Post on 17-Mar-2018
Commercial registration : 35731 (registered with Central Bank of Bahrain
as an Islamic wholesale investment bank).
Ultimate holding company : Citigroup Inc., USA
Office : Citibank House
Al Seef District
PO Box 548, Manama, Kingdom of Bahrain
Telephone 17588588, Fax 17588654
Directors : Mohammed Al-Shroogi (Chairman)
Atiq-Ur Rehman
Khalid Qurashi
Javed Kureishi
Muwaffik Bibi
Managing Director : Mayank Malik (Citi Country Officer, Citibank N.A.)
Chief Executive Officer : Samad Sirohey (Citi - Islamic Business)
Auditors : KPMG Fakhro
CITI ISLAMIC INVESTMENT BANK EC
ANNUAL REPORT
31 December 2008
Citi Islamic Investment Bank EC
ANNUAL REPORT
for the year ended 31 December 2008
CONTENTS Page
Report of the Board of Directors 1 - 2
Corporate Governance 3 - 6
Sharia Supervisory Board report 7
Independent auditors‟ report to the shareholders 8 - 9
Financial statements
Balance sheet 10
Income statement 11
Statement of changes in equity 12
Statement of cash flows 13
Statement of changes in restricted investment accounts 14
Notes to the financial statements 15 - 25
Risk and capital management disclosures 26 - 32
Citi Islamic Investment Bank EC 1
REPORT OF THE BOARD OF DIRECTORS
as at 31 December 2008 US$ 000's
In accordance with Bahrain Commercial Companies Law 2001, I have pleasure in presenting the
audited financial statements of Citi Islamic Investment Bank EC (the “Bank”) for the year ended 31
December 2008 (pages 10 to 25).
During the past 6 months, the global financial markets have seen unprecedented disruptions. As the
economies of United States and Europe got impacted by the credit and liquidity crisis, the economies
of Middle East have also been affected.
FINANCIAL PERFORMANCE
The financial highlights of the Bank for the year 2008 are as follows:
2008 2007
Total income 3,208 7,854
Profit for the year 1,559 6,951
Total assets 27,714 26,152
Total equity 27,563 26,004
The total income and profit for the year was lower as compared to the year 2007 as the Bank
executed only one advisory deal during the year as compared to 5 deals during 2007. In addition, the
profit rates earned on murabaha deposits were also lower when compared to the previous year due
to overall decline in the benchmark rate (LIBOR).
During the year the Bank had a one-off deposit of US$ 200 million from which an income of US$
1,071 was earned by placing the amount in murabaha deposits. The depositors share of profits
transferred amounted to US$ 676.
The Bank believes that 2009 would be very challenging year for the banking sector as a whole and is
looking forward to the challenges ahead.
FINANCIAL INDICATORS
The key financial indicators of the Bank for the past 5 years are as follows:
2008
2007 2006 2005 2004
Return on average equity (ROAE) 5.82% 30.85% 2.12% 2.12% 5.05%
Return on average assets (ROAA) 5.79% 30.64% 2.09% 2.08% 4.83%
Cost to income ratio 51.40% 11.50% 69.47% 73.20% 56.40%
Earnings per share (EPS) 0.156 0.695 0.040 0.039 0.090
REPRESENTATION AND AUDIT
The activities of the Bank have been conducted in accordance with the Bahrain Commercial
Companies Law 2001, the Central Bank of Bahrain and Financial Institutions Law 2006 and other
applicable statutes in the Kingdom of Bahrain.
Proper and complete accounting records have been maintained and these, together with all other
information have been made freely available to the auditors KPMG.
Citi Islamic Investment Bank EC 2
REPORT OF THE BOARD OF DIRECTORS
as at 31 December 2008 US$ 000's
No events have occurred since 31 December 2008 to date which would have a material effect on the
2008 financial statements.
On behalf of the board of directors.
Citi Islamic Investment Bank EC
Mohammed Al-Shroogi
Chairman
8 March 2009
Citi Islamic Investment Bank EC 3
CORPORATE GOVERNANCE
FRAMEWORK
The Bank‟s Board of Directors comprise of five non-executive directors. The Directors on a regular
basis maintain oversight over the activities of the Bank. The nature of the Bank‟s business is two-fold:
offering a Sharia compliant Murabaha-based deposit product to Islamic Financial Institutions and
Corporates and to provide structuring services to Citigroup Global Markets (or any of its affiliates) in
respect of capital market and risk management transactions. The Bank at present does not offer, or
intend to offer, any asset products.
The Managing Director of the Bank is the Citi Country Officer (“CCO”) of Citi Bahrain and also chairs
the Country Coordinating Committee (CCC) and the Business Risk Compliance and Control
Committee (BRCC) of Citi Bahrain. Furthermore, the Bank‟s Sharia Advisory Board conducts
meetings on a frequent basis in order to review and approve all Islamic transactions undertaken by
the Bank.
Organisation structure
The Bank operates under the umbrella of Citi Bahrain and has 2 employees. Since the scope of
activities of the Bank is fairly limited, it utilises services from the various Citi Bahrain departments via
Inter Citi Service Agreements. The Bank also obtains support services rendered by the Dubai
Citibank office.
Composition of the Board Of Directors
The Board of Directors of the Bank consist of the following:
1) Mr. Mohammed Al-Shroogi - Chairman
2) Mr. Atiq-Ur Rehman - Board Member
3) Mr. Khalid Qurashi - Board member
4) Mr. Javed Kureishi - Board member
5) Mr. Muwaffak Bibi - Board member
The following members also attend the Board of Directors‟ meeting:
1) Mr. Mayank Malik - Managing Director (Citi Country Officer – Citibank N.A.)
2) Mr. Samad Sirohey - Chief Executive Officer (Citi – Islamic Business)
Board Risk
Risk Compliance &
Control
l Committee
Country Coordinating Committee
Chief Executive Officer
Key Responsibilities: • Oversight over the day - to -
day management of CIIB • Report to the Board
Key Responsibilities: • Conduct on its own or in
in partnership with internal audit units an annual Sharia audit of Islamic products products
Internal Control
l Function
Key Responsibilities: • Discussion of issues
corresponding to legal, compliance, risk, regulatory, etc.
• Escalate issues to region & corporate management Key Responsibilities:
• Discuss/update on new structured transactions
• Approve new structured transaction documentation
• Conduct annual Sharia audit
CITI BAHRAIN CITI ISLAMIC INVESTMENT BANK (Roles and responsibilities specific to CIIB)
Key Responsibilities: • Discuss business strategy • Review business results • Review/approve business
budget Board of
Directors
Sharia
Board
Key Responsibilities: • Oversee adherence to
minimum capital standards s
• Endorse annual funding and liquidity plans and limits
• Monitor utilization against limits limits
• Monitor balance sheet trends
Country ALCO Committee
Key Responsibilities: • Oversee RCSA exercise • Oversight over RMD,
legal & compliance issues
• Approve business self - assessment ratings
ORGANIZATIONAL STRUCTURE
Support Functions (Compliance,
RMD
OperationsKey Responsibilities: • Provide support to CIIB
activities along with their day - to - day responsibilities. (Citi Bahrain)
Business
Key Responsibilities: Responsibilities: • Day - to - day management of
CIIB ’ s business activities
Business Risk
Compliance & Control
l Committee
Country Coordinating Committee
Chief Executive Officer
Key Responsibilities: • Oversight over the day - to -
day management of the Bank • Report to the Board
Key Responsibilities: • Conduct on its own or in
partnership with internal audit units an annual Sharia audit of Islamic products
Islami
Control
l Function
Key Responsibilities: • Discussion of issues
corresponding to legal, compliance, risk, regulatory, etc.
• Escalate issues to region & corporate management Key Responsibilities:
• Discuss/update on new structured transactions
• Approve new structured transaction documentation
• Conduct annual Sharia audit
CITI BAHRAIN CITI ISLAMIC INVESTMENT BANK (Roles and responsibilities specific to the Bank)
Key Responsibilities: • Discuss business strategy • Review business results • Review/approve business
budget Board of
Directors
Sharia Supervisory
Supervisory Board
Key Responsibilities: • Oversee adherence to
minimum capital standards s
• Endorse annual funding and liquidity plans and limits
• Monitor utilization against limits limits
• Monitor balance sheet trends
Country ALCO Committee
Key Responsibilities: • Oversee RCSA exercise • Oversight over RMD,
legal & compliance issues
• Approve business self - assessment ratings
ORGANIZATIONAL STRUCTURE
Support Functions (Compliance,
RMD
OperationsKey Responsibilities: • Provide support to CIIB
activities along with their day - to - day responsibilities. (Citi Bahrain)
Business
Key Responsibilities: Responsibilities: • Day - to - day management of
the Bank’s business activities activities
Citi Islamic Investment Bank EC 4
CORPORATE GOVERNANCE
Profile of the Directors
1. Mr. Mohammed Al-Shroogi - Chairman
Mohammed Al-Shroogi is the Chairman of the Bank and the Division Executive for the Middle East,
Levant, Egypt and Pakistan and Chief Executive Officer for United Arab Emirates, based in Dubai.
Mohammed joined Citibank in 1976 in Treasury, and up to his move into U.A.E. in June 2006 was the
Managing Director - Middle East for Citigroup, based in Bahrain.
Mohammed has attended the Management Executive Program at Harvard University in Cambridge,
USA. His undergraduate studies were done at the University of Kuwait (with one year at the A.U.B.
in Lebanon).
2. Mr. Atiq-Ur Rehman - Board Member
Profession : Bank Officer
Business title : Managing Director. Co-Head of Capital Markets
for Europe, Middle East and Africa.
Experience in years : 25 years
Qualifications : MBA
3. Mr. Khalid Qurashi - Board member
Profession : Banker. Senior Credit Officer
Business title : MD. Global Industries and regional mkts head for M East Africa
Experience in years : 33 yrs with Citibank
Qualifications : MBA; BSc.
4. Mr. Javed Kureishi - Board member
Profession : Banker
Business title : Chief Operating Officer - Middle East and Pakistan
Experience in years : 24 years
Qualifications : Bachelor of Arts (Hon), University of Sussex (United Kingdom)
5. Mr. Muwaffak Bibi - Board member
Managing Director & Region Head - Middle East & North Africa Citi Private Bank.
Muwaffak Bibi is the Head of the Middle Eastern and North Africa region for Citi Private Bank, and is
currently based in Geneva. He is responsible for managing and developing Citi Private Bank‟s
franchise in the region. In addition, Mr. Bibi is a Senior Credit Officer of Citigroup.
Mr. Bibi has been with Citigroup for 29 years and has extensive experience in corporate banking,
credit, consumer banking and private banking.
Mr. Bibi has an MBA from McGill University in Montreal and a BA from the American University of
Beirut.
Citi Islamic Investment Bank EC 5
CORPORATE GOVERNANCE
6. Mr. Mayank Malik - Managing Director
Citi Country Officer, Citibank N.A.
Mayank joined Citi in 1985 as a Management Associate after graduating with a Bachelor of
Commerce Honours degree (University Topper Gold Medal) from Delhi University and an MBA from
the Indian Institute of Management, Ahmadabad, India.
He moved to Bahrain in 2007 as the CCO of Citibank.
7. Mr. Samad Sirohey - Chief Executive Officer (Citi – Islamic Business)
Prior to taking on the responsibility for Citi‟s Islamic business, Samad was the Co-Head of Citi's Bond
Origination business in Central Eastern Europe Middle East and Africa. He has significant experience
of introducing issuers from CEEMEA region to international capital markets.
Samad has been involved in Islamic capital finance transactions since the development of the Sukuk
market. He lead Islamic Development Bank's debut Sukuk issue in 2002, followed by Sukuk issues
for the Central Bank of Bahrain, Republic of Pakistan, the Dubai government (through Dubai Civil
Aviation) and Sorouh Real Estate Securitization Sukuk.
CHANGES IN THE STRUCTURE OF THE BOARD DURING THE YEAR
During the year Mr. Usama Mikdashi vacated his position as a Director on account of retirement. The
following 3 new directors were appointed during the year:
Mr. Khalid Qurashi
Mr. Javed Kureishi
Mr. Muwaffak Bibi
During the year Mr. Samad Sirohey was appointed as the Chief Executive Officer of Citi – Islamic
Business.
SHARI’A COMPLIANCE
Citi‟s islamic business has a dedicated Group wide internal Islamic control function and the Bank has
a Shari'a Supervisory Board (SSB) to ensure Shari'a compliance of its activities on ongoing basis
throughout the year complying with the Shari'a Standards of AAOIFI. The Group Islamic control
function and the SSB also conduct a Shari'a audit every year.
SOCIAL RESPONSIBILITY
The Bank discharges its social responsibility at a group level in Bahrain. The Citi Bahrain operations
contributes/ donates to charitable organisations and participates in various community initiatives.
REMUNERATION POLICIES
The Bank has 2 employees on its payroll who are remunerated as per the Citigroup compensation
policies. The operations, compliance and other support functions are carried out by Citi Bahrain as
per a service level agreement between the 2 entities. No remuneration is awarded by the Bank to the
Board of Directors of the Bank. The Sharia Supervisory Board is paid attendance fee for the meetings
held which is as per the resolution approved by the Board.
Citi Islamic Investment Bank EC 6
CORPORATE GOVERNANCE
COMMUNICATIONS POLICY
The disclosure policy applies to all modes of communication to the public including written, oral and
electronic communications. These disclosures are made on a timely basis in a manner required by
applicable local and international laws and regulatory requirements. Information on new products or
any change in existing products will be placed on the Bank‟s website www.citibank.com/ciib/ and/or
published in the media. Product details are also shared with customers through brochures and/ or,
advertisements.
COMPLAINT HANDLING
The Bank takes disputes and complaints from all customers very seriously. These have the potential
for a breakdown in relationships and can adversely affect the Bank‟s reputation. Left unattended
these can also lead to litigation and possible censure by the regulatory authorities. The Bank has a
comprehensive policy on handling of external complaints. No complaints were lodged with the Bank
during the year.
Citi Islamic Investment Bank EC 7
SHARIA SUPERVISORY BOARD REPORT
as at 31 December 2008
8
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS
Citi Islamic Investment Bank EC 8 March 2009
Manama, Kingdom of Bahrain
Report on the financial statements
We have audited the accompanying financial statements of Citi Islamic Investment Bank EC (“the
Bank”), which comprise the balance sheet as at 31 December 2008, and the income statement,
statement of changes in equity, statement of cash flows and statement of changes in restricted
investment accounts for the year then ended, and a summary of significant accounting policies and
other explanatory notes.
Responsibility of the Board of Directors for the financial statements
The Board of Directors of the Bank is responsible for the preparation and fair presentation of these
financial statements in accordance with Financial Accounting Standards issued by the Accounting
and Auditing Organisation for Islamic Financial Institutions and International Financial Reporting
Standards. This responsibility includes designing, implementing and maintaining internal control
relevant to the preparation and fair presentation of the financial statements that are free from material
misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies;
and making accounting estimates that are reasonable in the circumstances. The Board of Directors is
also responsible for the Bank‟s undertaking to operate in accordance with Islamic Shari‟a rules and
principles.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with both the Auditing Standards for Islamic Financial Institutions
and International Standards on Auditing. Those standards require that we comply with relevant
ethical requirements and plan and perform the audit to obtain reasonable assurance whether the
financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, we consider internal control relevant to the entity‟s
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity‟s internal control. An audit also includes evaluating the appropriateness of
accounting principles used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
9
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS (continued)
8 March 2009
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Bank as at 31 December 2008, and its financial performance, its cash flows, the changes in its
equity and the changes in restricted investment accounts for the year then ended in accordance with
Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic
Financial Institutions and the Shari‟a rules and principles as determined by the Shari‟a Supervisory
Board of the Bank.
In addition, in our opinion, the financial statements present fairly, in all material respects, the financial
position of the Bank as at 31 December 2008, and its financial performance and its cash flows for the
year then ended in accordance with International Financial Reporting Standards.
Report on other legal and regulatory requirements
In addition, in our opinion, the Bank has maintained proper accounting records and the financial
statements are in agreement therewith. We have reviewed the accompanying report of the Board of
Directors and confirm that the information contained therein is consistent with the financial
statements. We are not aware of any violations of the Bahrain Commercial Companies Law 2001,
the Central Bank of Bahrain and Financial Institutions Law 2006, the terms of the Bank‟s license or its
memorandum and articles of association having occurred during the year that might have had a
material effect on the business of the Bank or on its financial position. Satisfactory explanations and
information have been provided to us by the management in response to all our requests.
Citi Islamic Investment Bank EC 10
BALANCE SHEET
as at 31 December 2008 US$ 000's
Note 31 December
2008
31 December
2007
ASSETS
Cash and bank balances 236 203
Murabaha receivables 3 27,447 25,893
Fixed and other assets 31 56
Total assets 27,714 26,152
LIABILITIES AND EQUITY
Payables and other accrued expenses 151 1 148
Total liabilities 151 148
Equity
Share capital 4 10,000 10,000
Retained earnings 15,807 14,404
Statutory reserve 1,756 1,600
Total equity (page 12) 27,563 26,004
Total liabilities and equity 27,714 26,152
Restricted investment accounts (page 14) 17,069 465,024
The financial statements, which consist of pages 10 to 25, were approved by the Board of directors
on 8 March 2009 and signed on their behalf by:
Mohammed Al-Shroogi Mayank Malik
Chairman Managing Director
The accompanying notes 1 to 18 form an integral part of these financial statements.
Citi Islamic Investment Bank EC 11
INCOME STATEMENT
for the year ended 31 December 2008 US$ 000's
Note 2008 2007
INCOME
Income from murabaha contracts 6 1,987 1,522
Income from restricted investment accounts 409 1,027
Income from advisory services 5 812 5,305
Total income 3,208 7,854
EXPENSES
Murabaha expense 6 676 -
Staff costs 7 405 321
Other expenses 8 568 582
Total expenses 1,649 903
PROFIT FOR THE YEAR 1,559 6,951
The financial statements, which consist of pages 10 to 25 were approved by the Board of directors on
8 March 2009 and signed on their behalf by:
Mohammed Al-Shroogi Mayank Malik
Chairman Managing Director
The accompanying notes 1 to 18 form an integral part of these financial statements.
Citi Islamic Investment Bank EC 12
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2008 US$ 000's
2008 Share
capital
Retained
earnings
Statutory
reserve
Total
As at 1 January 10,000 14,404 1,600 26,004 Profit for the year - 1,559 -
Total recognised income and expense for the year - 1,559 - 1,559 Transfer to statutory reserve - (156) 156 -
As at 31 December 10,000 15,807 1,756 27,563
2007 Share
capital
Retained
earnings
Statutory
reserve
Total
As at 1 January 10,000 8,148 905 19,053 Profit for the year - 6,951 - 6,951
Total recognised income and expense for the year - 6,951 - 6,951 Transfer to statutory reserve - (695) 695 -
As at 31 December 10,000 14,404 1,600 26,004
The accompanying notes 1 to 18 form an integral part of these financial statements.
Citi Islamic Investment Bank EC 13
STATEMENT OF CASH FLOWS
for the year ended ended 31 December 2008 US$ 000's
2008 2007
OPERATING ACTIVITIES
Receipt of advisory income 812 5,305
Receipt of income from murabaha contracts 1,987 1,522
Receipt of income from restricted investment accounts 415 1,036
Payment of murabaha expense to a non-bank customer (676) -
Payments to employees and suppliers (836) (771)
Management fees paid (115) (129)
Cash flows from operating activities 1,587 6,963
INVESTING ACTIVITIES
Purchase of fixed assets - (52)
Cash flows used in investing activities - (52)
Net increase in cash and cash equivalents 1,587 6,911
Cash and cash equivalents at 1 January 26,096 19,185
Cash and cash equivalents at 31 December 27,683 26,096
Cash and cash equivalents comprise:
Cash and bank balances 236 203
Murabaha receivables 27,447 25,893
Cash and cash equivalents at 31 December 27,683
26,096
The accompanying notes 1 to 18 form an integral part of these financial statements.
Citi Islamic Investment Bank EC 14
STATEMENT OF CHANGES IN RESTRICTED INVESTMENT ACCOUNTS
for the year ended 31 December 2008 US$ 000's
2008 2007
Deposit
Murabaha
Total
2008
Citi Private
Investment
Mudaraba
Deposit
Murabaha
Total
2007
As at 1 January 465,024 465,024 14,954 67,196 82,150
Net (withdrawals)/ deposits (458,319) (458,319) (14,996) 389,030 374,034
Gross income 10,773 10,773 42 9,825 9,867
Bank‟s income as an agent (409) (409) - (1,027) (1,027)
As at 31 December 17,069 17,069 - 465,024 465,024
The Bank acts as an agent and invests the funds only in Commodity Murabaha transactions on behalf
of its customers.
The accompanying notes 1 to 18 form an integral part of these financial statements.
Citi Islamic Investment Bank EC 15
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
1 INCORPORATION AND ACTIVITIES
Citi Islamic Investment Bank EC (the “Bank”) was incorporated in the Kingdom of Bahrain as an
exempt closed shareholding company on 29 June 1996. The Bank operates as a Islamic Wholesale
Investment Bank under a licence granted by the Central Bank of Bahrain.
The Bank‟s principal activities are to undertake and carry on banking and investment activities in
compliance with the principles of Islamic Sharia.
The Bank's activities are supervised by a Sharia Supervisory Board consisting of three members,
appointed by the General Assembly for a period of 3 years. The role of the Sharia Board is defined in
a separate agreement between the Bank and Sharia Board members. The finance and administrative
activities of the Bank are carried out by Citibank N.A., Bahrain under a service agreement between
the two parties.
The transactions, balances and results reported in the financial statements are those of Citi Islamic
Investment Bank EC, Bahrain, and accordingly do not include the results of other Islamic banking
activities carried out by Citibank worldwide.
2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting polices applied in the preparation of these financial statements are set out
below. These accounting policies have been consistently applied by the Bank and are consistent with
those used in the previous year.
(a) Statement of compliance
The financial statements have been prepared in accordance with both the Financial Accounting
Standards („FAS‟) issued by the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI) and International Financial Reporting Standards („IFRS‟).
(b) Basis of preparation
The financial statements are presented in US Dollars. The financial statements have been drawn up
from the accounting records of the Bank, under the historical cost convention. The preparation of
financial statements in conformity with International Financial Reporting Standards may require the
use of certain critical accounting estimates. It also may require management to exercise its
judgement in the process of applying the Bank‟s accounting policies.
The use of significant estimates and judgment in the process of preparation of financial statements for
the year ended 31 December 2008 is limited to recognition of income from advisory services (Note 5).
(c) Foreign currencies
(i) Functional and presentation currency
Items included in the financial statements of the Bank‟s are measured using the currency of the
primary economic environment in which the entity operates (the functional currency). The financial
statements are presented in US dollars, which is the Bank‟s functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the income statement.
Citi Islamic Investment Bank EC 16
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
2. Significant accounting policies (continued)
(d) Fixed assets
Fixed assets are stated at cost, net of accumulated depreciation. Depreciation is computed using the
straight-line method to write-off the cost of the assets over their estimated useful lives ranging from
3 to 5 years. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at
each balance sheet date.
(e) Murabaha receivables
Murabaha receivables are stated at cost less impairment allowances, if any. Murabaha receivables
are impaired when they are considered to be uncollectible. The deferred income relating to murabaha
contracts is netted off against the related receivable for the purpose of presentation in the financial
statements.
(f) Income and expense from Murabaha contracts
Income and expense from Murabaha contracts is recognised on a time-apportioned basis over the
period of the contract.
(g) Restricted investment accounts
Restricted investment accounts represent assets acquired by funds provided by holders of restricted
investment accounts and their equivalent and managed by the Bank as an agent or based on a
Mudaraba contract. The restricted investment accounts are exclusively restricted for investment in
specified instruments as directed by the investments account holders. Restricted investment accounts
are not included in the Bank's balance sheet.
(h) Income from advisory services
Income from advisory services is recognised when the service is provided and income is earned. This
is usually when the Bank has performed all significant acts in relation to the service and it is highly
probable that the economic benefits from the transaction will flow to the Bank.
(i) Income from restricted investment accounts
The Bank‟s share of profits, as a Mudarib or fee charged as an agent to restricted investment
accounts, are normally recognised on the basis of the Bank's entitlement to receive such revenue
from the restricted investment accounts, as per agreed contractual terms, except when the Bank
elects to waive its entitlement in favour of its customers.
(j) Statutory reserve
In accordance with the requirements of the Bahrain Commercial Companies Law 2001, a minimum of
10% of the net profit is appropriated to a statutory reserve, until it reaches 50% of the paid-up share
capital. This reserve is not normally distributable, except in the circumstances stipulated in the
Bahrain Commercial Companies Law 2001.
(k) Employee benefits
Pensions and other social benefits for Bahraini employees are covered by the General Organization
for Social Insurance scheme to which employees and the company contribute monthly on a fixed-
percentage-of salaries basis. The Bank‟s contribution to this scheme, which represents a defined
contribution scheme under International Accounting Standard 19 – Employee Benefits, is expensed
as incurred.
Citi Islamic Investment Bank EC 17
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
2. Significant accounting policies (continued)
(l) Trade date accounting
All “regular way” purchases and sales of financial assets are recognised on trade date, i.e. the date
that the Bank contracts to purchase or deliver the asset. Regular way purchases or sale are
purchases or sale of financial assets that require delivery of assets within the time frame generally
established by regulation or convention in the market place.
(m) Provisions
A provision is recognised in the balance sheet when the Bank has a legal or constructive obligation
as a result of a past event that can be measured reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
3 MURABAHA RECEIVABLES
31 December
2008
31 December
2007
Gross contract value 27,532 26,012
Less: Deferred profits (85) (119)
27,447 25,893
All Murabaha receivables at 31 December 2008 are financed through equity. Profit and/ or principal
repayment in respect of murabaha receivables are not past due at 31 December 2008.
4 SHARE CAPITAL
31 December
2008
31 December
2007
Authorised
20,000,000 shares of US$ 1 each 20,000 20,000
Subscribed, issued and paid-up
10,000,000 shares of US$ 1 each 10,000 10,000
5 INCOME FROM ADVISORY SERVICES
Income from advisory services is earned by the Bank in the capacity of an agent for shari'a compliant
structuring and arranging execution of Islamic financing deals. The Bank currently provides such
advisory services only in relation to financing deals in which other Citibank entities originate/
participate. Advisory income is recognised only on completion of the financing syndication process.
The revenue recognition of fees earned from syndication is dependent upon the level of participation
of Citigroup in the syndication, the aggregate fees received by Citigroup and the fees received by
other participants. The fee earned on each financing transaction is shared between the Bank and
other Citibank entities on an agreed proportion by way of a service level agreement.
Citi Islamic Investment Bank EC 18
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
6 NET FINANCING INCOME
31 December
2008
31 December
2007
Income from murabaha contracts 1,987 1,522
Less: Murabaha expense (676) -
1,311
1,522
Income from murabaha contracts represents the income earned by the Bank on its murabaha
placements with Citigroup entities. During the year, the Bank received a one-off deposit of US$ 200
million from the promoters of a company under formation. These funds were placed by the Bank in a
short term murabaha with a Citigroup entity on which a profit of US$ 1,071 was earned. The
depositors share of profits transferred amounted to US$ 676 which has been treated as a murabaha
expense.
7 STAFF COSTS
31 December
2008
31 December
2007
Salaries and short term benefits 352 272
Social security costs 53 49
405
321
8 OTHER EXPENSES
31 December
2008
31 December
2007
Management fees 115 129
Sharia Board expenses 185 187
Professional fees 61 24
Head office charges 47 111
Depreciation 19 19
Travelling expenses 20 13
Others 121 99
568
582
Citi Islamic Investment Bank EC 19
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
9 RELATED PARTY TRANSACTIONS
A significant portion of the Bank‟s transactions in the normal course of business are with other
branches of Citibank NA and other companies of Citigroup. These financial statements may not
necessarily be indicative of the financial position that would have existed or of the Bank‟s results of
operations, if the Bank had been operated as an unaffiliated bank.
The significant income, expenses and balances arising from dealing with related parties included in
the financial statements are as follows:
31 December
2008
31 December
2007
Murabaha receivables 27,447 25,893
Cash and bank balances 236 203
Income from murabaha contracts 1,987 1,522
Head office charges 47 111
Management fees 115 129
Sharia board expenses 185 187
No remuneration is being paid to the board of directors.
10 ZAKAH
The Bank is not obliged to pay Zakah. Further, the Bank does not collect or pay Zakah on behalf of its
shareholders and investors in restricted investment accounts.
As per the requirements of AAOIFI standards, disclosure of Zakah due per share is required to be
made in the financial statements. The Zakah payable by the shareholders as at 31 December 2008
computed by the Bank on the basis of the method prescribed by the Bank‟s Shari‟a Supervisory
Board amounts to US cents 71 (2007: US cents 65) for every share held.
11 SHARI’A SUPERVISORY BOARD
The Bank‟s Shari‟a Supervisory Board consists of three Islamic scholars who review the Bank‟s
compliance with general Shari‟a principles and specific fatwas, rulings and guidelines issued. Their
review primarily includes examination of evidence relating to the documentation and procedures
adopted by the Bank to ensure that its activities are conducted in accordance with Islamic Shari‟a
principles.
Citi Islamic Investment Bank EC 20
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
12 CONCENTRATION OF ASSETS, LIABILITIES AND RESTRICTED INVESTMENT
ACCOUNTS
The concentration of the Bank‟s credit exposures on financial instruments and the distribution of other
assets and liabilities as at 31 December 2008 were as follows:
(a) Sectoral classification
31 December 2008
Banks and
financial
institutions
Trading and
manufacturing Inter-group Others Total
Cash and bank balances - - 236 - 236
Murabaha receivables - - 27,447 - 27,447
Fixed and other assets - - - 31 31
Total assets - - 27,683 31 27,714
Payables and other accrued
expenses - - - 151 151
Total liabilities - - - 151 151
31 December 2007
Banks and
financial
institutions
Trading and
manufacturing Inter-group Others Total
Cash and bank balances - - 203 - 203
Murabaha receivables - - 25,893 - 25,893
Fixed and other assets - - - 56 56
Total assets - - 26,096 56 26,152
Payables and other accrued
expenses - - - 148 148
Total liabilities - - - 148 148
Restricted investment accounts 2008 2007
Banks and financial institutions 17,069 465,024
17,069
465,024
Citi Islamic Investment Bank EC 21
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
12 Concentration of assets, liabilities and restricted investment accounts (continued)
(b) Geographical distribution
31 December 2008
Middle East Asia Europe Americas Total
Assets
Cash and bank balances 67 - - 169 236
Murabaha receivables - - 27,447 - 27,447
Fixed and other assets 31 - - - 31
Total assets 98 - 27,447 169 27,714
Total liabilities 151 - - - 151
31 December 2007
Middle East Asia Europe Americas Total
Assets
Cash and bank balances 87 - - 116 203
Murabaha receivables - - 25,893 - 25,893
Fixed and other assets 56 - - - 56
Total assets 143 - 25,893 116 26,152
Total liabilities 148 - - - 148
Restricted investment accounts 2008 2007
Europe 17,069 465,024
13 MATURITY PROFILE
This note presents the expected maturity profile of assets and liabilities of the Bank. The contractual
maturity of the assets and liabilities is not significantly different from the profile presented below.
31 December 2008 Within
8 days
9 days
to 1
month
Over 1
month to
3 months
Over 3
months
to 1 year
Over 1
year Total
Assets
Cash and bank balances 236 - - - - 236
Murabaha receivables - 15,609 11,838 - - 27,447
Fixed and other assets - - 10 - 21 31
Total assets (a) 236 15,609 11,848 - 21 27,714
Liabilities
Payables and other
accrued expenses - - 151 - - 151
Total liabilities (b) - - 151 - - 151
Net (a-b) 236 15,609 11,697 - 21 27,563
Citi Islamic Investment Bank EC 22
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
13 Maturity profile (continued)
31 December 2007 Within
8 days
9 days
to 1
month
Over 1
month to
3 months
Over 3
months
to 1 year
Over 1
year Total
Assets
Cash and bank balances 203 - - - - 203
Murabaha receivables - 15,332 10,561 - - 25,893
Fixed and other assets - - 16 - 40 56
Total assets (a) 203 15,332 10,577 - 40 26,152
Liabilities
Payables and other accrued
expenses - - 148 - - 148
Total liabilities (b) - - 148 - - 148
Net (a-b) 203 15,332 10,429 - 40 26,004
The maturity profile of restricted investment accounts:
31 December 2008 Within 8
days
9 days to
1 month
Over
1 month to
3 months
Over 3
months to
1 year
Total
Murabaha receivables - 6,977 10,092 - 17,069
31 December 2007 Within 8
days
9 days to
1 month
Over
1 month to 3
months
Over 3
months to
1 year
Total
Murabaha receivables 396,399 50,778 534 17,313 465,024
14 RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
OVERVIEW
Financial instruments consist of financial assets and financial liabilities.
Financial assets of the Bank include cash and bank balances, accrued income on restricted
investment accounts and murabaha receivables.
Financial liabilities of the Bank include payables and other accrued expenses.
The Bank has the following risks from the use of financial instruments
credit risk
liquidity risk
market risks
Citi Islamic Investment Bank EC 23
This note presents information about the Bank‟s exposure to each of the above risks and the Bank‟s
management of capital.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
14 Risk management and financial instruments (continued)
RISK MANAGEMENT FRAMEWORK
The Board of Directors has overall responsibility for the establishment and oversight of the Bank‟s risk
management framework.
The Bank‟s risk management policies are established to identify and analyse the risks faced by the
Bank, 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 and
the Bank‟s activities.
CREDIT RISK
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and
cause the other party to incur a financial loss. The Bank attempts to control credit risk by monitoring
credit exposures, limiting transactions with specific counterparties, continually assessing the
creditworthiness of counterparties and securing exposures by collateral, where appropriate.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum
exposure to credit risk at the reporting date was:
31 December
2008
31 December
2007
Murabaha receivables 27,447 25,893
Cash and bank balances 236 203
Other assets 10 16
27,693
26,112
The Bank‟s exposure to credit risk on these financial assets is limited as the murabaha receivables
and the cash and bank balances are placed with Citigroup entities.
All the murabaha receivables are neither past due nor impaired. For concentration profile of assets
and liabilities refer note 12.
LIQUIDITY RISK
Liquidity risk is the bank‟s inability to meet a financial commitment to a customer, creditor, or investor
when due, on account of maturity mis-match between assets and liabilities. This risk is dimensioned
and continuously monitored through limits on maximum cumulative outflow across various tenors.
The Bank‟s exposure to liquidity risk is very limited as it does not have any significant liabilities. For
maturity profile of assets and liabilities refer note 13.
MARKET RISK
Market risk is the risk that changes in market prices, such as foreign exchange rates, profit rates and
equity prices will affect the Bank‟s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within
Citi Islamic Investment Bank EC 24
acceptable parameters, while optimising the return on risk. The Bank does not have a trading portfolio
and is therefore not exposed to equity price risk.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
14 Risk management and financial instruments (continued)
Market risk (continued)
Profit rate risk
Profit rate risk arises due to different timing of re-pricing of the Bank‟s assets and liabilities. The
Bank‟s profit rate risk arises from Murabaha receivables and is considered limited due to the short
term nature of Murabaha receivables.
Foreign exchange risk
Foreign exchange risk is the risk that the Bank‟s earning will be affected as a result of fluctuations in
currency exchange rates. The Bank‟s exposure to foreign exchange risk is very limited as most of its
transactions are in US$ which is the Bank‟s functional currency or in Bahraini dinars which is pegged
to US$.
OPERATIONAL RISK
Operational risk is the risk of loss arising from systems and control failures, fraud and human errors,
which can result in financial and reputation loss, and legal and regulatory consequences. The Bank
manages operational risk through appropriate controls, instituting segregation of duties and internal
checks and balances, including internal audit and compliance.
15 FAIR VALUE AND CLASSIFICATION OF FINANCIAL INSTRUMENTS
Fair values represent the amount at which an asset could be exchanged or a liability settled, in a
transaction between knowledgeable, willing parties in an arm's length transaction. Differences can
therefore arise between the book values under the historical cost method and fair value estimates.
The estimated fair values of the financial assets and liabilities are not significantly different from their
book values as the items are primarily short term in nature.
Under IAS 39, all of the financial assets of the Bank are classified as “Loans and receivables” and all
liabilities are classified as “Others amortised cost” liabilities
For accounting policies for financial assets and liabilities, refer Note 2.
16 CAPITAL MANAGEMENT
The Bank‟s lead regulator Central Bank of Bahrain (CBB) sets and monitors capital requirements for
the Bank. In implementing the current capital requirements, the CBB requires the Bank to maintain a
prescribed ratio of total capital to total risk-weighted assets.
The Bank‟s policy is to maintain sufficient capital to sustain investor and market confidence and to
support future development of the business.
With effect from 1 January 2008 the Bank is required to comply with the provisions of the revised
Capital Adequacy Module of the CBB (revised based on the Basel II framework) in respect of
regulatory capital. The Bank has adopted the standardised approach to credit and market risk
Citi Islamic Investment Bank EC 25
management and the basic indicator approach for the operational risk management under the revised
framework.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008 US$ 000's
16 Capital management (continued)
The Bank‟s regulatory capital position at 31 December was as follows:
31 December
2008
(Basel II)
31 December
2007
(Basel I)
Tier 1 Capital 27,563 26,004
Tier 2 Capital - -
Total capital base (tier 1 + tier 2) 27,563 26,004
Total risk-weighted assets 12,205 47,404
Total regulatory capital expressed as a percentage of total
risk weighted assets 225.83% 54.85%
On adoption of the revised CBB capital computation guidelines the method of measuring risk for
capital charge purposes have been changed and hence the current year ratio is not comparable with
the previous year ratio.
The Bank has complied with all externally imposed capital requirements throughout the year.
17 NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS
NOT YET ADOPTED
During the year the following relevant new/ amended IFRS‟s and interpretations have been issued
which are not yet mandatory for adoption by the Bank:
Revised IAS 1 “Presentation of Financial Statements” – Effective for financial periods beginning on
or after 1 January 2009
The adoption of this standard and certain other amendments to existing standards with varied
effective dates made by International Accounting Standards Board as part of its first annual
improvements project are not expected to have any material impact on the financial statements.
18 COMPARATIVES
Certain prior year amounts have been reclassified to conform to the current year‟s presentation. Such
reclassifications do not affect previously reported profit or equity.
Citi Islamic Investment Bank EC 26
RISK AND CAPITAL MANAGEMENT
DISCLOSURES
FOR THE YEAR ENDING
31 December 2008
These disclosures have been prepared in accordance with the Public Disclosure Module (“PD”), Section PD-1.3: Disclosures in
Annual Reports, CBB Rule Book, Volume II for Islamic Banks. To avoid any duplication, information required under PD module
but already disclosed in other sections of annual report has not been reproduced. These disclosures are part of the annual report
for the year ended 31 December 2008 and should be read in conjunction with the financial statements for the year ended 31
December 2008 and other sections of the annual report.
Citi Islamic Investment Bank EC 26
RISK AND CAPITAL MANAGEMENT DISCLOSURES
for the year ended 31 December 2008 US$ 000's
1. EXECUTIVE SUMMARY
The Central Bank of Bahrain‟s (CBB) Basel II guidelines outlining the capital adequacy framework for
banks incorporated in the Kingdom of Bahrain became effective from 1 January 2008. These
disclosures have been prepared in accordance with the CBB requirements outlined in the Public
Disclosure Module (“PD”), Section PD-1.3: Disclosures in Annual Reports, CBB Rule Book, Volume II
for Islamic Banks. The requirements of Section PD 1.3 follow the requirements of Basel II - Pillar 3
and the Islamic Financial Services Board‟s (IFSB) recommended disclosures for Islamic banks.
The PD Module requires disclosure of the Bank‟s exposure to risks on its banking and trading book.
As the Bank does not have a trading book all its disclosures are limited to the risks faced on its
banking book.
The Bank has adopted the Standardised Approach for Credit Risk, Market Risk and the Basic
Indicator Approach for Operational Risk to determine the capital requirement. This section contains a
description of the Bank‟s risk management and capital adequacy policies and practices including
detailed quantitative information on risk components and capital adequacy.
The nature of the Bank‟s business is two-fold: offering a Sharia compliant Murabaha-based deposit
product to Islamic Financial Institutions and Corporates and to provide structuring services to
Citigroup Global Markets (or any of its affiliates) in respect of capital market and risk management
transactions. The Bank at present does not offer, or intend to offer, any asset products. All policies
and procedures have been designed to cover risks arising from these products of the Bank.
The capital adequacy ratio is calculated by dividing the regulatory capital base by the total Risk
Weighted Assets (RWAs). CBB has mandated that the ratio be maintained at a minimum of 12% with
a trigger ratio of 12.5%. If the capital adequacy ratio falls below 12.5%, additional prudential reporting
requirements apply, and a formal action plan to restore the ratio above the target level is to be
formulated and submitted to the CBB.
As at 31 December 2008, the Bank‟s total risk weighted assets amounted to US$ 12,205; Tier 1
Capital and total regulatory capital amounted to US$ 27,563. Accordingly, Tier 1 and Total Capital
Adequacy Ratio was 225.83%. These ratios exceed the minimum capital requirements under the
CBB‟s Basel 2 framework.
2. RISK FRAMEWORK
The Bank operates under the One-Citi model. The Board of Directors and the Sharia Supervisory
Board (SSB) maintain the Board level oversight of the Bank‟s activities. The Bank is represented on
the main country level management committees (Country Coordinating Committee, Business Risk
Compliance and Control Committee) of Citi Bahrain by its Managing Director to ensure oversight of
the Bank‟s transactions and activities.
The Sharia Supervisory Board of the Bank along with the Group Internal Control Function is
responsible for approval and oversight of all Islamic transactions undertaken at the Group level. The
SSB is further assisted by the Group Internal Control Function which conducts annual Sharia Audits
over all the Islamic products and transactions undertaken by the Bank.
The Bank has a Business Manager to oversee all Islamic business activity. The operations,
compliance, financial control, risk management and other support functions are managed by Citi
Bahrain staff through Inter-Citi Service Agreements with the Bank (under the one-Citi approach).
Citi Islamic Investment Bank EC 27
RISK AND CAPITAL MANAGEMENT DISCLOSURES
for the year ended 31 December 2008 US$ 000's
2. Risk Framework (continued)
As per the revised CBB capital adequacy framework, the Bank is exposed to the following risks:
Credit and counterparty risk
Market risk (limited to forex risk in the banking book)
Operational risk
Liquidity risk
Profit rate risk in the banking book
(a) Credit and Counterparty Risk
All the murabaha placements of the Bank are on a short term basis (maturing within 3 months) and
are placed only with Citigroup entities.
All the new Islamic products introduced by the Bank are approved by the Capital Market Approval
Committee (CMAC) of Citigroup. Moreover, Islamic financing/product structures are discussed in the
Board meetings to discuss the risks involved in them.
There are no loans extended or other asset products offered by the Bank to its customers. Moreover,
the off balance sheet exposures where the Bank acts as an agent between a purchaser (restricted
investment account) and a seller (a Citi entity) do not expose the Bank to any type of credit risk.
Quarterly updates on the current credit exposures of the Bank are reported to the Business Risk
Compliance and Control Committee (“BRCC”) and the Country Coordinating Committee (“CCC”).
Overall, the Bank considers that its policies and procedures constitute a reasonable approach to
managing the credit risk in the activities it is engaged in.
(b) Foreign Exchange Risk
The Bank‟s on-balance sheet exposures to foreign exchange risk is very limited as all of its
transactions are denominated in US$ which is the Bank‟s functional currency. The inter-bank
Murabaha transactions do not expose the Bank to any commodity price risk.
Moreover, the FX risk in the off balance sheet exposures is borne by the purchaser and the seller of
the contract, and the Bank does not incur any market risk in these transactions since it undertakes
the role of an agent.
(c) Operational Risk
The on-balance sheet activities of the Bank are limited in volume. However, as a part of its off-
balance sheet activities, where the Bank acts as an agent between a purchaser and a seller, the
Bank is exposed to operational risk in the event of any negligence on its part.
Citi Bahrain‟s Compliance Function is headed by the Country Compliance Officer. Along with its
compliance related responsibilities, the Compliance function is also responsible for coordinating the
Risk and Control Self Assessment (RCSA) exercise at the country level which includes the Bank‟s
operations. As part of the RCSA, all the processes and activities undertaken by the various
departments at Citi Bahrain are identified. The processes and activities relating to the Bank are also
documented as part of the Citi Bahrain RCSA. Furthermore, the relevant risks and controls are
identified and tested on a quarterly basis through the operational risk management system “Catalyst”.
Citi Islamic Investment Bank EC 28
RISK AND CAPITAL MANAGEMENT DISCLOSURES
for the year ended 31 December 2008 US$ 000's
2. Risk Framework (continued)
(c) Operational risk (continued)
The individual departments undertake tests to assess the effectiveness of the existing controls. Any
issues arising from these tests are escalated to the BRCC and the summary results are discussed in
the CCC. The Managing Director of the Bank chairs these committees, hence fulfilling the oversight
role over the operational risk management framework encompassing the Bank.
Furthermore, corrective actions agreed on all issues identified are discussed and tracked in the CCC
meeting. Major business issues are also escalated to the regional management committees.
The operational risk is supplemented by the Internal Control Function. The Internal Control Function
conducts annual Sharia audits in order to ensure the Bank‟s adherence to the CBB Rulebook for
Islamic Financial Institutions, Sharia and AAOIFI standards as well as Fatwas issued by the Sharia
Advisory Board.
The Audit Risk and Review (ARR) which is the group audit team responsible for global reviews
covers the Bank based on the frequency derived from the global risk based approach. The last two
audits conducted by the ARR over the Bank were conducted within a period of twenty months
(November 2006 and July 2008).
(d) Liquidity Risk
Based on the financial statements as at 31 December 2008, the Bank does not have any unrestricted
investment account (URIA) deposits on its balance sheet. If the Bank receives a deposit from the
customers (as done on a one-off basis for a period of 3 months during 2008), the policy is to place it
in short term inter-bank Murabaha with Citigroup entities. The Bank matches the tenor of its
murabaha receivables with the deposits received in order to avoid a short term liquidity mismatch.
The Bank follows the global liquidity management policy of Citibank which provides the overall
guidelines for liquidity management. The Market and Liquidity Risk Manager in Citi Bahrain is
responsible for monitoring the overall liquidity risk in the Bank and routinely monitors its financial
statements to assess any significant changes which might expose it to liquidity risk. The Business
Manager of the Bank is also a member of the Country ALCO Committee. Refer Note 13 for the
maturity profile of assets, liabilities and restricted investment accounts.
Following are the key liquidity ratios as at 31 December 2008:
Description
Ratio
Short Term Assets : Total Assets 0.99 : 1.00
Short Term Assets : Short Term Liabilities 183.33 : 1.00
Citi Islamic Investment Bank EC 29
RISK AND CAPITAL MANAGEMENT DISCLOSURES
for the year ended 31 December 2008 US$ 000's
2. Risk Framework (continued)
(e) Profit Rate Risk in Banking Book
Currently the Bank does not have any profit bearing liabilities and therefore does not face the risk of
mismatch between the rate of return earned on assets and liabilities.
(f) Compliance Risk
The Compliance Function at Citi Bahrain is the designated compliance function for the country and
covers the Bank‟s compliance activities. The Compliance Function has established a “Regulatory
Risk Matrix” which constitutes the rules and regulations pertaining to all businesses operating under
the umbrella of Citi Bahrain. This includes the Bank as well (local regulatory requirements and global
policy compliance requirements).
The RCSA is intended to encompass all the businesses and control activities in Citi Bahrain including
the Bank. The RCSA includes the Regulatory Risk Matrix which identifies the key local regulatory
requirements as well as global policy compliance requirements pertaining to Citi Bahrain. As part of
the RCSA process, the Bank has identified procedures for every department to conduct tests in order
to ensure adherence to all rules and regulations. These tests are conducted by the business and
support units on a quarterly basis. The results of these tests are reviewed by the Quality Assurance
Officer on an ad-hoc basis, who in turn reports to the Country Compliance Officer of Citi Bahrain.
All material compliance issues identified during these tests are escalated to the BRCC. A member of
the Bank‟s team is also represented on the BRCC. The BRCC is headed by the Citi Country Officer
who is also the Managing Director of the Bank, hence fulfilling the Bank‟s oversight role over its
management of compliance risk.
(g) Displaced Commercial Risk
Displaced Commercial Risk refers to the market pressure to pay returns that exceeds the rate that
has been earned on the assets financed by the liabilities, when the return on assets is under
performing as compared with competitor‟s rates. Currently the bank is not exposed to any displaced
commercial risk that may arise from its restricted investment accounts as it only acts as an agent for
its customers.
(h) Restricted Investment Accounts (RIA)
The Bank structures its RIA products to offer its customers an opportunity to choose from a wide
range of returns, maturity periods, sectors, asset classes and risk levels.
All RIA offering documents (“Offering Document”) are drafted and issued with input from the Bank‟s
Investment Banking, Shari‟a, Financial Control, Legal and Risk Management Departments to ensure
that the investors have sufficient information to make an informed decision after considering all
relevant risk factors.
The Board of Directors is responsible for providing clear guidelines for the development, management
and risk mitigation of its RIA investments and to ensure that there exist sound management and
internal control systems to ensure that the interests of the investment account holders are protected
at all times.
Citi Islamic Investment Bank EC 30
RISK AND CAPITAL MANAGEMENT DISCLOSURES
for the year ended 31 December 2008 US$ 000's
2. Risk Framework (continued)
(h) Restricted Investment Accounts (continued)
The Bank is aware of its fiduciary responsibilities in management of the RIA investments and has
clear policies on discharge of these responsibilities. The Bank‟s policy regarding its fiduciary
responsibilities to the RIA investors and their funds, includes the following:
Ensuring that the investment structure, Offering Documents and the investment itself are fully
compliant with Islamic Shari‟a principles and the CBB regulations;
Appropriately advising Investors, as part of the RIA Offering Document, of all the relevant and
known risk factors and making it clear that the investment risk is to be borne by the Investor
before accepting the investment funds;
Ensuring that the funds are invested strictly in accordance with the provisions outlined in the
Offering Documents;
Distributing the capital and profits to the Investor in a just and equitable manner as agent; and
In all matters related to the RIA, and the investment, act with the same level of care, good faith
and diligence as the Bank would apply in managing its own investments.
Historical returns over the past five years:
Product Launch
date
Annualised returns Status
2008 2007 2006 2005 2004
Deposit Murabaha 1996 3.64% 5.22% 5.36% - - Active
Citi Private Investment
Murabaha (CPIM)
1996 - - 7.13% 6.35% 1.12% Closed
Citi Emerging Market
Murabaha (CEMM)
1996 - - 4.48% 3.63% 4.39% Closed
The movement in the Restricted Investment Accounts is disclosed on Page 14.
3. CAPITAL STRUCTURE AND CAPITAL ADEQUACY
The Bank is comfortably placed in terms of regulatory capital adequacy and the current regulatory
Capital Adequacy Ratio (CAR) is 225.83% as opposed to the minimum CBB requirement of 12%.
The Bank‟s paid up capital consists only of ordinary equity shares and does not have any other type
of capital instruments.
The Bank‟s Tier 1 capital comprise share capital, retained earnings and eligible reserves. Retained
profits are included in Tier 1 pursuant to an external audit.
The Bank‟s Tier 2 Capital comprises of interim profits (if any).
The capital of the Bank is currently not subject to any regulatory adjustments/ deductions.
Citi Islamic Investment Bank EC 31
RISK AND CAPITAL MANAGEMENT DISCLOSURES
for the year ended 31 December 2008 US$ 000's
3. Capital Structure and Capital Adequacy (continued)
(a) Capital structure, minimum capital requirement and capital adequacy:
Amount
Tier 1
Issued and fully paid ordinary shares 10,000
Statutory reserves 1,756
Retained earnings 15,807
Total Tier 1 capital (A) 27,563
Tier 2 -
Total eligible capital (B)
27,563
Risk
weighted
exposure
Capital
requirement
@ 12%
Claims on Banks 5,536 664
Other assets 31 4
Credit risk exposures 5,567 668
Market risk exposures - -
Operational risk exposures 6,638 797
Total risk weighted exposures (C)
12,205
1,464
Total capital adequacy ratio (B/C)
225.83%
Tier 1 capital adequacy ratio (A/C)
225.83%
(b) Credit risk weighted assets
The exposure to credit risk for the Bank is from the following:
Gross
credit
exposure
Risk
weight
Credit risk
weighted
assets
Average gross
credit
exposures
during the year *
Murabaha receivables 27,447 20% 5,489 77,135
Cash and bank balances 236 20% 47 233
Other assets 31 100% 31 48
Total gross credit risk exposures
27,714
-
5,567
77,416
* These have been computed based on a quarterly average.
The murabaha receivables and bank balances are with Citigroup entities for which the Bank uses the
rating provided by External Credit Assessment Institutions (ECAI) to ascertain the risk weight. As per
the rating provided by Standard & Poor‟s rating services, Citigroup falls in the bucket of “AAA to AA-“
based on which a risk weight of 20% is used to arrive at the risk weighted assets. For the other
receivables, a risk weight of 100% is used to arrive at the risk weighted assets.
Citi Islamic Investment Bank EC 32
None of the exposures are either past due, impaired or restructured. The exposures are not backed
by collaterals and hence no benefits for credit risk mitigation is applicable.
RISK AND CAPITAL MANAGEMENT DISCLOSURES
for the year ended 31 December 2008 US$ 000's
3. Capital Structure and Capital Adequacy (continued)
(b) Credit risk weighted assets (continued)
The Bank does not have any unfunded exposures.
Refer Note 12 for the geographical and sectoral concentration and Note 13 for the maturity profile of
assets, liabilities and restricted investment accounts.
Large exposure limits
The Bank has significant exposure to Citigroup entities (as a Group) as mentioned below.
Type of exposure Amount of
exposure
% of capital
base
Direct exposure 27,683 100.44%
Restricted investment accounts 17,069 61.93%
Combined exposure
44,752
162.37%
However, these exposures qualify as exempt exposures as they are in the nature of short term inter-
bank exposures and hence no regulatory capital deduction is considered necessary.
(c) Operational risk weighted assets
The operational risk weighted assets are computed as per the guidelines of the CBB which are as
follows:
Average gross income for the past 3 years * 15% * 12.5
(excluding extraordinary and exceptional income)
2007 2006 2005
Gross income (excluding extraordinary and
exceptional income)
7,854
1,307
1,459
Average gross income (A) 3,540
Alpha (B) 15%
(C) = (A) * (B) 531
Risk weighted exposures ((C) * 12.5) 6,638
The Bank did not have any non-sharia complaint income/ sharia violations/ material legal
contingencies during the year 2008.
(d) Capital management and allocation
The Bank‟s capital management framework is intended to ensure that there is sufficient capital to
support the underlying risks of the Bank‟s business activities and to maintain a well-capitalised status
under regulatory requirements. The allocation of capital between specific operations and activities is
primarily driven by regulatory requirements. The Bank‟s capital management policy seeks to
maximise return on risk adjusted while satisfying all the regulatory requirements.