FFA PRIVATE BANK SAL
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2014
FFA PRIVATE BANK SAL
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2014
Notes
Interest and similar income
Interest and similar expense
NET INTEREST INCOME
3
Fee and commission income
Fee and commission expense
2014
LL (000)
2013
LL (000)
8,198,628
(2,821,045)
__________
5,377,583
__________
4,826,609
(1,146,822)
__________
3,679,787
__________
18,151,482
(3,800,406)
__________
14,351,076
__________
15,850,147
(2,802,605)
__________
13,047,542
__________
NET FEE AND COMMISSION INCOME
4
Net gain from financial assets at fair value through profit or loss
Other income
5
441,910
3,579
__________
20,174,148
__________
1,030,016
30,292
__________
17,787,637
__________
11
6
(469,047)
__________
19,705,101
__________
1,532,505
(11,359)
__________
19,308,783
__________
7
17
18
8
(9,543,493)
(1,769,124)
(37,097)
(6,963,421)
__________
(18,313,135)
__________
(9,402,069)
(1,519,999)
(36,584)
(7,270,933)
__________
(18,229,585)
__________
1,391,966
1,079,198
(4,333)
__________
1,387,633
__________
(20,164)
__________
1,059,034
__________
1,388,440
(807)
__________
1,387,633
__________
1,060,599
(1,565)
__________
1,059,034
__________
TOTAL OPERATING INCOME
Write-back of impairment on balances due
from a bank
Provision for credit losses, net
NET OPERATING INCOME
Personnel expenses
Depreciation of property and equipment
Amortization of intangible assets
Other operating expenses
TOTAL OPERATING EXPENSES
PROFIT BEFORE TAX
Income tax expense
PROFIT FOR THE YEAR
Attributable to:
Equity holders of the parent
Non-controlling interests
PROFIT FOR THE YEAR
9
The attached notes from 1 to 32 form an integral part of these consolidated financial statements.
2
FFA PRIVATE BANK SAL
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2014
PROFIT FOR THE YEAR
Other comprehensive income:
Revaluation of property (note 25)
Exchange differences on translation of foreign operations
Net (loss) gain from financial instruments at fair value through
other comprehensive income
Other comprehensive (loss) income for the year
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Attributable to:
Equity holders of the parent
Non-controlling interests
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2014
LL (000)
2013
LL (000)
1,387,633
__________
1,059,034
__________
(14,218)
14,328,847
(64,713)
(43,278)
__________
(57,496)
__________
1,330,137
__________
20,776
__________
14,284,910
__________
15,343,944
__________
1,327,218
2,919
__________
1,330,137
__________
15,331,441
12,503
__________
15,343,944
__________
The attached notes from 1 to 32 form an integral part of these consolidated financial statements.
3
FFA PRIVATE BANK SAL
The attached notes from 1 to 32 form an integral part of these consolidated financial statements.
4
FFA PRIVATE BANK SAL
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2014
Equity holders of the parent
Distributable
Non-distributable reserves
reserve
Total
LL (000)
General
reserve
LL (000)
Retained
earnings
(accumulated
losses)
LL (000)
Changes in fair
value of
financial assets
at fair value
through other
comprehensive
income
LL (000)
1,147,935
2,731,343
1,465,396
(1,261,012)
(63,713)
-
(110,605)
3,036,985
42,241,606
47,114
42,288,720
__________
__________
__________
__________
__________
__________
_________
_________
_________
_________
20,776
_________
20,776
_________
14,328,847
_________
14,328,847
_________
(78,781)
_________
(78,781)
_________
1,060,599
_________
1,060,599
_________
1,060,599
14,270,842
_________
15,331,441
_________
(1,565)
14,068
_________
12,503
_________
1,059,034
14,284,910
_________
15,343,944
_________
_________
19,443,212
44,804
__________
1,628,212
__________
1,147,935
44,804
__________
2,776,147
(745,399)
_________
719,997
3,737,580
_________
2,476,568
_________
(42,937)
_________
14,328,847
_________
(189,386)
(3,036,985)
_________
1,060,599
_________
57,573,047
_________
59,617
_________
57,632,664
_________
_________
_________
_________
_________
__________
_________
__________
_________
__________
_________
_________
_________
_________
(43,278)
_________
(43,278)
_________
_________
_________
(18,032)
_________
(18,032)
_________
1,388,440
_________
1,388,440
_________
1,388,363
(61,222)
_________
1,327,141
_________
(807)
3,726
_________
2,919
_________
1,387,545
(57,496)
_________
1,330,049
_________
_________
17,000,000
_________
_________
19,443,212
_________
29,433
__________
1,657,645
__________
264,902
__________
1,412,837
__________
294,335
__________
3,070,482
__________
_________
719,997
_________
766,264
_________
3,242,832
_________
_________
(86,215)
_________
_________
14,328,847
_________
_________
(207,418)
_________
(1,060,599)
_________
1,388,440
_________
_________
58,900,188
_________
_________
62,536
_________
_________
58,962,713
_________
Share capital
– common
shares
LL (000)
Share
premium –
common
shares
LL (000)
Legal
reserve
LL (000)
Reserve for
general
banking risks
LL (000)
Balance at 1 January 2013
17,000,000
19,443,212
1,583,408
Profit for the year – 2013
Other comprehensive income
_________
_________
_________
_________
_________
17,000,000
Total comprehensive income
Transfer to reserves and retained
earnings (note 24)
Balance at 31 December 2013
Profit for the year – 2014
Other comprehensive loss
Total comprehensive income
Transfer to reserves and retained
earnings (note 24)
Balance at 31 December 2014
The attached notes from 1 to 32 form an integral part of these consolidated financial statements.
5
Revaluation
reserve of
property
LL (000)
Foreign
currency
translation
reserve
LL (000)
Result of the
year – profit
LL (000)
Total
LL (000)
Noncontrolling
interests
LL (000)
Total
equity
LL (000)
FFA PRIVATE BANK SAL
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2014
Notes
OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation
Amortization
Provision for credit losses , net
(Write-back of provision) provision for risks and charges
Loss on disposal of property and equipment
Provision for employees’ end of service benefits
17
18
6
7
Operating loss before working capital changes:
Balances with the Central Bank
Financial assets at fair value through profit or loss
Loans and advances to customers and related parties
Other assets
Financial liability under murabaha transaction
Customers’ deposits at amortized cost
Other liabilities
Employees’ end of service benefits paid
Taxes paid
Net cash from (used in) operating activities
INVESTING ACTIVITIES
Purchase of property and equipment
Purchase of intangible assets
Proceeds from disposal of property and equipment
17
18
Net cash from (used in) investing activities
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Effects of foreign exchange
Cash and cash equivalents at 1 January
CASH AND CASH EQUIVALENTS AT 31 DECEMBER
27
2014
LL (000)
2013
LL (000)
1,391,966
1,079,198
1,769,124
37,097
469,047
(10,883)
2,888
255,449
___________
3,914,688
1,519,999
36,584
11,359
10,953
2,492
373,777
___________
3,034,362
(8,592,750)
11,310,714
(29,121,771)
(673,288)
(377)
46,505,053
181,824
___________
23,524,093
(3,768,750)
(5,890,407)
(2,673,551)
127,339
4,543,063
(631,508)
(792,231)
(3,347)
___________
(6,055,030)
(20,164)
___________
23,503,929
___________
(80,676)
___________
(6,135,706)
___________
(417,305)
(19,746)
6,329
___________
(430,722)
___________
(328,335)
704
___________
(327,631)
___________
23,073,207
(6,463,337)
(186,193)
(64,712)
12,645,429
___________
35,532,443
___________
19,173,478
___________
12,645,429
___________
During the year ended 31 December 2014, non-cash transactions comprised the transfer of LL (000) 790,388 from
investments in subsidiaries and affiliates accounts to loans and advances accounts (note 15).
During the year ended 31 December 2013, the non-cash transaction comprised the revaluation of property in the amount of
LL (000) 14,328,847 which was charged to the revaluation reserve under equity (note 25).
The attached notes from 1 to 32 form an integral part of these consolidated financial statements.
6
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
1
CORPORATE INFORMATION
FFA Private Bank SAL (the Bank) is a Lebanese shareholding company registered at the commercial registry of
Beirut on 7 June 1996 under no. 70256. The Bank started its operations as a financial institution (Financial Funds
Advisors SAL) registered at the Bank of Lebanon under no. 18 in the list of financial institutions. On 20 March
2007, the status of the entity changed from a financial institution to a Private Bank under the name “FFA Private
Bank SAL” according to the terms of legislative law no 50 dated 15 July 1983. The Bank was registered at the
commercial registry of Beirut under the same number on 2 June 2007 and under the number 129 in the list of Banks
at the Central Bank of Lebanon. The Bank, together with is subsidiaries (the Group), Financial Funds Advisors
(FFA) SARL, FFA Dubai Limited, FFA Investments (Holding) SAL, FFA Real Estate SAL, FFA Real Estate
Limited, FFA Capital Limited and FFA Syria SARL are involved in mainly banking, real estate and financial
services activities. The Bank is regulated by the Laws in Lebanon mainly the Code of Commerce, the Money and
Credit Act and the circulars issued by the Central Bank of Lebanon and the Banking Control Commission. The
Bank’s main activity is to provide financial services such as corporate and project finance as well as asset
management and brokerage.
The Bank’s head office is located at One FFA Gate-Marfaa 128, Foch Street, Beirut, Central District, Lebanon.
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
2.1
Basis of preparation
The consolidated financial statements are prepared on a historical cost basis, except for financial assets designated at
fair value through profit or loss, financial assets designated at fair value through other comprehensive income, and a
certain class of property which are all measured at fair value.
The consolidated financial statements have been presented in thousands of Lebanese Liras (LL (000)) which is the
functional and presentation currency of the Group unless otherwise mentioned. Other currencies are presented in
their relating units.
Statement of compliance
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB) and the regulations of the Central Bank of
Lebanon and the Banking Control Commission (BCC).
Presentation of financial statements
The Group presents its consolidated statement of financial position broadly in order of liquidity. An analysis
regarding recovery or settlement within 12 months after the consolidated statement of financial position date:
(current), and more than 12 months after the consolidated statement of financial position date: (non-current) is
presented in the risk management notes.
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of
financial position only when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expense
will not be offset in the consolidated income statement unless required or permitted by any accounting standard or
interpretation, as specifically disclosed in the accounting policies of the Group.
The consolidated financial statements include the financial statements of FFA Private Bank SAL and the subsidiaries
listed in the following table:
Name
FFA SARL
FFA Dubai Limited
FFA Investments (Holding) SAL
FFA Real Estate SAL
FFA Capital Limited
FFA Syria SARL
FFA Real Estate Limited
Date of
establishment
1994
2006
2007
2008
2009
2009
2014
Country of
incorporation
Activities
Lebanon
UAE
Lebanon
Lebanon
Cayman Islands
Syria
Cayman Islands
Financial Consulting and Brokerage
Financial Institution
Investment
Real Estate Consulting
Financial Consulting
Financial Consulting
Real Estate
7
% effective equity interest
31 December
31 December
2013
2014
%
%
99.97
100.00
99.99
100.00
100.00
88.00
100.00
99.97
100.00
99.99
100.00
100.00
88.00
100.00
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1
Basis of preparation (continued)
Basis of consolidation (continued)
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee. Specifically, the Group
controls an investee if and only if the Group has:

Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of
the investee)

Exposure, or rights, to variable returns from its involvement with the investee, and

The ability to use its power over the investee to affect its returns
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:

The contractual arrangement with the other vote holders of the investee

Rights arising from other contractual arrangements

The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of
comprehensive income from the date the Group gains control until the date the Group ceases to control the
subsidiary.
Non-controlling interest represent the portion of profit or loss and net assets of subsidiaries not owned directly or
indirectly by the Bank. Profit or loss and each component of other comprehensive income (OCI) are attributed to the
equity holders of the parent of the Group and to the non-controlling interests, even if this results in the noncontrolling interests having a deficit balance. When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets
and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction. If the Group loses control over a subsidiary, it:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary

Derecognizes the carrying amount of any non-controlling interests

Derecognizes the cumulative translation differences recorded in equity

Recognizes the fair value of the consideration received

Recognizes the fair value of any investment retained

Recognizes any surplus or deficit in profit or loss

Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or retained
earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or
liabilities
2.2
Significant accounting judgments, estimates and assumptions
In the process of applying the Group’s accounting policies, management has exercised judgment and estimates in
determining the amounts recognized in the consolidated financial statements. The most significant use of judgment
and estimates are as follows:
Going concern
The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is
satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the
management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to
continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the going
concern basis.
8
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2
Significant accounting judgments, estimates and assumptions (continued)
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the consolidated statement of financial
position 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 market data where
possible, but where observable market data are not available, judgment is required to establish fair values.
Impairment losses on loans and advances
The Group reviews its individually significant loans and advances at each statement of financial position date to
assess whether an impairment loss should be recorded in the consolidated income statement. In particular, judgment
by management is required in the estimation of the amount and timing of future cash flows when determining the
impairment loss. In estimating these cash flows, the Group makes judgments about the borrower’s financial situation
and the net realizable value of collateral. These estimates are based on assumptions about a number of factors and
actual results may differ, resulting in future changes to the allowance.
Loans and advances that have been assessed individually and found not to be impaired and all individually
insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics,
to determine whether provision should be made due to incurred loss events for which there is objective evidence but
whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as
credit quality, levels of arrears, credit utilization, loan to collateral ratios etc.), concentrations of risks and economic
data (including levels of unemployment, real estate prices indices, country risk and the performance of different
individual groups).
Revaluation of property and equipment
The Bank measures buildings at revalued amounts with changes in fair value being recognized in other
comprehensive income (OCI). The Bank engaged an independent valuation specialist to assess fair value of
buildings. Buildings were valued by reference to market-based evidence, using comparable prices adjusted for
specific market factors such as nature, location and condition of the property.
2.3
Changes in accounting policies and disclosures
Revaluation of buildings
The Bank re-assessed its accounting for buildings with respect to measurement after initial recognition. The Bank
has previously measured all buildings using the cost model as set out in IAS 16.30, whereby after initial recognition
of the asset classified as property and equipment, the asset was carried at cost less accumulated depreciation.
On 3 December 2013, the Bank elected to change the method of accounting for buildings classified in property and
equipment. Since the Bank believes that revaluation model more effectively demonstrates the financial position of
buildings.
After initial recognition, the Bank uses the revaluation model, whereby buildings will be measured at fair value at
the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment
losses. The Bank applied the exemptions in IAS 8, which exempts this change in accounting policy from
retrospective application and extensive disclosure requirements.
New and amended standards and interpretations
The accounting policies adopted in the preparation of the financial statements are consistent with those followed in
the preparation of the Group’s annual financial statements for the year ended 31 December 2013 except for the
adoption of new standards and interpretations effective as of 1 January 2014, noted below:
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an
investment entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to
certain transition relief. The exception to consolidation requires investment entities to account for subsidiaries at fair
value through profit or loss.
9
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3
Changes in accounting policies and disclosures (continued)
New and amended standards and interpretations (continued)
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for
non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting and is applied retrospectively.
Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as
a hedging instrument meets certain criteria and retrospective application is required.
IFRIC 21 Levies
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified
by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation
clarifies that no liability should be anticipated before the specified minimum threshold is reached. Retrospective
application is required for IFRIC 21.
Annual Improvements 2010-2012 Cycle
In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included
an amendment to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 is effective immediately and, thus,
for periods beginning at 1 January 2014, and it clarifies in the Basis for Conclusion that short-term receivables and
payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is
immaterial.
Annual Improvements 2011-2013 Cycle
In the 2011-2013 annual improvements cycle, the IASB issued four amendments to four standards, which included
an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards. The amendment to
IFRS 1 is effective immediately and, thus, for period beginning at 1 January 2014, and clarifies in the Basis for
Conclusions that an entity may choose to apply either a current standard or a new standard that is not yet mandatory,
but permits early application, provided either standard is applied consistently throughout the periods presented in the
entity’s first IFRS financial statements.
The above changes are not expected to have a significant effect on the Group’s financial statements.
2.4
Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s
financial statements were disclosed below. The Bank intends to adopt these standards, if applicable, when they
become effective.
-
IFRS 14 Regulatory Deferred Accounts
Amendments to IAS 19 Defined Benefit Plans : Employee Contributions
Annual improvements 2010 – 2012 and 2011-2013 Cycle (effective from 1 July 2014)
IFRS 15 Revenue from contracts with Customers
Amendments to IFRS 11 Joint Arrangements : Accounting for Acquisitions of Interests
Amendments to IAS 16 and IAS 38 : Clarification of Acceptable methods of Depreciation and
Amortization
Amendments to IAS 16 and IAS 41 Agriculture : Bearer Plants
Amendments to IAS 27 : Equity Method in Separate Financial Statements
10
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies
(1) Foreign currency translation
The consolidated financial statements are presented in Lebanese Liras (LL). Each entity in the Group determines its
own functional currency and items included in the financial statements of each entity are measured using that
functional currency.
(i)
Transactions and balances
Transactions in foreign currencies are initially recorded at the functional currency 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 at the date of the statement of financial position. All differences are taken to “net gain on financial assets at
fair value through profit or loss” in the consolidated income statement.
Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions. 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. The gain or loss
arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair
value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in other
comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss
respectively).
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying
amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign
operations and translated at closing rate.
(ii)
Group companies
On consolidation, the assets and liabilities of subsidiaries are translated into the Bank’s presentation currency at the
rate of exchange as at the reporting date, and their income statements are translated at the weighted average
exchange rates for the year. Exchange differences arising on translation are taken directly to a separate component of
equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that
particular foreign operation is recognised in the consolidated income statement.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying
amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign
operations and translated at closing rate.
(2) Financial instruments – classification and measurement
(i)
Date of recognition
All financial assets and liabilities are initially recognized on the trade date, i.e., the date that the Group becomes a
party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of
financial assets that require delivery of assets within the time frame generally established by regulation or
convention in the market place.
(ii)
Classification and measurement of financial instruments
a.
Financial assets
The classification of financial assets depends on the basis of the entity's business model for managing the financial
assets and the contractual cash flow characteristics of the financial asset. Assets are initially measured at fair value
plus, in the case of a financial asset not at fair value through profit or loss, particular transaction costs. Assets are
subsequently measured at amortized cost or fair value.
11
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(2) Financial instruments – classification and measurement (continued)
(ii)
Classification and measurement of financial instruments (continued)
a.
Financial assets (continued)
An entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit
or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes
referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognizing
the gains and losses on them on different bases. An entity is required to disclose such financial assets separately from
those mandatorily measured at fair value.
Debt instruments at amortized cost
Debt instruments are subsequently measured at amortized cost less any impairment loss (except for debt instruments
that are designated at fair value through profit or loss upon initial recognition) if they meet the following two
conditions:


The asset is held within a business model whose objective is to hold assets in order to collect contractual
cash flows; and
The contractual terms of the instrument give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
These financial assets are initially recognized at cost, being the fair value of the consideration paid for the
acquisition of the investment. All transaction costs directly attributed to the acquisition are also included in the cost
of investment. After initial measurement, these financial assets are measured at amortized cost using the effective
interest rate (EIR) method, less allowance for impairment. Amortized cost is calculated by taking into account any
discount of premium on acquisition and fees and costs that are an integral part of the effective interest rate. The
amortization is included in “Interest and similar income” in the consolidated income statement. The losses arising
from impairment are recognized in the consolidated income statement.
Although the objective of an entity's business model may be to hold financial assets in order to collect contractual
cash flows, the entity need not hold all of those instruments until maturity. Thus an entity's business model can be to
hold financial assets to collect contractual cash flows even when sales of financial assets occur. However, if more
than an infrequent number of sales are made out of a portfolio, the entity needs to assess whether and how such sales
are consistent with an objective of collecting contractual cash flows. If the objective of the entity's business model
for managing those financial assets changes, the entity is required to reclassify financial assets.
Gains and losses arising from the derecognition of financial assets measured at amortized cost are reflected under
“net gain (loss) from sale of financial assets at amortized cost” in the consolidated income statement.
Financial assets at fair value through profit or loss
Included in this category are those debt instruments that do not meet the conditions in “at amortized cost” above,
debt instruments designated at fair value through profit or loss upon initial recognition and equity instruments at fair
value through profit or loss.
12
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(2) Financial instruments – classification and measurement (continued)
(ii)
Classification and measurement of financial instruments (continued)
a.
Financial assets (continued)
Debt instruments and other financial assets at fair value through profit or loss
Included in this category are those debt instruments that do not meet the conditions in “Debt instruments at
amortized cost” above, and debt instruments designated at fair value through profit or loss upon initial recognition.
These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair
value and interest income are recorded under “net gain (loss) from financial assets at fair value through profit or loss”
in the consolidated income statement showing separately, those related to financial assets designated at fair value
upon initial recognition from those mandatorily measured at fair value. Gains and losses arising from the
derecognition of debt instruments and other financial assets at fair value through profit or loss are also reflected
under “net gain (loss) from financial instruments at fair value through profit or loss” in the consoldiated income
statement showing separately, those related to financial assets designated at fair value upon initial recognition from
those mandatorily measured at fair value.
Equity instruments at fair value through profit or loss
Investments in equity instruments are classified at fair value through profit or loss, unless the Group designates at
initial recognition an investment that is not held for trading as at fair value through other comprehensive income.
These financial assets are recorded in the consolidated statement of financial position at fair value. Changes in fair
value and dividend income are recorded under “net gain (loss) from financial assets at fair value through profit or
loss” in the consolidated income statement. Gains and losses arising from the derecognition of equity instruments at
fair value through profit or loss are also reflected under “net gain (loss) from financial instruments at fair value
through profit or loss” in the consolidated income statement.
Dividends on these investments are recognized when the entity’s right to receive payment of dividend is established
in accordance with IAS 18: «Revenue », unless the dividends clearly represent a recovery of part of the cost of the
investment.
Equity instruments at fair value through other comprehensive income
Investments in equity instruments designated at initial recognition as not held for trading are classified at fair value
through other comprehensive income.
These financial assets are initially measured at fair value plus transaction costs. Subsequently, they are measured at
fair value, with gains and losses arising from changes in fair value recognized in other comprehensive income and
accumulated under equity. The cumulative gain or loss will not be reclassified to the consolidated income statement
on disposal of the investments.
Dividends on these investments are recognized under “net gain on financial assets” in the consolidated income
statement when the entity’s right to receive payment of dividend is established in accordance with IAS 18:
“Revenue”, unless the dividends clearly represent a recovery of part of the cost of the investment.
Due from banks and financial institutions, loans and advances to customers and related parties – at amortized cost
After initial measurement, amounts “Due from banks and financial institutions” and “Loans and advances to
customers and related parties” are subsequently measured at amortized cost using the EIR, less allowance for
impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees
and costs that are an integral part of the EIR. The amortization is included in ‘Interest and similar income’ in the
consolidated income statement. The losses arising from impairment are recognized in the consolidated income
statement in “Credit loss expense”.
13
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(2) Financial instruments – classification and measurement (continued)
(ii)
Classification and measurement of financial instruments (continued)
b.
Financial liabilities
An entity classifies all financial liabilities as subsequently measured at amortized cost using the effective interest
method, except for:
- financial liabilities at fair value through profit or loss (including derivatives);
- financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the
continuing involvement approach applies.
- financial guarantee contracts and commitments to provide a loan at a below-market interest rate which after initial
recognition are subsequently measured at the higher of the amount determined in accordance with IAS 37
Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognized less, when
appropriate, cumulative amortization recognized in accordance with IAS 18 Revenue.
An entity may, at initial recognition, irrevocably designate a financial liability as measured at fair value through
profit or loss when:
- doing so results in more relevant information, because it either eliminates or significantly reduces a measurement
or recognition inconsistency (sometimes referred to as 'an accounting mismatch') that would otherwise arise from
measuring assets or liabilities or recognizing the gains and losses on them on different bases; or
- a group of financial liabilities or financial assets and financial liabilities is managed and its performance is
evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and
information about the group is provided internally on that basis to the entity's key management personnel.
As at 31 December 2014, there are no financial liabilities designated at fair value through profit or loss by the Group.
Financial liabilities consist mainly of due to banks and financial institutions and Customers’ deposits.
Due to banks and financial institutions and customers’ deposits
After initial measurement, due to banks and financial institutions and customers’ deposits are measured at amortized
cost less amounts repaid using the effective interest rate method. Amortized 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 method.
(iii)
Reclassification of financial assets
An entity reclassifies financial assets if the objective of the entity's business model for managing those financial
assets changes. Such changes are expected to be very infrequent. Such changes must be determined by the entity's
senior management as a result of external or internal changes and must be significant to the entity's operations and
demonstrable to external parties.
If an entity reclassifies financial assets it shall apply the reclassification prospectively from the reclassification date,
which is the first day of the first reporting period following the change in business model that results in an entity
reclassifying financial assets. The entity shall not restate any previously recognised gains, losses or interest.
If the entity reclassifies a financial asset so that it is measured at fair value, its fair value is determined at the
reclassification date. Any gain or loss arising from a difference between the previous carrying amount and fair value
is recognised in profit or loss. If the entity reclassifies a financial asset so that it is measured at amortized cost, its
fair value at the reclassification date becomes its new carrying amount.
14
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(3) Derecognition of financial assets and financial liabilities
(i) Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is
derecognized where:
 The rights to receive cash flows from the asset have expired; or
 The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to
pay the received cash flows in full without material delay to a third party under a “pass-through”
arrangement; and either:
(a) the Group has transferred substantially all the risks and rewards of the asset, or
(b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the
asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability
are measured on a basis that reflects the rights and obligations the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the Group could be required to
repay.
(ii)
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the consolidated income statement.
(4) Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase at a specified future date are not derecognized from the consolidated
statement of financial position as the Group retains substantially all the risks and rewards of ownership. The
corresponding cash received is recognized in the consolidated statement of financial position as an asset with a
corresponding obligation to return it, including accrued interest as a liability reflecting the transaction’s economic
substances as a loan to the Group. The difference between the sale and repurchase prices is treated as interest
expense and is accrued over the life of the agreement using the EIR. When the counterparty has the right to sell or
repledge the securities, the Group reclassifies those securities in its consolidated statement of financial position to
“Financial assets at fair value through profit or loss pledged as collateral”.
Conversely, securities purchased under agreements to resell at a specified future date are not recognized in the
consolidated statement of financial position. The consideration paid, including accrued interest is recorded in the
consolidated statement of financial position within “Cash collateral on securities borrowed and reverse purchase
agreements”, reflecting the transaction’s economic substance as a loan by the Group. The difference between the
purchase and resale prices is recorded in “Net interest income” and is accrued over the life of the agreement using
the EIR.
(5) Murabaha transaction
An agreement whereby the Bank sells a commodity or asset, which the Bank has purchased and acquired based on a
promise received from the customer to buy the item purchased according to specific terms and conditions. The
selling price comprises the cost of the commodity and an agreed profit margin.
Murabaha expense is recognised on an effective rate basis over the period of the contract based on the principal
amounts outstanding.
15
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(6) Determination of fair value
The Group measures financial instruments, at fair value at each balance sheet date. Also, fair values of financial
instruments measured at amortized cost are disclosed in the notes.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:


In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a
liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are
categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:



Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group
determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on
the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting
period.
At each reporting date, the management analyses the movements in the values of assets and liabilities which are
required to be re-measured or re-assessed as per the Group’s accounting policies.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of
the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained
above.
(7) Impairment of financial assets
The Group assesses at each statement of financial position 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.
16
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(7) Impairment of financial assets (continued)
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 payments, the probability that they will
enter bankruptcy or other financial restructuring and where observable data indicate that there is a measurable
decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with
defaults. If such evidence exists, any impairment loss is recognised in the consolidated income statement.
Financial assets carried at amortised cost
For financial assets carried at amortised cost (such as amounts due from Banks, loans and advances to customers),
the Group 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 the
Group determines that no objective evidence of impairment exists for an individually assessed financial asset, 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 an allowance account and the amount of the loss is recognised in the consolidated income statement.
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 the Group. 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 the “Net credit losses” in the consolidated income
statement.
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. The calculation of the present value of the estimated future cash flows of a collateralised financial asset
reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or
not foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’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 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 (such as changes in unemployment rates, property prices, commodity prices, payment status,
or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and
assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
17
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(8) Renegotiated loans
Where possible, the Bank seeks to restructure loans. This may involve extending the payment arrangements and the
agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the
original effective interest rate as calculated before the modification of terms and the loan is no longer considered
past due. The loans continue to be subject to an individual or collective impairment assessment, calculated using the
loan’s original effective interest rate.
(9) Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of
financial position 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, therefore, the related assets and liabilities are presented gross in
the consolidated statement of financial position.
(10) Leasing
The determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the
arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a
specific assets or assets and the arrangement conveys a right to use the assets.
Lease which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased
items are operating leases. Operating lease payments are recognized as an expense in the consolidated income
statement on a straight line basis over the lease term. Contingent rental payable are recognized as an expense in the
period in which they are incurred.
(11) Recognition of income and expenses
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the
revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is
recognized.
(i)
Interest and similar income and expense
For all financial instruments measured at amortised cost, 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 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 the Group revises its estimates of
payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate. 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 continues to be recognized using the rate of interest used to discount future cash flows for the
purpose of measuring the impairment loss.
Interest income on debt securities classified at fair value through profit or loss is recognized under net gain from
financial assets at fair value through profit or loss in the income statement.
(ii)
Fee and commission income
The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee
income can be divided into the following two categories:
Fee income earned from services that are provided over a certain period of time
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.
18
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(11) Recognition of income and expenses (continued)
(ii)
Fee and commission income (continued)
Fee income from providing transaction services
Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the
arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on
completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are
recognised after fulfilling the corresponding criteria.
(iii)
Dividend income
Dividend income is recognized when the Bank’s right to receive the payment is established.
(12) Cash and cash equivalents
Cash and cash equivalents as referred to in the statement of cash flows comprises cash on hand, non-restricted current
accounts with central Banks and amounts due from Banks on demand or with an original maturity of three months or
less.
(13) Property and equipment
Property and equipment (except buildings) is stated at cost excluding the costs of day-to-day servicing, less
accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the
property and equipment. When significant parts of property and equipment are required to be replaced at intervals,
the Bank recognises such parts as individual assets with specific useful lives and depreciates them accordingly.
Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the equipment as a
replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the
consolidated income statement as incurred. The present value of the expected cost for the decommissioning of an
asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
Changes in the expected useful life are accounted for by changing the amortization period or method, as appropriate,
and treated as changes in accounting estimates.
Buildings are measured at fair value less accumulated depreication and any impairment losses recognized at the date of
revaluation. Valuations are performed with sufficient frequency to ensure that fair value of a revalued asset does not
differ materially from its carrying amount.
A revaluation surplus is recorded in other comprehensive income and credited to revaluation reserve in equity.
However, to the extent that it reverses a revaluation deficit of the same asset previously recognized in profit or loss, the
increase is recognized in the profit or loss. A revaluation deficit is recognized in the profit or loss, except to the extent
that it offsets an existing surplus on the same asset recognized in the revaluation reserve.
Depreciation is calculated using the straight line method to write down the cost of property and equipment to their
residual values over their estimated useful lives. The estimated useful lives are as follows:
Buildings
Office supplies and furniture
Office equipment
Computer equipment
Motor vehicles
50.00 years
12.50 years
6.67 years
5.00 years
10.00 years
Property and equipment is derecognized on disposal or when no future economic benefits are expected from its use.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is recognized in the consolidated income statement in the year the asset is
derecognized.
The asset’s residual lives and methods of depreciation are reviewed at each financial year end and adjusted
prospectively if applicable.
19
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(14) Intangible assets
The Group’s intangible assets include the value of computer software. An intangible asset is recognized only when
its cost can be measured reliably and its is probable that the expected future economic benefits that are attributable
to it will flow to the Group.
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.
The useful lives of intangible assets are assessed to be either finite of indefinite. Intangible assets with finite lives are
amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset
with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing
the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation
expense on intangible assets with finite lives is recognised in the consolidated income statement.
Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual
values over their estimated useful lives as follows:
Software
5 years
(15) Investments in associates
The Company’s investments in associates are accounted for under the equity method of accounting in the
consolidated financial statements and at cost in the separate financial statements. As associate is an entity over which
the Company has significant influence. Significant influence is the power to participate in the financial and operating
policy decisions of the investee, but is not control or joint control over those policies.
(16) Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value
less costs to sell and its value in use. Where the carrying amount of an asset or cash-generating unit exceeds its
recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair
value less costs to sell, an appropriate valuation model is used.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the
Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognized impairment loss
is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since
the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the
consolidated income statement.
(17) Provisions for risks and charges
Provisions are recognised when the Group 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. The expense relating to any provision is
presented in the consolidated income statement net of any reimbursement.
20
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
2
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5
Summary of significant accounting policies (continued)
(18) Taxation
Taxes are provided for in accordance with regulations and laws that are effective in the countries where the Group
operates.
(19) Assets under management
The Group provides trust and other fiduciary services that result in the holding or investing of assets on behalf of its
clients. Assets held in a fiduciary capacity and under management are not reported in the consolidated financial
statements, as they are not the assets of the Group.
(20) Dividends on ordinary shares
Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the
Bank’s and subsidiaries’ shareholders.
Dividends for the year that are approved after the statement of financial position date are disclosed as an event after
the statement of financial position date.
(21) Employees’ end of service benefits
Subscriptions for end of service benefits paid and due to the National Social Security Fund (NSSF) are calculated on
the basis of 8.5% of the staff salaries. The final end of service benefits due to employees after completing certain
years of service, at the retirement age, or if the employee permanently leaves employment, are calculated based on
the last monthly salary multiplied by the number of years of service. The Bank is liable to pay to the NSSF the
difference between the subscriptions paid and the final end of service benefits due to employees.
End of services benefits of foreign subsidiaries are accrued for in accordance with the laws and regulations of the
respective countries in which the subsidiaries operate.
3
NET INTEREST INCOME
Interest and similar income
Central Bank
Banks and financial institutions
Loans and advances to customers at amortized cost
Interest and similar expense
Banks and financial institutions
Customers’ deposits
Net interest income
21
2014
LL (000)
2013
LL (000)
230,684
126,775
7,841,169
__________
8,198,628
__________
13,933
192,479
4,620,197
__________
4,826,609
__________
(1,042,370)
(1,778,675)
__________
(2,821,045)
__________
5,377,583
__________
(402,367)
(744,455)
__________
(1,146,822)
__________
3,679,787
__________
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
4
NET FEE AND COMMISSION INCOME
Fee and commission income
Brokerage fees on purchase and sale transactions
Fiduciary accounts management and related fees
Revenue from management and consultancy services
Fee and commission expense
Brokerage fees paid
Other fees
Net fee and commission income
5
2013
LL (000)
11,469,585
2,970,183
3,711,714
__________
18,151,482
__________
9,655,108
2,386,104
3,808,935
__________
15,850,147
__________
(3,384,206)
(416,200)
__________
(3,800,406)
__________
14,351,076
__________
(2,559,082)
(243,523)
__________
(2,802,605)
__________
13,047,542
__________
NET GAIN FROM FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Interest and similar income from debt instruments
- Lebanese government bonds
- Other debt securities
Gain from sale of debt instruments
Unrealized gain (loss) from revaluation of debt instruments
Net gain from debt instruments
Equity instruments
- Gain (loss) from sale
- Unrealized loss from revaluation
- Dividend income
Net gain from equity instruments
Foreign exchange
6
2014
LL (000)
2014
LL (000)
2013
LL (000)
73,574
306,541
__________
380,115
62,418
23,949
__________
466,482
__________
319,111
198,578
__________
517,689
79,968
(104,125)
__________
493,532
__________
340,946
(243,195)
64,693
__________
162,444
__________
(187,016)
__________
441,910
__________
(128,998)
(163,809)
412,614
__________
119,807
__________
416,677
__________
1,030,016
__________
2014
LL (000)
2013
LL (000)
(448,836)
2,451
(22,662)
__________
(469,047)
__________
(11,359)
__________
(11,359)
__________
PROVISION FOR CREDIT LOSSES, NET
Provision for credit losses (note 14)
Write-back of provision for credit losses (note 14)
Write-off loans and advances to customers
22
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
7
PERSONNEL EXPENSES
Salaries and wages
Directors’ remunerations (note 28)
National Social Security Fund contributions
Transportation
Provision for employees’ end-of-service benefits
Other employees’ charges
8
2013
LL (000)
6,736,186
1,302,250
612,812
223,953
255,449
412,843
__________
9,543,493
__________
6,808,619
1,041,478
712,756
174,786
373,777
290,653
__________
9,402,069
__________
2014
LL (000)
2013
LL (000)
1,591,516
763,214
590,793
476,184
462,431
344,190
268,568
256,273
245,647
241,559
236,433
194,145
43,958
2,888
1,245,622
__________
6,963,421
__________
1,582,667
694,782
692,269
465,529
365,395
321,262
277,672
364,377
269,275
352,634
555,764
173,763
36,059
2,492
1,116,993
__________
7,270,933
__________
OTHER OPERATING EXPENSES
Telecommunication
Travel expenses
Legal and consulting fees
Maintenance and repairs
Rent expense
Insurance premiums
Electricity and fuel
Taxes and charges
Professional fees
Entertainment and congress expenses
Advertising fees
Printing and stationery
Transportation
Loss on sale of fixed assets
Other expenses
9
2014
LL (000)
INCOME TAX
Income tax expense for the year ended 31 December resulted from the following entity:
FFA Real Estate SAL
23
2014
LL (000)
2013
LL (000)
4,333
__________
20,164
__________
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
10
CASH AND BALANCES WITH THE CENTRAL BANK
Cash on hand
Balances with the Central Bank:
Current accounts
Time deposits
2014
LL (000)
2013
LL (000)
104,537
103,064
4,038,627
30,602,250
____________
34,745,414
____________
3,419,529
22,009,500
__________
25,532,093
__________
Deposits with the Central Bank include mandatory reserve deposits and are not available for use in the Bank’s dayto-day operations in the amount of US$ 20.3 million as at 31 December 2014 (2013: US$ 14.6 million).
11
DUE FROM BANKS AND FINANCIAL INSTITUTIONS
2014
LL (000)
2013
LL (000)
Commercial banks:
- Current accounts
39,590,090
28,565,269
Financial institutions:
- Current accounts
18,646,368
10,030,962
4,107,926
___________
62,344,384
___________
3,919,278
___________
42,515,509
___________
Brokerage companies:
- Current accounts
During 2013, the Bank recovered the doubtful bank accounts and accordingly recognized a provision write-back in
the amount of LL (000) 1,532,505 in the its income statement for the year ended 31 December 2013.
12
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Government bonds
Debt instruments
Equity instruments
Equity funds
Bond funds
24
2014
LL (000)
2013
LL (000)
77,160
7,250,930
8,905,502
4,810,712
325,422
__________
21,369,726
__________
6,972,567
4,343,922
11,653,691
5,304,443
4,405,817
__________
32,680,440
__________
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
13
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Equity instruments
2014
LL (000)
2013
LL (000)
61,191
__________
104,470
__________
The revaluation loss during the year ended 31 December 2014 amounting to LL (000) 43,278 (2013: revaluation
gain of LL (000) 20,776) is recorded under equity. As at 31 December 2014, changes in fair value amounted to LL
(000) 86,215 (2013: LL (000) 42,937).
14
LOANS AND ADVANCES TO CUSTOMERS
2014
LL (000)
2013
LL (000)
Loans and advances to customers against securities
Other loans
102,640,619
6,372,235
____________
109,012,854
75,252,778
3,480,678
____________
78,733,456
Less: Allowance for credit losses
Allowance for unrealized interest on impaired loans
(718,957)
(596,000)
____________
107,697,897
____________
(272,572)
(450,346)
____________
78,010,538
____________
2014
Loans and advances
to customers against
securities
LL (000)
2013
Loans and advances
to customers against
securities
LL (000)
272,572
448,836
(2,451)
______________
718,957
______________
261,213
11,359
______________
272,572
______________
536,843
182,114
______________
718,957
______________
152,313
120,259
______________
272,572
______________
1,525,444
______________
607,235
______________
A reconciliation of allowance for credit losses, by class, is as follows:
Balance at 1 January
Charge for the year
Provision written-back
Balance at 31 December
Individual impairment
Collective impairment
Gross amount of loans, individually determined to be impaired, before
deducting the individually assessed impairment allowance
25
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
14
LOANS AND ADVANCES TO CUSTOMERS (continued)
A reconciliation of allowances for unrealized interest on impaired loans, by class, is as follows:
Balance at 1 January
Unrealized interest during the year
Unrealized interest written-off during the year
Balance at 31 December
2014
Loans and advances
to customers against
securities
LL (000)
2013
Loans and advances
to customers against
securities
LL (000)
450,346
154,850
(9,196)
_____________
596,000
_____________
376,618
73,728
______________
450,346
______________
Loans and advances to customers generate interest at a rate ranging from 4.75% to 13% (2013: the same).
15
INVESTMENT AND LOAN TO ASSOCIATE
Country of
incorporation
Carati Jewellery SAL
Loan to Carati Jewellery SAL
Lebanon
Ownership%
2013
2014
-
7.00%
Activity
Jewellery
2014
LL (000)
2013
LL (000)
_________
_________
210,000
580,388
________
790,388
_________
During the year ended 31 December 2014, the Bank transferred all its investment in Carati Jewellery SAL (the
Company) and the associated loan of LL (000) 790,388 to one of the Company’s shareholders who, in turn obtained
a loan from the Bank to settle the transfer price.
16
OTHER ASSETS
Mandatory deposit with the Lebanese Treasury
Commission receivable
Miscellaneous debtors
Fixed deposits and prepayments
Regularization and other debtor accounts
26
2014
LL (000)
2013
LL (000)
2,550,000
1,739,669
750,702
117,788
814,619
__________
5,972,778
__________
2,550,000
1,345,297
552,890
119,253
732,050
__________
5,299,490
__________
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
17
PROPERTY AND EQUIPMENT
Cost or revaluation
At 1 January 2014
Additions
Disposals
Transfers
At 31 December 2014
Depreciation:
At 1 January 2014
Depreciation charge for the year
Disposals
At 31 December 2014
Net carrying value:
At 31 December 2014
Cost or revaluation
At 1 January 2013
Additions
Disposals
Elimination of cost (note a)
Revaluation reserve or property
At 31 December 2013
Depreciation:
At 1 January 2013
Depreciation charge for the year
Disposals
Elimination of depreciation (note a)
At 31 December 2013
Net carrying value:
At 31 December 2013
Buildings
LL (000)
Office supplies
and furniture
LL (000)
Office
equipment
LL (000)
Computer
equipment
LL (000)
Motor
vehicles
LL (000)
Advances on
purchase
properties
LL (000)
Total
LL (000)
21,926,146
38,003
_________
21,964,149
_________
1,651,233
99,407
(7,711)
_________
1,742,929
_________
5,973,444
59,766
________
6,033,210
________
2,257,853
205,040
(4,299)
49,448
________
2,508,042
________
853,219
_________
853,219
_________
49,448
15,089
(49,448)
________
15,089
________
32,711,343
417,305
(12,010)
___________
33,116,638
__________
102,379
470,732
_________
573,111
_________
715,767
122,775
_________
838,542
_________
3,755,639
857,147
________
4,612,786
________
1,749,975
244,272
(2,793)
________
1,991,454
________
439,713
74,198
_________
513,911
_________
________
________
6,763,473
1,769,124
(2,793)
___________
8,529,804
___________
21,391,038
_________
904,387
_________
1,420,424
________
516,588
________
339,308
_________
15,089
________
24,586,834
___________
Buildings
LL (000)
Office supplies
and furniture
LL (000)
Office
equipment
LL (000)
Computer
equipment
LL (000)
Motor
vehicles
LL (000)
Advances on
purchase
properties
LL (000)
Total
LL (000)
8,513,869
29,022
(945,592)
14,328,847
_________
21,926,146
_________
1,640,013
19,594
(8,374)
_________
1,651,233
_________
5,936,112
37,332
________
5,973,444
________
2,086,441
171,412
________
2,257,853
________
831,692
21,527
_________
853,219
_________
49,448
________
49,448
________
19,008,127
328,335
(8,374)
(945,592)
14,328,847
___________
32,711,343
__________
847,169
200,802
(945,592)
_________
102,379
_________
604,478
116,467
(5,178)
_________
715,767
_________
2,904,510
851,129
________
3,755,639
________
1,476,290
273,685
________
1,749,975
________
361,797
77,916
_________
439,713
_________
________
________
6,194,244
1,519,999
(5,178)
(945,592)
___________
6,763,473
___________
21,823,767
_________
935,466
_________
2,217,805
________
507,878
________
413,506
_________
49,448
________
25,947,870
___________
Note a: As a result of the revaluation of the buildings, the Bank eliminated the accumulated depreciation against the
gross carrying amount of the asset and the net amount was restated to the revalued amount.
In December 2013, the Bank has changed its accounting policy for the measurement of buildings to the revaluation
model.
If the buildings were measured using the cost model, the carrying amounts would be as follows:
Cost
Accumulated depreciation
Net carrying amount
2014
LL (000)
2013
LL (000)
8,507,061
(1,091,853)
__________
7,415,208
__________
8,507,061
(921,711)
__________
7,585,350
__________
The buildings consist of the office and storage properties in Beirut. Management determined that these constitute
one class of asset under IFRS 13, based on the nature, characteristics and risks of the property.
Fair value of the properties was determined by using market comparable method. This means that valuations
performed by the valuer are based on active market prices, significantly adjusted for difference in the nature,
location or condition of the specific property.
27
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
18
INTANGIBLE ASSETS
Software
2014
LL (000)
Cost:
At 1 January
Additions
At 31 December
Amortization:
At 1 January
Amortization charge for the year
At 31 December
Net carrying amount at 31 December
19
2013
LL (000)
160,661
19,746
__________
180,407
__________
160,661
__________
160,661
__________
57,312
37,097
__________
94,409
__________
20,728
36,584
__________
57,312
__________
85,998
__________
103,349
__________
2014
LL (000)
2013
LL (000)
394,210
711,737
20,928,581
32,319,786
9,632,314
__________
30,955,105
__________
361,150
__________
33,392,673
__________
DUE TO BANKS AND FINANCIAL INSTITUTIONS
Commercial banks:
- Current accounts
Financial institutions:
- Current accounts
Brokerage firms:
- Current accounts
Overdrafts due to financial institutions include current credit balances with non-resident financial institutions
resulting from trading of financial instruments for the account of the Bank’s and a subsidiary’s clients.
20
FINANCIAL LIABILITY UNDER MURABAHA TRANSACTION
During the year ended 31 December 2014, the Bank entered into a Murabaha transaction amounting to US$
3,013,391 (equivalent to LL (000) 4,542,686) with a local Islamic Bank. During the year ended 31 December 2014,
a loss amounting to LL (000) 106,869 was recorded in the consolidated income statement for the year. The
transaction will be settled on 26 May 2015.
21
CUSTOMERS’ DEPOSITS AT AMORTIZED COST
Term deposits
Margins received from clients
28
2014
LL (000)
2013
LL (000)
35,424,260
124,293,387
__________
159,717,647
__________
14,873,912
98,338,682
__________
113,212,594
__________
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
22
OTHER LIABILITIES
Due to public sectors
Accrued expenses
Taxes payable
Miscellaneous creditors
23
24
2014
LL (000)
2013
LL (000)
72,590
655,122
591,929
200,315
__________
1,519,956
__________
90,191
633,344
469,646
160,782
__________
1,353,963
__________
SHARE CAPITAL
-
The share capital of the Bank amounted to LL (000) 17,000,000 (170,000 shares of LL (000) 100 each
fully paid as at 31 December 2014) (2013: the same).
-
An amount of LL (000) 19,443,212 representing an issue premium resulted from the issuance of 85,000
shares of LL (000) 100 each for a consideration of US$ 218.07 by the Bank.
RESERVES
Non distributable Reserves
a) Reserve for general banking risks
According to the Central Bank of Lebanon regulations, banks in Lebanon are required to appropriate from their
annual net profit a minimum of 0.2 percent and a maximum of 0.3 percent of total risk weighted assets and off
statement of financial position items based on rates specified by the Central Bank of Lebanon to cover general
banking risks. The consolidated ratio should not be less than 1.25 percent of these risks at the end of year ten (2007)
and 2 percent at the end of year twenty (2017). This reserve is part of the Bank’s equity and cannot be distributed as
dividends.
b)
Legal reserve
As required by the Lebanese Code of Commerce and the Bank’s articles of association (applicable to subsidiaries
established in Lebanon), 10% of the net profit for the year has to be transferred to legal reserve. This reserve is not
available for distribution.
Distributable reserve
a) General reserve
In accordance with the General Assembly decisions, the Bank appropriated general reserve from profits of previous
years. In accordance with the resolutions of the General Assembly dated 10 June 2013, the shareholders decided to
extinguish the balance of accumulated losses in the amount of LL (000) 745,399 through the transfer of an
equivalent amount from the General reserve. This reserve amounting to LL (000) 719,997 as at 31 December 2014
(2013: the same) is available for distribution.
25
REVALUATION RESERVE OF PROPERTY
On 3 December 2013, the Central Bank of Lebanon approved the Bank’s revaluation of buildings resulting in a
surplus of LL (000) 14,328,847 on the condition that this revaluation reserve should not be considered eligible under
neither Tier 1 nor Tier 2 Capital as per the definition of the Central Bank of Lebanon’s rules and regulations.
29
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
26
OFF STATEMENT OF FINANCIAL POSITON ACCOUNTS
2014
LL (000)
2013
LL (000)
Financial instruments with brokers on behalf of customers
Deposits with banks
Certificates of deposit from the Central Bank of Lebanon
Trading financial instruments
Loans and advances
Engagements on customers’ future contracts (long) - notional amount
Engagements on customers’ future contracts (short) - notional amount
Other accounts
883,691,391
15,163,934
2,669,554
8,277,829
82,227,981
153,463,184
87,896,145
909,501
____________
1,234,299,519
____________
820,273,111
45,752,259
2,477,868
4,380,860
87,559,951
29,343,048
143,327,155
2,379,633
____________
1,135,493,885
____________
Customers’ financial instruments under custody
Deposits with specific instructions – Fiduciary
1,127,720,274
106,579,245
____________
1,234,299,519
____________
995,421,182
140,072,703
____________
1,135,493,885
____________
In the normal course of business, the Group’s activities involve the execution, settlement, and financing of various
customer securities transactions. These activities may expose the Group to off-statement of financial position risk in
the event the customer or other broker is unable to fulfill its contractual obligations and the Group has to purchase or
sell the financial instrument underlying the contract at a loss. The Group’s customer securities activities are
transacted on either a cash or advance basis. In the event that customers fail to satisfy their obligations, the Group
may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer’s
obligations. The Group seeks to control the risks associated with its customer activities by requiring customers to
maintain margin collateral in compliance with various regulatory and internal guidelines. The Group requires the
customer to deposit additional collateral or to reduce positions when necessary.
The Group’s customer financing and securities settlement activities require the Group to pledge customer securities
as collateral in support of various secured financing sources. In the event the counterparty is unable to meet its
contractual obligation to return customer securities pledged as collateral, the Group may be exposed to the risk of
acquiring the securities at prevailing market prices in order to satisfy its customer obligations. The Group controls
this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of
collateral levels in the event of excess market exposure.
27
CASH AND CASH EQUIVALENTS
2014
LL (000)
Cash and balances with the Central Bank
Due from banks and financial institutions (note 11)
Due to banks and financial institutions (note 19)
4,143,164
62,344,384
(30,955,105)
___________
35,532,443
___________
30
2013
LL (000)
3,522,593
42,515,509
(33,392,673)
___________
12,645,429
___________
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
28
RELATED PARTY TRANSACTIONS
The Group enters into transactions with the major shareholders, directors, senior management and affiliates in the
ordinary course of business at commercial interest and commission rates. All the loans and advances with related
parties are performing and not subject to a provision for potential credit losses.
Related parties’ transactions included in the consolidated income statement are summarized as follows:
Other related parties:
Commission income
Interest income
Revenue from custody of shares
Interest expense
2014
LL (000)
2013
LL (000)
5,442
28,000
37,544
324,907
107,780
37,541
-
Directors’ remunerations amounted to LL (000) 1,302,250 for the year ended 31 December 2014 (2013: LL (000)
1,041,478).
Related parties’ balances included in the consolidated statement of financial position are summarized as follows:
Loans and advances to other related parties
29
2014
LL (000)
2013
LL (000)
92,560
336,897
COMMITMENTS AND CONTINGENT LIABILITIES
a)
The Bank is contingently liable for a guarantee issued in favor of the Beirut Stock Exchange amounting to
LL 200 million as a guarantee for the commitments of the Bank to operate as a financial broker (2013: the
same).
b)
The Bank’s books and records have not been reviewed by the Lebanese Tax authorities for the years 2010 till
2014. The ultimate outcome of any tax review that may take place cannot presently be determined.
c)
Litigation is a common occurrence in the banking industry due to the nature of the business. Management, after
review with its legal counsel of all pending actions and proceedings, considers that the aggregate liability or
loss, if any, resulting from an adverse determination would not have a material effect on the consolidated
financial position of the Group.
d)
Minimum future lease payments:
2014
LL (000)
During one year
More than one year and less than 5 years
420,754
1,392,971
__________
1,813,725
__________
2013
LL (000)
362,280
1,508,518
__________
1,870,798
__________
e)
As at 31 December 2014, letters of guarantee issued on behalf of the Bank in favour of another bank amounted
to LL (000) 40,202.
f)
Due from banks and financial institutions include cash margins amounting to LL (000) 15,243,453 (2013:
LL (000) 7,360,426) representing guarantees against future contracts purchased to the order of customers.
31
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
30
FAIR VALUE
The fair values in this note are stated at a specific date and may be different from the amounts which will actually be
paid on the maturity or settlement dates of the instrument. In many cases, it would not be possible to realize
immediately the estimated fair values given the size of the portfolios measured. Accordingly, these fair values do not
represent the value of these instruments to the Group as a going concern. Financial assets and liabilities are classified
according to a hierarchy that reflects the significance of observable market inputs. The three levels of the fair value
hierarchy are defined below.
Quoted market prices – Level 1
Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are
valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted
price is readily available, and the price represents actual and regularly occurring market transactions on an arm’s length
basis. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing
information on an ongoing basis.
Valuation technique using observable inputs – Level 2
Financial instruments classified as Level 2 have been valued using models whose most significant inputs are observable
in an active market. Such valuation techniques and models incorporate assumptions about factors observable in an
active market, that other market participants would use in their valuations, including interest rate yield curve, exchange
rates, volatilities, and prepayment and defaults rates.
Valuation technique using significant unobservable inputs – Level 3
Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on
observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed
from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price.
Unobservable input levels are generally determined based on observable inputs of a similar nature, historical
observations or other analytical techniques.
The following table shows an analysis of asset classes carried at fair value by level of the fair value hierarchy:
Level 1
LL (000)
Financial assets designated at fair value through profit or loss:
Equity instruments
Debt instruments
Government bonds
Equity funds
Bond funds
Financial assets at fair value through other comprehensive income
Equity instruments
Property and equipment:
Buildings
Financial assets at fair value through other comprehensive income
Equity instruments
Property and equipment:
Buildings
Total
LL (000)
292,529
7,250,930
-
-
8,905,502
7,250,930
77,160
4,810,712
325,422
61,191
__________
13,887,458
__________
__________
7,543,459
__________
__________
__________
61,191
__________
21,430,917
___________
__________
21,391,038
__________
__________
21,391,038
___________
Level 3
LL (000)
Total
LL (000)
2013
Level 2
LL (000)
9,783,298
6,972,567
5,304,443
4,405,817
1,870,393
4,343,922
-
-
11,653,691
4,343,922
6,972,567
5,304,443
4,405,817
104,470
__________
26,570,595
__________
__________
6,214,315
__________
__________
__________
104,470
__________
32,784,910
___________
__________
21,890,316
__________
__________
21,890,316
___________
There were no transfers between levels during 2014 (2013: the same).
32
Level 3
LL (000)
8,612,973
77,160
4,810,712
325,422
Level 1
LL (000)
Financial assets designated at fair value through profit or loss:
Equity instruments
Debt instruments
Government bonds
Equity funds
Bond funds
2014
Level 2
LL (000)
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
30
FAIR VALUE (continued)
Assets and liabilities measured at fair value using a valuation technique with significant observable inputs
(Level 2)
The Group values these unquoted securities using discounted cash flow valuation models where the lowest level
input that is significant to the entire measurement is observable in an active market. These inputs include
assumptions regarding current rates of interest, implied volatilities, credit spreads and broker statements. Buildings
are valued using comparable market transactions.
Financial instruments not recorded at fair value
The book and fair values of the financial assets and liabilities not carried at fair value as of 31 December are as
follows:
2014
Financial assets
Cash and balances with the Central Bank
Due from banks and financial institutions
Loans and advances to customers
Loans and advances to related parties
Financial liabilities
Due to banks and financial institutions
Customers’ deposits at amortized cost
Fair
value
LL (000)
Book
value
LL (000)
Difference
LL (000)
34,745,414
62,344,384
107,854,053
92,650
__________
205,036,501
__________
34,745,414
62,344,384
107,697,897
92,650
__________
204,880,345
__________
156,156
__________
156,156
__________
30,955,105
159,869,544
__________
190,824,649
__________
30,955,105
159,717,647
__________
190,672,752
__________
151,897
__________
151,897
__________
2013
Financial assets
Cash and balances with the Central Bank
Due from banks and financial institutions
Investment and loan to associate
Loans and advances to customers
Loans and advances to related parties
Financial liabilities
Due to banks and financial institutions
Customers’ deposits at amortized cost
Fair
value
LL (000)
Book
value
LL (000)
Difference
LL (000)
25,532,093
42,515,509
790,388
77,949,784
334,073
__________
147,121,847
__________
25,532,093
42,515,509
790,388
78,010,538
336,897
__________
147,185,425
__________
(60,754)
(2,824)
__________
(63,578)
__________
33,392,673
113,097,081
__________
146,489,754
__________
33,392,673
113,212,594
__________
146,605,267
__________
(115,513)
__________
(115,513)
__________
Assets and liabilities for which fair value is disclosed using a valuation technique with significant observable
inputs (Level 2)
Loans and advances to customers and related parties and due from banks and financial institutions
The fair value is determined using valuation models which incorporate a range of assumptions. These are grouped,
as far as possible, into homogeneous groups and stratified by subgroups with similar characteristics to improve the
accuracy of valuation outputs. These valuation techniques also consider expected credit losses and changes to
behavioural profiles.
Due to banks and financial institutions and customers’ accounts
For the purpose of estimating fair value, these are grouped by remaining contractual maturity. Fair values are
estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.
The fair value of a deposit repayable on demand is assumed to be the amount payable on demand at the financial
position date.
33
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
30
FAIR VALUE (continued)
Assets and liabilities for which fair value is disclosed using a valuation technique with significant observable
inputs (Level 2) (continued)
Assets and liabilities not carried at fair value, for which fair value approximates carrying value
For financial assets and financial liabilities that have a short term maturity (less than three months) it is assumed that
the carrying amounts approximate their fair values. This assumption is also applied to demand deposits, and savings
accounts without a specific maturity.
The following table provides the fair value measurement hierarchy of the Bank’s assets and liabilities for which their
fair values are disclosed.
31 December 2014
2014
Level 1
LL (000)
Level 2
LL (000)
Level 3
LL (000)
Total
LL (000)
Assets for which fair values are disclosed:
Balances with Central Bank
Due from banks and financial institutions
Loans and advances to customers
Loans and advances to related parties
-
34,745,414
62,344,384
107,854,053
92,650
-
34,745,414
62,344,384
107,854,053
92,650
Liabilities for which fair values are disclosed:
Due to banks and financial institutions
Customers’ deposits at amortized cost
-
30,955,105
159,869,544
-
30,955,105
159,869,544
Level 1
LL (000)
Level 2
LL (000)
Level 3
LL (000)
Total
LL (000)
Assets for which fair values are disclosed:
Balances with Central Bank
Due from banks and financial institutions
Investment and loan to associate
Loans and advances to customers
Loans and advances to related parties
-
25,429,029
42,515,509
790,388
77,949,784
334,073
-
25,429,029
42,515,509
790,388
77,949,784
334,073
Liabilities for which fair values are disclosed:
Due to banks and financial institutions
Customers’ deposits at amortized cost
-
33,392,673
113,097,081
-
33,392,673
113,097,081
31 December 2013
2013
There were no transfers between levels during 2014 (2013: the same).
31
RISK MANAGEMENT
31.1
Introduction
Risk is inherent in the Group’s activities but is managed through a process of ongoing identification, measurement
and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Group’s
continuing profitability and each individual within the Group is accountable for the risk exposures relating to its
responsibilities. The Group is exposed to credit risk, liquidity risk, prepayments risk, operational risk and market
risk, the latter being subdivided into trading and non-trading risks. It is also subject to various operating risks.
The independent risk control process does not include business risks such as changes in the environment, technology
and industry. The Group’s policy is to monitor those business risks through the Group’s strategic planning process.
Risk Management Structure
The Board of Directors is ultimately responsible for identifying and controlling risks. However, there are separate
independent bodies responsible for managing and monitoring risks.
Board of Directors
The Board of Directors (the Board) is ultimately responsible for identifying and setting the level of tolerable risks to
which the Group is exposed, and as such defines the risk appetite for the Group. In addition, the Board approves
policies and procedures related to all types of risks. Periodic reporting is made to the Board on existing and
emerging risks in the Group. A number of Management committees and departments are also responsible for various
levels of risk management, as set out below.
34
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.1
Introduction (continued)
Risk Management Structure (continued)
Board Risk Committee
The role of the Board Risk Committee is to oversee the risk management framework and assess its effectiveness,
review and recommend to the Board the bank risk policies and risk appetite, monitor the bank risk profile, review
stress tests scenarios and results.
Asset Liability Committee
The Asset Liability Committee (ALCO) is a Management committee responsible in part for managing market risk
exposures, liquidity, funding needs and contingencies. It is the responsibility of this committee to set up strategies
for managing market risk exposures and ensuring that treasury implements those strategies so that exposures are
managed within approved limits and in a manner consistent with the risk policy and limits approved by the Board.
Risk Management Unit
The Risk Management Unit is responsible for implementing and maintaining risk related procedures to ensure an
independent control process is maintained.
The Risk Management Unit is responsible for monitoring compliance with risk principles, policies and limits across
the Group. Each business group has its own unit which is responsible for the independent control of risks, including
monitoring the risk of exposures against limits and the assessment of risks of new products and structured
transactions. This unit also ensures the complete capture of the risks in risk measurement and reporting systems.
Group Treasury
Group Treasury is responsible for managing the Group’s assets and liabilities and the overall financial structure.
It is also primarily responsible for the funding and liquidity risks of the Group.
Internal Audit
The Group’s policy is that risk management processes throughout the Group are audited annually by the internal
audit function, which examines both the adequacy of the procedures and the Group’s compliance with the
procedures. Internal Audit discusses the results of all assessments with management, and reports its findings and
recommendations to the Audit Committee.
Risk measurement and reporting systems
The Group’s risks are measured using a method which reflects both the expected loss likely to arise in normal
circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on statistical models.
The models make use of probabilities derived from historical experience. The Group also runs worst case scenarios
that would arise in the event that extreme events which are unlikely to occur do, in fact occur.
Monitoring and controlling risks is primarily performed based on adjustable limits established by the Group. These
limits reflect the business strategy of the Group, and most important, are periodically attuned to be in line with the
market environment and the level of risk that the Group is willing to accept. In addition, the Group’s policy is to
measure and monitor the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types
and activities.
Information compiled from all the businesses is examined and processed in order to analyze, control and identify
risks on a timely basis. This information is presented to the Board of Directors via the Assets, Liabilities, and Risk
Management Committee, the Credit Committee, and the Board Risk Committee.
For all levels throughout the Group, specifically tailored risk reports are prepared and distributed in order to ensure
that all business divisions have access to extensive, necessary and up-to-date information.
Risk mitigation
As part of its overall risk management, the Group manages its exposures resulting from changes in interest rates,
foreign currencies, equity risks, credit risks, and exposures arising from transactions.
35
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.1
Introduction (continued)
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the
same geographic region, or have similar economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the
relative sensitivity of the Group’s performance to developments affecting a particular industry or geographical
location.
In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific guidelines to
focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed
accordingly. Selective hedging is used within the Group to manage risk concentrations at both the relationship and
industry levels.
31.2
CREDIT RISK
Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their
contractual obligations. The Group manages and controls credit risk by limiting transactions with specific
counterparties, and continuously assessing the creditworthiness of counterparties.
The Group manages credit risk by setting limits for individual borrowers and groups of borrowers and for
geographical and industry segments. In addition, the Group obtains security where appropriate.
Origination of loans and maintenance
There are consistent standards across the Group for the origination, documentation and maintenance of extensions of
credit.
Loan portfolio management
The Group seeks to control the credit risks associated with its loan portfolio by requiring customers to maintain
margin collateral in compliance with regulatory and internal guidelines.
Credit quality per class of financial assets
In managing its portfolio, the Group utilizes ratings and other measures and techniques which seek to take account of
all aspects of perceived risk. Credit exposures classified as “High” quality are those where the ultimate risk of
financial loss from the obligor’s failure to discharge its obligation is assessed to be low. These include facilities to
corporate entities with financial condition, risk indicators and capacity to repay which are considered to be good to
excellent. Credit exposures classified as “Standard” quality comprise all other facilities whose payment performance
is fully compliant with contractual conditions and which are not “impaired”. The ultimate risk of possible financial
loss on “Standard” quality is assessed to be higher than that for the exposures classified within the “High” quality
range.
The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific
counterparties, and continuously assessing the creditworthiness of counterparties. The Group seeks to manage its
credit risk exposure through diversification of lending activities to avoid undue concentrations of risks with
individuals or groups of customers in specific locations or businesses. The Group also monitors non-performing
loans and books required provisions when necessary.
Past due obligations (PDO)
Any delay in the customer’s meeting payments on pre-arranged due dates, and/or failure to make repayments,
prompts immediate action by the Account Officer to determine underlying reasons. A justifiable explanation by the
customer may be in itself satisfactory and as such, may warrant no further action other than obtaining an agreement,
to be approved by the Risk Management Department, that payment will be forthcoming at a specified later date. If
reason is considered unsatisfactory and/or if customer fails to make repayment on agreed extended payment date,
account will be considered as PDO.
36
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.2
CREDIT RISK (continued)
Provisioning policy
As part of the conservative approach to sustain the quality of the Group’s loan portfolio, periodic evaluation of loan
loss provision is performed.
Non-performing loans are closely monitored and well provisioned as required with remedial actions taken and
managed proactively.
As a result, all adversely classified accounts are reviewed periodically and the concerned department makes
recommendation for specific provisions against the accounts. In this regard, specific approval from regulatory
authority is obtained when necessary.
The classification of loans and advances to customers and related parties at amortised cost as in accordance with the
ratings of Central Bank of Lebanon circular 58 are as follows:
2014
Regular
Doubtful
Collective impairment
Gross
balance
LL million
Unrealised
interest
LL million
Impairment
allowances
LL million
Net
balance
LL million
107,488
1,525
_____________
109,013
(182)
_____________
108,831
_____________
(596)
_____________
(596)
_____________
(596)
_____________
(537)
_____________
(537)
_____________
(537)
_____________
107,488
392
_____________
107,880
(182)
_____________
107,698
_____________
Gross
balance
LL million
Unrealised
interest
LL million
Impairment
allowances
LL million
Net
balance
LL million
78,126
607
_____________
78,733
(120)
_____________
78,613
_____________
(450)
_____________
(450)
_____________
(450)
_____________
(152)
_____________
(152)
_____________
(152)
_____________
78,126
5
_____________
78,131
(120)
_____________
78,011
_____________
2013
Regular
Doubtful
Collective impairment
Renegotiated Loans
Restructuring activity aims to manage customer relationships and maximize collection opportunities and, if possible
avoid portfolio liquidation. Such activities include extended payment arrangements, modification, loan rewrites
and/or deferral of payments pending a change in circumstances.
Restructuring policies and practices are based on indicators or criteria which, in the judgment of management,
indicate that repayment will probably continue.
Loans and advances to customers
37
2014
LL million
2013
LL million
2,528
____________
____________
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.2
CREDIT RISK (continued)
Risk concentrations, maximum exposure to credit risk without taking account of any collateral and other
credit enhancements
The Group’s concentrations of risk are managed by client / counterparty. The maximum credit exposure to any client
or counterparty as of 31 December 2014 was LL (000) 8,908,890 (2013: LL (000) 8,967,967).
The following table shows the maximum exposure to credit risk for the component of the statement of financial
position by resident and non-resident.
Geographic analysis
Cash and balances with the Central Bank
Due from banks and financial institutions
Financial assets at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Loans and advances to customers
Loans and advances to related parties
Cash and balances with the Central Bank
Due from banks and financial institutions
Financial assets at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Loans and advances to customers
Loans and advances to related parties
2014
Europe
US
LL million
LL million
Lebanon
LL million
MENA
LL million
Other
LL million
Total
LL million
34,733
3,169
12,029
47,488
93
_________
97,512
_________
12
8,604
271
58,650
________
67,537
________
31,424
3,795
1,560
________
36,779
________
15,040
5,265
61
________
20,366
________
4,107
10
________
4,117
________
34,745
62,344
21,370
61
107,698
93
________
226,311
________
Lebanon
LL million
MENA
LL million
2013
Europe
US
LL million
LL million
Other
LL million
Total
LL million
25,519
6,560
17,076
75,650
337
_________
125,142
_________
13
5,494
603
470
________
6,580
________
16,144
4,425
1,891
________
22,460
________
508
1,502
________
2,010
________
25,532
42,516
32,681
104
78,011
337
________
179,181
________
13,810
9,075
104
________
22,989
________
Collateral and other credit enhancements
The amount, type and valuation of collateral is based on guidelines specified in the risk management framework.
The main types of collateral obtained include quoted shares, cash collateral and bank guarantees. The revaluation
and custody of collaterals are performed independent of the business units.
Guarantees received from customers are detailed as follows:
Securities
Cash
2014
LL million
2013
LL million
81,429
7,382
__________
88,811
__________
53,080
14,021
__________
67,101
__________
Analysis of maximum exposure to credit risk and collateral and other credit enhancements
The following table shows the maximum exposure to credit risk by class of financial asset. It further shows the total
fair value of collateral, capped to the maximum exposure to which it relates and the net exposure to credit risk.
2014
Loans and advances to customers
Loans and advances to related parties
Total net loans and advances
Maximum
exposure
LL million
Cash
LL million
Securities
LL million
Net credit
exposure
LL million
107,698
93
____________
107,791
____________
7,382
____________
7,382
____________
81,429
____________
81,429
____________
18,887
93
___________
18,890
___________
38
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.2
CREDIT RISK (continued)
Analysis of maximum exposure to credit risk and collateral and other credit enhancements (continued)
2013
Loans and advances to customers
Loans and advances to related parties
Total net loans and advances
Maximum
exposure
LL million
Cash
LL million
Securities
LL million
Net credit
exposure
LL million
78,011
337
____________
78,348
____________
14,016
5
____________
14,021
____________
53,004
76
____________
53,080
____________
10,991
256
___________
11,247
___________
Management monitors the market value of collateral, requests additional collateral in accordance with the underlying
agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance
for impairment losses.
Credit quality by class of financial assets
The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows
the credit quality by class of asset for all financial assets exposed to credit risk, based on the Group’s internal credit
rating system. The amount presented are gross of impairment allowances:
2014
Neither past due nor impaired
HighStandard
Grade
grade
LL million
LL million
Cash and balances with the Central bank
Due from banks and financial institutions
Financial assets at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Loans and advances to customers
Loans and advances to related parties
34,745
62,344
7,994
61
106,173
93
____________
211,410
_____________
13,376
____________
13,376
____________
Past due but
not impaired
LL million
Individually
impaired
LL million
Total
LL million
____________
____________
1,525
__________
1,525
__________
34,745
62,344
21,370
61
107,698
93
___________
226,311
___________
Past due but not
impaired
LL million
Individually
impaired
LL million
Total
LL million
____________
____________
607
__________
607
__________
25,532
42,516
32,681
104
78,011
337
___________
179,181
___________
2013
Neither past due nor impaired
HighStandard
Grade
grade
LL million
LL million
Cash and balances with the Central bank
Due from banks and financial institutions
Financial assets at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Loans and advances to customers
Loans and advances to related parties
25,532
42,516
15,002
104
77,404
337
____________
160,895
_____________
17,679
____________
17,679
____________
Impairment assessment
For accounting purposes, the Group uses an incurred loss model for the recognition of losses on impaired financial
assets. This means that losses can only be recognized when objective evidence of a specific loss event has been
observed. Triggering events include the following:
-
Significant financial difficulty of the customer;
A breach of contract such as a default of payment;
Where the Group grants the customer a concession due to the customer experiencing financial difficulty;
It becomes probable that the customer will enter bankruptcy or other financial reorganization; and
Observable data that suggests that there is a decrease in the estimated future cash flows from the loans.
39
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
31.2
RISK MANAGEMENT (continued)
CREDIT RISK (continued)
Individually assessed allowances
The Group determines the allowance appropriate for each individually significant loan or advance on an individual
basis. Items considered when determining allowance amounts include the sustainability of the counterparty’s business
plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected
payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral and the
timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen
circumstances require more careful attention.
Collectively assessed allowances
Allowances are assessed collectively for losses on loans and advances that are not individually significant and for
individually significant loans that have been assessed individually and found not to be impaired. Allowances are
evaluated separately at each reporting date with each portfolio.
31.3
LIQUIDITY RISK AND FUNDING MANAGEMENT
Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the
possibility that the Group might be unable to meet its payment obligations when they fall due under both normal and
stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core
deposit base, manages assets with liquidity in mind, maintaining a healthy balance of cash and cash equivalents and
readily marketable securities.
The Group maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in
the event of an unforeseen interruption of cash flow. The Group also has committed lines of credit that it can access
to meet liquidity needs.
As per the Lebanese banking regulations, the Bank must retain with the Central Bank of Lebanon interest bearing
statutory investments equivalent to 15% of all foreign currency deposits regardless of their nature.
The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress
factors relating to both the market in general and specifically to the Bank. The Bank maintains a solid ratio of highly
liquid net assets in foreign currencies to deposits and commitments in foreign currencies taking market conditions
into consideration. In accordance, with the Central Bank of Lebanon circulars, the ratio of net liquid assets to
deposits and commitments in foreign currencies and Lebanese Liras should not be less than 10% and 40%,
respectively.
The ratios during the year were as follows:
The Group stresses the importance of current accounts and savings accounts as sources of funds to finance lending
to customers. They are monitored using the advances to deposit ratios, which compares loans and advances to
customers as a percentage of core customer and savings accounts.
Net liquid assets to deposits in foreign currencies
Year-end
Maximum
Minimum
Average
40
2014
21.79
30.95
8.26
18.5
2013
18.94
40.51
16.81
25.31
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.3
LIQUIDITY RISK AND FUNDING MANAGEMENT (continued)
Analysis of Financial Assets and Liabilities by Remaining Maturities
The table below summarizes the maturity profile of the Group’s financial assets and liabilities as at 31 December.
Repayments which are subject to notice are treated as if notice were to be given immediately. However, the Group
expects that many customers will not request repayment on the earliest date the Group could be required to pay and
the table does not reflect the expected cash flows indicated by the Group’s deposit retention history.
31 December 2014
Up to 1
Month
LL million
Financial assets
Cash and balances with the Central
Bank
Due from banks and financial
institutions
Financial assets at fair value through
profit or loss
Financial assets at fair value through
other comprehensive income
Loans and advances to customers
Loans and advances to related parties
Total undiscounted financial assets
Financial liabilities
Due to banks and financial institutions
Customers’ deposits at amortized cost
Total undiscounted financial
liabilities
Net undiscounted financial assets
(liabilities)
Sub total
LL million
Amount
without
maturity
LL million
Total
LL million
-
16,583
-
34,745
-
-
-
62,344
77
-
77
5,657
21,370
3,517
_________
20,177
_________
__________
__________
3,517
__________
20,177
__________
61
_________
5,718
_________
61
107,698
93
__________
226,311
__________
30,955
159,718
__________
_________
__________
__________
_________
30,955
159,718
__________
8,887
__________
190,673
__________
_________
__________
__________
_________
190,673
__________
(8,821)
__________
9,743
__________
20,177
_________
__________
20,177
__________
5,718
_________
35,638
__________
Total
LL million
1 to 3
months
LL million
3 to 12
months
LL million
Sub total
LL million
1 to 5
years
LL million
Over 5
years
LL million
15,148
3,014
62,344
-
-
18,162
16,583
-
62,344
-
15,636
104,115
93
________
197,336
_______
-
-
15,636
_________
3,014
_________
66
__________
66
__________
104,181
93
__________
200,416
__________
30,955
123,707
________
27,124
_________
8,887
__________
154,662
________
27,124
_________
42,674
________
(24,110)
_________
31 December 2013
Sub total
LL million
1 to 5
years
LL million
Over 5
years
LL million
Sub total
LL million
Amount
without
maturity
LL million
-
25,532
-
-
-
-
25,532
-
42,516
-
-
-
-
42,516
-
-
17,557
-
3,849
3,849
11,275
32,681
_________
_________
__________
__________
74,690
337
__________
160,632
__________
3,321
_________
3,321
_________
__________
3,849
__________
3,321
__________
7,170
__________
104
_________
11,379
_________
104
78,011
337
__________
179,181
__________
33,393
100,818
________
5,269
_________
7,126
__________
33,393
113,213
__________
_________
__________
__________
_________
33,393
113,213
__________
134,211
________
5,269
_________
7,126
__________
146,606
__________
_________
__________
__________
_________
146,606
__________
26,421
________
(5,269)
_________
(7,126)
__________
14,026
__________
3,321
_________
3,849
__________
7,170
__________
11,379
_________
32,575
__________
Up to 1
month
LL million
Financial assets
Cash and balances with the Central
Bank
Due from banks and financial
institutions
Financial assets at fair value through
profit or loss
Financial assets at fair value through
other comprehensive income
Loans and advances to customers
Loans and advances to related parties
Total undiscounted financial assets
Financial liabilities
Due to banks and financial institutions
Customers’ deposits at amortized cost
Total undiscounted financial
liabilities
Net undiscounted financial assets
(liabilities)
1 to 3
months
LL million
3 to 12
months
LL million
25,532
-
42,516
-
17,557
74,690
337
________
160,632
_______
41
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.3
LIQUIDITY RISK AND FUNDING MANAGEMENT (continued)
The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and commitments:
As of 31 December 2014
Financial instruments with brokers on behalf of customers
Deposits with banks
Certificates of deposit from the Central Bank of Lebanon
Trading financial instruments
Loans and advances
Other accounts
As of 31 December 2013
Financial instruments with brokers on behalf of customers
Deposits with banks
Certificates of deposit from the Central Bank of Lebanon
Trading financial instruments
Loans and advances
Other investments
Other accounts
31.4
On
demand
LL million
883,691
2,670
8,278
106
910
___________
895,655
___________
Less than
3 months
LL million
3 to 12
months
LL million
1 to 5
years
LL million
Over
5 years
LL million
Total
LL million
316
14,848
16,500
___________ ___________
316
31,348
___________ ___________
42,496
___________
42,496
___________
23,127
___________
23,127
___________
883,691
15,164
2,670
8,278
82,229
910
___________
992,942
___________
3 to 12
months
LL million
1 to 5
years
LL million
Over
5 years
LL million
Total
LL million
43,885
1,867
14,760
___________ ___________
43,885
16,627
___________ ___________
40,100
___________
40,100
___________
32,700
___________
32,700
___________
820,273
45,752
2,478
4,381
87,560
172,670
2,380
___________
1,135,494
___________
On
Demand
LL million
820,273
2,478
4,381
172,670
2,380
___________
1,002,182
___________
Less than
3 months
LL million
MARKET RISK
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in
market prices. Market risks arise from open positions in interest rate and currency rate, all of which are exposed to
general and specific market movements and changes in the level of volatility of market rates or prices such as
interest rates and foreign exchange rates.
Risk management is responsible for generating internal reports quantifying the Group’s earnings at risk due to
extreme movements in interest rates, while daily monitoring the sensitivity of the Group’s trading portfolio of fixed
income securities to changes in market prices and / or market parameters.
31.4.1
INTEREST RATE RISK
Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair
values of financial instruments. The Group is exposed to interest rate risk as a result of mismatches of interest rate
repricing of assets and liabilities and off-statement of financial position items that mature or reprice in a given period.
The Group manages this risk by matching the repricing of assets and liabilities through risk management strategies.
The effective interest rate (effective yield) for a monetary financial instrument is the rate that if used to determine the
present value of the instrument would give the book value of the instruments. The historical cost is used to price the
instrument with fixed income that is presented net of amortization and the current market price is used to price the
instrument with a floating rate or the instrument that is presented at fair value.
Interest rate sensitivity
The sensitivity of the consolidated income statement is the effect of the assumed changes in interest rates on the
profit or loss for a year based on the floating rated of non-trading financial assets and financial liabilities held at 31
December.
42
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.4
MARKET RISK (continued)
31.4.1
INTEREST RATE RISK (continued)
The tables below analyze the Group’s interest rates risk exposure on non-trading financial assets and liabilities
(excluding financial assets at fair value through profit or loss). The Group’s assets and liabilities are included at
carrying amount and categorized by the earlier of contractual re-pricing or maturity dates:
Up to
1 month
LL million
1 to 3
months
LL million
3 months
to 1 year
LL million
Total less
than one year
LL million
1 to
5 years
LL million
Over
5 years
LL million
Total more
than one year
LL million
Non-interest
sensitive
LL million
Total
LL million
Cash and balances with the Central Bank
Due from banks and financial institutions
Loans and advances to customers
Loans and advances to related parties
11,035
62,344
104,115
93
________
3,014
________
66
________
14,049
62,344
104,181
93
________
16,583
3,517
________
________
16,583
3,517
________
4,113
________
34,745
62,344
107,698
93
________
Total assets
177,587
________
3,014
________
66
________
180,667
________
20,100
________
________
20,100
________
4,113
________
204,880
________
30,955
__________
30,955
__________
26,538
_________
26,538
_________
8,887
__________
8,887
__________
30,955
35,425
_________
66,380
_________
_________
_________
_________
__________
________
________
124,293
_________
124,293
_________
30,955
159,718
_________
190,673
_________
146,632
__________
(23,524)
_________
(8,821)
__________
114,287
_________
20,100
_________
__________
20,100
__________
(120,180)
_________
14,207
_________
Up to
1 month
LL million
1 to 3
months
LL million
3 months
to 1 year
LL million
Total less
than one year
LL million
1 to
5 years
LL million
Over Total more than
5 years
one year
LL million
LL million
Non-interest
sensitive
LL million
Total
LL million
Cash and balances with the Central Bank
Due from banks and financial institutions
Loans and advances to customers
Loans and advances to related parties
22,010
42,516
74,690
337
________
________
________
22,010
42,516
74,690
337
________
3,321
________
________
3,321
________
3,522
________
25,532
42,516
78,011
337
________
Total assets
139,553
________
________
________
139,553
________
3,321
________
________
3,321
________
3,522
________
146,396
________
33,393
__________
33,393
__________
5,269
_________
5,269
_________
7,126
__________
7,126
__________
33,393
12,395
_________
45,788
_________
_________
_________
_________
__________
________
________
100,818
1,354
_________
102,172
_________
33,393
113,213
1,354
_________
147,960
_________
106,160
__________
(5,269)
_________
(7,126)
__________
93,765
_________
3,321
_________
__________
3,321
__________
(98,650)
_________
(1,564)
_________
As of 31 December 2014
Assets
Liabilities
Due to banks and financial institutions
Customers’ deposits at amortized cost
Total liabilities
Total interest sensitivity gap
As of 31 December 2013
Assets
Liabilities
Due to banks and financial institutions
Customers’ deposits at amortized cost
Other liabilities
Total liabilities
Total interest sensitivity gap
31.4.2 CURRENCY RISK
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange
rates. In accordance with the Group’s policy, positions are monitored on a daily basis and hedging strategies are
used to ensure positions are maintained within established limits The Central Bank of Lebanon allows the banks to
maintain a currency exchange position, receivable or payable, that does not exceed at any time 1% of total net equity
on condition that the global currency exchange position does not exceed 40% of total net equity, provides that the
Group abide on a timely and consistent manner by the required solvency rate.
Breakdown of assets and liabilities by currency as at 31 December 2014:
Assets
Cash and balances with the Central Bank
Due from banks and financial institutions
Financial assets at fair value through profit or loss
Financial assets at fair value through other
comprehensive income
Loans and advances to customers
Loans and advances to related parties
Investment and loan to associate
Other assets
Property and equipment
Intangible assets
Total assets
Liabilities
Due to banks and financial institutions
Financial liability under murabaha transaction
Customers’ deposits at amortized cost
Other liabilities
Provisions for risks and charges
Total liabilities
Net exposure
LL
LL million
USD
LL million
EUR
LL million
GBP
LL million
AED
LL million
Other
LL million
Total
LL million
790
1,891
1,891
33,900
38,843
18,280
52
11,100
915
3,126
3
1,325
271
3
6,059
10
34,745
62,344
21,370
118
2,600
24,498
74
____________
31,862
____________
61
71,878
93
3,102
19
12
____________
166,188
____________
14,712
122
____________
26,901
____________
1,073
7
____________
4,209
____________
18,584
111
68
____________
20,359
____________
1,333
31
2
____________
7,438
____________
61
107,698
93
5,973
24,587
86
____________
256,957
____________
427
486
1,259
____________
2,172
____________
29,690
____________
19,858
4,543
121,482
950
____________
146,833
____________
19,355
____________
207
25,469
35
____________
25,711
____________
1,190
____________
1,008
3,170
1
____________
4,179
____________
30
____________
9,299
4,594
41
____________
13,934
____________
6,425
____________
2,331
4,576
4
____________
6,911
____________
527
____________
32,703
4,543
159,718
1,517
1,259
____________
199,740
____________
57,217
____________
43
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.4
MARKET RISK (continued)
31.4.2 CURRENCY RISK (continued)
Breakdown of assets and liabilities by currency as at 31 December 2013:
Assets
Cash and balances with the Central Bank
Due from banks and financial institutions
Financial assets at fair value through profit or loss
Financial assets at fair value through other
comprehensive income
Loans and advances to customers
Loans and advances to related parties
Investment and loan to associate
Other assets
Property and equipment
Intangible assets
Total assets
Liabilities
Due to banks and financial institutions
Financial liability under murabaha transaction
Customers’ deposits at amortized cost
Other liabilities
Provisions for risks and charges
Total liabilities
Net exposure
LL
LL million
USD
LL million
EUR
LL million
GBP
LL million
AED
LL million
Other
LL million
Total
LL million
225
2,312
1,667
24,156
25,726
27,948
1,148
4,162
2,463
2,611
-
3
764
-
6,941
603
25,532
42,516
32,681
312
210
2,605
25,898
77
____________
33,306
____________
104
58,972
337
580
2,358
4
26
____________
140,211
____________
4,854
37
____________
12,664
____________
____________
2,611
____________
12,219
164
40
____________
13,190
____________
1,654
136
6
____________
9,340
____________
104
78,011
337
790
5,300
25,948
103
____________
211,322
____________
1,898
654
944
____________
3,496
____________
29,810
____________
27,834
4,543
86,113
614
242
____________
119,346
____________
20,865
____________
387
9,156
49
____________
9,592
____________
3,072
____________
5,796
____________
5,796
____________
(3,185)
____________
6,172
____________
6,172
____________
7,018
____________
5,172
4,078
37
____________
9,287
____________
53
____________
33,393
4,543
113,213
1,354
1,186
____________
153,689
____________
57,633
____________
The Group’s exposure to currency risk
The table below indicates the currencies to which the Group had significant exposure at 31 December on its nontrading monetary assets and liabilities and its forecast cash flows. The analysis calculates the effects of a reasonably
possible movement of the currency rate against the Lebanese Lira, with all other variables held constant, on the
consolidated income statement (due to the fair value of currency sensitive non-trading monetary assets and
liabilities). A negative amount in the table reflects a potential net reduction in income statement, while a positive
amount reflects a net potential increase. An equivalent decrease in each of the below currencies against the Lebanese
Ponds would have resulted in an equivalent but opposite impact.
The table below shows the consolidated income statement sensitivity due to a 5% increase in currency rates against
the Lebanese Lira, with all other variables held constant. A negative amount reflects a potential net reduction in
income, while a positive amount reflects a net potential increase.
Increase in
currency rate %
EUR
USD
JPY
5%
5%
5%
Effect on profit before tax
2013
2014
LL million
LL million
(23)
352
12
(14)
223
(58)
Equity price risk
Equity price risk is the risk that fair value of equities decreases as the result of changes in the level of equity indices
and individual stocks. The non-trading equity price risk exposure arises from equity securities classified as fair value
through other comprehensive income. A 10% increase in the value of the Group’s financial instruments at fair value
through other comprehensive income at 31 December 2014 would have increased equity by LL (000) 6,119 (2013:
LL (000) 10,447). An equivalent decrease would have resulted in an equivalent but opposite impact.
31.6
PREPAYMENT RISK
Prepayment risk is the risk that the Group will incur a financial loss because its customers and counterparties repay
or request repayment earlier than expected. Market conditions causing prepayment is not significant in the markets
in which the Group operates. Therefore, the Group considers the effect of prepayment on net interest income is not
material after taking into account the effect of any prepayment penalties.
44
FFA PRIVATE BANK SAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 December 2014
31
RISK MANAGEMENT (continued)
31.7
OPERATIONAL RISK
Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls
fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to
financial loss. The Group cannot expect to eliminate all operational risks, but it endeavors to manage these risks
through a control framework and by monitoring and responding to potential risks. Controls include effective
segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes,
including the use of internal audit.
32
CAPITAL
The Bank maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the
Bank’s capital is monitored using, among other measures, the rules and ratios established by the Central Bank of
Lebanon and the Banking Control Commission.
In accordance with the Central Bank of Lebanon Main Circular 44, the Bank should maintain the minimum required
capital adequacy ratio for the year ended 31 December 2014 and thereafter as follows:
Year ending 31 December 2014
Year ending 31 December 2015
Year ending 31 December 2016
Tier 1 capital ratio
Total capital ratio
8.5 %
9.5 %
10.0 %
10.5 %
11.5 %
12.0 %
Capital management
The primary objectives of the Group’s capital management policy are to ensure that the Group complies with
external imposed capital requirements and that the Group maintains healthy credit ratios to support its business and
maximum shareholder value.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions
and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust
the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No
changes were made in the objectives, policies and processes from the previous years however, it is under constant
scrutiny of the Board.
Regulatory Capital
Tier 1 capital
Tier 2 capital
Risk weighted assets
Tier 1 capital
45
2014
LL (000)
2013
LL (000)
43,249,000
35,000
____________
43,284,000
____________
35,069,000
33,000
____________
35,102,000
____________
153,957,000
147,222,000
28.11%
23.82%