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Islamic Bank of Britain PLC
Annual Report and
Financial Statements
Registered number 4483430
For the year ended 31 December 2012
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
Registered number 4483430 / For the year ended 31 December 2012
Contents
Chairman’s statement 1
Report of the Sharia Supervisory Committee 3
Directors’ report 4
Statement of Directors’ responsibilities in respect of the Directors' Report and the Financial Statements 7
Independent auditor's report to the Members of Islamic Bank of Britain PLC 8
Statement of comprehensive income 9
Statement of financial position 10
Statement of changes in equity 11
Statement of cash flows 12
Notes to the financial statements 13
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
1
Chairman’s statement
The Board and I thank our customers, Sharia Supervisory Committee scholars, staff and shareholders for their
continued support of Islamic Bank of Britain PLC (‘IBB’ or the ‘Bank’).
Over the past year, we have built on the foundations established last year. The Board, together with the Executive
Management team and staff, continue to work towards our objectives of delivering high quality products and
services to our customers and returns to our shareholders.
In line with our strategic goals the following achievements were realised in 2012:
• further enhancements to online banking services including the ability to launch new deposit products
quickly to market and direct online account opening for new and existing customers;
• the launch of a number of new products in particular a 120 Day Notice Account, a Young Persons Notice
Savings Account and a Buy To Let Purchase plan rent only product;
• the introduction of a high availability systems ‘back-up’ solution providing considerably enhanced
operational resilience and management of business continuity risk; and
• payments administration enhancements improving transaction processing speed.
Operating and financial performance
The Bank’s financial performance continues to be below what the Board believes acceptable. However, the benefits
arising from the Transformation Programme started in 2011 are beginning to flow through into the financial
performance.
The Bank reported a loss of £6.99m for 2012, a £2.01m improvement on 2011 (loss of £9.00m). Operating income
increased to £2.4m (£2.1m in 2011) and operating expenses (excluding restructuring costs) reduced by £0.9m to
£9.4m).
Balance sheet growth has been strong despite another year of macroeconomic weakness and uncertainty. Notably:
• total customer financing increased by 86% to £129m including;
• HPP financing, which increased by 92% to £117m;
• retail deposits increased by 22% to £238m; and
• as a result of the internet enhancements delivered in the year, 14% of long term deposits raised in 2012
were sourced from the on line channel (2011: nil).
The Bank’s regulatory capital position remains strong with total regulatory capital expressed as a percentage of risk
weighted assets at the year-end being 25.0% (2011: 28.1%) – well above the regulatory requirement.
The significant increase in demand for IBB’s products has resulted in the Bank attaining the highest level of retail
asset finance and deposit balances in its history. This has been achieved whilst still maintaining prudent credit
policies, with neither the HPP nor Commercial Property Finance portfolios reporting any charge for impairment in
the year. The focus on good quality, secured finance assets and the continued run off of the historical unsecured
Personal Finance portfolio has led to a net impairment credit to the profit and loss account of £49,000 (2011:
£37,000 charge).
With the launch of the new products outlined above, the Bank has extended its position as the provider of the widest
range of Sharia compliant products in the UK retail market.
These achievements could not have been made without the continued support of the Bank’s majority shareholder,
Qatar International Islamic Bank Q.S.C (‘QIIB’) which demonstrated its commitment to the Bank by subscribing to
a £10m share issue in 2012. QIIB has further subscribed £10m in share capital subsequent to the year end in order
to support the Bank’s continued asset growth and Transformation Programme towards a more stable and profitable
position.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
2
Chairman’s statement (continued)
During 2012 Masraf Al Rayan Q.S.C. (‘MAR’) entered into discussions with the Board of IBB regarding a possible
offer for the whole of the issued share capital of IBB and at the time of writing, these discussions continue.
However, there can be no certainty that an offer will be made by MAR, nor as to the terms on which any offer might
be made but MAR has confirmed that if any offer is made it is likely that it would be solely in cash. The Board of
IBB will make a further announcement in due course.
Outlook
Though the Board does not expect the macroeconomic and market conditions to considerably improve for some time
yet, the Bank is now better positioned to achieve profitability. However, this will require continued focus on
identifying further opportunities to deliver high quality products and services to our customers.
Khalifa Jassim Al Kuwari
Chairman
23 April 2013
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
3
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 2012 to 31 December 2012
����� � � ���� ����� ����� ����� � � ���� ����� ����� ����� � � ���� ����� ����� ����� � � ���� ����� �����
The management of Islamic Bank of Britain PLC is responsible for ensuring that the Bank conducts its business in
accordance with the principles of the Sharia. It is the responsibility of the Sharia Supervisory Committee to form an
independent opinion, based on the review of the operations, agreements and transactions conducted by the Bank. It
is the responsibility of the Bank’s management to implement the decisions of the Sharia Supervisory Committee.
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 2012 to 31 December 2012.
According to the 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 Sharia Compliance Audit Report of our representative and representations received from the
Management, in our opinion, the transactions and the products entered into by the Bank during the period from 1
January 2012 to 31 December 2012 are in compliance with the Islamic Sharia rules and principles and fulfil the
specific directives, rulings and guidelines issued by us.
The Bank does not pay zakat on behalf of its shareholders and it is the sole responsibility of the individual
shareholders to make their zakat payments.
We beg Allah the Almighty to grant us all the success and straightforwardness.
����� � � ���� ����� ����� � ����� � � ���� ����� ����� � ����� � � ���� ����� ����� � ����� � � ���� ����� ����� �
Dr Abdul Sattar Abu Ghuddah
Chairman of the Sharia Supervisory Committee
23 April 2013
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
4
Directors’ report
The Directors present their report and financial statements for the year ended 31 December 2012.
Principal activities
Islamic Bank of Britain PLC (the ‘Company’ or the ‘Bank’) is an 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, Home Purchase Plans and business financing. These are delivered through the
Bank’s network of branches and agencies, which is complemented by internet, telephone and postal banking
channels. In order to widen the access to potential customers and improve its reach in the market, these products are
also offered through independent brokers.
Business review and 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 2012 are shown on pages 9 to 37. The loss for the year
amounts to £6,994,024 (2011: £8,998,938). 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 (2011: £nil).
The development and performance of the Company during the financial year and its position at the end of the year,
together with key performance indicators are expanded upon in the Chairman’s statement on pages 1 to 2.
Principal risks and uncertainties
The Bank regards the monitoring and controlling of risks as a fundamental part of the management process. Senior
management are involved in the development of risk management policies and in monitoring their application.
The principal non-operational risks inherent in the Bank’s business are credit, liquidity, market, concentration and
Sharia compliance risks. A detailed description of the principal risks and risk management policies in these areas is
set out in Note 4 to the financial statements.
Principal uncertainties faced by the Bank
Changing Macro economic conditions
Macro economic conditions impact consumer consumption and demand; the availability of credit and the debt
burden of customers and businesses; and the availability of capital and funding for the Bank. All these factors will
influence the performance of the Bank.
Changes in Laws and Regulations
The Bank operates in markets that are subject to a wide variety of legislation, regulation and codes of conduct.
Uncertainty arises from the way in which these laws and regulations change in response to macroeconomic
conditions; new products and services; and rightfully the greater awareness and prominence of consumer protection.
The nature and impact of future changes in laws, regulations and codes of practice are not predictable.
Reduced access to funding
Liquidity risk is the risk of not having sufficient financial resources available to meet all obligations and
commitments as they fall due, or can access funding only at excessive cost. The Bank has sufficient liquid assets to
meet its commitments in the short-term.
Changing Geopolitical environment
Whilst the Bank operates principally in the UK our performance is part reliant on the openness of cross border
funding and capital flows. There is therefore a risk that geopolitical tensions or conflict could impact trade flows and
our ability to manage capital or funding across borders.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
5
Directors’ report (continued)
Creditor payment policy
The Company seeks to settle trade invoices in line with their payment terms. The Company does not follow any
industry standards or guidelines for the payment of suppliers. The amount due to the Company’s trade creditors as at
31 December 2012 represented 15 days (2011: 26 days) average daily purchases of goods and services calculated in
accordance with the Companies Act 2006.
Directors and Directors’ interests
The Directors who held office during the year were as follows:
Khalifa Jassim M.A. Al-Kuwari (Chairman) (b)
Adel Mohammed Tayyeb Mustafawi (b) (c)
Jamal Abdullah Al-Jamal (a)
Robert Owen (a) (c)
Sultan Choudhury (b) (c)
(a) Denotes member of Audit Committee
(b) Denotes member of Nomination and Remuneration Committee
(c) Denotes member of Risk, Compliance and Credit Committee
Mr Al-Jamal has a current association with QIIB and is, therefore, not considered independent.
No Director had any interest in the ordinary shares of the Company in the current or preceding year according to the
register of Directors’ interests.
Significant Shareholders
The following shareholders had interests in the ordinary shares of the Company in excess of 3% as at 31 December
2012:
2012
(%)
2011
(%)
Qatar International Islamic Bank Q.S.C 88.41 83.86
HE Sheikh Thani Bin Abdulla Bin Thani Jasim Al Thani 4.62 6.44
On 25 April 2012, QIIB subscribed to an additional £10m of share capital. In addition, during the year QIIB made
an unconditional cash offer, by way of a Scheme of Arrangement, for the entire issued share capital of the Bank not
previously owned by QIIB; the Scheme of Arrangement was not approved by shareholders and lapsed on 15
October 2012.
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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
6
Directors’ report (continued)
Political and charitable contributions
The Company made no political contributions during the year (2011: £nil). The company made no charitable
donations during the year (2011: £1,151).
Going Concern
Based on the forecasts prepared, the Directors consider that at the date of approving the financial statements the
Company has adequate resources to continue operational business for at least the next 12 months and therefore to
adopt the going concern basis in preparing the financial statements.
Disclosure of information to the auditor
The Directors confirm that, so far as each of the Directors are aware, there is no relevant audit information of which
the Company’s auditor is unaware and the Directors have taken all the steps that they ought to have taken as
Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s
auditor is aware of that information.
Auditor
In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG Audit Plc
as auditor of the Company is to be proposed at the forthcoming Annual General Meeting.
By order of the Board
Sultan Choudhury
Managing Director
Islamic Bank of Britain PLC
Edgbaston House
3 Duchess Place
Birmingham
B16 8NH
23 April 2013
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
7
Statement of Directors’ responsibilities in respect of the Directors’ Report and the
Financial Statements
The Directors are responsible for preparing the Directors’ 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 judgements 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 the 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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
8
Independent auditor’s 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 2012 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 auditor
As explained more fully in the Directors’ 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, and express an opinion on, 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 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 Financial Reporting Council’s
website at www.frc.org.uk/auditscopeukprivate
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 2012 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 specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Simon Clark (Senior Statutory Auditor) 23 April 2013
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham B4 6GH
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
9
Statement of comprehensive income
For the year ended 31 December 2012
Note 2012 2011 £ £
Income receivable from Islamic financing transactions 6 4,828,101 3,312,452
Returns payable to customers and banks 6 (2,661,708) (1,486,207)
Net income from Islamic financing transactions 6 2,166,393 1,826,245
Fee and commission income 7 286,283 357,376
Fee and commission expense 7 (47,525) (66,682)
Net fee and commission income 7 238,758 290,694
Operating income 2,405,151 2,116,939
Net impairment credit/(loss) on financial assets 14 49,178 (37,119)
Personnel expenses 9 (4,671,309) (4,193,850)
General and administrative expenses
Restructuring costs on closure of branches
(4,184,816)
-
(5,352,534)
(832,822)
Depreciation 15 (476,749) (585,913)
Amortisation 16 (115,479) (135,190)
Total operating expenses (9,399,175) (11,137,428)
Loss before income tax (6,994,024) (9,020,489)
Income tax credit 11 - 21,551
Loss for the year (6,994,024) (8,998,938)
Total comprehensive income for the year (6,994,024) (8,998,938)
Loss attributable to owners of the Company (6,994,024) (8,998,938)
Total comprehensive income attributable to owners of the Company (6,994,024) (8,998,938)
The notes on pages 13 to 37 are an integral part of these financial statements.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
10
Statement of financial position
As at 31 December 2012
Note 2012 2011
£ £
Assets
Cash 686,302 851,438
Commodity Murabaha and Wakala receivables and
other advances to banks
13 129,455,216 143,864,701
Consumer finance accounts and other advances to
customers
14 306,292 886,235
Net investment in Home Purchase Plans 14 117,104,184 61,316,346
Net investment in Commercial Property Finance 14 11,611,726 7,107,440
Property and equipment 15 805,746 1,586,974
Intangible assets 16 307,457 349,362
Other assets 17 870,552 980,979
Total assets 261,147,475 216,943,475
Liabilities and equity
Liabilities
Deposits from banks 18 1,172,829 905,016
Deposits from customers 19 237,535,153 195,190,008
Other liabilities 20 2,363,851 3,778,785
Total liabilities 241,071,833 199,873,809
Equity
Called up share capital 22 35,464,700 25,464,700
Share premium 54,806,652 54,806,652
Retained deficit (70,245,789) (63,247,007)
Profit stabilisation reserve 50,079 45,321
Total equity 20,075,642 17,069,666
Total equity and liabilities 261,147,475 216,943,475
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 23 April 2013 and were signed on its behalf
by:
Sultan Choudhury
Managing Director
Islamic Bank of Britain PLC
Registration number: 4483430
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
11
Statement of changes in equity
For the year ended 31 December 2012
Share
capital
Share
premium
account
Profit
and loss
account
Profit
stabilisation
reserve
Total
£ £ £ £ £
Balance at 1 January 2011 25,464,700 54,806,652 (54,118,414) 45,321 26,198,259
Total comprehensive income for the
year - - (8,998,938) - (8,998,938)
Debit in respect of share based
payments
- - (129,655) - (129,655)
Balance at 31 December 2011 25,464,700 54,806,652 (63,247,007) 45,321 17,069,666
Balance at 1 January 2012 25,464,700 54,806,652 (63,247,007) 45,321 17,069,666
Total comprehensive income for the
year - - (6,994,024) - (6,994,024)
Transfer to profit stabilisation reserve - - (4,758) 4,758 -
Issue of ordinary share capital 10,000,000 - - - 10,000,000
Balance at 31 December 2012 35,464,700 54,806,652 (70,245,789) 50,079 20,075,642
The notes on pages 13 to 37 are an integral part of these financial statements.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
12
Statement of cash flows
For the year ended 31 December 2012
Note 2012 2011
£ £
Cash flows from operating activities
Loss for the year (6,994,024) (8,998,938)
Adjustments for:
Depreciation 15 476,749 585,913
Amortisation
Loss on disposal of non-current assets 16
15 115,479
371,069
135,190
-
Impairment (credit)/loss on financial assets 14 (49,178) 37,119
Share based payments credit 22 - (129,655)
Change in Commodity Murabaha and Wakala receivables 12,217,019 13,519,071
Change in consumer finance accounts and other advances to
customers
629,121 1,386,852
Change in net investment in Commercial Property Finance (4,504,286) 1,025,299
Change in net investment in Home Purchase Plans (55,787,838) (17,554,699)
Change in other assets 110,427 (134,773)
Change in deposits from banks 267,813 24,371
Change in deposits from customers 42,345,145 7,393,818
Change in other liabilities (1,414,934) 461,681
Net cash used in operating activities (12,217,438) (2,248,751)
Cash flows from investing activities
Purchase of property and equipment 15 (66,590) (287,751)
Purchase of intangible assets 16 (73,574) (121,330)
Net cash used in investing activities (140,164) (409,081)
Cash flows from financing activities
Issue of ordinary share capital 10,000,000 -
Net cash generated from financing activities 10,000,000 -
Net change in cash and cash equivalents (2,357,602) (2,657,832)
Foreign exchange losses (145) (558)
Cash and cash equivalents at 1 January 4,808,977 7,467,367
Cash and cash equivalents at 31 December 12 2,451,230 4,808,977
The notes on pages 13 to 37 are an integral part of these financial statements.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
13
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 2012. 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 23 April 2013.
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.
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 the Company’s ability to weather such situation based on
available capital.
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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
14
Notes to the financial statements
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 statement
of comprehensive income as incurred.
(iii) Depreciation
Depreciation is recognised in the statement of comprehensive income on a straight line basis over the estimated
useful life of each part of an item of property and equipment as follows:
Computer equipment 3 Years
Fixtures, fittings and office equipment 5 Years
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 statement of comprehensive income 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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
15
Notes to the financial statements
3 Significant accounting policies (continued)
(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 an expected 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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
16
Notes to the financial statements
3 Significant accounting policies (continued)
(e) Commercial Property Finance and Home Purchase Plans
Commercial Property Finance is provided using the Diminishing Musharaka (reducing partnership) and Murabaha
principles of Islamic financing. Home Purchase Plan finance is provided using the Diminishing Musharaka
principle. 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 statement of financial position 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 an expected 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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
17
Notes to the financial statements
3 Significant accounting policies (continued)
(i) Impairment of financial assets
At each statement of financial position reporting 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 statement of comprehensive income 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 statement of comprehensive income.
(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 statement of
comprehensive income.
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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
18
Notes to the financial statements
3 Significant accounting policies (continued)
(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 statement of
comprehensive income 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 statement of financial position reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided using the statement of financial position 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 statement of comprehensive income 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 statement of
comprehensive income 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 statement of
financial position.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
19
Notes to the financial statements
3 Significant accounting policies (continued)
(q) Other receivables
Trade and other receivables are stated at their nominal amount (discounted if material) less impairment losses.
(r) 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 statement of comprehensive income.
(s) 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 statement of comprehensive income 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.
(t) New standards and interpretations effective in 2012
• IFRS 7 (Revised), ‘Disclosures - Transfers of Financial Assets’ (endorsed for use in the EU on 22
November 2011). The revised standard requires additional disclosures for transfers of financial assets and
where there are a disproportionate amount of transactions undertaken around the period end.
• Improvements to IFRSs. Sets out minor amendments to IFRS standards as part of annual improvements
process.
The above changes did not have any material impact on the Company’s financial statements.
(u) 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 1 (Revised), ‘Presentation of Financial Statements - Presentation of items of other comprehensive
income’ (effective 1 July 2012). The revised standard requires that an entity present separately the items of
other comprehensive income that may subsequently be reclassified to profit or loss from those items that
will not be reclassified to profit or loss.
• IFRS 7 (Revised), ‘Disclosures - Offsetting Financial Assets and Financial Liabilities’ (effective 1 January
2013). The revised standard amends the required disclosures to include information that will enable users
of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements,
including
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
20
Notes to the financial statements
3 Significant accounting policies (continued)
rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities,
on the entity’s financial position.
• IAS 32 (Revised), ‘Offsetting Financial Assets and Financial Liabilities’ (effective 1 January 2014). This
standard was amended to clarify the offsetting criteria, specifically when an entity currently has a legal
right of set off; and when gross settlement is equivalent to net settlement.
The above standards are unlikely to have a material impact on the Company’s financial statements.
• IFRS 9 ‘Financial instruments’ (effective from 1 January 2015). 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', 'available for sale' and 'loans and receivables'. The potential
effect of this standard is currently being evaluated but it is not expected to have a pervasive impact on the
Company’s financial statements, due to the nature of the Company’s operations (*).
(*) This standard has 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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
21
Notes to the financial statements
4 Financial risk management (continued)
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
Murabaha and
Wakala
receivables and
other advances
to banks
Consumer
finance
accounts and
other advances
to customers
Net investment
in Commercial
Property
Finance
Net investment
in Home
Purchase Plans
Total
2012
£ £ £ £ £
Investment grade financial assets 13 111,488,785 - - - 111,488,785
Below investment grade 13 852,428 - - - 852,428 Unrated financial assets 13/14 17,114,003 922,759 11,611,726 117,104,184 146,752,672
Specific allowances for impairment 14 - (38,909) - - (38,909)
Collective allowances for impairment 14 - (577,558) - - (577,558)
Carrying amount 129,455,216 306,292 11,611,726 117,104,184 258,477,418
2011
Investment grade financial assets
Below investment grade
13
13
126,913,459
450,496
-
-
-
-
-
-
126,913,459
450,496
Unrated financial assets 13/14 16,500,746 1,607,960 7,107,440 61,316,346 86,532,492
Specific allowances for impairment 14 - (40,330) - - (40,330)
Collective allowances for impairment 14 - (681,395) - - (681,395)
Carrying amount 143,864,701 886,235 7,107,440 61,316,346 213,174,722
Investment grade financial assets have a minimum rating of BBB. As at 31 December 2012, the amount of
unimpaired balances stood at £258,437,339 (2011: £213,101,775). The maximum exposure to credit risk is the
carrying amount of the financial asset receivable balances as at 31 December 2012 and 31 December 2011.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
22
Notes to the financial statements
4 Financial risk management (continued)
(a) Credit risk (continued)
(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 2012 is £128.7m (2011: £68.3m). 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 Murabaha and
Wakala receivables and other
advances to banks
Consumer finance
accounts and other
advances to customers
Net investment in
Commercial Property
Finance
Net investment in Home
Purchase Plans
2012
£
2011
£ 2012
£
2011
£ 2012
£
2011
£ 2012
£
2011
£
Concentration by sector:
Individuals - - 306,292 876,336 4,104,572 2,835,320 117,104,184 61,316,346
Corporate - - - 9,899 7,507,154 4,272,120 - -
Bank 129,455,216 143,864,701 - - - - - -
129,455,216 143,864,701 306,292 886,235 11,611,726 7,107,440 117,104,184 61,316,346
Concentration by location:
United Kingdom 39,691,290 64,806,149 306,292 886,235 11,611,726 7,107,440 117,104,184 61,316,346
Europe 30,900,000 31,800,000 - - - - - -
Middle East 58,863,926 47,258,552 - - - - - -
129,455,216 143,864,701 306,292 886,235 11,611,726 7,107,440 117,104,184 61,316,346
The asset quality underlying the Commercial Property Finance and Home Purchase Plans portfolios is high, with
financing decisions based on clear affordability assessments and prudent finance-to-value (FTV) ratios. As at 31
December 2012 one of the facilities within the secured finance portfolios was 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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
23
Notes to the financial statements
4 Financial risk management (continued)
(b) Liquidity risk (continued)
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.
2012
Note Carrying
amount
£
Gross
maturity
outflow
£
Less than 1
month
£
1 - 3
months
£
3 months -
1 year
£
1 year – 2
years
£
Deposits from banks 18 1,172,829 1,173,604 1,173,604 - - - Deposits from
customers
19 237,535,153 240,413,760 99,513,073 38,346,746 76,671,448 25,882,493
238,707,982 241,587,364 100,686,677 38,346,746 76,671,448 25,882,493
2011
Deposits from banks 18 905,016 905,802 905,802 - - -
Deposits from
customers
19 195,190,008 197,311,301 107,516,246 45,581,430 16,421,595 27,792,030
196,095,024 198,217,103 108,422,048 45,581,430 16,421,595 27,792,030
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 Murabaha) and
maintained (for Wakala) 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 maximum 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 Murabaha) and maintained (for Wakala) for the duration of the contract.
Risk exposure is managed by reviewing the maturity profiles of transactions entered into.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
24
Notes to the financial statements
4 Financial risk management (continued)
(c) Market risk (continued)
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 2.00% or
0.50% rise or fall in effective average rates. An analysis of the Company’s statement of comprehensive income
sensitivity to an increase or decrease in effective rates (assuming no asymmetrical movement and a constant
statement of financial position status) is as follows:
2.00% parallel
increase
2.00% parallel
decrease
0.50% parallel
increase
0.50% parallel
decrease
£ £ £ £
31 December 2012 777,876 (777,876) 194,469 (194,469)
31 December 2011 1,028,169 (1,028,169) 257,042 (257,042)
(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. Legal and regulatory risks are included within
operational risk and managed and monitored under the risk management framework.
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 Senior Manager Sharia Compliance
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 specific 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 Plans
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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
25
Notes to the financial statements
4 Financial risk management (continued)
(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:
2012
£
2011
£
Tier 1 capital
Total equity 20,075,642 17,069,666
Less intangible assets (307,457) (349,362)
19,768,185 16,720,304
Tier 2 capital
Collective allowances for impairment 577,558 681,395
Total regulatory capital 20,345,743 17,401,699
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
26
Notes to the financial statements
5 Key judgements and uncertainties
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 3(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 (FSCS)
In common with all regulated UK deposit takers, the Bank pays levies to the 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.
The FSCS meets these current claims by way of loans received from HM Treasury (HMT). The terms of these loans
were interest only for the first three years, and the FSCS seeks to recover the interest cost, together with ongoing
management expenses, by way of annual management levies on members over this period.
The Bank FSCS provision reflects market participation up to the reporting date. The provision below includes the
estimated management expense levy for the scheme years 2012/13 and 2013/14. This amount was calculated on the
basis of the Bank’s current share of protected deposits taking into account the FSA’s estimate of total management
expense levies for each scheme year.
The management expenses levy for scheme year 2011/12, which formed part of the provision at 31 December 2011,
was calculated using the agreed funding rate of 12 month LIBOR + 30bps. Following the expiry of the initial three
year fixed interest term, extensive negotiations between HMT and FSCS resulted in an agreed funding rate of 12
month LIBOR + 100bps which is the rate that will be charged for the HMT loans for the period from 1 April 2012,
on which the management expenses levy for scheme year 2012/13 and 2013/14 has been based.
In addition to the management levies, from scheme year 2013/14, triggered by participation in the market at 31
December 2012, the FSCS is to levy over three years the current estimated shortfall on capital loans outstanding of
£802m. In common with the management expenses levy, the compensation levy was calculated on the basis of the
Bank’s current share of UK protected deposits.
2012 2011
£ £
Balance at 1 January 150,000 148,070
Utilised in respect of 2011/12 (2011: 2010/11) scheme year settlement (62,547) (61,098)
Increase in provision during the year 162,547 63,028
Balance at 31 December 250,000 150,000
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
27
Notes to the financial statements
6 Net income from Islamic financing transactions
2012 2011
Income receivable
£ £
Commodity Murabaha and Wakala transactions 506,223 642,479
Consumer finance 56,815 146,301
Commercial Property Finance 369,697 240,963
Home Purchase Plans 3,895,366 2,282,709
Total income receivable from Islamic financing transactions 4,828,101 3,312,452
Returns payable
Deposits from banks (13,538) (7,672)
Deposits from customers (2,648,170) (1,478,535)
Total returns payable to customers and banks (2,661,708) (1,486,207)
Net income from Islamic financing transactions 2,166,393 1,826,245
7 Net fee and commission income
2012 2011
Fee and commission income
£
£
Retail customer banking fees 136,178 246,256
ATM commission 14,257 18,510
Other 42,703 19,001
Arrangement fees 93,145 73,609
Total fee and commission income 286,283 357,376
Fee and commission expense
ATM interchange fees (35,947) (56,256)
Electronic transaction fees (11,578) (10,426)
Total fee and commission expense (47,525) (66,682)
Net fee and commission income 238,758 290,694
8 Auditor’s remuneration
Included within operating losses are the following amounts payable to the auditor (excluding VAT): 2012 2011
£ £
Audit of these financial statements 71,000 71,000
Services relating to taxation 12,975 9,000
Total 83,975 80,000
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
28
Notes to the financial statements
9 Personnel expenses
2012 2011
£ £
Wages and salaries 4,062,340 3,778,482
Social security costs 363,664 307,620
Contributions to defined contribution pension plans 234,871 227,058
Share based payments credit - (129,655)
Other staff costs 10,434 10,345
Total 4,671,309 4,193,850
The following table summarises the average number of employees within the company during the year:
2012 2011
Consumer
Banking
Support
Services
Total Consumer
Banking
Support
Services
Total
Average for the Period 61 57 118 62 56 118
10 Directors’ emoluments
The emoluments of the Directors who served during the year were as follows:
Remuneration of Non Executive Directors
2012
2011
Salary
Fees
Benefits in
Kind
Total
Salary
Fees
Benefits
in Kind
Total
£ £ £ £ £ £ £ £
K. M.A. Al-Kuwari 30,000 10,500 - 40,500 21,961 11,000 - 32,961
R Owen 18,000 12,500 510 31,010 23,731 16,000 693 40,424
A M T Mustafawi 15,000 7,500 - 22,500 10,981 12,000 - 22,981
J A Al-Jamal 15,000 9,000 - 24,000 10,981 11,000 - 21,981
78,000 39,500 510 118,010 67,654 50,000 693 118,347
Remuneration of the Executive Directors
2012
Salary Bonus Benefits in
Kind
Pension
Contributions Total
£ £ £ £ £
S Choudhury 101,519 40,000 560 24,869 166,948
101,519 40,000 560 24,869 166,948
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
29
Notes to the financial statements
10 Directors’ emoluments (continued)
2011
Salary Bonus
Payment on
Loss
of Office
Benefits in
Kind
Pension
Contributions Total
£ £ £ £ £ £
G Deegan 103,000 - 60,000 43 25,205 188,248
S Choudhury 97,850 20,000 - 437 23,953 142,240
200,850 20,000 60,000 480 49,158 330,488
Gerry Deegan resigned on 27th May 2011.
11 Income tax expense / (credit)
There were no taxable profits or recoverable losses for the year ended 31 December 2012 (2011: £nil) and
accordingly the Company has not provided for a tax charge or a tax debtor. 2012 2011
£ £
Reconciliation of effective tax rate
Loss before tax (6,994,024) (9,020,489)
Income tax at UK corporation tax rate 24.5% (2011: 26.5%) (1,713,536) (2,390,430)
Non deductible expenses 621 (32,466)
Depreciation in excess of capital allowances on which deferred tax not recognised 207,716 155,267
Short term timing differences (323,006) (3,710)
Unutilised tax losses 1,828,205 2,271,339
Research and development tax credits - (21,551)
Income tax credit - (21,551)
Deferred tax assets have not been recognised in respect of the following items:
Capital allowances 614,652 820,664
Tax losses 13,899,303 13,341,900
14,513,955 14,162,564
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 23% (2011: 25%).
Factors that may affect future current and total tax charges
A reduction in the UK corporation tax rate from 26% to 25% (effective from 1 April 2012) was substantively
enacted on 5 July 2011, and further reductions to 24% (effective from 1 April 2012) and 23% (effective from 1
April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively.
The March 2013 Budget announced that the rate will further reduce to 20% by 2015 in addition to the planned
reduction to 21% by 2014 previously announced in the December 2012 Autumn Statement. These changes will
reduce the Company’s future tax charge.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
30
Notes to the financial statements
12 Cash and cash equivalents
2012 2011
£ £
Cash 686,302 851,438
Other advances to banks 1,764,928 3,957,539
Total cash and cash equivalents 2,451,230 4,808,977
13 Commodity Murabaha and Wakala receivables and other advances to banks
2012 2011
£ £
Repayable on demand 1,764,928 3,957,539
3 months or less but not repayable on demand 126,877,930 139,058,506
1 year or less but over 3 months 812,358 848,656
Total Commodity Murabaha and Wakala receivables and
other advances to banks
129,455,216 143,864,701
A breakdown of Commodity Murabaha and Wakala receivables and other advances to banks by geographic regions
is shown in note 4. Balances maturing in 1 year or less but over 3 months include a balance of £812,358 (2011:
£848,656) representing repayable security deposits held by banks that have issued a guarantee to cover the
Company’s future customer card transactions with MasterCard. These deposits do not earn a return.
14 Advances to customers
Gross
amount
Impairment
allowance
Carrying
amount
Gross
amount
Impairment
allowance
Carrying
amount
2012 2012 2012 2011 2011 2011
Retail customers: £ £ £ £ £ £
Consumer finance accounts and other
advances to customers 922,759 (616,467) 306,292 1,598,061 (721,725) 876,336
Corporate customers:
Consumer finance accounts and other
advances to customers - - - 9,899 - 9,899
Total consumer finance accounts and
other advances to customers 922,759 (616,467) 306,292 1,607,960 (721,725) 886,235
Net investment in Commercial Property
Finance 11,611,726 - 11,611,726 7,107,440 - 7,107,440
Net investment in Home Purchase Plans 117,104,184 - 117,104,184 61,316,346 - 61,316,346
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
31
Notes to the financial statements
14 Advances to customers (continued)
2012 2011
Specific allowances for impairment
£ £
Balance at 1 January 40,330 26,094
(Credit) / Charge for the year (1,421) 14,236
Amounts written off during the year - -
Balance at 31 December 38,909 40,330
Collective allowances for impairment
Balance at 1 January 681,395 784,858
(Credit) / Charge for the year (47,757) 22,883
Amounts written off during the year (56,080) (126,346)
Balance at 31 December 577,558 681,395
Total allowances for impairment
Balance at 1 January 721,725 810,952
(Credit) / Charge for the year (49,178) 37,119
Amounts written off during the year (56,080) (126,346)
Balance at 31 December 616,467 721,725
This impairment allowance relates to consumer finance accounts.
The gross investment in Commercial Property Finance comprises:
Less than one year 984,306 694,327
Between one and five years 3,920,948 2,641,648
More than five years 11,342,719 6,204,852
Total gross investment in Commercial Property Finance 16,247,973 9,540,827
Unearned future rental on Commercial Property Finance (4,636,247) (2,433,387)
Net investment in Commercial Property Finance 11,611,726 7,107,440
The net investment in Commercial Property Finance comprises:
Less than one year 548,985 459,654
Between one and five years 2,362,565 1,651,050
More than five years 8,700,176 4,996,736
Net investment in Commercial Property Finance 11,611,726 7,107,440
The gross investment in Home Purchase Plans comprises:
2012
2011
£ £
Less than one year 8,955,506 4,630,227
Between one and five years 33,167,281 22,542,465
More than five years 150,386,429 73,337,784
Total gross investment in Home Purchase Plans 192,509,216 100,510,476
Unearned future rental on Home Purchase Plans (75,405,032) (39,194,130)
Net investment in Home Purchase Plans 117,104,184 61,316,346
The net investment in Home Purchase Plans comprises:
Less than one year 3,691,472 1,798,910
Between one and five years 14,048,610 10,086,499
More than five years 99,364,102 49,430,937
Net investment in Home Purchase Plans 117,104,184 61,316,346
As at 31 December 2012 there is no material difference between the carrying value and the fair value of any
financial assets or liabilities (2011: £nil).
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
32
Notes to the financial statements
15 Property and equipment
Computer
Equipment
Office
equipment
Leasehold
Improvements
Fixtures &
fittings
Total
£ £ £ £ £
Cost
Balance at 1 January 2012 2,203,336 143,277 3,886,221 312,334 6,545,168
Additions 34,458 5,610 3,625 22,897 66,590
Disposals (84,602) (9,504) (934,766) (52,881) (1,081,753)
Balance at 31 December 2012 2,153,192 139,383 2,955,080 282,350 5,530,005
Depreciation
Balance at 1 January 2012 1,906,757 119,329 2,625,999 306,109 4,958,194
Depreciation charge for the year 144,412 10,281 316,289 5,767 476,749
Disposals (84,541) (8,371) (566,301) (51,471) (710,684)
Balance at 31 December 2012 1,966,628 121,239 2,375,987 260,405 4,724,259
Net book value
At 31 December 2012 186,564 18,144 579,093 21,945 805,746
Cost
Balance at 1 January 2011 1,923,491 135,371 3,886,221 312,334 6,257,417
Additions
Disposals
279,845
-
7,906
-
-
-
-
-
287,751
-
Balance at 31 December 2011 2,203,336 143,277 3,886,221 312,334 6,545,168
Depreciation
Balance at 1 January 2011 1,734,808 108,341 2,234,586 294,546 4,372,281
Depreciation charge for the year
Disposals
171,949
-
10,988
-
391,413
-
11,563
-
585,913
-
Balance at 31 December 2011 1,906,757 119,329 2,625,999 306,109 4,958,194
Net book value
At 31 December 2011 296,579 23,948 1,260,222 6,225 1,586,974
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.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
33
Notes to the financial statements
16 Intangible assets
Computer
licences
Purchased
& developed
software
Total
Cost £ £ £
Balance at 1 January 2012 1,072,999 4,305,969 5,378,968
Additions 3,271 70,303 73,574
Disposals (389) (10,967) (11,356)
Balance at 31 December 2012 1,075,881 4,365,305 5,441,186
Amortisation
Balance at 1 January 2012 814,745 4,214,861 5,029,606
Amortisation charge for the year 50,915 64,564 115,479
Disposals (389) (10,967) (11,356)
Balance at 31 December 2012 865,271 4,268,458 5,133,729
Net book value
At 31 December 2012 210,610 96,847 307,457
Cost
Balance at 1 January 2011 1,025,989 4,231,649 5,257,638
Additions
Disposals
47,010
-
74,320
-
121,330
-
Balance at 31 December 2011 1,072,999 4,305,969 5,378,968
Amortisation
Balance at 1 January 2011 758,450 4,135,966 4,894,416
Amortisation charge for the year
Disposals
56,295
-
78,895
-
135,190
-
Balance at 31 December 2011 814,745 4,214,861 5,029,606
Net book value
At 31 December 2011 258,254 91,108 349,362
17 Other assets
2012 2011
£ £
Accrued income 305,652 164,818
Prepayments 564,900 816,161
Total 870,552 980,979
There are no receivables within other assets that are expected to be recovered in more than 12 months (2011: £nil).
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
34
Notes to the financial statements
18 Deposits from banks
2012 2011
£ £
Repayable on demand 273,327 123,297
3 months or less but not repayable on demand 899,502 781,719
Total deposits from banks 1,172,829 905,016
Comprising:
Non profit sharing accounts 273,327 123,297
Profit sharing / paying accounts 899,502 781,719
Total deposits from banks 1,172,829 905,016
19 Deposits from customers
2012 2011
£ £
Repayable on demand 91,201,957 104,699,215
3 months or less but not repayable on demand 45,582,539 48,367,915
1 year or less but over 3 months 76,436,850 16,221,444
2 years or less but over 1 year 24,313,807 25,901,434
Total deposits from customers 237,535,153 195,190,008
Comprising:
Non profit sharing 32,835,721 34,437,558
Profit sharing / paying accounts 204,699,432 160,752,450
Total deposits from customers 237,535,153 195,190,008
20 Other liabilities
2012 2011
£ £
Returns payable to customers 518,440 272,599
Trade payables 201,727 342,242
Social security and income tax 97,167 129,754
Accruals 1,313,065 2,619,993
Other creditors 233,452 414,197
Total 2,363,851 3,778,785
Included within accruals is a balance of £8,000 payable over the remaining lease term of 1 year relating to
refurbishment of a branch property (2011: £16,000). This is paid in equal annual instalments with £8,000 payable
within 12 months.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
35
Notes to the financial statements
21 Operating leases
Non-cancellable operating lease rentals are payable as follows: 2012 2011
£ £
Less than one year 469,452 414,304
Between one and five years 662,368 1,141,126
More than five years 118,116 464,250
Total 1,249,936 2,019,680
During the year £566,963 was recognised as an expense in the statement of comprehensive income in respect of
operating leases (2011: £563,529).
22 Called up share capital
2012 2011
£ £
Authorised
Equity: 6,848,823,300 (2011: 6,848,823,300) ordinary shares of £0.01 each 68,488,233 68,488,233
Allotted, called up and fully paid
Issued ordinary share capital 35,464,700 25,464,700
On 25 April 2012, an additional 1,000,000,000 shares were allotted for consideration of £10,000,000. On 23 April
2013, a further 1,000,000,000 shares were allotted for consideration of £10,000,000.
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 (‘Option holders’).
All options had a vesting period of 3 years, and were subject to the achievement of specific performance criteria.
The following options were previously granted under the CSOP scheme and represented all outstanding options
issued by the Company:
Number of options
outstanding at
1 January 2011
Exercise
Price
Date
of grant
Date of first
exercise
Date of last
exercise
Cancelled
during year
Number of options
outstanding at
31 December 2011
1,213,929 9.5p 5 Nov 2007 5 Nov 2010 4 Nov 2017 1,213,929 0
109,210 9.5p 11 Dec 2007 11 Dec 2010 10 Dec 2017 109,210 0
The CSOP scheme was closed in 2011 and under the rules of this scheme, all Option holders were required to either
exercise their options by 30 November 2011 or their options would lapse. In 2011, there was a credit to the
Statement of Comprehensive Income of £129,655 with a corresponding movement within reserves. At 31 December
2012, no options remained outstanding (31 December 2011: Nil). No options were granted during the year and no
options were exercised during the current year.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
36
Notes to the financial statements
23 Related parties
At 31 December 2012, Directors of the Company and their immediate relatives have no shareholding of the
Company (2011: Nil).
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:
2012 2011
£ £
Key management emoluments including social security costs 1,500,965 1,314,953
Company contributions to pension plans 138,018 120,958
Total 1,638,983 1,435,911
Deposit balances, operated under standard customer terms and conditions, held by key management personnel,
including Directors and immediate relatives, totalled £688,606 as at 31 December 2012 (2011: £236,870). The
highest balance during the year was £1,043,355 (2011: £495,031). Total returns paid on these accounts during the
year were £5,037 (2011: £1,799).
Outstanding consumer finance and Home Purchase Plans balances relating to key management personnel and
immediate relatives totalled £331,058 as at 31 December 2012 (2011: £187,584). Returns recognised during the
year for these accounts were £8,461 (2011: £7,458). All consumer finance account facilities taken by key
management personnel and staff were offered in line with standard customer terms and conditions.
Ultimate parent company
The Company is a subsidiary undertaking of Qatar International Islamic Bank Q.S.C which is the ultimate parent
company registered in Doha, Qatar. The ultimate controlling party is Qatar International Islamic Bank Q.S.C.
Islamic Bank of Britain PLC
Annual Report and Financial Statements
For the year ended 31 December 2012
37
Notes to the financial statements
24 Capital commitments
The Company had no outstanding capital commitments at 31 December 2012 (2011: £nil).
25 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:
2012 2011
£ £
United Kingdom 4,407,220 2,719,970
Europe 97,526 335,724
Middle East 323,355 256,758
Total 4,828,101 3,312,452
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.
26 Assets and liabilities denominated in foreign currency
As at 31 December 2012, assets equivalent to £1,093,071 were denominated in US Dollars and are included within
Commodity Murabaha and Wakala receivables and other advances to banks (2011: £1,188,407). At 31 December
2012 assets equivalent to £72,917 were denominated in Euro and are included within Commodity Murabaha and
Wakala receivables and other advances to banks (2011: £386,072).
Customer liabilities of £1,097,369 were denominated in US Dollars (2011: £1,183,514) and £69,471 were
denominated in Euro (2011: £382,570).