the equity-settled share options granted under the CSOP are
estimated at the date of grant using a Black-Scholes model, taking into account
the terms and conditions upon which the options were granted. There are no
market conditions which need to be taken into account in measuring the fair
value of the share options.
The assumptions used in the model are as follows:
+-------------------+-------------------------------------------------+
| Input | Assumption |
| | |
+-------------------+-------------------------------------------------+
| Share price | Price at date of grant |
+-------------------+-------------------------------------------------+
| Expected share | 70% (Expected volatility is based on the |
| price volatility | Company's historic share price volatility over |
| | the previous 260 days) |
+-------------------+-------------------------------------------------+
| Option life | Per scheme rules |
+-------------------+-------------------------------------------------+
| Expected | Nil |
| dividends | |
+-------------------+-------------------------------------------------+
| Risk free rate | 4.9% |
+-------------------+-------------------------------------------------+
| | |
+-------------------+-------------------------------------------------+
The expense recognised in the income statement for share based payments and the
corresponding movement within reserves during the year was GBP29,144 (2008:
GBP28,927).
23 Related parties
At 31 December 2009, directors of the Company and their immediate relatives
controlled 0.03% of the voting shares of the Company (2008: 0.04%).
Transactions with key management personnel
Key management of the Company are the Board of Directors and senior management.
The compensation of key management personnel including the directors is as
follows:
+---------------------------------+--+----------+-----------+---+-----------+
| | | | 2009 | | 2008 |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | GBP | | GBP |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
| Key management emoluments | | | 1,568,407 | | 1,376,291 |
| including social security costs | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
| Company contributions to | | | 58,684 | | 49,251 |
| pension plans | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
| Total | | | 1,627,091 | | 1,425,542 |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
Deposit balances, operated under standard customer terms and conditions, held by
key management personnel, including directors, totalled GBP303,194 as at 31
December 2009 (2008: GBP242,923). The highest balance during the year was
GBP441,718 (2008: GBP322,988). Total returns paid on these accounts during the
year totalled GBP2,355 (2008: GBP2,895).
Outstanding consumer finance and home purchase plan balances relating to key
management personnel totalled GBP209,753 as at 31 December 2009 (2008:
GBP54,302). Returns recognised during the year for these accounts were GBP7,544
(2008: GBP3,553). All consumer finance account facilities taken by key
management personnel and staff were offered in line with standard customer terms
and conditions.
24 Loss per ordinary share
Basic and diluted loss per ordinary share are calculated by dividing the loss
for the financial period attributable to equity holders by the weighted average
number of ordinary shares in issue for the year ended 31 December 2009 of
538,437,644 (31 December 2008: 419,000,000).
The Company has established a HMRC approved Company Share Option Plan, "CSOP",
under which options to subscribe for the Company's ordinary shares of 1p each
have been awarded to certain employees. At 31 December 2009, 1,481,033 options
remain outstanding (31 December 2008: 1,600,230). Diluted loss per share is the
same as basic loss per share since the outstanding share options have not been
taken into account due to their anti-dilutive effect. This arises since the
Company is loss making.
25 Capital commitments
The Company had no outstanding capital commitments at 31 December 2009 (2008:
GBPnil).
26 Segmental reporting
The Company measures and reports on the financial performance of the business to
the chief operating decision maker as a whole and so has only one operating
segment. All business is conducted from the United Kingdom.
A split of the Company's revenue by the geographic location in which the revenue
was generated is provided below:
+---------------------------------+--+----------+-----------+---+-----------+
| | | | 2009 | | 2008 |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | GBP | | GBP |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
| United Kingdom | | | 1,923,190 | | 1,446,656 |
+---------------------------------+--+----------+-----------+---+-----------+
| Europe | | | 232,800 | | 1,697,273 |
+---------------------------------+--+----------+-----------+---+-----------+
| Middle East | | | 861,022 | | 4,957,331 |
+---------------------------------+--+----------+-----------+---+-----------+
| Asia | | | - | | 206,037 |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
| Total | | | 3,017,012 | | 8,307,297 |
+---------------------------------+--+----------+-----------+---+-----------+
| | | | | | |
+---------------------------------+--+----------+-----------+---+-----------+
The Company does not have any non-current assets located outside the United
Kingdom and no single external customer accounts for more than 10% of total
income.
27 Assets and liabilities denominated in foreign currency
As at 31 December 2009, assets equivalent to GBP1,097,371 were denominated in US
Dollars and are included within Commodity Murabaha and Wakala receivables and
other advances to banks (2008: GBP1,131,054). At 31 December 2009 assets
equivalent to GBP359,529 were denominated in Euro and are included within
Commodity Murabaha and Wakala receivables and other advances to banks (2008:
GBP186,586).
Customer liabilities of GBP1,078,281 were denominated in US Dollars (2008:
GBP339,796) and GBP356,184 were denominated in Euro (2008: GBP184,042).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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