Strengthening from the Core · Joining the Board as non-executive directors are Mr Abdallah Al...

Strengthening from the CoreAnnual Report 2008

ABC International Bank plc Annual Report 2008

CONTENTSDirectors’ Report 4Board of Directors 8Chief Executive Officer’s Report and Business Review 10Corporate Governance and Risk Management Report 16Statement of Directors’ Responsibilities in respect of the Financial Statements 20Independent Auditor’s Report 23Profit and Loss Account 24Statement of Total Recognised Gains and Losses 25Balance Sheet 26Notes to the Accounts 27ABCIB - Group Network 70Management Structure 71Directory of ABC Group Offices 72

ABC International Bank plc (“ABCIB”) is a wholly-owned subsidiary of Arab Banking Corporation (BSC) Bahrain (“ABC”). The Group’s international depth and strategic relationships within the region allows it to maintain its position as one of the leading banking groups in the Middle East and Europe. The Group has sought to build its practice beyond the traditional roles of regional banks and move into advanced high value added activities, establishing itself as a regional leader with considerable international experience.

ABCIB, headquartered in London, has branches in Paris, Frankfurt and Milan, marketing offices in Rossendale (in the North of England) and Stockholm, and representative offices in Istanbul and Madrid.

ABCIB is authorised and regulated by the Financial Services Authority (FSA).

The ABC group is managing change by solidifying its offering at a regional level, expanding its operations and opening new avenues across the MENA region, bridging the gaps and building on its potential by strengthening from the core.

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ABC INTERNATIONAL BANK PLC (ABCIB) has experienced a

record year with greater prosperity from every layer of the Bank.

Inspired success, represented graphically throughout this year’s

annual report.

ABCIB was established in 1991 as a wholly-owned UK subsidiary of

Bahrain-based Arab Banking Corporation (ABC).

Today, as then, the principal thrust of ABCIB’s strategy is to enhance

the ABC Group’s international reach and allow it better to serve its

clients with a view to increasing the flows of trade and investments

between Europe and the Middle East and North Africa (MENA)

region. ABCIB’s core business comprises trade and commodity

finance, project, export and structured finance, Islamic asset

management and treasury services.

ABCIB is the Bank of choice for clients in Europe and the MENA region.

ABC INTERNATIONAL BANK PLCAnnual Report 2008

4 ABC International Bank plc Annual Report 2008

The events of last year have changed the financial landscape fundamentally. The credit crunch and economic downturn have dominated all financial activities. The key issue was how the various participants in the financial market responded to the crisis.

As the credit climate went from crunch to crisis, even the largest banks continued to face difficulties. To cope, financial institutions across the board were re-evaluating how they operate and committing to long-term change.

The credit crunch began when asset prices started to fall against a background of exaggerated leverage. This forced borrowers to sell assets at depressed prices, triggering defaults, drying up liquidity and precipitating a solvency crisis. Ultimately, it was not just individual borrowers or lenders who were threatened, but the integrity and functioning of the entire financial system. This prompted central banks to boost liquidity and lower interest rates, followed by governments loosening budgetary policies, staging bailouts and tightening up regulations. With luck, these actions will return confidence and trust, and abnormal conditions in the credit and Interbank markets will gradually stabilise and return to normal in 2009. Despite the brutal business climate, it is hoped the banking industry will emerge stronger.

During 2008, the MENA region continued to experience relatively respectable economic growth, continuing development of the past four years. However, 2008 was also the year in which the region started to reflect negative shifts in the external economic environment. Following the credit crisis and the collapse of oil prices, the region entered a phase of heightened uncertainty. This was reflected in increased volatility in equity markets, commodity prices, exchange rates, real estate values, and financial flows. According to a report from the IMF, MENA economic growth is expected to average about 5.9% in 2009, but other sources are more pessimistic forecasting 3 - 4% growth. However, the region is remarkably diverse despite many common features, and economic developments may differ significantly among the various countries.

The fall in asset prices touched all institutions including ABCIB. The lack of a normal functioning market mechanism to price assets made mark-to-market difficult and forced banks to write down their assets to levels that were arguably unrealistic. ABCIB made provision against its investment portfolio, to the value of ¤23 million, in respect of one major US financial institution. However, outside of this, ABCIB’s core businesses delivered another strong operating performance, with revenues of £63 million, representing an increase of 19% over 2007. Net interest income increased by 16% to £35 million over 2007. ABCIB’s core earnings were boosted by higher fee and commission income of £31.9 million, as compared to £23.3 million in 2007, an increase of 37%. Expenses were controlled at the same level as 2007. As a result, ABCIB was able to show a net profit after tax of £10.1 million, down from £20 million in 2007. In light of the unsettled market environment, the priority was placed on maintaining high liquidity and capital ratios. Going forward, we are confident ABCIB will continue to have adequate liquidity. Moreover, ABCIB anticipates further enhancing its capital ratios as it intends to carry out a corporate restructuring programme designed to boost its regulatory capital, subject to regulatory approval of the scheme. This restructuring will result in ABCIB being owned directly by ABC (B.S.C.), and in ABCIB owning ABC Investment Holdings Limited (its former holding company) as a wholly owned subsidiary of ABCIB.

DIRECTORS’ REPORT

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The increase of ABCIB’s assets and liabilities was mainly due to the deterioration of Sterling against the two major currencies, the US Dollar and the Euro. Overall, deposits from banks and customers have increased by £533 million (36%) and loans to customers increased by £159 million (16%) over the previous year. However, the underlying growth was more conservative. ABCIB also raised an additional £20 million in Tier II Capital from its parent company to support its business growth. At year-end, its capital ratio stood at 15%, comfortably above the required regulatory ratio.

ABCIB Group had 208 permanent employees as at 31 December 2008, excluding Directors. As in the previous year, ABCIB did not declare a dividend for the period.

It is ABCIB’s policy to pay its suppliers within the agreed period from the date of their invoice. None of the Directors had an interest in ABCIB shares during 2008, and no option to purchase shares has been granted to any Director.

We have had two departures and two additions to our Board of Directors. Terence John Stone, Deputy Chairman, retired after 9 years of dedicated service. Mr Stone brought invaluable experience and insight to ABCIB over the years, and we greatly appreciate his guidance and contribution. We wish Mr Stone all the best for his future endeavours. In the meantime, Mr Stone will continue to have an association with ABCIB, as he remains Chairman of the ABCIB Pension Fund Trustees. Replacing Mr Stone as Deputy Chairman is Mr Hassan Juma, who has been a Board Member since 2001 and is also the President and Chief Executive of ABC in Bahrain, the parent Bank of ABCIB.

In addition, Mr Abdulmagid Breish did not stand for re-election for the Board to allow him to dedicate his time to his position as Deputy CEO of ABC. Mr Breish worked tirelessly for 12 years as CEO of ABCIB and was a member of its Board for 6 years and his contribution is greatly appreciated. Mr Breish is due to retire at the end of March 2009 from his post as Deputy CEO of ABC after 30 years of dedicated service to the ABC Group.

Joining the Board as non-executive directors are Mr Abdallah Al Humaidhi and Mr Saeed Al-Hajeri.

Mr Al Humaidhi has been a member of the Board of ABC since 2001 and has over 20 years’ experience in Banking and Investments. He is the Chairman and Managing Director of Commercial Facilities Company, Kuwait, and a member of the Board and the Executive Committee of the Kuwait Investment Authority. Mr Al Humaidhi is also a Member of the Board of the Kuwait Chamber of Commerce & Industry.

Mr Al-Hajeri has also been a member of the Board of ABC since 2007, with over 16 years of experience in international finance. He is a Member of the Board of Abu Dhabi Investment Authority and its Executive Director for Emerging Markets Department. In addition, Mr. Al-Hajeri is a governor of the Board of CFA Institute; a member of the Executive Advisory Board of MSCI Barra; Zayed University; Higher Corporation for Specialised Economics Zones (HCSEZ); Dubai Cable Company (DUCAB); Sorouh Real Estate; and the Tourism Development & Investment Company-PSC.

ABCIB’s core businesses delivered another record operating performance, with revenues of £63 million.

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DIRECTORS’ REPORT

He was honoured to be named by the World Economic Forum in 2007 as one of the top 250 Young Global Leaders for his contribution to the public and financial sectors in the U.A.E.

Both Mr Al Humaidhi and Mr Al-Hajeri bring tremendous depth and experience to ABCIB and we look forward to their contribution.

The Board of Directors wishes to thank all ABCIB’s customers for their continued support and trust, and the management and staff for working together tirelessly to navigate through a most difficult year in global financial markets.

The directors have full confidence that ABCIB has adequate resources and management skills to pursue its business plan successfully in 2009 and beyond. The financial position of ABCIB and the quality of its risk asset portfolio are good and the risk management infrastructure is sound and proven. ABCIB benefits from financial and business support from its parent bank and by extension also enjoys a very close business relationship with the major shareholders of ABC. Accordingly, the directors have no hesitation in continuing to adopt the going concern basis in preparing the annual report and accounts.

DISCLOSURE OF INFORMATION TO THE AUDITOR

In so far as the Directors are aware:• There is no relevant audit information of which ABCIB’s auditor is unaware, and• The Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit

information, and to establish that the auditor is aware of that information.

RE-APPOINTMENT OF AUDITOR

In accordance with Section 385 of the Companies Act 1985, a resolution is to be proposed at the Annual General Meeting for the re-appointment of Ernst & Young LLP as auditor of ABCIB.

Farhat O. BengdaraChairman20th February 2009

ABC International Bank plc Annual Report 2008

The directors have full confidence that ABCIB has adequate resources and management skills to pursue its business plan successfully in 2009 and beyond.

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FARHAT OMER BENGDARACHAIRMAN Governor - Central Bank of LibyaFormer Director - Arab Banking Corporation (BSC)

HASSAN ALI JUMA*DEPUTY CHAIRMAN(appointed 25th April 2008)President & Chief Executive - Arab Banking Corporation (BSC)Chairman - Arab Banking Corporation, EgyptChairman - Arab Banking Corporation, JordanDirector - National Bank of BahrainFormer Chairman - Bahrain Telecommunication Co (Batelco)Former Chairman - Umniah Mobile Company

SAEED MUBARAK AL-HAJERI*DIRECTORMember of Board - Abu Dhabi Investment Authority (ADIA)Executive Director - Emerging Markets, Abu DhabiInvestment AuthorityGovernor - Board of CFA Institute Member of Executive Advisory Board - MSCI BarraDirector - Arab Banking Corporation (B.S.C.)Director - Higher Corporation for Specialised Economic Zones (HCSEZ)Director - Sorouh Real EstateDirector - Tourism Development & Investment Company – (PSC)Director - Zayed UniversityDirector - Dubai Cable Company (DUCAB)

HILAL MISHARI AL-MUTAIRIDIRECTOR Deputy Chairman - Arab Banking Corporation (BSC)Vice Chairman - Kuwait Chamber of Commerce and IndustryDirector - Kuwait Investment AuthorityFormer Minister of Trade and Industry - Government of the State of Kuwait

BOARD OF DIRECTORS

Farhat Omer Bengdara Hassan Ali Juma

Hilal Mishari Al-Mutairi Saeed Mubarak Al-Hajeri

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USAMA RAMEZ MIKDASHIDIRECTORDirector - Mediterranean and Gulf Insurance and Reinsurance Co (BSC), BahrainDirector - 3C Telecommunications (Pty) Limited, South AfricaDirector - Bank Med, LebanonFormer Managing Director - Citigroup, Corporate and Investment Banking - Risk Management Europe, Middle East and Africa

DAVID THOMAS R. CARSE OBE*DIRECTORFormer Deputy Chief Executive - Hong Kong Monetary AuthorityFormer Director General - Jersey Financial Services Commission

ABDULLAH SAUD ABDULAZIZ AL-HUMAIDHIDIRECTORChairman & Managing Director - Commercial Facilities Company s.a.k.Member of Executive Committee - Kuwait Investment AuthorityMember of the Board - Kuwait Chamber of Commerce & IndustryDirector - Arab Banking Corporation (B.S.C.)

NOFAL SHAMOUN BARBARCHIEF EXECUTIVE OFFICER AND MANAGING DIRECTORDirector - ABCIB Islamic Asset Management LimitedDirector - ABCIB Leasing LimitedDirector - ABCIB IT Services LimitedFormer Executive Vice President and Board Member - UBAF Arab American Bank, New YorkFormer Executive Vice President and Regional Manager - Arab Bank plc, New York

DAVID THOMAS HOLDEN - CORPORATE SECRETARY Called to the Bar of England & Wales in 1991

TERENCE JOHN STONE OBE, FCA - DIRECTOR(retired by rotation 25th April 2008)

ABDULMAGID BREISH - DIRECTOR(resigned 25th April 2008)

KHALIFA MOHAMMED AL-KINDI - DIRECTOR(resigned 15th February 2008)

* Member of Audit Committee

Usama Ramez Mikdashi David Thomas R Carse

Abdulla Saud Abdulaziz Al-Humaidhi Nofal Shamoun Barbar


OVERVIEW2008 was a challenging year for ABCIB. While our financial performance was very strong in the first three quarters, the fourth quarter was negatively impacted by a provision against one particular exposure and the effect of unprecedented turbulence in the financial markets. Nevertheless, we remain confident and optimistic about our competitive position and our ability to generate attractive financial results going forward. Our earning power from core business activities is strong and growing. We have taken steps to strengthen our capital and liquidity enhancing our ability to expand our market share and customer base across Europe and the MENA region. In particular, we take comfort in the fact that our income is diversified and our efficiency continues to improve.

The credit crisis has surely impacted the entire financial industry and ABCIB has not been entirely unscathed. Although we escaped direct losses from Collateralised Debt Obligations and Structured Investment Vehicles and other structured products, we did experience a large writedown in the value of a senior Floating Rate Note to one major U.S. financial institution in our investment portfolio. Our provision expense reached £19.5 million in 2008 in comparison to a £2.1 million credit in 2007. As a result, ABCIB earned £10 million, down from £20 million in 2007.

On the positive side, our core businesses continued to perform well. Trade Finance revenue increased by 23% to £27.6 million. Project Finance revenue was up by 33% to £6.3 million. Treasury delivered £6.9 million in revenue up 94% from 2007. Income from fees and commissions was a healthy 50% of total revenue, at £31.9 million, with £35 million being earned in interest income. Our cost to income ratio improved to 53% from 62%. It is this diverse mix of income sources and positive operating leverage, that enabled us to remain profitable, despite the previously mentioned provision in the securities portfolio and other severe market stresses. To accommodate new business, we raised an additional £20 million in subordinated debt, Tier II Capital from our parent bank. We also initiated a corporate restructuring programme, which will result in a release of capital of £93 million, which is intended to further boost the regulatory capital of ABCIB and give it expanded capacity to grow its business and meet customers’ needs.

With “easy credit” now a thing of the past, it is only through the fundamentals of banking services and product offerings that financial institutions will survive and prosper. Now, more than ever, we must focus on servicing customers, creating brand and customer loyalty, and underpinning our products and services with the highest level of efficiency and risk management.

CHIEF EXECUTIVE OFFICER’S REPORT AND BUSINESS REVIEW

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With the investment banking model now discredited, the universal banking model for sustainable growth, combining traditional commercial banking and retail banking, has emerged as the vital model that can deliver profitability through a wide range of financial products. As such, this back to basics business model will play a crucial role in defining the operating profile of winning banking organisations for the next generation. ABC Group has decided to adopt this business model going forward.

In light of these developments, we at ABCIB have dedicated our resources to supporting our customers and to working closely with the Arab World subsidiaries of the Group to deliver commercial banking products (trade finance, project finance, Islamic banking, and treasury products) to our customers throughout Europe and the MENA region.

It is safe to say the global financial crisis is not over yet. But, after months of chaos, a series of bold government interventions to inject liquidity, capital, and confidence into the banking system has laid the foundation for recovery. While the Middle East may not have been affected by the credit crunch to the same degree as other regions, it has suffered some serious consequences, including the drying up of project finance and portfolio losses through exposure to some U.S. institutions and other portfolio investments. The collapse of oil prices had a significant impact on liquidity and stock markets as well as future development in the region.

While the MENA economy will no doubt contract sharply in 2009, the prospects for the region continue to be promising. The MENA region remains the world’s most exciting growth market and the slowdown provides the region with an opportunity to consolidate its gains of the past few years. Governments remain committed to long-term investment strategies to support rapid demographic expansion, as 65% of the GCC population is under 25. As these economic adjustments unfold, and stability and trust return to the financial markets, ABCIB will continue to place priority on liquidity and the efficient use of its capital.

In summary, 2008 was a tough year for ABCIB. That outcome, however, in no way diminishes our commitment to our customers or our strategy, nor our confidence in future performance. By offering our customers geographic and product expertise, high service quality and innovative solutions, we will continue to have loyal customers and continue to grow. Our plans call for returning to the level of profitability shown in 2007 at a minimum. We take comfort in the fact that we are supported by a strong parent, which in turn has the full support of its three major shareholders.

Looking forward to 2009, our role will be to continue to manage ABCIB through the current financial crisis and use our competitive advantages and MENA region focus to position ABCIB for growth as the markets stabilise.

With “easy credit” now a thing of the past, it is only through the fundamentals of banking services and product offerings that financial institutions will survive and prosper.


BUSINESS REVIEW

Business UnitsThe following are some highlights of our progress, plans, and performance. ABCIB’s business continues to be focused primarily on four product areas:-

TRADE FINANCE

Highlights of the year:

• Trade Finance Group had an outstanding year, delivering a record performance both in terms of Gross Revenues - up by 23% to £27.6 million - and Operating Profit - 56% higher at £13.9 million

• Arranger of a major US$300 million vendor financing facility on behalf of Motorola UK for sales to Zain, Saudi Arabia, the new third mobile phone operator in the Kingdom

For much of the year, strong trade and business flows between Europe and the MENA region provided a highly supportive background for ABCIB’s international trade financing activities. To a degree, this reflected historically high oil prices and elevated public spending programmes in the MENA region’s hydrocarbon producing countries. Not withstanding the dislocation to global financial markets and the subsequent rapid fall in commodity prices and deterioration in world economic prospects that occurred during the final quarter, the business momentum generated in the early part of the year more than enabled the Trade Finance Group to make a notable contribution to ABCIB’s overall results for the year.

Strong collaborative efforts between ABCIB’s London and European offices on the one hand, and the MENA region network of ABC offices on the other, delivered tangible results in terms of the pro-active identification of new business flows and in the quality and timeliness of client service. Core client relationships were further consolidated during the year, with major receivables facilities either newly arranged or successfully extended for leading European exporting clients.

Despite the recent fall in oil prices, consensus forecasts still point to MENA as being one of the better performing regions in 2009 and expectations are that the region will materially outperform the global average. The Trade Finance Group, with its extensive market reach and depth of professional knowledge and expertise, remains well positioned to continue accessing European/MENA business flows and to satisfy the growing demand for trade finance services as exporters re-assess the riskiness of ‘open account’ trading structures.


Interest Income Within three months

Other Over one year

Fees and Commissions Between three months and one year

TOTAL OPERATING INCOME £ THOUSANDS

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2008

LOANS AND ADVANCES TO CUSTOMERS£ THOUSANDS

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2007

16,786

2008

21,261

2006 2007 2006

16,786

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PROJECT AND STRUCTURED FINANCE


• Lead Arranger in the US$ 380 million multicurrency facility for Syrian Cement Company

• Only Arab World bank to join as co-arranger in the US$170 million financing for Egypt’s Nilesat satellite broadcaster

• Financial Advisor on US$1 billion DISI water project in Jordan

2008 was a year of controlled expansion and consolidation of the Project and Structured Finance (P&SF) asset portfolio, following the growth over recent years. In spite of prevailing market conditions, the MENA economies continue to require major infrastructure investments, thereby offering opportunities for the future. The strategy of the P&SF unit is to focus on core markets and sectors which offer robust cash flows and rigorous business models, whilst delivering the required levels of profitability. The asset portfolio is well diversified across both countries and sectors and is an excellent platform to support future business development. Key highlights in 2008 include P&SF’s participation in the refinancing of Turkey’s main Ataturk International Airport. Also, ABCIB was the only Arab World bank to join as co-arranger in the US$170 million financing for Nilesat, a major Egyptian provider of broadcasting satellite services, providing finance for a new generation satellite. ABCIB also participated as Lead Arranger in the US$ 380 million multicurrency facility for Syrian Cement Company to develop a greenfield cement plant project near Aleppo, Syria.

The advisory business continues to develop successfully with ongoing work advising on the US$1 billion DISI Water Project in Jordan and, in the summer of 2008, the P&SF team was mandated to support a bid for the Al Qatrana Power project, also in Jordan.

The team has also been mandated as Financial Advisor for a US$ 230 million greenfield sugar refinery project in Egypt and is currently bidding for several advisory opportunities in the ports, airports and petrochemicals sectors, exploiting the skills and experience of the team, as well as the market knowledge and presence of the ABC Group throughout the Arab World. During 2008 other major projects reached completion including the Linear Alkyl and Mopco Fertiliser’s projects in Egypt and the Palm City and Al Waddan residential and hotel commercial developments in Libya.

Strong collaborative efforts between ABCIB's London and European offices on one hand and the MENA region network of ABC offices on the other, delivered tangible results.


ISLAMIC FINANCIAL SERVICES


• Successful launch of a Shariah compliant equity-based based savings product, to compliment the existing residential real estate financial products

• Successful and profitable sale of a part of the US leasing portfolio

• US$50 million of container lease Sukuk issued, with the majority placed with a leading European shipping bank

ABCIB’s alburaq-branded range of products, designed mainly for British Muslims, was extended further in 2008 with the introduction of an innovative new Shariah-compliant equity-based savings product in partnership with a major financial institution. The product gives savers the opportunity to earn 100% of any rise in a basket of Islamically approved stocks while at the same time protecting investors’ initial capital. Further extension of the alburaq product range is anticipated in 2009, with a commercial mortgage product ready for launch when market conditions allow.

In 2008 the opportunity was taken for a profitable sale of a portion of the US leasing portfolio, following collection of the majority of rents on the leases during prior years. ABCIB’s careful choice of an experienced US real estate manager for its Islamic US commercial real estate fund (the Bronco Fund), has delivered benefits in 2008 with the fund currently showing a modest upside, despite the well documented downward trend in the US real estate market.

Despite uncertain markets, ABCIB is aiming to see continuing growth in the Islamic Financial Services unit.

TREASURY


• Successfully managed ABCIB’s funding and liquidity requirements throughout the credit crisis

• Produced a significant increase in operating profit

ABCIB Treasury is part of the Bahrain and London twin-hub approach for Treasury management in the ABC Group. The twin-hub approach has helped to strengthen relationships with financial institutions and counterparties through coordinated calling programmes and regular interaction, enabling Treasury to leverage its expertise in asset and liability management. Treasury provides a customer focused service whilst also managing its own proprietary investment portfolios. Trading activity is conducted in foreign exchange and bonds. ABCIB’s Treasury operations, including those of the European branches, are centralised in London with liquidity and risk run solely from this centre.


BREAKDOWN OF ASSETS BY REGION - 2008PERCENTAGE

Asia 3.9%

Other 5.4%

North & Latin America 11.6%

Arab World 29.4%

Western Europe 49.7%

BREAKDOWN OF ASSETS BY REGION - 2007PERCENTAGE

Asia 3.0%

Other 8.4%

North & Latin America 10.3%

Arab World 31.8%

Western Europe 46.5%

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The 2008 market disruption was first felt in the fixed income markets and has lead to widespread volatility in all trading markets. There has been a severe reduction of liquidity in the money markets and cash lending between European banks has almost ceased. Against that background, liquidity management has been the prime focus of Treasury during 2008. Liquidity has been successfully maintained at a comfortable level, due mainly to our solid relationships with our key counterparty clients. These customers have continued to lend ABCIB funds on a regular basis at competitive market levels enabling ABCIB to run long cash positions of a substantial amount on a daily basis to maintain a strong liquidity buffer. ABCIB has also set up and tested a ‘repo’ facility to allow access to liquidity from ABCIB’s “available for sale” bond portfolio, if required. ABCIB has been well within its Financial Services Authority (FSA) liquidity ratios throughout the year.

Despite the challenging market environment, Treasury has performed well with operating profit substantially higher than in previous years. The money market books have benefited from rate cuts by the Federal Reserve in the first half of the year and from the rate cuts by all major central banks in the second half of 2008. Foreign exchange trading has performed well, with client transactions and our own proprietary trading producing a profit significantly above budget.

THE YEAR AHEAD By any standards, 2009 will be another challenging year for ABCIB. A contraction in global growth and trade flows is widely expected, together with the ongoing impact of dislocations in global financial markets. This will provide a much less benign operating environment for ABCIB and our client base. Nevertheless, we remain confident that ABCIB is well-placed to continue its development.

Both the Trade Finance and P&SF units anticipate a greater and closer level of interaction with other parts of the ABC Group in 2009, reflecting the needs and requirements of the Group’s customers and markets as they tackle the challenges of the current economic environment. ABCIB will play its part in continuing to innovate and develop financing structures to support trade flows, projects and companies seeking to invest in our core markets.

In 2009 liquidity management will remain a priority for ABCIB to ensure that our successful balance sheet management during 2008 continues. We will focus on growing our deposit base from our existing customer relationships and we will seek to attract new clients from Europe and the MENA region. Maintaining a strong capital position will also be a priority.

Nofal BarbarChief Executive Officer and Managing Director20th February 2009

We are in a better position to use our competitive advantage in our market place to achieve growth.


At ABCIB we remain confident that we are well-placed to continue our development and growth in terms of output and trade growth.

CORPORATE GOVERNANCE AND RISK MANAGEMENT

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GOVERNANCE COMMITTEESThe Board has three principal committees. The Board Risk Committee and the Audit Committee are described in more detail below. The Compensation Committee reviews compensation policy generally, plus the overall remuneration of ABCIB’s senior managers.

The Management Committee (MANCOM) is the highest level management decision-making committee of ABCIB, reporting through the Chief Executive Officer to the Board of Directors. The Assets and Liabilities Committee (ALCO), and the Information Technology Steering Committee (ITSC) report to MANCOM. ALCO is chaired by the Chief Executive Officer and it focuses on the funding of ABCIB’s assets, liquidity, interest rates, trading risks and the investment of ABCIB’s capital. ITSC, chaired by the Head of Support, oversees enhancements to ABCIB’s core IT and communications systems.

RISK MANAGEMENTThe Board Risk Committee (BRC) is chaired by Mr Hassan Juma and four other non-executive directors sit on this committee. Mr Hassan Juma is also the President and Chief Executive of ABC Group, and member of the ABC Group BRC and the ABC Group Audit Committee.

The BRC has overall responsibility for risk policy, within the parameters set for the ABC Group. Its responsibilities include setting and reviewing all risk policies and procedures, reviewing ABCIB’s risk strategy and risk appetite, return expectations and asset allocation limits, principally in terms of country, industry, ratings and tenor. BRC reviews risk levels in relation to individual borrowers/counterparties, industry sectors, countries, regions and products. The Committee also sets market risk and trading limits and parameters for investment portfolios and trading. It delegates authority to senior management to conduct business within the terms of the risk strategy.

Credit risk is managed by the Credit Committee (IBCC), which is the main credit risk decision-making forum of ABCIB. Chaired by the Head of Risk Management, IBCC members include the Chief Executive Officer and the ABC Group Chief Credit & Risk Officer. IBCC credit decisions are overseen by the BRC.

The risk infrastructure of ABCIB proved to be resilient throughout the market challenges of 2008 but a full review of risk management has been undertaken and processes have been strengthened where considered necessary.


CREDIT RISKThe Group’s credit policies and procedures govern all aspects of the credit risk process, including risk approval and control. All credit applications from ABCIB’s branches are reviewed by the Risk Management Department in London and approved (or otherwise) by the IBCC and, if required, by the parent bank’s Credit Committee. All limits, including those for banks and sovereign entities, are reviewed at least annually and include an assessment of all relevant risk factors.

The treatment of large exposures and provision for bad and doubtful loans are governed by ABCIB’s Large Exposure Policy Statement and its Credit Risk Provisioning Policy, both approved by the BRC. Where monies are overdue, or where there is doubt that they will be received by ABCIB, all loans to that customer are automatically placed on a non-accrual basis unless a specific exemption is given by the IBCC. Any interest charged to the customer, but not paid, is written back and not taken into ABCIB’s profit and loss account.

There has been one significant new impaired exposure in 2008, relating to the failure of a US financial institution. A full provision has been raised against the EUR 23 million owing from that debtor. Despite the pressures in the credit landscape in 2008, the quality of the risk portfolio is considered to be good, reflecting a conservative risk approach in recent years. The weighted average risk rating of ABCIB’s risk asset book is equivalent to investment grade. ABCIB’s non-performing loans have changed from £5 million at the end of 2007 to £6.3 million at the end of 2008. Specific provisions at year end covered 64% of non-performing debt compared with 79% in 2007. We remain comfortable with the coverage level taking into account collateral held.

ABCIB has prudent policies and procedures to build up reserves against possible losses in the asset portfolio. Specific provisions are in place to deal with exposures classified as impaired or where losses are expected. In addition, ABCIB maintains a collective impairment reserve to cover an identified part of the portfolio where observable data indicates that impairment is likely to have occurred even though there is not yet any specific evidence of impairment of any individual loan within that group of assets. This reserve stood at £2 million at year-end.

LIQUIDITY RISKABCIB’s approach to managing liquidity risk, and the responsibilities of management, is covered in ABCIB’s Liquidity Policy Statement, a copy of which has been filed with the FSA. The topic is discussed fully in note 38 to the report and accounts.

There is an extensive daily reporting process for liquidity risk management, including stress tests, detailed deposit maturity information and asset drawdown analyses. Senior management of ABCIB is actively involved in assessment and management of ABCIB’s liquidity on a day-to-day basis to ensure that liquidity is available to support the business plan at all times.

MARKET RISK, OPERATIONAL RISK AND OTHER RISKABCIB uses the Value at Risk (VaR) method of risk management of currency, interest rate and traded credit exposures on a daily basis. All market risk is managed in London and overseen on a global basis by ABC Bahrain. The Head

CORPORATE GOVERNANCE AND RISK MANAGEMENT

19

of Risk Management, the Treasurer and the Head of Internal Control review the level of market risk every day and all treasury counterparty risks are monitored on a real-time basis. Treasury operations are governed by the Trading Book Policy Statement, which has been approved by the Board and the FSA.

Derivative instruments are used by ABCIB as hedges against the risk of treasury losses from mismatches in maturities, interest rates and currencies in relation to the asset and liability base. Contracts for futures, forward rate agreements and interest rate and currency swap agreements are most commonly used to this effect. Any open positions are relatively small and are re-valued on a regular basis. Trading on the spot and forward foreign exchange markets is mainly client driven. Proprietary trading is kept within a modest VaR limit and other market risk parameters, as determined by ALCO.

Operational risk is managed by the Head of Risk Management and the Head of Operational Risk. ABCIB has an operational risk framework in place with recording of risks and controls and loss data capture. Documentary and legal risk is managed by the effective use of ABCIB’s internal counsel and external advisors.

AUDIT COMMITTEEThe Audit Committee meets at least four times a year to give the Board of Directors an independent assessment of the adequacy of ABCIB’s policy on internal and external financial reporting, controls and compliance. The Committee is chaired by Mr David Carse. ABCIB has an established internal audit function, with the Head of Internal Audit reporting directly to the Chairman of the Audit Committee. A risk-based audit approach is adopted which ensures that key risk areas are reviewed and assessed regularly. They include lending activity and the credit process, IT systems and support functions. Where necessary, this work is carried out in coordination with ABC Group Audit and external specialists. In addition, ABCIB’s external auditor, Ernst & Young LLP, undertakes a detailed review and assessment of ABCIB’s risk assets as part of the annual audit process.

COMPLIANCEABCIB’s Compliance Policy Framework is approved by the Board and is subject to regular review. ABCIB applies a risk based approach to compliance with resource and effort appropriately focused in areas of higher risk. The Head of Compliance and Bank MLRO reports directly to the Chief Executive Officer and the Board and is a member of MANCOM and a co-opted attendee of the Audit Committee. Compliance policies and procedures, including those concerning money laundering prevention, conform to FSA and other relevant regulatory/legal requirements and are subject to compliance monitoring. The European branch General Managers have responsibility over local matters of regulatory compliance, including that of money laundering prevention in compliance with ABCIB’s Compliance Policy Framework and local laws and regulations. Each European branch has the support of a local MLRO reporting jointly to the branch General Manager and the Head of Compliance and Bank MLRO.

The Group’s credit policies and procedures govern all aspects of the credit risk process, including risk approval and control.


STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

ABCIB applies a risk based approach to compliance with resource and effort appropriately focused in areas of higher risk.

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The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The financial statements are required by law to give a true and fair view of the state of affairs of ABCIB and of the profit and loss of ABCIB for that period. In preparing those 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 applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• the information given in the Director’s Report, Chief Executive Officer’s Report and Corporate Governance and Risk Management is consistent with the financial statements

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of ABCIB and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of ABCIB and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.


FINANCIAL STATEMENTS CONTENTS

Independent Auditor’s Report 23Profit and Loss Account 24Statement of Total Recognised Gains and Losses 25Balance Sheet 26Notes to the Accounts 27

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To Members of ABC International Bank plc (“ABCIB”)

We have audited ABCIB’s financial statements for the year ended 31st December 2008, which comprise the Profit and Loss Account, the Balance Sheet, the Statement of Total Recognised Gains and Losses and the related notes 1 to 45. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely to ABCIB’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to ABCIB’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 ABCIB and ABCIB’s members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe Directors are responsible for the preparation of the Annual Report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) as set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (United Kingdom and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements.

In addition we report to you if, in our opinion, ABCIB has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises only the Directors’ Report, the Chief Executive Officer’s Report and the Corporate Governance and Risk Management Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

BASIS OF AUDIT OPINIONWe conducted our audit in accordance with International Standards on Auditing (United Kingdom and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the ABCIB’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

OPINIONIn our opinion:

• the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of ABCIB’s affairs as at 31st December 2008 and of its profit for the year then ended;

• the financial statements have been properly prepared in accordance with the Companies Act 1985; and

• the information given in the Directors’ Report is consistent with the financial statements.

Ernst & Young LLPRegistered AuditorLondon20th February 2009

INDEPENDENT AUDITOR’S REPORT


For the year ended 31st December 2008 PROFIT AND LOSS ACCOUNT

2008 2007

Notes £000 £000

Interest receivable and similar income arising from debt securities and certificates of deposit purchased 34,744 29,624

Other interest receivable and similar income 115,811 107,060

150,555 136,684

Interest payable 3 115,501 106,575

NET INTEREST INCOME 35,054 30,109

Fees and commissions receivable 31,926 23,280

Fees and commissions payable (7,394) (4,397)

Dealing losses 41 (21) (258)

Other operating income 5 3,444 4,023

27,955 22,648

Total operating income 63,009 52,757

Administrative expenses 6 (32,808) (32,117)

Depreciation and amortisation (845) (1,523)

Provisions 7 (19,470) 2,144

(53,123) (31,496)

PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 8 9,886 21,261

Tax credit/(charge) on ordinary activities 9 254 (1,282)

PROFIT FOR THE FINANCIAL YEAR 10,140 19,979

The results for the years ended 31st December 2008 and 31st December 2007 are derived from continuing operations.

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For the year ended 31st December 2008STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

2008 2007

Notes £000 £000

Profit for the financial year 10,140 19,979

Actuarial gains/(losses) recognised on defined pension scheme 45 3,673 (1,687)

Deferred tax (charge)/credit relating to pension schemes (424) 264

Change in fair value of available for sale investments 18 (43,909) (10,771)

Deferred tax relating to fair value of available for sale investments 6,584 -

TOTAL RECOGNISED (LOSSES)/PROFITS SINCE LAST ANNUAL REPORT (23,936) 7,785


As at 31st December 2008BALANCE SHEET

Notes 2008 2007

£000 £000

ASSETS

Cash and balances at central banks 128,751 21,986

Certificates of deposit purchased 10 241,000 278,000

Due from banks 12 712,359 424,232

Financial assets designated at fair value through profit and loss 13 - 6,184

Loans and advances to customers 14 1,140,532 981,449

Financial investments - available-for-sale 18 411,428 322,974

Financial investments - held to maturity 19 8,611 -

Interest in subsidiaries and associated undertakings 20 4,166 3,427

Tangible fixed assets 22 1,294 1,383

Deferred tax asset 23 10,584 4,000

Other assets 24 28,047 9,041

Prepayments and accrued income 25 41,541 38,034

Total Assets 2,728,313 2,090,710

LIABILITIES

Deposits from banks and other financial institutions 26 1,794,060 1,326,081

Deposits from customers 27 203,395 137,554

Other liabilities 28 55,681 16,217

Accruals and deferred income 29 13,860 19,243

Term borrowing 30 309,048 234,591

Pension scheme liability 45 2,411 5,798

2,378,455 1,739,484

Subordinated liabilities 31 90,162 65,761

Called up share capital 32 182,296 182,296

Profit and loss account 127,319 114,336

Fair value reserve (49,919) (11,167)

Equity shareholders’ funds 33 259,696 285,465

Capital Resources 349,858 351,226

Total Liabilities and Shareholders’ Funds 2,728,313 2,090,710

MEMORANDUM ITEMS

Contingent Liabilities

Acceptances and endorsements 10,997 19,132

Guarantees and letters of credit 35 2,075,793 1,241,991

2,086,790 1,261,123

Commitments

Other commitments 35 323,377 389,544

Farhat O. BengdaraChairman20th February 2009

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NOTES TO THE ACCOUNTS

1. ACCOUNTING POLICIES

1.1 Basis of preparation

The financial statements of ABC International Bank plc (“ABCIB”) are prepared under the historical cost convention, except for available-for-sale investments, derivative financial assets and liabilities and financial assets held at fair value through profit and loss, that have been measured at fair value. The financial statements are prepared in accordance with the special provisions of part VII of the Companies Act 1985 relating to banking companies, and applicable accounting standards. The accounting policies adopted are consistent with those used in the previous financial year.

ABCIB is not required to prepare group accounts since it qualifies for the exemptions available under Section 228 of the Companies Act 1985. In addition, there is no requirement to prepare a statement of cash flows in accordance with Financial Reporting Standard 1.

1.2 Significant accounting judgements and estimates

In the process of applying ABCIB’s accounting policies, management has used its judgements and made estimates in determining the amounts recognised in the financial statements. The most significant uses of judgements and estimates are as follows:

Fair value of financial instrumentsWhere the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible but, where this is not feasible, a degree of judgement is required in establishing fair values.

Impairment losses on loans and advancesABCIB reviews its problem loans and advances at each reporting date to assess whether a provision for impairment should be recorded in the profit and loss account. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of provision required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the provision.

In addition to the specific provision against individually significant loans and advances, ABCIB maintains a collective impairment reserve to cover an identified part of the portfolio where observable data indicates that impairment is likely to have occurred even though there is not yet any specific evidence of impairment of any individual loan within that group of assets.

Credit facilities subject to collective impairment provisions represent on-balance sheet exposures not subject to specific provision, with an internal credit risk rating of 7+ to 10 and with an original maturity of more than 6 months.

Impairment of equity investmentsABCIB treats investment securities as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgement. ABCIB treats ‘significant’ generally as 20% or more and ‘prolonged’ greater than 6 months. In addition, ABCIB evaluates other factors, such as share price volatility.

Deferred tax assetsDeferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. In assessing the recoverability of deferred tax assets, management considers forecast profits for two years.



1. ACCOUNTING POLICIES (CONTINUED)

PensionsThe cost of the defined benefit pension plan is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. See note 45 for the assumptions used.

1.3 Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these financial statements are set out below.

a. Foreign Currency Translation

Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to ‘Other operating income’ in the profit and loss account.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions except in the case of non-monetary items that form part of effective hedging relationships which are translated at rates of exchange at the balance sheet date. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

b. Financial Instruments - Initial Recognition and Subsequent Measurement

i) Date of recognitionPurchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, i.e. the date ABCIB commits to purchase or sell the asset. Derivatives are recognised on a trade date basis.

ii) Initial recognition of financial instrumentsThe classification of financial instruments at initial recognition depends on the purpose for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus, in the case of financial assets not at fair value through profit and loss, any directly attributable incremental costs of acquisition or issue.

iii) Derivatives recorded at fair value through profit and lossDerivatives include interest rate swaps, cross currency swaps and forward foreign exchange contracts. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair values are negative. Changes in the fair value of derivatives held for trading are included in ‘Dealing losses’.

iv) Financial assets held for tradingFinancial assets held for trading are recorded in the balance sheet at fair value. Changes in fair value are recognised in ‘Other operating income’. Interest and dividend income or expense are recorded in ‘Other operating income’ according to the terms of the contract, or when the right to the payment has been established.

Included in this classification are debt securities, equities and short positions in debt securities and securities which have been acquired principally for the purpose of selling or repurchasing in the near term.

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v) Financial assets designated at fair value through profit and lossFinancial assets classified in this category are designated by management on initial recognition when the following criteria are met:

- The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on a different basis; or

- The assets are part of a group of financial assets which is managed and its performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

- The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets at fair value through profit and loss are recorded in the balance sheet at fair value. Changes in fair value are recorded in ‘Other operating income’. Interest earned or incurred is accrued in interest income or expense, respectively, according to the terms of the contract, while dividend income is recorded in ‘Other operating income’ when the right to the payment has been established.

vi) Due from banks and loans and advances to customers‘Due from banks’ and ‘Loans and advances to customers’ are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as ‘Financial assets held for trading’, designated as ‘Financial investments - available-for-sale’ or ‘Financial asset designated at fair value through profit and loss’. After initial measurement, amounts due from banks and loans and advances to customers are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortisation is included in ‘Interest and similar income’ in the Profit and Loss Account. The losses arising from impairment are recognised in the profit and loss account in ‘Provisions’.

vii) Available-for-sale financial investmentsAvailable-for-sale financial investments are those which are designated as such or do not qualify to be classified as designated at fair value through profit and loss, held-to-maturity or loans and advances. They include equity instruments, investments in mutual funds and money market and other debt instruments.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value. Unrealised gains and losses are recognised directly in equity in the ‘Available-for-sale reserve’. When a security is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the profit and loss account in ‘Other operating income’. Where ABCIB holds more than one investment in the same security, they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the effective interest rate. Dividends earned whilst holding available-for-sale financial investments are recognised in the profit and loss account as ‘Other operating income’ when the right to receive payment has been established. The losses arising from impairment of such investments are recognised in the profit and loss account in ‘Provisions’ and removed from the available-for-sale reserve. Foreign exchange gains/ (losses) on monetary financial investments classified as available-for-sale are included in dealing losses.

viii) Debt issued and other borrowed fundsIssued financial instruments or their components, which are not designated at fair value through profit and loss are classified as liabilities under ‘Debt issued and other borrowed funds’, where the substance of the contractual arrangement results in ABCIB having an obligation either to deliver cash or another financial asset to the holder. These include mainly deposits from banks and other financial institutions, deposits from customers, term borrowing and subordinated liabilities.

After initial measurement, debt issued and other borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate.




c. Determination of fair value

The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotations, (bid price for long positions and ask price for short positions), without any deductions for transaction costs.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, and other relevant valuation models.

d. Impairment of financial assets

ABCIB assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payment, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as economic conditions that correlate with defaults.

i) Due from banks and loans and advances to customersFor amounts due from banks and loans and advances to customers carried at amortised cost, ABCIB first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If ABCIB determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of a provision account and the amount of the loss is recognised in the profit and loss account. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to ABCIB. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to ‘Provisions’.

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of ABCIB’s internal credit grading system that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

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ii) Available-for-sale financial investmentsFor available-for-sale financial investments, ABCIB assesses at each balance sheet date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence will include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the profit and loss account - is removed from equity and recognised in the profit and loss account. Impairment losses on equity investments are not reversed through the profit and loss account, and increases in their fair values after impairment are recognised directly in equity.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. Interest continues to be accrued at the original effective interest rate on the reduced carrying amount of the asset and is recorded as part of ‘Interest receivable and similar income arising from debt securities and certificates of deposit purchased’. If, in a subsequent year, the fair value of the debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit and loss account, the impairment loss is reversed through the profit and loss account.

e. Hedge Accounting

ABCIB makes use of derivative instruments to manage exposures to interest rates, foreign currency and credit risks. In order to manage particular risks, ABCIB applies hedge accounting for transactions which meet the specified criteria.

At inception of the hedge relationship, ABCIB formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship.

Also at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item. The hedges are formally assessed each quarter. A hedge is regarded as highly effective if the changes in fair values or cash flows attributable to the hedged risk during the period for which it is designated are expected to offset in a range of 80% to 125%.

Fair value hedges For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognised in the profit and loss account in ‘Other operating income’. Meanwhile, the change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in the profit and loss account in ‘Other operating income’.

If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortised cost, using the effective interest rate method, the difference between the carrying value of the hedged item on termination and the face value is amortised over the term of the original hedge. If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in the profit and loss account.

f. Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheet.

g. Recognition of Income and Expense

Revenue is recognised to the extent that it is probable that the economic benefits will flow to ABCIB and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.


Year ended 31 December 2008NOTES TO THE ACCOUNTS


i) Interest and similar income and expenseFor all financial instruments measured at amortised cost and interest bearing financial instruments classified as available-for-sale financial investments, interest income or expense is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or the financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The carrying amount of the financial asset or financial liability is adjusted if ABCIB revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in carrying amount is recorded as interest income or expense.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income is then recognised using the effective interest rate applied to the new carrying amount. Interest charged to the customer but not paid is written back and not taken to the profit and loss account.

ii) Fee and commission incomeABCIB earns fee and commission income from a diverse range of services it provides to its customers. Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan.

iii) Dividend incomeRevenue is recognised when ABCIB’s right to receive the payment is established.

iv) Dealing incomeResults arising from trading activities include all gains and losses from changes in fair value and related interest income or expense and dividends for financial assets held for trading. This includes any ineffectiveness recorded in respect of hedging transactions.

h. Financial Guarantees

In the ordinary course of business, ABCIB gives financial guarantees, consisting of letters of credits, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements at fair value (equivalent to the premium received) in ‘Other liabilities’. Subsequent to initial recognition, ABCIB’s liability under each guarantee is measured at the higher of the amortised premium and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to financial guarantees is taken to the profit and loss account in ‘Provisions’. The premium received is recognised in the profit and loss account in ‘Fees and commission receivable’ on a straight line basis over the life of the guarantee.

i. Subsidiaries and Associates

Investments in subsidiaries and associates are stated at cost less impairment losses. Reversals of impairment losses are recognised in the profit and loss account if there has been a change in the estimates used to determine the recoverable amount of the investment.

j. Fixed assets and Depreciation

Fixed assets are stated at cost less accumulated depreciation and impairment losses. Such cost includes costs directly attributable to making the asset capable of operating as intended.

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Depreciation is provided on all fixed assets at rates calculated to write off the cost less estimated residual value on prices prevailing at the date of acquisition of each asset evenly over its expected useful life as follows:

Leasehold improvements - lower of lease term or 10 years Motor vehicles, office equipment including computer hardware and software - 3 - 5 years Office furniture - 5 years

The carrying values of fixed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

k. Deferred Tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events have occurred at that date that will result in an obligation to pay more, or right to pay less or to receive more tax, with the following exceptions:

- Deferred tax assets are recognised only to the extent that the Directors consider it more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

- Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

l. Leases

Rentals payable under operating leases are charged to the profit and loss account on a straight-line basis over the lease term. Equipment on an operating lease is capitalised as a fixed asset and is stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis to write off the cost less residual value over the primary lease term.

m. Pension Benefits

i) Defined benefit pension planABCIB participates in a defined benefit pension scheme, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit scheme is determined separately using the projected unit credit actuarial valuation method.

The scheme was closed to new members in June 2004 from which time membership of a defined contribution pension scheme is available to all new employees.

The cost of providing benefits under the defined benefit scheme is determined separately using the projected unit credit actuarial valuation method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligations) and is based on actuarial advice. Past service costs are recognised in profit and loss on a straight-line basis over the vesting period or immediately if the benefits have vested. When a settlement or a curtailment occurs the change in the present value of the scheme liabilities and the fair value of the scheme assets reflects the gain or loss which is recognised in the profit and loss account. Losses are measured at the date the employer becomes demonstrably committed to the transaction and gains when all parties whose consent is required are irrevocably committed to the transaction.




The interest element of the defined benefit cost represents the change in present value of scheme obligations relating to the passage of time, and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligations during the year. The expected return on scheme assets is based on an assessment made at the beginning of the year of long-term market returns on scheme assets, adjusted for the effect on the fair value of scheme assets of contributions received and benefits paid during the year. The difference between the expected return on scheme assets and the interest costs is recognised in the profit and loss account.

Actuarial gains and losses are recognised in full in the statement of Total Recognised Gains and Losses in the period in which they occur.

The defined benefit pension asset or liability in the balance sheet comprises the total of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds that have been rated at AA- or equivalent status), less any past service cost not yet recognised and less the fair-value of scheme assets out of which the obligations are to be settled directly. Fair value is based on market price information and in the case of quoted securities is the published mid-market price. The value of a net benefit pension asset is limited to the amount that may be recovered either through reduced contributions or agreed refunds from the scheme.

ii) Defined contribution pension schemeABCIB also operates a defined contribution pension scheme. The contribution payable to a defined contribution scheme is in proportion to the services rendered to ABCIB by the employees and is recorded as an expense under ‘Staff cost’ in the profit and loss account. Unpaid contributions are recorded as a liability.

n. Provisions

Provisions are recognised when ABCIB has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

2. SEGMENTAL REPORTING

ABCIB has more than one business segment. Both Trade & Commodity Finance and Project & Structured Finance supported by Treasury represent one segment, “Commercial Banking” and “Islamic Financial Services” the other. Islamic Financial Services is not considered significant as its net profit and net assets for this segment represent less than 10% of the respective amounts at the ABCIB level. The ultimate origin of all income is determined to be the UK. Accordingly no geographical segmental information is disclosed.

3. INTEREST PAYABLE

Interest payable includes £4,401,007 in respect of interest on the subordinated liability (2007 : £2,887,018).


35

4. ANALYSIS OF THE PROFIT AND LOSS ACCOUNT BY CLASSIFICATION:

2008

Financial assets designated at

FV through P&L TradingLoans and

receivablesAvailable -for-sale

Financial liabilities at

amortised cost

Non financial

instruments Total

£000 £000 £000 £000 £000 £000 £000

Interest receivable and similar income from debt securities and certificates of deposit purchased 38 671 15,582 18,453 - - 34,744

Other interest receivable and similar income - - 115,811 - - - 115,811

Interest payable - - - - (115,501) - (115,501)

Net Interest income 38 671 131,393 18,453 (115,501) - 35,054

Fees and commissions receivable - - 31,926 - - - 31,926

Fees and commissions payable - - - - (7,394) - (7,394)

Dealing losses - (21) - - - - (21)

Other operating income - - - - - 3,444 3,444

Total operating income 38 650 163,319 18,453 (122,895) 3,444 63,009

2007

Financial assets designated at

FV through P&L TradingLoans and

receivablesAvailable -for-sale


amortised cost

Non financial

instruments Total

£000 £000 £000 £000 £000 £000 £000

Interest receivable and similar income from debt securities and certificates of deposit purchased 551 151 15,662 13,260 - - 29,624

Other interest receivable and similar income - - 107,060 - - - 107,060

Interest payable - - - - (106,575) - (106,575)

Net Interest income 551 151 122,722 13,260 (106,575) - 30,109

Fees and commissions receivable - - 23,280 - - - 23,280

Fees and commissions payable - - - - (4,397) - (4,397)

Dealing losses - (258) - - - - (258)

Other operating income - - - - - 4,023 4,023

Total operating income 551 (107) 146,002 13,260 (110,972) 4,023 52,757



5. OTHER OPERATING INCOME

2008 2007

£000 £000

Rental income 834 879

Islamic banking income 905 2,749

Release of funds held as security 1,106 -

Dividends received 37 29

(Loss) on sale of investment securities - (22)

Profit on disposal of fixed assets 14 -

Other 548 388

3,444 4,023

6. ADMINISTRATIVE EXPENSES2008 2007

£000 £000

a) Staff costs:

Salaries 16,618 16,561

Social security costs 2,673 2,499

Pension costs

- Defined benefit scheme 762 610

- Defined contribution scheme 460 421

- Restructuring costs 246 361

20,759 20,452

Other administrative expenses 12,049 11,665

32,808 32,117

2008 2007

Number Number

The average number of employees (excluding Directors) during the year 206 206

b) Directors’ emoluments:The aggregate emoluments of the Directors of ABC International Bank plc for the year were:

2008 2007

£000 £000

Aggregate emoluments in respect of qualifying services 566 570

Bank’s contribution towards pension scheme in respect of qualifying services 32 32

Number of Directors accruing benefits under defined contribution scheme 1 1

In respect of the highest paid Director:

Aggregate emoluments in respect of qualifying services 216 210


37

7. PROVISIONS

2008 2007

£000 £000

The net (charge)/credit for the year in respect of provisions is made up as follows:

Loans and advances to customers (917) (429)

Collective impairment provision release - 2,487

Financial investments - available-for-sale (18,304) -

Financial guarantees (361) -

Recoveries in respect of advances previously written off 112 86

(19,470) 2,144

8. PROFIT ON ORDINARY ACTIVITIES BEFORE TAX

2008 2007

£000 £000

Profit is stated after (charging)/crediting:

Foreign currency gains, net 530 216

Auditors’ remuneration: audit of the financial statements (236) (209)

taxation services (250) (163)

other services (35) (25)

Operating lease rentals: hire of equipment (51) (81)

land and buildings (3,011) (2,769)

Income from listed securities 19,162 13,261



9. TAXATION

2008 2007

£000 £000

Analysis of tax charge for the year

Current tax:

UK corporation tax 1,468 (1,401)

Foreign Tax (1,214) (881)

Total current tax 254 (2,282)

Deferred tax:

Recognition of brought forward losses - 1,000

Total deferred tax - 1,000

Total tax credit/(charge) for the year 254 (1,282)

Factors affecting tax credit/(charge) for the year

The differences are explained below:

Profit on ordinary activities before tax 9,886 21,261

Profit on ordinary activities multiplied by standard rate of corporation

tax in the UK of 28.5% (2007 : 30%) (2,818) (6,378)

Effect of:

Prior year adjustment 1,468 -

Available-for-sale investments losses utilised 4,162 -

Disallowed expenses and non-taxable income (1,305) 34

Depreciation in excess of capital allowances (39) (217)

Movements in other unrecognised deferred tax assets - (135)

Utilisation of brought forward tax losses - 2,042

Group relief - 2,607

Double tax relief - 646

Foreign tax (1,214) (881)

Current tax credit/(charge) 254 (2,282)


39

10. CERTIFICATES OF DEPOSIT PURCHASED

2008 2007

£000 £000

Analysed by maturity:

within three months 241,000 226,000

between three months and one year - 52,000

241,000 278,000

11. ANALYSIS OF ASSETS AND LIABILITIES BY CLASSIFICATION:

2008

Financial investments -

held to maturityLoans and

receivablesAvailable-

for-sale


amortised cost

Non financial instruments Total

£000 £000 £000 £000 £000 £000

Cash and balances at central banks - 128,751 - - - 128,751

Certificates of deposit purchased - 241,000 - - - 241,000

Due from banks - 709,292 3,067 - - 712,359

Financial assets designated at fair value through profit and loss - - - - - -

Loans and advances to customers - 1,097,023 43,509 - - 1,140,532

Financial investments - available-for-sale - - 411,428 - - 411,428

Financial investments - held to maturity 8,611 - - - - 8,611

Interest in subsidiaries and associated undertakings - - - - 4,166 4,166

Tangible fixed assets - - - - 1,294 1,294

Deferred tax asset - - - - 10,584 10,584

Other assets - - - - 28,047 28,047

Prepayments and accrued income - - - - 41,541 41,541

Total assets 8,611 2,176,066 458,004 - 85,632 2,728,313

Deposits from banks and other financial institutions - - - 1,794,060 - 1,794,060

Deposits from customers - - - 203,395 - 203,395

Other liabilities - - - - 55,681 55,681

Accruals and deferred income - - - - 13,860 13,860

Term borrowing - - - 309,048 - 309,048

Pension scheme liability - - - - 2,411 2,411

Total liabilities - - - 2,306,503 71,952 2,378,455



11. ANALYSIS OF ASSETS AND LIABILITIES BY CLASSIFICATION (CONTINUED):

2007

Financial assets designated

at fair value through P&L

Loans and receivables

Available -for-sale


amortised cost

Non financial instruments Total

£000 £000 £000 £000 £000 £000

Cash and balances at central banks - 21,986 - - - 21,986

Certificates of deposit purchased - 278,000 - - - 278,000

Due from banks - 424,232 - - - 424,232

Financial assets designated at fair value through profit and loss 6,184 - - - - 6,184

Loans and advances to customers - 981,449 - - - 981,449

Financial investments - available-for-sale - - 322,974 - - 322,974

Interest in subsidiaries and associated undertakings - - - - 3,427 3,427

Tangible fixed assets - - - - 1,383 1,383

Deferred tax asset - - - - 4,000 4,000

Other assets - - - - 9,041 9,041

Prepayments and accrued income - - - - 38,034 38,034

Total assets 6,184 1,705,667 322,974 - 55,885 2,090,710

Deposits from banks and other financial institutions - - - 1,326,081 - 1,326,081

Deposits from customers - - - 137,554 - 137,554

Other liabilities - - - - 16,217 16,217

Accruals and deferred income - - - - 19,243 19,243

Term borrowing - - - 234,591 - 234,591

Pension scheme liability - - - - 5,798 5,798

Total liabilities - - - 1,698,226 41,258 1,739,484


41

12. DUE FROM BANKS

2008 2007

£000 £000

Repayable:

on demand 129 46


between three months and one year 20,601 76,470

between one and five years 26,179 55,459

after five years 2,874 8,580

714,270 427,059

Allowance for impairment losses (note 16) (1,911) (2,827)

712,359 424,232

Included in the above are balances due from ABC Group undertakings of: 68,710 58,425

Included in the above are available-for-sale loans amounting to £3,067,000 (2007: £2,215,000).

13. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT AND LOSS ACCOUNT

2008 2007

£000 £000

At 1st January 6,184 6,745

Transfer to financial investments - held to maturity (7,732) -

Fair value movement - (418)

Foreign exchange adjustments 1,548 (143)

At 31st December - 6,184

Financial assets designated at fair value through profit and loss account represents a volatility linked structured equity product which was valued based on the S&P 500 Index and guaranteed by Dresdner Bank. In October 2008, due to movement in the S&P 500 Index, the embedded derivative component of the product was cancelled, the investment now takes the form of a zero coupon note due to mature in 2011. ABCIB has the intention and the ability to hold the investment to maturity. Had the investment not been transferred, a gain of £291,000 would have been recorded in the profit and loss account.



14. LOANS AND ADVANCES TO CUSTOMERS2008 2007

£000 £000

Repayable:

on demand 4,044 4,645



between one and five years 135,742 132,826

after five years 143,248 170,374

1,144,707 984,613

Allowance for impairment losses (note 16) (4,175) (3,164)

1,140,532 981,449

Included in the above are balances due from ABC Group undertakings of:Included in the above are available-for-sale loans amounting to

£43,509,000(2007: £33,861,000)

108,771 99,238

15. LOANS AND ADVANCES WHICH WERE PAST DUE

2008 2007

Loans and advances to

banks


customersLoans and

advances to banks


customers

£000 £000 £000 £000

Past due over 3 years 3,870 2,492 3,191 1,846

3,870 2,492 3,191 1,846

Loans and advances by credit quality

Loans and advances:

- neither past due nor impaired 710,400 1,142,215 423,868 982,767

- past due but not impaired 1,399 799 898 613

- impaired 2,471 1,693 2,293 1,233

714,270 1,144,707 427,059 984,613

Impaired loans and advances 2008 2007

£000 £000

Total impaired loans and advances to:

- banks 2,471 2,293

- customers 1,693 1,233

4,164 3,526


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16. MOVEMENTS IN ALLOWANCE FOR IMPAIRMENT LOSSES

Individually assessed Collectively assessed

Banks Customers Banks Customers Total

£000 £000 £000 £000 £000

Brought forward 1st January 2008 2,327 1,651 500 1,513 5,991

Provision for the year - 999 - - 999

Amounts written back - (81) - - (81)

Amounts written off in the year (1,106) (680) - - (1,786)

Foreign currency translation adjustment 190 773 - - 963

Carried forward 31st December 2008 1,411 2,662 500 1,513 6,086

17. MOVEMENTS IN PROVISION FOR SUSPENDED INTEREST

2008 2007

£000 £000

Brought forward 1st January 1,232 1,196

Interest suspended during the year 87 117

Foreign currency translation adjustment 476 (81)

Carried forward 31st December 1,795 1,232

Loans and advances where interest is suspended at year end

Before allowance for impairment losses 3,057 3,527



18. FINANCIAL INVESTMENTS - AVAILABLE-FOR-SALE

2008 2007

£000 £000

Listed 411,428 322,974

411,428 322,974

Due within one year 19,647 5,136

Due between one and two years 103,168 15,405

Due between two and five years 183,314 160,218

Due over five years 105,299 142,215

411,428 322,974

All available-for-sale financial investments are issued by non-public corporate bodies.

The movement on available-for-sale financial investments is as follows:

2008 2007

£000 £000

At 1st January 322,974 187,715

Additions 42,871 153,540

Repayments and disposals (5,506) (24,186)

Fair value movement (43,909) (10,771)

Provision (18,304) -

Exchange movements 113,302 16,676

At 31st December 411,428 322,974

The provision relates to a debt security for which the issuer has gone into administration and represents the maximum potential loss on the security.

The net unamortised discount at 31st December 2008 was £1,383,303 (2007 : £856,046).Fair value has been determined by reference to quoted market prices.


45

19. FINANCIAL INVESTMENTS - HELD TO MATURITY

2008

£000

At 1st January -

Transfer from financial assets designated at fair value through profit and loss account 7,732

Foreign exchange adjustments 879

At 31st December 8,611

20. INTEREST IN SUBSIDIARIES AND ASSOCIATED UNDERTAKINGS

The movement on unlisted subsidiaries and associates held for investment purposes is as follows:

2008 2007

£000 £000


Additions - 2,982

Redemption (522) (3,192)

Exchange movements 1,261 (40)

At 31st December 4,166 3,427

ABCIB owns the following investment in subsidiaries and associated companies in addition to those disclosed in note 21:

Nature of business

Country of registration Ownership %

The General Leasing Company (Cayman Islands) Limited I Leasing Cayman Is. 20%

The General Leasing Company (Cayman Islands) Limited II Leasing Cayman Is. 20%

Bronco Fund LLC Property USA 45%

The investment in subsidiaries and associated undertakings noted above form part of effective fair value hedging relationship in relation to foreign currency risk, with certain foreign currency denominated borrowings.

21. SHARES IN GROUP UNDERTAKINGS

ABCIB owns the following investments in subsidiaries:

Nature of businessCountry of

registration Ownership %

Alphabet Nominees Limited Nominee company England 100%

Abcint Nominees Limited Nominee company England 100%

ABCIB Islamic Asset Management Limited Advisory services England 100%

ABCIB Leasing LimitedAsset trading

company England 100%



22. TANGIBLE FIXED ASSETS

Leaseholdimprovements

Furnitureand fittings

Officeequipment

Motor vehicles Total

£000 £000 £000 £000 £000

Cost

At 1st January 2008 744 839 6,993 260 8,836

Additions 3 62 347 55 467

Disposals - - (109) (36) (145)

Exchange differences 109 86 860 65 1,120

At 31st December 2008 856 987 8,091 344 10,278

Depreciation

At 1st January 2008 422 552 6,281 198 7,453

Charge for the year 79 69 646 51 845

Disposals - - (108) (29) (137)

Exchange differences 48 48 682 45 823

At 31st December 2008 549 669 7,501 265 8,984

Net book value

At 31st December 2008 307 318 590 79 1,294

At 31st December 2007 322 287 712 62 1,383

23. DEFERRED TAX ASSET2008 2007

£000 £000


Recognised during the year 6,584 1,000

At 31st December 10,584 4,000

The major components of the deferred tax asset are as follows:

Unutilised tax losses arising on P&L results 3,810 4,000

Unutilised tax losses arising on STRGL movement of financial investments - available-for-sale 6,774 -

10,584 4,000

There is an unrecognised deferred tax asset of £18 million based on a tax rate of 28% (2007: £17.1million) arising mainly due to brought forward tax losses and financial investments available-for-sale valuation reserve. Management has performed a review of recoverability of deferred tax assets considering forecast profits for the next two years. The assumptions used in preparing these forecasts have been subject to a series of stress tests to ensure the forecasts fall within a reasonable range of outcomes.


47

24. OTHER ASSETS

2008 2007

£000 £000

Positive mark to market of derivatives 20,891 5,217

Fair value adjustment on hedged items 1,673 261

Other assets 5,483 3,563

28,047 9,041

25. PREPAYMENTS AND ACCRUED INCOME

2008 2007

£000 £000

Prepayments and accrued income 2,265 2,287

Interest receivable 39,276 35,747

41,541 38,034

26. DEPOSITS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

2008 2007

£000 £000

Repayable:

on demand 318,061 123,983

within three months 1,425,728 1,032,237


1,794,060 1,326,081

Included in the above are balances due to ABC Group undertakings of: 487,049 127,599

27. DEPOSITS FROM CUSTOMERS

2008 2007

£000 £000

Repayable:

on demand 128,493 79,566


between three months and one year 2,866 844

between one and five years - 6,500

203,395 137,554




28. OTHER LIABILITIES

2008 2007

£000 £000

Negative mark to market of derivatives 1,723 389

Fair value adjustment on hedged items 20,840 5,089

Tax and social security costs 1,102 908

Other liabilities 32,016 9,831

55,681 16,217

29. ACCRUALS AND DEFERRED INCOME

2008 2007

£000 £000

Interest payable 7,214 10,759

Accruals and deferred income 6,646 8,484

13,860 19,243

30. TERM BORROWING

2008 2007

£000 £000

Repayable:

within one year 35,000 35,000

between two and five years 274,048 199,591

309,048 234,591


Interest on all term borrowing is calculated by reference to LIBOR plus margin which are repriced monthly.


49

31. SUBORDINATED LIABILITIES

The following loans are unsecured and are subordinated in right of payment to the ordinary creditors, including depositors:

2008 2007

£000 £000

GBP85.0 million Zero Coupon Bond 58,744 55,742

GBP16.3 million Zero Coupon Bond 10,716 10,019

GBP16.4 million Zero Coupon Bond 10,430 -

GBP15.6 million Zero Coupon Bond 10,272 -

90,162 65,761

On 12th December 2005 ABCIB issued a Subordinated zero coupon bond for £50 million repayable at par of £85.0 million on 14th December 2015.On 21st December 2007 ABCIB issued a Subordinated zero coupon bond for £10 million repayable at par of £16.3 million on 31st December 2014.On 30th June and 4th September 2008 ABCIB issued two Subordinated bonds for £10 million each repayable at par of £16.4million and £15.6million on 31st December 2014.The subordinated liabilities are due to the Ultimate Parent Undertaking.

32. CALLED UP SHARE CAPITAL

2008 & 2007 2008 & 2007

Authorised Issued

Ordinary shares of £1 each 300,000,000 182,296,000

The adequacy of ABCIB’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision and adopted by the Financial Services Authority (FSA) in supervising banks.

ABCIB’s policy is to maintain a strong capital base to support the development of its business and to meet regulatory capital requirements at all times. The principal forms of capital are called up share capital, equity shareholders’ funds and subordinated debt.

The FSA supervises ABCIB and as such receives information on the capital adequacy of ABCIB. The FSA requires each bank to maintain an individually prescribed ratio of total capital to risk-weighted assets taking into account both balance sheet assets and off-balance transactions. ABCIB complied in full with the FSA’s capital adequacy requirements during 2008 and 2007.

ABCIB’s capital is divided into two tiers:Tier 1 capital comprises equity shareholders’ funds.Tier 2 capital comprises subordinated liabilities and allowance for collective impairment losses.Subordinated Liabilities may not exceed 50% of Tier 1 capital.

Banking operations are categorised as either trading book or banking book and risk-weighted assets are determined accordingly. Banking book risk-weighted assets are measured by means of a hierarchy of risk weightings classified according to the nature of each asset and counterparty, taking into account any eligible collateral or guarantees.

Banking book off-balance sheet items giving rise to credit, foreign exchange or interest rate risk are assigned weights appropriate to the category of the counterparty, taking into account any eligible collateral or guarantees. Trading book risk-weighted assets are determined by taking into account market related risks such as foreign exchange, interest rate position risks, and counterparty risk.



32. CALLED UP SHARE CAPITAL (continued)

Capital structure

2008 2007

£000 £000

Tier 1 Capital 309,615 296,226

Composition of regulatory capital

2008 2007

£000 £000

Tier 1 capital 309,615 296,226

Tier 1 Capital Ratio 16.5% 17.6%

Tier 2 capital 79,774 67,774

Deductions:

Investment in unconsolidated subsidiaries (4,166) (3,427)

Connected lending of capital nature (102,741) (96,681)

Total regulatory capital 282,482 263,892

Risk-weighted assets

Banking book 1,878,404 1,666,174

Trading book - 13,008

Total 1,878,404 1,679,182

Risk-weighted assets included in the totals above in respect of:

-contingent liabilities 626,991 453,733

-commitments 108,307 132,685

Risk Asset Ratio % %

Total capital 15.0 15.8

Tier 1 Capital incorporates the profit for the respective years


51

33. EQUITY SHAREHOLDERS’ FUNDS

Ordinary Profit & loss Fair value

share capital account reserve Total

£000 £000 £000 £000

Brought forward at 1st January 2008 182,296 114,336 (11,167) 285,465

Profit for the year - 10,140 - 10,140

Actuarial profits recognised in pension scheme (net) (note 45) - 3,249 - 3,249

Realised gain on available-for-sale investments and loans and advances reclassified to the profit and loss account on disposal - (406) (1,427) (1,833)

Net unrecognised loss on available-for-sale investments and loans and advances - - (43,909) (43,909)

Deferred tax asset - - 6,584 6,584

Carried forward at 31st December 2008 182,296 127,319 (49,919) 259,696

Shareholders’ funds are all attributable to equity interests for 2008 and 2007.The fair value reserve comprises changes in fair value of available-for-sale investments and available-for-sale loans and advances, adjusted by the related deferred tax asset.

34. TRANSACTIONS WITH DIRECTORS AND OFFICERS

The aggregate amounts outstanding at 31st December under transactions, arrangements and agreements made by ABCIB for Directors and for officers, within the meaning of Schedule 9 to the Companies Act 1985, of ABCIB were:

2008 2007

Number of persons £000

Number of persons £000

Loans to Directors: - - 1 558



35. CONTINGENT LIABILITIES AND COMMITMENTS

The increase in Guarantees and Letters of Credit during 2008 was partly due to the deterioration of Sterling against the two major currencies, US Dollar and EUR, in which these are denominated.

Contract or underlying principal amount: 2008 2007

£000 £000

Formal standby facilities, credit lines and other commitments to lend:

Less than one year 30,052 29,046

Within one to two years 293,325 360,498

323,377 389,544

At 31st December ABCIB was committed to making the following annual payments in respect of operating leases

2008 2007

Land and buildings Other Land and buildings Other

£000 £000 £000 £000

Leases which expire:

within two years 286 86 - 10

within two to five years 909 34 542 27

between five and ten years 1,900 - 2,227 -

36. FINANCIAL INSTRUMENT CONTRACTS

a) Derivative financial instrumentsDerivative contracts are financial instruments that derive their value from an underlying rate or price. ABCIB has entered into various derivative contracts as principal, either as trading or hedging transactions. Trading transactions include all customer and proprietary transactions and related hedges. Hedging transactions comprise derivatives used to hedge specific interest rate mismatches and foreign exchange exposures. A description of ABCIB’s use of derivative instruments and an outline of its approach to risk management have been included in the Chief Executive Officer’s Report for the year.

The accounting treatment explained in Note 1.4(e) ‘Hedge accounting’ varies according to the nature of the item hedged and in compliance with the hedge criteria. Hedges entered into by ABCIB which provide economic hedges but do not meet the hedge accounting criteria are treated as ‘Derivatives held or issued for trading purposes’.

Netting has not been taken into consideration in the figures given below. None of these amounts are intended to give an indication of possible future gains or losses. Fair values are the amounts at which an asset or liability could be exchanged in an arm’s length transaction between informed parties, other than in a forced sale.

Forward and future contracts are contractual agreements to buy and sell a specified financial instrument at a specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Futures contracts are transacted in standardised amounts on regulated exchanges and are subject to daily cash margin requirements.

Swaps are contractual agreements between two parties to exchange movements in interest or foreign currency rates and equity indices, and (in the case of credit default swaps) to make payments with respect to defined credit events based on specified notional amounts.


53

36. FINANCIAL INSTRUMENT CONTRACTS (continued)

In addition to derivative financial instruments, ABCIB uses foreign currency borrowings as hedges of certain foreign currency denominated equity investments (note 20).

The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions at the year end and are indicative of neither the market risk nor the credit risk.

Fair value has been determined using discounted cash flow models applying risk adjusted interest rates as appropriate.

2008 2007

FV - AssetsFV

-LiabilitiesNotional amount FV - Assets

FV - Liabilities

Notional amount

£000 £000 £000 £000 £000 £000

i) Derivatives held for trading

Forward foreign exchange contracts

Total at 31st December 51 50 143,495 128 128 229,970

ii) Derivatives held as fair value hedges

Interest rate swaps

Total at 31st December 20,840 1,673 142,395 5,089 261 106,157

ABCIB uses interest rate swap contracts to hedge against loans and advances to customers, deposits from customers and subordinated liabilities. The fair value of the hedging instruments is disclosed above. The counterparty to these swaps contracts is the ultimate parent company.

iii) Hedged items

Loans and advances to customers 53 1,673 36,681 173 261 18,394

Deposits from customers and subordinated liabilities 20,787 - 105,714 4,916 - 87,763

20,840 1,673 142,395 5,089 261 106,157

Deposits from customers and subordinated liabilities represent amounts due to the ultimate parent company. The critical terms of all hedging instruments and hedged items are matched.

Fair value adjustments in relation to hedged items are recorded under Other assets (note 24) and Other liabilities (note 28) respectively.

iv) Fair ValuesABCIB’s trading book comprises solely foreign currency derivatives, which have been included in the balance sheet at fair value and disclosed in part (a)(i) of this note.




v) Interest Rate Repricing

The table below summarises the non-trading book mismatches of the dates in which interest receivable on assets and interest payable on liabilities are next reset to market rates or, if earlier, the dates on which the instrument matures. Short-term debtors and creditors are included in the table below.

2008

Not morethan

3 months

More than 3 months

but not more

than 6 months

More than6 months

but not more

than 1 year

More than1 year

but not more

than 5 years

Morethan

5 years

Non interestbearing Total

£m £m £m £m £m £m £m

Assets

Cash and balances at central banks 128.8 - - - - - 128.8

Certificates of deposit purchased 241.0 - - - - - 241.0

Due from banks 682.0 25.0 4.8 2.8 - (2.3) 712.3

Financial assets designated at fair value through profit and loss - - - - - - -

Loans and advances to customers 781.9 221.1 93.4 13.1 33.8 (2.8) 1,140.5

Financial investments - Available-for-sale 411.4 - - - - - 411.4

Financial investments - Held to maturity - - - 8.6 - - 8.6

Interest in subsidiaries and associated undertakings - - - - - 4.2 4.2

Other assets, prepayments & deferred tax asset - - - - - 80.2 80.2

Fixed assets - - - - - 1.3 1.3

Total assets 2,245.1 246.1 98.2 24.5 33.8 80.6 2,728.3

Liabilities and shareholders’ funds

Deposits from banks and other financial institutions 1,744.1 47.6 2.4 - - - 1,794.1

Deposits from customers 200.5 2.9 - - - - 203.4

Other liabilities, accruals and pension liability - - - - - 72.0 72.0

Term borrowing and subordinated liabilities 309.0 - - - 90.2 - 399.2

Shareholders’ funds - - - - - 259.6 259.6

Total liabilities and shareholders’ funds 2,253.6 50.5 2.4 - 90.2 331.6 2,728.3

Net position (8.5) 195.6 95.8 24.5 (56.4) (251.0)

Off balance sheet (52.5) 9.2 (24.7) (11.2) 79.2 -

Interest rate sensitivity gap (61.0) 204.8 71.1 13.3 22.8 (251.0)

Cumulative gap (61.0) 143.8 214.9 228.2 251.0 -


55


2007

Not morethan

3 months

More than 3 months

but not more

than 6 months

More than6 months

but not more

than 1 year

More than1 year

but not more

than 5 years

Morethan

5 years

Non interestbearing Total

£m £m £m £m £m £m £m

Assets

Cash and balances at central banks 22.0 - - - - - 22.0

Certificates of deposit purchased 226.0 - 52.0 - - - 278.0

Due from banks 315.8 92.6 7.4 11.2 - (2.8) 424.2

Financial assets designated at fair value through profit and loss - - - 6.2 - - 6.2

Loans and advances to customers 764.3 186.1 13.8 9.8 11.8 (4.4) 981.4

Financial investments - Available-for-sale 323.0 - - - - - 323.0

Interest in subsidiaries and associated undertakings - - - - - 3.4 3.4

Other assets, prepayments & deferred tax asset - - - - - 51.1 51.1

Fixed assets - - - - - 1.4 1.4

Total assets 1,651.1 278.7 73.2 27.2 11.8 48.7 2,090.7

Liabilities and shareholders’ funds

Deposits from banks and other financial institutions 1,157.1 165.4 3.5 - - - 1,326.0

Deposits from customers 130.4 0.7 - 6.5 - - 137.6

Other liabilities, accruals and pension liability - - - - - 41.2 41.2

Term borrowing and subordinated liabilities 234.6 - - - 65.8 - 300.4

Shareholders’ funds - - - - - 285.5 285.5

Total liabilities and shareholders’ funds 1,522.1 166.1 3.5 6.5 65.8 326.7 2,090.7

Net position 129.0 112.6 69.7 20.7 (54.0) (278.0)

Off balance sheet (48.3) 6.7 (3.9) (14.5) 60.0 -

Interest rate sensitivity gap 80.7 119.3 65.8 6.2 6.0 (278.0)

Cumulative gap 80.7 200.0 265.8 272.0 278.0 -



37. FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS

The table below shows a comparison by class of the carrying amounts and fair values of ABCIB’s financial instruments that are carried in the financial statements. The table does not include the fair values of non-financial assets and non-financial liabilities.

Carrying amount Fair valueUnrecognised

gain/(loss)

£000 £000 £000

Financial assets

Certificates of deposit purchased 241,000 241,000 -

Due from banks 712,359 705,220 (7,139)

Loans and advances to customers 1,140,532 1,011,458 (129,074)

Financial investments - available-for-sale 411,428 411,428 -

Financial investments - held to maturity 8,611 8,814 203

Financial liabilities

Deposits from banks and other financial institutions 1,794,060 1,791,267 2,793

Deposits from customers 203,395 203,231 164

Term borrowing 309,048 272,825 36,223

Subordinated liabilities 90,162 79,620 10,542

(86,288)

The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the financial statements.

For financial assets and financial liabilities that are liquid or having a short term maturity (less than three months) it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits without a specific maturity, and variable rate financial instruments of high credit quality. The fair value of variable rate financial assets and liabilities is estimated using present value approaches where future cash flows from the asset or liability are estimated and then discounted using risk-adjusted interest rate. The fair value of fixed rate financial assets and liabilities carried at amortised cost not hedged through fair value hedges is estimated by comparing market interest rates when they were first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity. For quoted debt issued, the fair values are calculated based on quoted market prices.


57

38. MARKET AND LIQUIDITY RISKMarket risk and liquidity risk are defined as follows:

Market risk is the current or prospective risk to earnings and capital arising from adverse movements in interest rates, asset prices or foreign exchange rates in the trading book. This risk can arise from market making, dealing, and position taking in bonds, securities, currencies or derivative instruments.

Liquidity risk is the risk that ABCIB, although solvent, either does not have available sufficient financial resources to enable it to meet its obligations as they fall due, or can secure such resources only at excessive cost.

ABCIB adopts an enterprise-wide coordinated approach to risk management and seeks to achieve the highest possible standards in overall risk management, monitoring and control.

The corporate governance framework for risk management ensures appropriate controls, appropriate senior management oversight and thorough risk analysis and reporting conducted by an independent risk management team with the capabilities and resources to evaluate and monitor the exposures and limits.

Management of market risk and liquidity risk are the day-to-day responsibility of the Treasurer with the oversight of the Head of Risk Management. The Treasurer ensures that all of ABCIB’s obligations are met when due and that market risk and position limits are respected at all times. Compliance with market risk limits is monitored by the Internal Control Department, which reports to the Head of Risk Management.

The Board Risk Committee oversees the market risk management process. Market risk management and liquidity risk issues are also reviewed at the monthly Asset and Liability Management Committee (“ALCO”), the members of which include senior management of ABCIB, chaired by the Chief Executive Officer. ALCO reports to the Management Committee and the Board. All market risk limits (including Value at Risk limits) are agreed by the Board Risk Committee and ALCO.

ABCIB uses a comprehensive, aggregated risk measurement system based on a Value at Risk (“VaR”) methodology as the basis for monitoring and controlling market risk. End of day position data from the dealing system is interfaced directly to the VaR model where risk sensitivities and valuations are computed. VaR is calculated by the “historical simulation” methodology using a one-day risk horizon and a 99th percentile, single-tailed confidence interval. Daily losses are anticipated to exceed the VaR once every hundred business days, on average. For information purposes, there is also a daily calculation of the consolidated VaR for the entire asset/liability book of ABCIB, including the banking and trading books. The VaR model is used for internal risk management purposes only and it is not used for calculating market risk exposure reported to the FSA for capital adequacy purposes. Thus, the FSA has not reviewed ABCIB’s model.

To ensure that the VaR model provides a fair assessment of the risk, a back testing sensitivity analysis is in place to compare VaR predictions to profit/loss outcomes. Additionally, a series of stress-testing scenarios are performed on the trading book to assess the effect on the market risk of severe market conditions. Stress-testing and back testing are reviewed by the Board Risk Committee at every meeting.

The limitations to VaR are recognised within ABCIB at all levels. The key limitations are the use of historical data as an estimator for future price action and the assumption that open positions can be hedged within the specified one-day holding period. Therefore, ABCIB subdivides market risk into key types for which foreign exchange risk, bond price risk and interest rate risk are the material categories. Risk management for each category is fine-tuned by employing suitable sensitivity limits such as Basis Point Value limits (which measure the potential change in portfolio fair value for an instantaneous 0.01% rise in interest rates), stop-loss limits and open position limits.



38. MARKET AND LIQUIDITY RISK (continued)

Currently, ABCIB has a low risk appetite for market risk and trading is confined to standard market instruments with limited use of derivatives and no approved limits for option risk.

2008 2007

ABCIB’s VaR exposures:

Maximum Minimum Maximum Minimum

£000 £000 £000 £000

Trading 487 3 202 1

Banking 4,755 1,449 5,931 1,230

Liquidity Risk

Liquidity Risk is defined as the risk to ABCIB’s earnings, capital and solvency, arising from inability to meet contractual payment and other financial obligations on their due date, or inability to fund (at a reasonable cost) the asset book and business needs of the bank (and, by extension, the needs of its customers). This risk may or may not arise due to issues specifically related to the bank itself.

ABCIB manages its liquidity risk actively, in view of the bank’s reliance on funding from customers and bank correspondents. These deposits tend to be short-term but the bank has diversified its funding through its medium-term loan facility with a syndicate of banks. The bank’s approach to funding means that risks are mitigated by:

- No reliance on the general interbank market for funding.- No reliance on volatile retail or corporate deposits.- Ability to source funding from Arab World correspondent banks.- Ability to source deposits from the ABC shareholders.- Maintaining a reserve of marketable securities for sale or Repo in need.

Liquidity, or availability of sufficient financial resources, is a core component of ABCIB’s management framework. In order to avoid unnecessary exposure to short-term funding as a means to meet its cashflow obligations, ABCIB uses a funding gap management process, maintains a system of highly liquid supplementary liquidity and operates a contingency funding plan.

Funding projections are made daily using data compiled by Internal Control Department and reported to the Treasurer who has responsibility for day-to-day liquidity management. ABCIB’s approach to liquidity monitoring involves a limit structure to control liquidity mismatches in particular time periods from “next day” through to “over 1 year”. The time bands have specific limits set on the maximum mismatch allowable in the periods “sight to 8 days” and “sight to one month” of 0% and -5% respectively. Liquidity mismatches are calculated on the basis of the aggregate across all ABCIB branches of all assets and all liabilities, together with an allowance of 15% of undrawn commitments.

Funding gap control is supplemented by other analysis such as stress tests and asset and liability concentration reports in order to ensure clear and timely communication of the structure and requirements of ABCIB’s funding operation. ALCO has primary responsibility for monitoring the performance of the Treasurer in liquidity management.

There is an extensive daily reporting process for liquidity risk management, including stress tests, detailed deposit maturity information and asset drawdown analysis. Senior management of ABCIB is actively involved in assessment and management of the bank’s liquidity on a day-to-day basis to ensure that liquidity is available to support the business plan at all times.


59

38. MARKET AND LIQUIDITY RISK (continued)

Analysis of financial liabilities by remaining maturities

The table below summarises the maturity of ABCIB’s financial liabilities at 31st December 2008 based on contractual undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were to be given immediately. However, ABCIB expects that many customers will not request repayment on the earliest date ABCIB could be required to pay and the table does not reflect the expected cash flows indicated by ABCIB’s deposit retention history.

2008

Not more than 3 months

More than 3 months

but not morethan 1 year

More than 1 year but not morethan 5 years

More than 5 years Total

£000 £000 £000 £000 £000

Financial Liabilities

Deposits from Banks, Customers, Term borrowing and Subordinated Liabilities 1,829,978 188,910 307,547 133,471 2,459,906

2007

Not more than 3 months

More than 3 months

but not morethan 1 year

More than 1 year but not morethan 5 years

More than 5 years Total

£000 £000 £000 £000 £000

Deposits from Banks, Customers, Term borrowing and Subordinated Liabilities 1,337,619 178,636 223,319 101,328 1,840,902



39. CREDIT RISK

Credit risk is the current or prospective risk to earnings and capital arising from an obligor’s failure to meet the terms of any contract with the institution or its failure to perform as agreed. Country risk (cross border or transfer risk), which is closely related to credit risk, is also included as part of credit risk management. Country risk encompasses the risk of loss caused by changes in foreign exchange controls and political or economic situations.

The main purpose of credit risk management is to maintain a sound and well-spread portfolio of credit risk assets, to ensure returns are commensurate with risk and to keep credit risk exposure to a permissible level relative to capital.

ABCIB has in place well defined policies and procedures for the identification, measurement and control of credit risk. Embedded within these is a framework of management responsibilities. ABCIB’s credit management policy comprises clearly stated basic operating concepts, policies and standards.

The Board Risk Committee oversees the credit risk management process. The corporate governance framework for credit risk management ensures appropriate controls, appropriate senior management oversight and thorough risk analysis and reporting conducted by a credit risk management team with the capabilities and resources to evaluate and monitor the exposures and limits.

ABCIB assesses the credit risk posed by each customer using an internal rating system and quantifies that risk for control purposes. The rating system sets a grading based on the creditworthiness of the obligor, taking into account financial and non-financial factors. The Moody’s MRA/MFA financial modelling system is used to derive the financial component of the obligor rating from financial accounts and peer group analysis. The risk asset portfolio is analysed and reviewed on the basis of ratings distribution. Obligor ratings are also a key input to ABCIB’s risk adjusted return on capital assessment model.

The risk asset portfolio is reviewed daily by the Head of Risk Management using a number of different portfolio measures, such as geographical distribution, industry sector, maturity, risk rating, product type and large exposures. A selection of portfolio reports are also reviewed at every Board Risk Committee meeting.

The business model of ABCIB is relatively straightforward and non-complex. The dominant business line is Trade Finance, within which transactions tend to be short-term and routine and market-standard in nature, with a low loss probability and inherent structural and documentary protections for ABCIB. The dominance of the Trade Finance business within ABCIB gives a short-term bias to the risk asset portfolio, which means that ABCIB’s exposure to longer-term credit risk is moderate and relatively easily managed. ABCIB does not undertake complex structured transactions and does not provide general working capital finance to borrowers. The risk asset portfolio is substantially transaction-based or project-related, meaning that ABCIB’s exposure to the general weakening of corporate credit risk covenants is modest.


61

39. CREDIT RISK (continued)

Industry exposure

The table below analyses the industrial spread of certificates of deposit purchased, due from banks, financial assets designated at fair value through profit and loss, loans and advances to customers, financial investments - available-for-sale and financial investments - held to maturity.

2008 2008 2007 2007

£000 % £000 %

Financial institutions 1,592,929 63.4 1,235,092 61.4

Manufacturing 316,957 12.6 313,736 15.6

Construction 36,606 1.5 18,030 0.9

Trade 8,419 0.3 23,028 1.1

Governments 14,268 0.6 9,988 0.5

Other services 544,751 21.6 412,965 20.5

2,513,930 100.0% 2,012,839 100.0%

Country exposure

The table below analyses the geographical spread of certificates of deposit purchased, due from banks, financial assets designated at fair value through profit and loss, loans and advances to customers, financial investments - available-for-sale and financial investments - held to maturity.

2008 2008 2007 2007

£000 % £000 %

United Kingdom 876,262 34.8 409,175 20.3

Turkey 144,227 5.7 170,527 8.5

Saudi Arabia 231,216 9.2 112,533 5.6

Germany 100,460 4.0 114,153 5.7

UAE 57,173 2.3 44,977 2.2

Netherlands 47,890 1.9 125,146 6.2

Switzerland 94,822 3.8 40,851 2.0

USA 164,951 6.6 174,285 8.7

Others 796,929 31.7 821,192 40.8

2,513,930 100.0% 2,012,839 100.0%




Maximum exposure to credit risk without taking into account collateral and other credit enhancements

The table below shows the maximum exposure to credit risk for the components of the balance sheet, including derivatives. The maximum exposure is shown gross, before the effect of mitigation through the use of master netting and collateral agreements.

2008 2007

£000 £000

Certificates of deposit purchased 241,000 278,000

Due from banks 712,359 424,232

Financial assets designated at fair value through profit and loss - 6,184

Loans and advances to customers 1,140,532 981,449

Financial investments - available-for-sale 411,428 322,974

Financial investments - held to maturity 8,611 -

Other assets 20,891 128

2,534,821 2,012,967

Contingent liabilities 2,086,790 1,261,123

Commitments 323,377 389,544

2,410,167 1,650,667

Collateral held as security

2008 2007

£000 £000

Cash collateral

Financial investments 7,649 -

Loans and advances to customers 252,067 52,247

Contingent liabilities 323,301 118,254

Commitments 30,956 -

Banks & Credit Agencies

Due from banks - 8,070

Loans and advances to customers 122,420 159,348

Contingent liabilities 141,418 132,049

Commitments 26,716 31,129

2008 2007

Risk concentration against individual counterparties £000 £000

Largest exposure to individual Bank before collateral 173,508 120,442

Largest exposure to individual Bank after collateral 77,893 53,757

Largest exposure to individual customer before collateral 138,083 86,230

Largest exposure to individual customer after collateral 69,041 51,361


63


Credit quality per class of financial assets

Loans and receivables

Financial Investments-

available-for-sale Total

2008 2008 2008

£000 £000 £000

Due from banks

Investment grade 662,432 - 662,432

Sub investment grade 42,893 - 42,893

Borrowers requiring caution 7,034 - 7,034

Total 712,359 - 712,359

Loans and advances to customers




Total 1,140,532 - 1,140,532

Financial investments - available-for-sale

Investment grade - 411,428 411,428

Total - 411,428 411,428

Certificates of deposit


Total 241,000 - 241,000

Financial investments - held to maturity


Total 8,611 - 8,611



39. CREDIT RISK (CONTINUED)

Credit quality per class of financial assets (continued)

Credit quality per class of financial assetsLoans and receivable

Financial Investments-

available-for-sale Total

2007 2007 2007

£000 £000 £000

Due from banks




Total 424,232 - 424,232

Loans and advances to customers




Total 981,449 - 981,449

Financial investments - available-for-sale

Investment grade - 322,974 322,974

Total - 322,974 322,974

Certificates of deposit


Total 278,000 - 278,000

Financial assets designated at fair value through profit and loss


Total 6,184 - 6,184

Borrowers requiring caution is an internal grading category which refers to obligors which need to be monitored with special attention primarily due to problematic or poor performance.


65

40. EFFECTIVE AVERAGE INTEREST RATE

The effective average interest rate (effective yield) of a monetary financial instrument is the rate that, when used in a present value calculation, results in carrying amount of the instrument. This rate is the historical rate for a fixed rate instrument carried at amortised cost and the current market rate for a floating rate instrument or an instrument carried at fair value.

The effective average interest rates of ABCIB for various products denominated in Pound Sterling, US Dollar and EUR (major dealing currencies) are as follows:

2008 2007

GBP USD EUR GBP USD EUR

% % % % % %

Due from banks and loans and advances to customers 5.37 4.13 3.95 6.13 6.10 5.13

Financial investments - available-for-sale - 2.85 3.95 - 5.36 4.93

Deposits from banks and other financial institutions 4.58 2.06 3.17 6.13 5.00 4.71

Deposits from customers 4.86 1.87 3.07 6.37 4.90 2.31

Term borrowing 0.87 1.03 0.00 1.61 5.31 0.00

Currency risk

Derivative instruments are used by ABCIB to hedge the risk of treasury losses arising out of mismatches in currencies of its asset and liability base. Any open positions are relatively small and are re-valued on a regular basis. Trading on the spot and forward foreign exchange markets is primarily client driven.

41. DEALING LOSSES

2008 2007

£000 £000

Dealing losses are analysed as follows:

Foreign exchange 537 216

Interest rate products (558) (474)

(21) (258)



42. ASSETS, LIABILITIES AND SHAREHOLDERS’ FUNDS IN FOREIGN CURRENCIES

2008 2007

£000 £000

Denominated in sterling 526,234 499,270

Denominated in US dollar 1,232,550 956,235

Denominated in other currencies 969,529 635,205

Total assets 2,728,313 2,090,710

Denominated in sterling 641,234 577,270

Denominated in US dollar 1,118,021 1,030,218

Denominated in other currencies 969,058 483,222

Total liabilities and shareholders’ funds 2,728,313 2,090,710

ABCIB’s balance sheet consists entirely of monetary items, except for fixed assets totalling £1.3 million, which have been included as part of assets denominated in Sterling.

The above summary should not be considered as an indication of ABCIB’s exposure to foreign exchange risk due to the existence of compensating forward contracts held for hedging purposes as disclosed in note 36.

43. ULTIMATE PARENT UNDERTAKING AND PARENT UNDERTAKINGS

The ultimate parent undertaking is the Arab Banking Corporation (B.S.C.) incorporated in the Kingdom of Bahrain. ABCIB is a subsidiary undertaking of ABC Investment Holdings Ltd which is registered in England. Copies of the group accounts of ABC Investment Holdings Ltd and Arab Banking Corporation (B.S.C.) may be obtained from Arab Banking Corporation House, 1-5 Moorgate, EC2R 6AB.

44. RELATED PARTY TRANSACTIONS

As ABCIB is a 100% subsidiary of another UK undertaking, and consolidated financial statements for the Ultimate Parent are publicly available, Group transactions have not been disclosed pursuant to the exemptions permitted in Financial Reporting Standard 8.

45. PENSIONS

ABCIB participates in a contributory defined benefit pension scheme known as the ABC International Bank plc UK Retirement Benefits & Life Assurance Scheme (“The Scheme”), providing benefits based on final pensionable salary. The assets of the scheme are held separately from those of ABCIB and are administered by the Trustees of the Scheme who include employees of ABCIB. The Scheme is now closed to new entrants. New employees are offered membership of a defined contribution scheme.

The valuation has been based on the most recent actuarial valuation carried out as at 1st October 2005, using the projected unit credit actuarial valuation method. The market value of the assets as at 1st October 2005 was sufficient to cover 74% of the then current value of the benefits accrued to that date, representing a gross Scheme deficit of £4,523,000. The total ABCIB and member contribution rate during 2008 was 29.8% of pensionable salaries, which included employee contributions of 3% of pensionable salary (limited to the Earning Cap where relevant). This contribution rate includes provision for restoring the funding level to 100% over a 10 year period.

The October 2005 valuation was updated by an independent actuary, to take account of the requirements of FRS 17 (using the projected unit method) in order to assess the liabilities of the scheme at 31st December 2008 and 31st December 2007. The actuaries assessed the value of the Scheme’s liabilities as at 1st October 2008. Scheme assets are stated at their market values at the respective balance sheet dates.


67

45. PENSIONS (continued)

The main assumptions used by the actuary to assess the value of the liabilities were:

2008 2007

% per annum % per annum

Inflation 2.90 3.25

Rate of increase in salaries 4.40 4.75

Rate of increase of inflation linked pensions in payment 2.90 3.20

Rate of increase for deferred pensions 2.50 2.50

Discount rates 6.50 5.70

The mortality rate is in accordance with Tables of Mortality PNMA00 and PNFA00 with long cohort adjustment based on individual year of birth and a minimum improvement of 1.25% per annum. The discount rate is calculated using the yield on AA- rated corporate bonds of terms greater than 15 years duration, but making an allowance for the difference in duration of the corresponding iBoxx Sterling over 15 year index and the duration of the Scheme’s liabilities.

The fair value of assets and expected rate of return on assets were: 2008 2008 2007 2007

Fair valueLong term rate of

return expected Fair valueLong term rate of

return expected

£m % £m %

Equities 4.5 6.4 5.8 7.3

Bonds 3.8 3.7 3.7 4.6

Other 9.8 2.0 8.9 5.5

Total value of assets 18.1 3.5 18.4 5.9

Movement in scheme deficit

2008 2007 2006 2005

£000 £000 £000 £000

Deficit in the Scheme after tax at 1st January (5,798) (4,673) (6,789) (5,223)

Contribution paid 900 909 1,074 1,019

Current service cost (419) (749) (869) (749)

Other finance charge (343) 138 (42) (52)

Actuarial gain/(losses) 3,673 (1,687) 2,449 (2,151)

Deficit in the plan at 31st December (1,987) (6,062) (4,177) (7,156)

Movement in deferred tax asset (424) 264 (496) 367

Net pension liability at 31st December (2,411) (5,798) (4,673) (6,789)



45. PENSIONS (continued)

Amount charged to the profit and loss account

2008 2007

£000 £000

Current service cost 419 749

AMOUNT DEBITED TO OTHER FINANCIAL CHARGES

2008 2007

£000 £000

Expected return on pension scheme assets 1,109 1,267

Interest on pension scheme liabilities (1,452) (1,129)

(343) 138

Amount recognised in the Statement of Total Recognised Gains and Losses

2008 2007 2006 2005

£000 £000 £000 £000

Actual less expected return on assets (2,159) (80) 700 1,574

Experience gain/(loss) on liabilities 1,943 (2,477) (128) 356

Changes in assumptions underlying present value of liabilities 3,889 870 1,877 (4,081)

Actuarial gain/(loss) recognised in the Statement of Total Recognised Gains and Losses 3,673 (1,687) 2,449 (2,151)

% of Scheme asset value at balance sheet date represented by:

2008 2007 2006 2005

% % % %

Actual less expected return on assets (11.9) (0.4) 4.2 11.5

% of Scheme liability value at balance sheet date represented by:

2008 2007 2006 2005

% % % %

Experience gain/(loss) on liabilities 9.0 (9.7) (0.6) 1.6

Changes in assumptions underlying present value of liabilities 18.1 3.4 8.4 (18.5)

Actuarial gain/(loss) recognised in the Statement of Total Recognised Gains and Losses 17.1 (6.6) 11.0 (9.7)

69

ABCIB – DIRECTORY CONTENTS

ABCIB - Group Network 70Management Structure 71Directory of ABC Group Offices 72


ABCIB – GROUP NETWORK

BRANCHES

LONDON BRANCHABC International Bank plcArab Banking Corporation House1-5 MoorgateLondon EC2R 6ABTelephone: (44) (20) 7776 4000Telefax: (44) (20) 7606 9987

TreasuryTelephone: (44) (20) 7726 4091Telefax: (44) (20) 7606 1710Reuters: ABCL

PARIS BRANCHABC International Bank plc4 rue Auber75009 ParisFranceTelephone: (33) (1) 49 52 54 00Telefax: (33) (1) 47 20 74 69Reuters: ABCL

FRANKFURT BRANCHABC International Bank plcNeue Mainzer Strasse 7560311 Frankfurt am MainGermanyTelephone: (49) (69) 71403-0Telefax: (49) (69) 71403-240Reuters: ABCL

MILAN BRANCHABC International Bank plcVia Turati 16/1820121 MilanItalyTelephone: (39) (02) 863331Telefax: (39) (02) 86450117Reuters: ABCL

MARKETING OFFICES

UK & IRELANDABC International Bank plcStation HouseStation CourtRawtenstallRossendale BB4 6AJTelephone: (44) (1706) 237900Telefax: (44) (1706) 237909

John CleggEmail: [email protected]

IBERIA – REPRESENTATIVE OFFICEABC International Bank plcPaseo de la Castellana 1632º DchaMadrid 28046SpainTelephone: (34) (91) 5672822Telefax: (34) (91) 5672829

Usama ZenatyEmail: [email protected]

NORDIC REGIONABC International Bank plcStortorget 18-20SE-111 29 StockholmSwedenTelephone: (46) 823 0450Telefax: (46) 823 0523

Klas HenriksonEmail: [email protected]

TURKEY – REPRESENTATIVE OFFICEABC International Bank plcEski Büyükdere Cad. Ayazaga Yolu SokIz Plaza No:9, Kat:19, D:6934398 Maslak - IstanbulTurkeyTelephone: (90) 212 329 8000Telefax: (90) 212 290 6891

Muzaffer AksoyEmail: [email protected]

HEAD OFFICE (and Registered Office)

ABC INTERNATIONAL BANK PLCArab Banking Corporation House1-5 MoorgateLondon EC2R 6ABTelephone: (44) (20) 7776 4000Telefax: (44) (20) 7606 9987

71

MANAGEMENT STRUCTURE

ABCIB GROUP HEAD OFFICE

Nofal Barbar Chief Executive Officer and Managing DirectorWilliam Playle Head of Risk ManagementRobert Large Head of ComplianceJohn Laird Head of Internal AuditYvonne Sadowski Head of Human ResourcesJill Bullimore Head of SupportPeter Downham Head of FinanceDavid Holden Head of Legal Affairs and Corporate Secretary

ABCIB GROUP PRODUCT HEADS

TRADE & COMMODITY FINANCE AND FINANCIAL INSTITUTIONSPaul Jennings Global Head of Trade Finance, ABC GroupJeff Fallon European Head of Exporter MarketingSami Bengharsa Head of Financial Institutions

and Corporates – North Africa and LevantCharlotte Wiltshire European Head of Distribution, Trading and Forfaiting

PROJECT AND STRUCTURED FINANCEJulian Lynn Head of Project and Structured Finance

ISLAMIC FINANCIAL SERVICESRichard Leuschke Senior Asset Manager, LeasingKeith Leach Head of alburaq Islamic Financial Services

TREASURY SERVICESPaul Judge Head of Treasury Europe

ABCIB GROUP EUROPEAN BRANCH MANAGERS

PARIS BRANCHAlexander Ashton General Manager

FRANKFURT BRANCHGerald Bumharter General Manager

MILAN BRANCHPaolo Provera General Manager


DIRECTORY OF ABC GROUP OFFICES

HEAD OFFICE

ABC Tower, Diplomatic Area, PO Box 5698, Manama, Kingdom of Bahrain Tel: (973) 17 543 000 Fax: (973) 17 533 163 / 17 533 062 Tlx: 9432 ABCBAH BN http://www.arabbanking.com [email protected]

Hassan. A. JumaPresident & Chief Executive

Abdulmagid Breish Deputy Chief Executive &

Head of International Wholesale Banking

Sael Al WaaryChief Operating Officer

BRANCHES

Tunis (OBU)ABC Building, Rue du Lac d’Annecy, Les Berges du Lac, 1053 Tunis, Tunisia Tel: (216) (71) 861 861 (216) (71) 861 110 (Treasury) Fax (216) (71) 860 921/ 960 406/ 960 427Tlx 12505 ABCTU TN [email protected] Direct Dealing Reuters Code: ABCT Swift: ABCOTNTT Nour Nahawi, Resident Country Manager & General Manager

BaghdadAl Saadon St., Al Firdaws SquareNational Bank of Iraq BuildingBaghdad, IraqTel: (964) (1) 7173774 / 7173776/717 3779Fax: (964) (1) 717 [email protected] H. Mahmood, General Manager Mobile: (964) 790 161 8048

New York 600 Third AvenueNew York, NY 10016, USATel: (1) (212) 583 4720 Fax: (1) (212) 583 0921 Tlx: 661978/427531 ABCNY Direct Dealing Reuters Code: ABCN Robert Ivosevich, General Manager Tel: (1) (212) 583 4774

Grand Cayman c/o ABC New York Branch

REPRESENTATIVE OFFICES

Abu Dhabi 10th Floor, East Tower at the Trade Centre 2nd Street, Abu Dhabi Mall, PO Box 6689, Abu Dhabi, UAE Tel: (971) (2) 644 7666 Fax: (971) (2) 644 4429 [email protected]

Mohamed El Calamawy, Chief Representative

BeirutBerytus ParksBlock B, 2nd FloorMinet El Hosn, SoliderePO Box 11-5225Beirut, LebanonTel: (961) (1) 970770 / 970432Fax: (961) (1) 985809Mobile: (961) (3) 724644

Ghina Haddad, Chief Representative

Tehran 4th Floor WestNo. 34/1 Haghani ExpresswayTehran 15188, IranTel: (98) (21) 8879 1105 / 8879 1106Fax: (98) (21) 8888 [email protected]

Aziz Farrashi, Chief Representative

TRIPOLI That Emad Administrative Centre Tower 5, 16th Floor, PO Box 3578, Tripoli, Libya Tel: (218) (21) 335 0226/ 335 0227 / 335 0228 Fax: (218) (21) 335 0229 [email protected]

Mansour Abouen, Chief Representative

SINGAPORE 9 Raffles Place, #60-03 Republic Plaza Singapore 048619 Tel: (65) 653 59339 Fax: (65) 653 26288

Kah Eng Leaw, Chief Representative

73

DIRECTORY OF ABC GROUP OFFICES

SUBSIDIARIES

ABC Islamic Bank (E.C.) ABC Tower, Diplomatic Area,PO Box 2808, Manama, Kingdom of Bahrain Tel: (973) 17 543 342 Fax: (973) 17 536 379 / 17 533 972Tlx: 9432 / 9433 ABCBAH BN

Naveed Khan, Managing Director

Arab Financial Services Company B.S.C. (c)

PO Box 2152, Manama, Kingdom of Bahrain Tel: (973) 17 290 333 Fax: (973) 17 291 122

Shankar Sharma, Chief Executive Officer

Arab Banking Corporation - Algeria

PO Box 367, 54 Avenue des Trois Freres Bouaddou, Bir Mourad Rais, Algiers, Algeria Tel: (213) (21) 541 515 / 541 534 / 54

15 86Fax: (213) (21) 541 604 / 541 122 [email protected] Swift: ABCODZAL

Ahmed Redha Kara-Terki, Chief Executive Officer

Arab Banking Corporation - Egypt (S.A.E.)(ABC Bank, Egypt)

1, El Saleh Ayoub St., Zamalek, Cairo, Egypt

Tel: (202) 2736 2684 (10 lines)/Fax: (202) 27363614 /[email protected]

Mohamed Sherif Sharaf, Managing Director & CEO

ABC Securities (Egypt) S.A.E. 1, El Saleh Ayoub St. Zamalek, Cairo,

Egypt Tel: (202) 2736 2684 (10 lines)/Fax: (202) 2736 3643 / 14

Mohamed Sherif Sharaf, Chairman

Arab Banking Corporation (Jordan)

P.O. Box 926691, Amman 11190, JordanTel: (962) (6)5664 183 (General)Tel: (962) (6)5692 713/(962) (6) 5692 723 (Dealing Room) Tel: (962) (6) 5623 684 (Main Branch)Fax: (962) (6) 5686291

[email protected]

Simona Bishouty, General Manager

Arab Banking Corporation Tunisie

ABC Building, Rue du Lac d’Annecy, Les Berges du Lac, 1053 Tunis, Tunisia Tel (216) (71) 861 861 (216) (71) 861 110 (Treasury) Fax: (216) (71) 960 427 / 960 406 /

860 921 Tlx: 12505 ABCTU TN [email protected] Direct Dealing Reuters Code: ABCT Swift: ABCOTNTT 001

Mohamed Ben Othman, Acting General Manager

ABC International Bank plc - Head Office and London BranchArab Banking Corporation House1-5 Moorgate, London EC2R 6AB, UKTel: (44) (20) 7776 4000 (General) (44) (20) 7726 4091 (Dealing

Room)Fax: (44) (20) 7606 9987 (General) (44) (20) 7606 1710 (Dealing

Room)Direct Dealing Reuters Code: ABCLSwift: ABCE GB 2L

Nofal Barbar, CEO & Managing Director

ABC International Bank plc (Paris Branch) 4 rue Auber, 75009 Paris, France Tel: (33) (1) 49525400 Fax: (33) (1) 47207469 Tlx: 648343 ABC F (General)

Alexander Ashton, General Manager

ABC International Bank plc (Frankfurt Branch) Neue Mainzer Strasse 7560311 Frankfurt am Main, GermanyTel: (49) (69) 71403-0 Fax: (49) (69) 71403-240 Tlx: 411 536 AIBF D [email protected]

Gerald Bumharter, General Manager

ABC International Bank plc (Milan Branch) Via Turati 16/18, 20121 Milan, Italy Tel: (39) (02) 863331 Fax: (39) (02) 86450117 Swift: ABCO IT MM

Paolo Provera, General Manager

ABC International Bank plc - Marketing Offices

UK & IRELANDStation House, Station Court,

RawtenstallRossendale BB4 6AJ, UKTel: (44) (1706) 237900Fax: (44) (1706) 237909

John Clegg

IBERIA – REPRESENTATIVE OFFICE

Paseo de la Castellana 1632° Dcha, Madrid 28046, SpainTel: (34) (91) 5672822Fax: (34) (91) 5672829

Usama Zenaty Nordic RegionStortorget 18-20, SE-111 29 StockholmSwedenTel: (46) 823 0450Fax: (46) 823 0523

Klas Henrikson

Turkey – Representative Office

Eski Büyükdere Cad. Ayazaga Yolu Sk.Iz Plaza No:9 Kat:19 D:69 34398 Maslak - Istanbul, TurkeyTel: (90) (212) 329 8000 Fax: (90) (212) 290 6891

Muzaffer Aksoy

ABC (IT) Services Ltd. Arab Banking Corporation House 1-5 Moorgate, London EC2R 6AB, UK Tel: (44) (20) 7776 4050 Fax: (44) (20) 7606 2708 [email protected]

John Bates,General Manager

Banco ABC Brasil S.A. Av. Pres. Juscelino Kubitschek, 1400 04543-000 Itaim Bibi São Paulo – SP, Brazil Tel: (55) (11) 317 02000 Fax: (55) (11) 317 02001

Tito Enrique da Silva Neto, President

Strengthening from the Core · Joining the Board as non-executive directors are Mr Abdallah Al...

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