Ithmaar Holding B.S.C — Annual Report 2021

Feb 21, 2021

ITHMAAR HOLDING B.S.C.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

Ithmaar Holding B.S.C. Consolidated financial statements for the year ended 31 December 2020

Contents	Page
Report of the Sharia Supervisory Board	3 – 4
Directors’ Report	5 – 6
Independent auditors’ report	7 – 14
Consolidated statement of financial position	15
Consolidated income statement	16
Consolidated statement of changes in owners’ equity	17 – 18
Consolidated statement of cash flows	19
Consolidated statement of changes in restricted investment accounts	20 – 21
Notes to the consolidated financial statements	22 – 79

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In the Name of Allah, the Beneficent, the Merciful

Report of the Sharia Supervisory Board on the activities of Ithmaar Holding B.S.C. and subsidiaries for the Financial Year from 1 January 2020 until 31 December 2020, corresponding to the Year from 6 Jumada Al-Awal 1441 H until 16 Jumada Al-Awal 1442 H.

Praise be to Allah, the Lord of the worlds, and peace and blessings be upon our Master, Mohammed, the leader of Prophets and Messengers, and upon his scion and companions, and upon those who follow his guidance until the Day of Judgment.

The Sharia Supervisory Board of Ithmaar Holding B.S.C. and its subsidiaries ("Ithmaar") performed the following during the financial year ended 31 December 2020:

1. Issued fatwas and Sharia resolutions related to Ithmaar’s products and activities through Ithmaar’s Sharia Coordination and Implementation Department and followed its execution through Internal Sharia Audit Department while also guiding different departments towards implementing Sharia-compliant transactions.

2. Studied different mechanisms of financing, investment and mudaraba accounts and prepared its documents with the concerned departments that develop and market products.

3. Examined the accounts, records and transactions and auditing some of their samples through Internal Sharia Audit Department as per established sharia auditing standards.

4. Examined sources of income and expenditures through reviewing the consolidated statements of financial position, income statement and Ithmaar’s overall banking activities.

We have reviewed the principles and contracts relating to transactions and products that has been executed by Ithmaar during the year ended 31 December 2020. We have also conducted the required inspections to provide our opinion on whether Ithmaar had complied with the provisions and principles of Islamic Sharia, as well as fatwas, resolutions and specific guidance that was issued by us, resolutions of the Centralized Sharia Council and the regulations and instructions issued by the Central Bank of Bahrain.

The management is responsible for ensuring that Ithmaar operates in accordance with the provisions and principles of Islamic Sharia. Our responsibility is to express an independent opinion based on our observations of Ithmaar’s operations, and prepare a report to this effect .

In view of the above the Sharia Supervisory Board hereby resolves as follows:

i: With regard to Ithmaar's business in general:

a. Ithmaar’s overall operations and activities were conducted in full compliance with the principles and provisions of Islamic Sharia and in accordance with the Sharia Supervisory Board-approved standard contracts.

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Report of the Sharia Supervisory Board on the activities of Ithmaar Holding B.S.C. and subsidiaries for the Financial Year from 1 January 2020 until 31 December 2020, corresponding to the Year from 6 Jumada Al-Awal 1441 H until 16 Jumada Al-Awal 1442 H.

b. Mudaraba profit and loss distribution reserve is in compliance with the principles and provisions of Islamic Sharia.

c. Income generated from non-sharia compliant investments of the conventional assets transferred to the company when Shamil Bank merged with Ithmaar Bank in 2010, these have been identified, disclosed and published to the shareholders in Note (40) of the Consolidated Financial Statements, and the Sharia Supervisory Board directs Ithmaar towards continuous correction of the status of these investment.

d. Zakat is calculated in accordance to Sharia Standard on Zakat issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Shareholders are responsible for payment of Zakat on their shares.

ii: Conventional assets transferred to Ithmaar Holding company:

The former Ithmaar Bank B.S.C. and its subsidiaries has been restructured into Ithmaar Holding B.S.C, and two other wholly-owned subsidiaries, Ithmaar Bank B.S.C (closed), an Islamic retail bank subsidiary which holds the core retail banking business(for commercial operations in Bahrain and Pakistan), and IB Capital B.S.C. (closed), an Islamic investment subsidiary, which holds investments and other non-core assets, and will take appropriate actions for these assets either through disposal or converting these assets to Islamic alternatives. The Sharia Supervisory Board sees this as a positive step towards conversion of conventional assets.

To ensure compliance with its Fatwas and directions, the Sharia Supervisory Board has reviewed the income statement of Ithmaar for the year ended 31 December 2020 and has satisfied itself that Ithmaar has appropriately disclosed the income and expenses arising from the conventional assets and liabilities in Note (40). Accordingly, the Sharia Supervisory Board guides the shareholders of Ithmaar to dispose of impermissible earnings which has been calculated, in the current year’s financial statements, at 2.05 US cents per share.

We pray to Almighty Allah to grant success to Ithmaar and whom are responsible and grant them success for everything He pleases. May peace and blessings be upon our Master, Mohammed, and upon his scion and companions.

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Ithmaar Holding B.S.C. Directors' Report for the year ended 31 December 2020

The Directors submit their report dealing with the activities of Ithmaar Holding B.S.C. (“Ithmaar”) for the year ended 31 December 2020, together with the audited consolidated financial statements of Ithmaar and its subsidiaries (collectively the “Group”) for the year then ended.

Principal activities

Ithmaar Holding B.S.C directly owns two major subsidiaries, Ithmaar Bank B.S.C (C) (Ithmaar Bank) an Islamic retail bank subsidiary which holds the core retail banking business, and IB Capital B.S.C (C), an Islamic investment subsidiary which holds investments and other non-core assets. The two subsidiaries are licensed and regulated by the Central Bank of Bahrain.

The principal activities of the Group are a wide range of financial services, including retail, commercial, asset management, private banking, takaful and real estate development.

Consolidated financial position and results

The consolidated financial position of the Group as at 31 December 2020, together with the consolidated results for the year then ended is set out in the accompanying consolidated financial statements.

The Group has reported a net loss of $21.5 million for the year ended 31 December 2020, as compared to a net profit of US$12.20 million for 2019. The net loss attributable to the equity shareholders of the Group is $41.7 million for 2020, as compared to a net profit of $0.7 million for 2019. Total assets at 31 December 2020 amounted to $8,383.7 million (31 December 2019: $8,085.2 million).

Directors

The following served as Directors of Ithmaar during the year ended 31 December 2020:

HRH Prince Amr Mohammed Al-Faisal(Chairman) Tunku Yaacob Khyra Governor Abdelhamid Mohamed Abou Moussa Sheikh Zamil Abdullah Al-Zamil Mr. Mohammed A. Rahman Bucheerei Mr. Abdulellah Ebrahim Al-Qassimi Dr. Amani Khaled Bouresli Sheikh Mohamed Abdullah El Khereiji Ms. Elham Ebrahim Hasan Mr. Omar Abdi Ali

Directors’ sitting fees

Directors’ sitting fees for 2020 amounted to $408,000 (2019: $354,000).

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Ithmaar Holding B.S.C.

Directors' Report for the year ended 31 December 2020 (continued)

Interests of Directors

The interests of the Directors in the shares of Ithmaar are disclosed below:

Name HRH Prince Amr Mohammed Al-Faisal Tunku Yaacob Khyra Governor Abdelhamid Mohamed Abou Moussa Sheikh Zamil Abdullah Al-Zamil Mr. Mohammed A. Rahman Bucheerei Mr. Abdulellah Ebrahim Al-Qassimi Dr. Amani Khaled Bouresli Sheikh Mohamed Abdullah El Khereiji Ms. Elham Ebrahim Hasan Mr. Omar Abdi Ali	Number of Shares
	31 December 2020 31 December 2019
	106,100 106,100 106,100 106,100 106,100 106,100 205,000 205,000 105,600 105,600 106,100 106,100 - - - - - - - -

Dividend

No dividend has been proposed for 2020 (2019: Nil).

Auditors

The auditors, PricewaterhouseCoopers ME Limited, have expressed their willingness to be reappointed as auditors of Ithmaar for the year ending 31 December 2021.

By order of the Board of Directors

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18 February 2021

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C.

Report on the audit of the consolidated financial statements

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all materials respects, the consolidated financial position of Ithmaar Holding Company B.S.C. (“Ithmaar”) and its subsidiaries (the “Group”) as at 31 December 2020, its consolidated financial performance, consolidated cash flows and consolidated statement of changes in restricted investment accounts, for the year then ended in accordance with the Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (“AAOIFI”) as modified by the Central Bank of Bahrain (“CBB”).

What we have audited

The Group’s consolidated financial statements comprise:

• the consolidated statement of financial position as at 31 December 2020;

• the consolidated income statement for the year then ended;

• the consolidated statement of changes in owners’ equity for the year then ended;

• ▪ the consolidated statement of cash flows for the year then ended;

• the consolidated statement of changes in restricted investment accounts for the year then ended; and

• the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with the Auditing Standards for Islamic Financial Institutions issued by AAOIFI. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with AAOIFI’s Code of Ethics for Accountants and Auditors of Islamic Financial Institutions (AAOIFI Code) and the ethical requirements that are relevant to our audit of the consolidated financial statements in the Kingdom of Bahrain. We have fulfilled our other ethical responsibilities in accordance with these requirements and the AAOIFI Code.

PricewaterhouseCoopers M.E Limited, Office no. 4701, Building no. 1459, Road no. 4626, Block no. 346, P.O. Box 60771, Manama/Sea Front, Kingdom of Bahrain, Floor 47, West Tower, Bahrain Financial Harbour, T: +973 17 118800, F: +973 17 540556, www.pwc.com/me, CR no. 47378

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C. (continued)

Report on the audit of the consolidated financial statements (continued)

Our audit approach

Overview

Key audit matters	● Board of Directors’ assessment of the preparation of the consolidated financial statements on a going concern basis ● Impairment and credit losses on financing facilities, including impacts of COVID-19 pandemic ● Fair valuation of investments in real estate

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the Board of directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C. (continued)

Report on the audit of the consolidated financial statements (continued)

Our audit approach (continued)

Key audit matters (continued)

Key audit matter	How the matter was addressed in our audit
Board of Directors’ assessment of the preparation of the consolidated financial statements on a going concern basis The Group’s consolidated equity declined by USD 80.7 million from USD 95.5 million as at 31 December 2019 to USD 14.8 million as at 31 December 2020. Furthermore, the Group is reliant, for its liquidity requirements, on deposits aggregating to USD 661.4 as at 31 December 2020 from counterparties who are currently located in a country sanctioned under US measures. As a result, these deposits are currently frozen. In light of the above conditions, the Board of Directors have assessed the appropriateness of preparing the consolidated financial statements on a going concern basis. In assessing the appropriateness of the going concern basis, the Board of Directors have considered the Group’s consolidated financial and cash flow projections for a 12 month period from the date of issuance of the consolidated financial statements. We considered this to be a key audit matter as the assessment required the use of significant judgment. Refer to note 1.1 to the consolidated financial statements.	Our audit procedures included the following: ● We obtained and assessed the Board of Directors detailed consolidated financial and cash flow projections for a period of 12 months from the date of issuance of the consolidated financial statements; ● We tested the mathematical accuracy of the calculations included within consolidated financial and cash flow projections; ● We evaluated the appropriateness of the key assumptions used in the consolidated financial and cash flow projections including the impact on the liquidity of the Group arising from the partial withdrawal of the sanctioned deposits; ● We performed a sensitivity analysis over the Group’s financial and cash flow projections for the going concern assessment period; and ● We assessed the appropriateness and completeness of the related disclosures in the consolidated financial statements.

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C. (continued)

Report on the audit of the consolidated financial statements (continued)

Our audit approach (continued)

Our audit approach (continued)	Our audit approach (continued)
Key audit matters (continued)
Impairment and credit losses on financing facilities, including impacts of COVID-19 pandemic Impairment allowances represent the Board of Directors’ best estimate of the credit losses arising including due to the COVID-19 pandemic downturn. As described in the summary of significant accounting policies to the Group’s consolidated financial statements, the impairment losses have been determined in accordance with FAS 30. We focused on this area because the Board of Directors make complex and subjective judgements over amount and timing of recognition of impairment to capture the recent developments in the financing facilities including the impact of COVID-19 pandemic, such as: ● Update factors including GDP and oil prices. ● Determining criteria for significant increase in credit risk. ● Choosing appropriate models and assumptions for the measurement of Expected Credit Losses (ECL) including Probability of default (PD), Loss Given Default (LGD), and Exposure at Default (EAD). ● Adjustments to models based on weighting assigned to base case, upside and downside scenarios. ● Establishing groups of similar assets for the purpose of measuring the ECL. ● Determining disclosure requirements in accordance with FAS 30. The Group’s financing facilities that are subject to credit risk, included financing assets amounting to USD 3,720.7 million and off-balance sheet exposures amounting to USD 2,257 million as at 31 December 2020, which are material to the Group. Information on the credit risk including Group’s credit risk management is provided in note 36 to the Group’s consolidatedfinancialstatements.	Our audit procedures included the following: ● We assessed and tested a sample of key controls around origination and approval of financing facilities and monitoring of credit exposure and impairment calculation; ● We evaluated the appropriateness of the Group’s impairment provisioning policy in accordance with the requirements of FAS 30; ● We used our experts to independently assess the reasonableness of the ECL methodology developed and applied by the Board of Directors including model risk parameters (PD, LGD, and EAD), forward-looking information, associated weighting, and staging analysis particularly in the context of COVID-19 pandemic and its implications; ● We obtained an understanding and on a sample basis tested the completeness and accuracy of the data sets used for the ECL calculation. ● We tested a sample of financing facilities to determine the appropriateness and application of staging criteria; ● We obtained samples of the latest available credit reviews and checked that they include appropriate assessment and documentation of borrowers’ ability to meet repayment obligations (principal, profit, and fees), in light with the ongoing COVID-19 pandemic. ● We independently assessed the appropriateness of provisioning assumptions on a sample of Stage 3 exposures. An independent view was formed on the levels of provisions recognised, based on the detailed loan and counterparty information available in the credit files; and ● We evaluated the adequacy of the consolidated financial statements disclosures to determine if they were in accordance with the requirements of FAS 30 and CBB regulations.

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C. (continued)

Report on the audit of the consolidated financial statements (continued)

Our audit approach (continued)

Key audit matters (continued)

Fair valuation of investments in real estate The Group’s investments in real estate amounted to USD 256 million as at 31 December 2020. The valuation of the Group’s investments in real estate is inherently subjective due to, among other factors, the individual nature of each property, location, expected future rental income or selling value for that particular property and related COVID-19 pandemic impact. The valuations were carried out by independent professional third-party valuation firms (the “valuers” or “management’s experts”). In determining properties’ values, the valuers take into account current market prices for similar properties in a similar vicinity and conditions. If such conditions are not present, the valuers make an allowance for differences from the comparable properties and adjust their assessment of the valuation accordingly. If the comparable properties prices are not available, the valuers make use of appropriate valuation techniques to arrive at the fair valuation. This matter is considered to be a key audit matter due to the significant judgments required in determining the assumptions used to estimate the fair valuation of investments in real estate, particularly in view of the prevailing COVID-19 pandemic. Refer to note 12 to the consolidated financial statements for the related disclosures.

Our audit procedures included the following: ● We assessed the competency, capability and objectivity of the valuers engaged for valuing the investments in real estate; ● We evaluated the appropriateness of the valuers’ work by considering the nature and the content of instructions provided to them by the Group. Where the valuers’ work involved valuation techniques which needed significant use of source data provided by the Group, we have evaluated the relevance, completeness and accuracy of such data; ● We evaluated the relevance and reasonableness of the valuers’ methodology, findings and conclusions by engaging our experts; and ● We assessed the appropriateness and completeness of the related disclosures in the consolidated financial statements.

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C. (continued)

Report on the audit of the consolidated financial statements (continued)

Other information

The Board of Directors are responsible for the other information. The other information comprises the Directors’ report and the Report of the Sharia’ Supervisory Board (but does not include the consolidated financial statements and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report and the Annual Report which is expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Board of Directors.

Responsibilities of the Board of Directors for the consolidated financial statements

These consolidated financial statements and the Group’s undertaking to operate in accordance with Islamic Sharia’ Rules and Principles are the responsibility of the Group’s Board of Directors.

The Board of Directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the FAS as modified by CBB and the Bahrain Commercial Companies Law number (21) of 2001, as amended (the Commercial Companies Law), CBB Volume 4 and for such internal control as the Board of Directors determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C. (continued)

Report on the audit of the consolidated financial statements (continued)

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Auditing Standards for Islamic Financial Institutions issued by AAOIFI will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the Auditing Standards for Islamic Financial Institutions issued by AAOIFI, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

• Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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Independent Auditor’s Report to the Shareholders of Ithmaar Holding B.S.C. (continued)

Report on the audit of the consolidated financial statements (continued)

Auditors’ responsibilities for the audit of the consolidated financial statements (continued)

From the matters communicated with the Board of Directors we determine those matters that were of most significance in the audit of the consolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory and Sharia’ requirements

As required by the Commercial Companies Law and the CBB Rule Book (Volume 4), we report the followings:

• i. Ithmaar has maintained proper accounting records and the consolidated financial statements are in agreement therewith.

• ii. The financial information contained in the Directors’ report and the Report of the Sharia’ Supervisory Board is consistent with the consolidated financial statements.

• iii. Except for the matter described below in connection with the non-compliance with Article 64(7) of Ithmaar’s articles of association, nothing has come to our attention which causes us to believe that Ithmaar has, during the year, breached any of the applicable provisions of the Commercial Companies Law, CBB and the Financial Institutions Law, the CBB Rule Book (Volume 4 and applicable provisions of Volume 6) and CBB directives, rules and procedures of the Bahrain Bourse or the items of its Memorandum and Articles of Association that would have a material adverse effect on its activities for the year ended 31 December 2020 or its financial position as at that date.

• Ithmaar has lost its reserves and more than three quarters of its capital and the Chairman or Deputy Chairman of the Board of Directors did not summon an extraordinary general meeting of the Shareholders in order to resolve whether to dissolve Ithmaar, reduce the capital or take other suitable measures which is a non-compliance with Article 64(7) of its articles of association. Refer to note 1 for further details.

• iv. Satisfactory explanations and information have been provided to us by the Board of Directors in response to all our requests.

Further, we report that Ithmaar has complied with the Islamic Sharia’ Principles and Rules as determined by the Sharia’ Supervisory Board of the Group during the period under audit.

The engagement partner on the audit resulting in this independent auditor’s report is Elias Abi Nakhoul.

PricewaterhouseCoopers M.E Limited 18 February 2021 Partner’s registration number: 196 Manama, Kingdom of Bahrain

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Ithmaar Holding B.S.C.

Consolidated statement of financial position

(Expressed in thousands of United States Dollars unless otherwise stated)

Notes ASSETS Cash and balances with banks and central banks 3 Commodity and other placements with banks, financial and other institutions 4 Murabaha and other financings 5 Musharaka financing Sukuk and investment securities 6 Investment in associates 7 Assets acquired for leasing 8 Insurance and related receivables 9 Other assets 11 Investment in real estate 12 Development properties 13 Fixed assets 14 Intangible assets 15 Total assets LIABILITIES, EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS, MINORITY INTERESTS AND OWNERS’ EQUITY Customers’ current accounts 16 Due to banks, financial and other institutions 17 Due to investors 18 Other liabilities 19 Insurance related reserves 10 Total liabilities Equity of unrestricted investment accountholders 20 Minority interests 21 Total liabilities, equity of unrestricted investment accountholders and minority interests Share capital 22 Treasury shares 22 Reserves Accumulated losses Total owners’ equity Total liabilities, equity of unrestricted investment accountholders, minority interests and owners’ equity	At 31 December 2020 At 31 December 2019
	(Audited) (Audited) 650,798 692,596 280,100 393,606 2,405,755 2,817,144 929,496 635,151 2,157,179 1,535,788 623,161 633,292 385,534 392,797 101,107 115,433 151,459 150,801 256,304 251,005 272,018 278,410 81,307 78,285 89,447 110,931
	8,383,665 8,085,239
	1,753,006 1,515,182 1,114,914 1,282,867 1,364,020 1,563,797 372,785 384,432 123,167 129,768
	4,727,892 4,876,046
	3,363,636 2,802,344 277,375 311,303
	8,368,903 7,989,693
	757,690 757,690 (30,149) (30,149) 121,018 114,298 (833,797) (746,293)
	14,762 95,546
	8,383,665 8,085,239

These consolidated financial statements were approved by the Board of Directors on 18 February 2021 and signed on its behalf by:

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The notes 1 to 42 on pages 22 to 79 form an integral part of the consolidated financial statements.

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Ithmaar Holding B.S.C.

Consolidated income statement

(Expressed in thousands of United States Dollars unless otherwise stated)

Notes INCOME Income from assets financed by unrestricted investment account holders Less: return to unrestricted investment accounts and impairment provisions Group’s share of income from unrestricted investment accounts as a Mudarib Income from murabaha and other financings 24 Share of profit from associates 7 Income from other investments 25 Other income 26 Total income Less: profit paid to banks, financial and other institutions Operating income EXPENSES Administrative and general expenses 27 Depreciation and amortization 8,14,15 Total expenses Net income before provision for impairment and overseas taxation Provision for impairment (net) 28 Net income before overseas taxation Overseas taxation 29 NET (LOSS)/PROFIT FOR THE YEAR Attributable to: Equity holders of the Ithmaar Minority interests 21 Basic and diluted (losses)/earnings per share 23	Year ended
	31 December 31 December 2020 2019
	(Audited) (Audited) 242,980 218,968 (147,626) (144,189)
	95,354 74,779 116,005 184,246 30,978 40,415 147,343 124,597 75,856 101,427
	465,536 525,464 (196,256) (229,267)
	269,280 296,197
	(202,615) (191,084) (32,616) (30,993)
	(235,231) (222,077)
	34,049 74,120 (28,690) (32,270)
	5,359 41,850 (26,838) (29,652)
	(21,479) 12,198
	(41,719) 669 20,240 11,529
	(21,479) 12,198
	US Cts(1.43) US Cts 0.02

These consolidated financial statements were approved by the Board of Directors on 18 February 2021 and signed on its behalf by:

ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ	ــــــــــــــــــــــــــــــــــــــــــــــــــــــ	ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ
HRH Prince Amr Mohammed Al-Faisal	Elham Hasan	Ahmed Abdul Rahim
Chairman	Director	CEO

The notes 1 to 42 on pages 22 to 79 form an integral part of the consolidated financial statements.

16

Ithmaar Holding B.S.C.

Consolidated statement of changes in owners’ equity for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

At 1 January 2020 (Audited) Adjustments resulting from adoption of FAS 33 (note 6) At 1 January 2020 (Audited) Net loss for the year Modification loss net of Government assistance (note 2) Increase in shareholding of subsidiary Movement in fair value of sukuk and investment securities Movement in hedging reserve (note 36) Movement in fair value of investment in real estate Movement in fair value reserves of associates Foreign currency translation adjustments At 31 December 2020 (Audited)	Share capital Treasury shares Share premium Statutory reserve General reserve Investments fair value reserve Hedging reserve Investment in real estate fair value reserve Foreign currency translation Total reserves Accumulated losses Total owners’ equity Reserves
	757,690 (30,149) 149,085 38,485 50,727 (14,630) (3,855) 4,178 (109,692) 114,298 (746,293) 95,546 - - - - -10,660 -- - 10,660 - 10,660 757,690 (30,149) 149,085 38,485 50,727 (3,970) (3,855) 4,178 (109,692) 124,958 (746,293) 106,206 - - - - - - - - --(41,719) (41,719) - - - - - - - - --(51,443) (51,443) - - - - - - - - --5,6585,658 - - - - - (5,223) - - -(5,223) -(5,223) - - - - - - (3,469) - -(3,469) -(3,469) - - - - - - - 1,000 -1,000 -1,000 - - - - - 4,994 - - -4,994 -4,994 - - - - - (17) - (687) (538) (1,242) -(1,242)
	757,690 (30,149) 149,085 38,485 50,727 (4,216) (7,324) 4,491 (110,230) 121,018 (833,797) 14,762

The notes 1 to 42 on pages 22 to 79 form an integral part of the consolidated financial statements.

17

Ithmaar Holding B.S.C.

Consolidated statement of changes in owners’ equity for the year ended 31 December 2019

(Expressed in thousands of United States Dollars unless otherwise stated)

At 1 January 2019 (Audited) Net profit for the year Transfer to statutory reserve Increase in shareholding of subsidiary Movement in fair value of sukuk and investment securities Movement in hedging reserve (note 36) Movement in fair value of investment in real estate Movement in fair value reserves of associates Foreign currency translation adjustments At 31 December 2019 (Audited)	Share capital Treasury shares Share premium Statutory reserve General reserve Investments fair value reserve Hedging reserve Investment in real estate fair value reserve Foreign currency translation Total reserves Accumulated losses Total owners’ equity Reserves
	757,690 (30,149) 149,085 38,418 50,727 (6,924) - 3,187 (94,203) 140,290 (751,475) 116,356 - - - - - - - - --669669 - - - 67 - - - - -67(67) - - - - - - - - - --4,5804,580 - - - - - 2,847 - - -2,847 -2,847 - - - - - - (3,855) - -(3,855) -(3,855) - - - - - - - 1,163 -1,163 -1,163 - - - - - (10,590) - - -(10,590) -(10,590) - - - - - 37 - (172) (15,489) (15,624) -(15,624)
	757,690 (30,149) 149,085 38,485 50,727 (14,630) (3,855) 4,178 (109,692) 114,298 (746,293) 95,546

The notes 1 to 42 on pages 22 to 79 form an integral part of the consolidated financial statements.

18

Ithmaar Holding B.S.C.

Consolidated statement of cash flows

(Expressed in thousands of United States Dollars unless otherwise stated)

Notes OPERATING ACTIVITIES Net income before overseas taxation Adjustments for: Depreciation and amortization 8,14,15 Share of profit after tax from associates 7 Provision for impairment (net) 28 Income from other investments Gain on sale of fixed assets Operating loss before changes in operating assets and liabilities (Increase)/decrease in balances with banks maturing after ninety days and including with central banks relating to minimum reserve requirement Changes in operating assets and liabilities: Murabaha and other financings Musharaka financing Other assets Customers’ current accounts Due to banks, financial and other institutions Due to investors Other liabilities (Decrease)/increase in equity of unrestricted investment accountholders Taxes paid Net cash provided by operating activities INVESTING ACTIVITIES Net (increase)/decrease: Investment in mudaraba Assets acquired for leasing Sukuk and investment securities Investment in associates Investment in real estate Dividend received from associates Purchase of fixed assets Net cash (used in)/provided by investing activities FINANCING ACTIVITIES Minority interests Net cash used in financing activities Foreign currency translation adjustments Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 4	Year ended
	31 December 2020 31 December 2019
	(Audited) (Audited) 5,359 41,850 32,616 30,993 (30,978) (40,415) 28,690 32,270 (147,343) (124,597) 133 798
	(111,523) (59,101) 407,060 5,632 (91,872) 300,667 (313,978) (184,771) 10,464 (28,074) 270,646 148,314 (151,515) (209,032) (145,070) 48,851 (9,011) (163,815) 572,992 217,761 (15,162) (29,895)
	423,031 46,537
	- 5,760 7,263 17,968 (515,549) 175,419 - 17,585 (915) - 28,649 45,632 (10,230) (29,131)
	(490,782) 233,233
	-(532)
	-(532)
	(28,639) (69,892)
	(96,390) 209,346
	850,497 641,151
	754,107 850,497

The notes 1 to 42 on pages 22 to 79 form an integral part of the consolidated financial statements.

19

Ithmaar Holding B.S.C.

Consolidated statement of changes in restricted investment accounts for the year ended 31 December 2020 (Expressed in thousands of United States Dollars unless otherwise stated)

Shamil Bosphorus Modaraba European Real Estate Placements US Real Estate Placements TOTAL*	At 1 January 2020 Fair value movements At 31 December 2020
	6,250 - 6,250 14,146 (1,398) 12,748 25,236 - 25,236
	45,632 (1,398) 44,234

• Income/(loss) will be recognised and distributed at the time of disposal of the underlying investments

The notes 1 to 42 on pages 22 to 79 form an integral part of the consolidated financial statements.

20

Ithmaar Holding B.S.C.

Consolidated statement of changes in restricted investment accounts for the year ended 31 December 2019 (Expressed in thousands of United States Dollars unless otherwise stated)

Shamil Bosphorus Modaraba European Real Estate Placements US Real Estate Placements TOTAL*	At 1 January 2019 Fair value movements At 31 December 2019
	6,250 - 6,250 15,639 (1,493) 14,146 25,236 - 25,236
	47,125 (1,493) 45,632

• Income/(loss) will be recognised and distributed at the time of disposal of the underlying investments

The notes 1 to 42 on pages 22 to 79 form an integral part of the consolidated financial statements.

21

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

1 INCORPORATION AND ACTIVITIES

Ithmaar Holding B.S.C. (formerly Ithmaar Bank B.S.C.) (“Ithmaar”) was incorporated in the Kingdom of Bahrain on 13 August 1984 and was licensed as an investment bank regulated by the Central Bank of Bahrain (the “CBB”).

During 2016, shareholders approved the reorganisation of Ithmaar Bank B.S.C at its Extraordinary General Meeting (EGM) held on 28 March 2016 to restructure Ithmaar Bank B.S.C into a holding company and two subsidiaries to segregate core and non-core assets. Effective 2 January 2017, the Bank has been converted in to Ithmaar Holding B.S.C., holding 100% of Ithmaar Bank B.S.C. (c ) [retail license] and IB Capital B.S.C. (c ) [investment license].

Dar Al-Maal Al-Islami Trust (“DMIT”), a Trust incorporated in the commonwealth of Bahamas is the ultimate parent company of Ithmaar.

The principal activities of Ithmaar and its subsidiaries (collectively the “Group”) are a wide range of financial services, including retail, commercial, investment banking, private banking, takaful and real estate development.

Ithmaar's activities are regulated by the CBB and are subject to the supervision of Sharia Supervisory Board.

Ithmaar’s shares are listed on the Bahrain Bourse, Boursa Kuwait and Dubai Financial Market. During an Ordinary General Meeting on 29 August 2019, the shareholders approved to voluntarily delist from Boursa Kuwait. On 13 September 2020, the Capital Market Authority, in Kuwait, rejected Ithmaar’s application for voluntary delist and instead forcedly delisted Ithmaar’s shares as per their regulations.

The Group’s activities also include acting as a Mudarib (manager, on a trustee basis), of funds deposited for investment in accordance with Islamic laws and principles particularly with regard to the prohibition of receiving or paying interest. These funds are included in the consolidated financial statements as equity of unrestricted investment accountholders and restricted investment accounts. In respect of equity of unrestricted investment accountholders, the investment account holder authorises the Group to invest the accountholders’ funds in a manner which the Group deems appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested. In respect of restricted investment accounts, the investment accountholders impose certain restrictions as to where, how and for what purpose the funds are to be invested. Further, the Group may be restricted from commingling its own funds with the funds of restricted investment accounts.

The Group carries out its business activities through Ithmaar’s head office in Bahrain and its following principal subsidiary companies:

Health Island WLL Direct subsidiaries Principal indirect subsidiaries Shamil Financial (Luxembourg) S.A. Solidarity Group Holding B.S.C. (C) Dilmunia Development Fund I L.P. Ithmaar Bank B.S.C. (C) IB Capital B.S.C. (C) Faysal Bank Limited Faisal Private Bureau (Switzerland) S.A. Ithmaar Development Company Limited City View Real Estate Development Co. B.S.C. (C)

2020 2019 Country of Incorporation Principal business activity 100 100 Kingdom of Bahrain Banking 100 100 Kingdom of Bahrain Asset management 100 100 Switzerland Wealth and asset management 100 100 Luxembourg Investment holding 67 67 Pakistan Banking 56 56 Kingdom of Bahrain Takaful 100 100 Cayman Islands Real estate 50 50 Kingdom of Bahrain Real estate 90 66 Cayman Islands Real estate 51 51 Kingdom of Bahrain Real estate % owned

During the year, the Group acquired additional 2,547 units of Dilmunia Development Fund I L.P. as part of settlement of certain financings. The acquisition resulted in increase of shareholding from 66% to 90% without change in control.

Islamic Investment Company of the Gulf (Bahamas) Limited (IICG), a company incorporated in the Commonwealth of Bahamas and owned 100% by DMIT, is an affiliate of Ithmaar.

22

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

1 INCORPORATION AND ACTIVITIES (continued)

• 1.1 As of 31 December 2020, the total consolidated equity of the Group stood at $14.8 million as compared to $95.5 million as at 31 December 2019. The current equity is still above the minimum threshold required by the Group's Category 1 investment firm license. The Board of Directors of Ithmaar is working on various initiatives to strengthen the Group’s consolidated equity and solvency.

The Group is required by its Memorandum and Articles of Association to hold an Extra-ordinary General Meeting in order for shareholders to resolve to continue the Company since the accumulated losses exceeded 75% of its issued capital. In view of the transaction in process (as explained in 1.2 below), the Group has agreed with the CBB and Bahrain Bourse to hold the EGM, as required, by November 2021.

The Group’s management assessed its liquidity and equity projections for the coming twelve months from the date of the consolidated financial statements including various stress scenarios as follows:

• Assuming the lifting of sanctioned deposits and partial repayments

• Stressing the expected outflows of the liabilities

• Stressing the expected inflows from financings

• Increased availability of liquid assets in the form of government securities

• Stressing the estimated change in fair values of equity and debt instruments

The Board of Directors have reviewed the above projections and believes that the Group will be able to continue its business without any significant curtailment of operations and meet its obligations for a period of at least one year from the date of issue of this consolidated financial statements. Accordingly, this consolidated financial statements is prepared on a going concern basis.

• 1.2 On 14 September 2020 Ithmaar signed a non legally binding Memorandum of Understanding (MoU) with Bank of Bahrain and Kuwait B.S.C. (BBK) where BBK is interested in considering the acquisition of certain assets forming part of Bahrain operations of Ithmaar Bank B.S.C. (c) and other specific assets of IB Capital B.S.C (c). The potential acquisition, which is subject to the Board of Directors, shareholders and regulatory approvals is still currently in its preliminery stage and subject to the completion of all necessary due diligence as well as signing a detailed and legally binding sale and purchase agreement by the concerned parties, as appropriate, incorporating all the terms of the proposed transaction.

23

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES

Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with applicable rules and regulations issued by the Central Bank of Bahrain (“CBB”) including the recently issued CBB circulars on regulatory concessionary measures in response to COVID-19. These rules and regulations require the adoption of all Financial Accounting Standards issued by the Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI) (FAS), except for:

• a) recognition of modification losses on all financing assets arising from payment holidays provided to customers impacted by COVID-19 without charging additional profits, in equity instead of the profit or loss account as required by FAS issued by AAOIFI. Any other modification gain or loss on financial assets are recognised in accordance with the requirements of applicable FAS. Please refer to note 36 for further details; and

• b) recognition of financial assistance received from the government and/ or regulators in response to its COVID-19 support measures that meets the government grant requirement, in equity, instead of the profit or loss account as required by the statement on “Accounting implications of the impact of COVID-19 pandemic” issued by AAOIFI. This will only be to the extent of any modification loss recorded in equity as a result of (a) above, and the balance amount to be recognized in the income statement. Any other financial assistance is recognised in accordance with the requirements of FAS. Please refer to note 36 for further details.

Further in line with the requirements of AAOIFI and the CBB rule book, for matters not covered under AAOIFI standards the Group uses guidance from the relevant International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

The above framework of the consolidated financial statements is hereinafter referred to as ‘Financial Accounting Standards as modified by CBB’.

The Group has certain assets, liabilities and related income and expenses which are not Sharia compliant as these existed before Ithmaar (the parent) converted to an Islamic retail bank in April 2010. These are currently presented in accordance with FAS as modified by the CBB standards in the consolidated financial statements for the year ended 31 December 2020 as appropriate.

The Sharia Supervisory Board has approved the Sharia Compliance Plan (“Plan”) for assets and liabilities which are not Sharia Compliant. The Sharia Supervisory Board is monitoring the implementation of this Plan. The income and expenses attributable to non-Sharia compliant assets and liabilities is disclosed under note 40.

The consolidated financial statements comprise the financial information of the Group for the year ended 31 December 2020.

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below:

A. New standards, amendments and interpretations not yet effective but early adopted

FAS 31 “Investment Agency (Al-Wakala Bi-Al – Istithmar)”

The Group has early adopted FAS 31 as issued by AAOIFI effective 1 January 2021. This standard intends to define the accounting principles and reporting requirements for investment agency (Al-Wakala Bi AlIstithmar) transactions and instruments, in the hands of both the principal and the agent.

The standard requires the principal to evaluate the nature of the investment as either a) a pass-through investment or b) wakala venture.

The adoption of this standard did not have a significant impact on the consolidated financial statements.

24

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

• 2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

A. New standards, amendments and interpretations not yet effective but early adopted (continued)

FAS 33 “Investments in Sukuk, Shares and Similar Instruments”

FAS 33 “Investments in Sukuk, Shares and Similar Instruments” supersedes earlier FAS 25 “Investments in Sukuk, Shares and Similar Instruments” and produces revised guidance for classification and measurement of investments to align with international practices.

Investment can be classified and measured at amortized cost, fair value through equity or fair value through the income statement. Classification categories are now driven by business model tests and reclassification will be permitted only on change of a business model and will be applied prospectively. In limited circumstances, where the institution is not able to determine a reliable measure of fair value of equity investments, cost may be deemed to be best approximation of fair value.

The adoption of this standard has resulted in amendment of the following accounting policies:

Investments carried at amortised cost

Sukuk and debt-type instruments (monetary or non-monetary) are carried at amortised cost where the investment is held within a business model whose objective is to hold such investment in order to collect expected cash flows till maturity of the investment and having reasonably determinable effective yield. These investments are measured using the effective profit rate method. All gains or losses arising from the amortization process and those arising from de-recognition or impairment of the investment, are recognized in the consolidated income statement. These investments are tested for impairment at each reporting period in accordance with FAS 30 “Impairment, credit losses and onerous commitments”.

Investments carried at fair value through equity

These represent investments (Equity-type or debt-type instruments) held within a business model whose objective is achieved by both collecting expected cash flows and selling the investment.

These investments are initially recognised at fair value plus transaction costs. These investments are subsequently remeasured at fair value at the end of each reporting period and the resulting unrealised gains or losses are recognised in the consolidated statement of changes owners' in equity under “Investments fair value reserve”, taking into consideration the split between the portion related to owners’ equity and the portion related to the equity of investment accountholders, until the financial asset is derecognized or impaired. At this time, the cumulative gain or loss previously recognised in equity is recognised in the consolidated income statement.

These investments are tested for impairment at each reporting period in accordance with FAS 30 “Impairment, credit losses and onerous commitments”. As part of impairment assessment, the Group assesses at the end of each reporting date whether there is any objective evidence that an investment carried at fair value through equity is impaired. Among other factors that may be considered for impairment, a significant or prolonged decline in the fair value of an equity investment below its cost is also an objective evidence of impairment.

Investments carried at fair value through income statement

An investment is classified as investment carried at fair value through income statement if not classified as fair value through equity or amortised cost. At the end of each reporting period, investments are re-measured at their fair value and the difference between carrying value and fair value is recognised in the consolidated income statement. All other gains/ losses arising from these investments are recognized in the consolidated income statement.

The implementation of FAS 33 has resulted in re-classification of investment securities amounting to $1.1 billion from amortized cost to investments held at fair value through equity. Accordingly, the cumulative changes in fair value of $10.7 million (refer note 6) have been recognized in opening balance of fair value reserve in the owners' equity.

FAS 34 “Financial Reporting for Sukuk-holders”

FAS 34 “Financial Reporting for Sukuk-holders” aims to establish the principles of accounting and financial reporting for assets and businesses underlying the Sukuk to ensure transparent and fair reporting to all relevant stakeholders, particularly including Sukuk-holders.

The adoption of this standard did not have a significant impact on the consolidated financial statements.

25

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

B. New standards, amendments and interpretations issued but not effective and not early adopted by the Group.

FAS 32 “Ijarah”

FAS 32 “Ijarah” supersedes the earlier FAS 8 “Ijarah and Ijarah Muntahia Bittamleek” and is effective from the financial periods beginning on or after 1 January 2021.

This standard aims at setting out principles for the classification, recognition, measurement, presentation and disclosure of Ijarah type transactions including their different forms entered into by an institution, in both the capacities of lessor and lessee.

This standard brings significant changes from its predecessor standard (FAS 8), inter alia, in the following aspects:

• a. Changes in the classification. Ijarah transactions under in this standard are classified into the following: i. Operating Ijarah;

• ii. Ijarah MBT with expected transfer of ownership after the end of the Ijarah term –either through a sale or gift; and

• iii. Ijarah MBT with gradual transfer –with gradual transfer ownership during the Ijarah term including Diminishing Musharaka Ijarah;

• b. New recognition and measurement principles for initial recognition for right-of-use asset, Ijarah liability and advance payments for lessee and lessor accounting;

• c. Requirement to identify and separate Ijarah and non-Ijarah components, if needed;

• d. New recognition and measurement principles for an Ijarah MBT through gradual transfer / Diminishing Musharaka Ijarah, whereby the lessee shall recognize the ‘combined asset’ (including the right-of-use asset and the proportionate asset already owned by the lessee) whereas the lessor shall recognize the proportionate asset owned. FAS 8 requirements of recording monthly depreciation and gain and loss for such transactions are done away with;

• e. Allowing effective rate of return/ profit rate method for accounting for rental income, in the hand of the lessor;

• f. Testing for impairment of right-of-use asset shall be subject to requirements of FAS 30 “Impairment, Credit Losses and Onerous Commitments”; and

• g. Detailed guidelines are provided for presentation and disclosures with enhanced disclosure by lessor and lessee of information as compared to previous requirements in FAS 8.

The Group is in process of assessing the impact of this standard on the consolidated financial statements.

26

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies

• (a) Basis of consolidation

Subsidiaries

Subsidiaries are companies in which the Group holds 50% or more of equity shares and as such exercises significant control over such companies. Control is also presumed to exist if the Group has power to govern the financial and operating policies of a company with the objective of obtaining benefits from its operations. Subsidiaries, including Special Purpose entities that are controlled by the Group, are consolidated from the date on which the Group obtains control and continue to be so consolidated until the date such control ceases.

For business combinations involving entities under common control, the directors of the Group are responsible for determining a suitable accounting policy for such business combinations. The directors have elected to use the uniting of interests method to account for business combinations involving entities under common control and to account for such business combinations prospectively, under the predecessor basis of accounting. Under the uniting of interests method, there is no requirement to fair value the assets and liabilities of the acquired entities and hence no goodwill arises on consolidation. The difference between the cost of the acquisition and the Group’s share of the issued and paid up share capital of the acquired entity is recognised as share premium in equity.

Associates

Associates are companies in which the Group has significant influence, but not control over the management of affairs, and which are neither subsidiaries nor joint ventures. The Group’s investments in associates are accounted for under the equity method of accounting. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. The consolidated income statement reflects the Group’s share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in owners’ equity.

In case of associates where audited financial statements are not available, the Group’s share of profit or loss is arrived at by using the latest available management accounts.

Investment in associates which meet the criteria for held for sale are classified as assets-held-for-sale.

Intra-Group balances and minority interests

The consolidated financial statements include the assets, liabilities and results of operations of the Group, its subsidiary companies after adjustment for minority interests and equity of unrestricted investment accountholders managed by the Group for both subsidiaries and associates. All significant intra-group balances and transactions are eliminated.

The financial statements of the subsidiaries are prepared on the same reporting periods as the Group, using consistent accounting policies (for group reporting purposes).

27

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (b) Foreign currency transactions and balances

Functional and presentation currency

Items included in the consolidated financial statement of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates, which is Bahraini Dinars (the functional currency).

For group companies, items included in the consolidated financial statements of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates, which is Bahraini Dinars (the functional currency) and presented in US Dollars (the presentation currency). Considering that the Bahraini Dinar is pegged to United States Dollars, the changes in presentation currency does not have any impact on the consolidated statement of financial position, consolidated income statement, consolidated statement of changes in owners’ equity, consolidated statement of cash flow and consolidated statement of changes in restricted investment accounts.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. Translation differences on non-monetary items carried at their fair value, such as certain investments carried at fair value through equity are included in investments fair value reserve.

The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

1. Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

2. Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

3. All resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. Translation losses arising in the case of severe devaluation or depreciation (other than temporary) of the currency of the net investment in a foreign operation when the latter is translated at the spot exchange rate at the date of consolidated statement of financial position, are recognised in the first place as a charge against any credit balance on the separate component of the shareholders’ equity and any remaining amount is recognised as a loss in the consolidated income statement. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the consolidated income statement as part of the gain or loss on sale.

Goodwill, and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

28

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• (ii) Summary of significant accounting policies (continued)

• (c) Accounting estimates and judgements

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.

1. Classification of investments

In the process of applying the Group’s accounting policies, management decides upon acquisition of an investment, whether it should be classified as investments carried at fair value through income statement, held at amortised cost or investments carried at fair value through equity. The classification of each investment reflects the management’s intention in relation to each investment and is subject to different accounting treatments based on such classification.

2. Special purpose entities

The Group sponsors the formation of special purpose entities (SPEs) primarily for the purpose of allowing clients to hold investments. The Group does not consolidate SPEs where it does not exercise control. In determining whether the Group exercises control over an SPE, judgements are made about the objectives of the SPEs activities, its exposure to the risks and rewards, as well as about the Group’s ability to obtain benefit from the SPE’s operations by having power to govern its financial and operational policies.

3 Impairment of goodwill and intangible assets

Goodwill other intangibles assets acquired through business combinations have been allocated to the cashgenerating units of the acquired entities for impairment testing purposes. The Group tests whether goodwill or intangible assets have suffered any impairment in accordance with the impairment accounting policy.

The recoverable amount of the cash-generating units are generally determined based on higher of Value-inUse (VIU) and Fair Value Less Cost to Disposal (FVLCTD).

VIU calculations are determined using cash flow projections from financial budgets approved by the Group’s senior management covering a three year period. The discount rate applied to cash flow projections represent the cost of capital adjusted for an appropriate risk premium for these cash-generating units.

For FVLCTD calculations, the Comparable Companies Multiple (CCM) method is used, whereby the price to book value (P/B) multiple of the comparable listed banks operating in the region were considered. The key assumptions used in estimating the recoverable amounts of cash-generating units are assessed to ensure reasonableness of the FVLCTD.

The above methods require the use of estimates, which are subject to judgement. Changes in the underlying assumptions may impact the reported numbers.

During the current period, the management used the higher of VIU or FVLCTD method in assessing the recoverable amount of the goodwill and other intangible assets. As a result, the management used judgement in the percentage of the control premium and marketability discount used in the calculation of the effective P/B multiple for the FVLCTD method.

29

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• (ii) Summary of significant accounting policies (continued)

• (c) Accounting estimates and judgements (continued)

  • 4 Impairment on financing assets and investments

Each financing and investment exposure is evaluated individually for impairment. In assessing impairment, the Group exercises judgment in the estimation of the amount and timing of future cash flows as well as an assessment of whether credit risk on the financial contracts has increased significantly since initial recognition and incorporation of forward-looking information in the measurement of expected credit losses (“ECL”) in accordance with impairment policy.

The staging and ECL of related party exposures is consdered separately from the other financing assets. The ECL is assessed using the cash shortfall method since the underlying collateral can be taken over without having to apply any haircut. Furthter, the increase in credit risk is also assessed separately for related parties, given their commitment to honour the amounts due to the Group.

The economic uncertainties caused by COVID-19 have required the Group to update the inputs and assumptions used for the determination of ECL as at 31 December 2020. ECL were estimated based on a range of forecast economic conditions available as at latest available date.

The judgements and associated assumptions have been made within the context of the impact of COVID-19 and reflect historical experience and other factors that are considered to be relevant, including expectations of future events that are believed to be reasonable under the circumstances. In relation to COVID-19, judgements and assumptions include the extent and duration of the pandemic, the impacts of actions of governments and other authorities, and the responses of businesses and consumers in different industries, along with the associated impact on the global economy. Accordingly, the Group's ECL estimates are inherently subjective and, as a result, actual results may differ from these estimates.

5 Liquidity mismatch

The Group constantly monitors the liquidity mismatch arising in the normal course of the business. Periodic stress tests are carried out on liquidity position to assess the ability of the Group to meet its liquidity mismatch particularly in view of the impact of Covid. The stress testing also incorporates judgement based behavioural approach for various sources of funding, estimated inflows from disposal of assets.

1. Significant increase in credit risk (SICR)

A SICR occurs when there has been a significant increase in the risk of a default occurring over the expected life of a financial instrument. In the measurement of ECL, judgement is involved in setting the rules and trigger points to determine whether there has been a SICR since initial recognition of a financing facility, which would result in the financial asset moving from 'stage 1' to 'stage 2. The Group continues to assess borrowers for other indicators of unlikeliness to pay, taking into consideration the underlying cause of any financial difficulty and whether it is likely to be temporary as a result of COVID-19 or longer term.

During the year, in accordance with CBB instructions the Group has granted payment holidays to its eligible customers by deferring up to six months instalments. These deferrals are considered as short-term liquidity to address borrower cash flow issues. The relief offered to customers may indicate a SICR. However, the Group believes that the extension of these payment reliefs does not automatically trigger a SICR and a stage migration for the purposes of calculating ECL, as these are being made available to assist borrowers affected by the COVID-19 outbreak to resume regular payments. The Group uses judgement to individually differentiate between a borrowers' short-term liquidity constraints taking into account of customers who requested for further deferment and a change in its lifetime credit risk.

30

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(c) Accounting estimates and judgements (continued)

7. Forward Looking Information

Judgement is involved in determining which forward looking information variables are relevant for particular financing portfolios and for determining the sensitivity of the parameters to movements in these forward-looking variables. The Group derives a forward looking economic scenario which reflects the Group's view of the most likely future macro-economic conditions.

Any changes made to ECL to estimate the overall impact of COVID-19 is subject to high levels of uncertainty as limited forward-looking information is currently available on which to base those changes. The Group has previously performed historical analysis and identified key economic variables impacting credit risk and ECL for each portfolio. These economic variables and their associated impact on PD, EAD and LGD vary by financial instrument.

Many of the macroeconoic variables which were used in the ECL model are updated or published by external agencies or government agencies.

The Group has reviewed its portfolio which is expected to be most impacted due to COVID-19 to determine if any provisions are necessary. The Group continues to individually assess significant exposures to adequately safeguard against any adverse movements due to COVID-19.

8 Impairment and recoverable amount of investment in associates

The Group uses estimates in its assessment of the impairment provision and recoverable amount of its investment in associates, which are subject to judgement. The key assumption used in such assessment was the existence and percentage of the significant influence premium. The premium is applied since the Group holds more than twenty percent voting rights in the associates, has board representation and participates in all significant financial and operating decisions.

9 Non-currnet assets classified as held-for-sale

The Group assesses its assets at each reporting date in accordance with the criteria specified by IFRS 5 “NonCurrent Assets Held for Sale and Discontinued Operations” and FAS 26 “Investment in Real Estate”. In determining whether the sale is highly probable, the Group exercises judgement in context of current market appetite including price offered and availability of identified willing buyer.

As stated in note 1.2, the assets subject to the potential acquisition transaction by BBK were not classified as held for sale in the consolidated financial statement for the year ended 31 December 2020, based on the Group’s assessment of the criteria specified by IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations” and FAS 26 “Investment in Real Estate”. The Group’s assessment was mainly based on the early stage of discussion related to the potential acquisition transaction, the unavailability of the assets for immediate sale in present condition, the likelihood of changes in sale plan and the approvals from the regulators, the Board of Directors and shareholders of the concerned parties. The Group will reassess such classification at each reporting period based on the development and progress of the potential acquisition transaction.

31

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(d) Cash and cash equivalents

Cash and cash equivalents as referred to in the consolidated statement of cash flows comprise cash on hand, nonrestricted balance with central banks and other banks, and short term liquid investments on demand or with an original maturity of three months or less.

(e) Murabaha and other financings

Murabaha financing is stated at cost less allowance for doubtful receivables.

The Group considers the promise made in Murabaha to the purchase orderer as obligatory.

Other financings represent conventional loans and advances, which are non-derivative financial assets with fixed or determinable payments. These are initially recorded at fair value and are subsequently carried at amortised cost using the effective yield method.

The Group receives collateral in the form of cash or other securities including bank guarantees, mortgage over property or shares and securities for Murabaha and other financings where deemed necessary. The Group’s policy is to obtain collateral where appropriate. To ensure that the market value of the underlying collateral remains sufficient, collateral is valued periodically.

Provision are made in accordance with FAS 30 in accordance with note 2.

• (f) Musharaka financing

Musharaka financing is stated at cost less provision for impairment.

Provision are made in accordance with FAS 30 in accordance with note 2.

32

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(g) Investments

1. Investments carried at amortised cost

An Investment instruments shall be measured at amortised cost if both the following conditions are met: a. the investment is held within a business model whose objective is to hold such investments in order to collect expected cashflows till maturity of the instrument; and b. the investment represents either a debt type instrument or other investment instrument having reasonably determinable effective yield.

These investments are measured using effective profit method at initial recognition minus capital/redemption payments and minus any reduction for impairment.

1. Investments carried at fair value through equity

An Investment will be measured at Fair Value through equity if both the following conditions are met:

a. the investment is held within a business model whose objective is achieved by noth collecting the expected cashflows and selling the investments; and

b. the investment represents a non monetary debt type instrument or other investment instrument having reasonably determinable effective yield.

Any other investment instruments not classified as per amortised cost or fair value through equity, are classified as fair value through income statement (FVIS).

On initial recognition, the Group makes an irrevocable election to designate certain equity instruments that are not designated at fair value through income statement to be classified as investments at fair value through equity.

Business model: the business model reflects how the Group manages the assets in order to generate cash flows. That is, whether the Group’s objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of these is applicable (e.g. financial assets are held for trading purposes), then the financial assets are classified as part of ‘other’ business model and measured at FVIS. Factors considered by the Bank in determining the business model for a group of assets include past experience on how the cash flows for these assets were collected, how the asset’s performance is evaluated and reported to key management personnel, how risks are assessed and managed and how managers are compensated. For example, the Bank’s business model for the Investments is solely to collect contractual cash flows. Another example is the debt investment securities, which is held by the Bank as part of liquidity management and is generally classified within the hold to collect and sell business model.

1. Investments carried at fair value through income statement

An investment is classified as investment carried at fair value through income statement if acquired or originated principally for the purpose of generating a profit from short term fluctuations in price or dealer’s margin. These investments are recognised on the acquisition date at fair value. At the end of each reporting period, investments are re-measured at their fair value and the difference between carrying value and fair value is recognised in the consolidated income statement. All other gains/ losses arising from these investments are recognized in the consolidated income statement.

33

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (g) Investments (continued)

• Investment in real estate

All properties held for earning periodical income or for capital appreciation purposes or both are classified as investment in real estate (held-for-use).

Investment in real estate is initially recognised at cost and subsequently re-measured at fair value in accordance with the fair value model with the resulting unrealised gains being recognised in the consolidated statement of changes in owner’s equity under investment in real estate fair value reserves. Any unrealised losses resulting from re-measurement at fair value of investment in real estate carried at fair value are adjusted in equity against the investment in real estate fair value reserve, taking into consideration the split between the portion related to owners’ equity and equity of investment accountholders, to the extent of the available credit balance of this reserve. In case such losses exceed the available balance, the unrealised losses are recognised in the consolidated income statement. In case there are unrealised losses relating to investment in real estate that have been recognised in the consolidated income statement in a previous financial period, the unrealised gains relating to the current financial period are recognised to the extent of crediting back such previous losses in the consolidated income statement.

The realised profits or losses resulting from the sale of any investment in real estate are measured as the difference between the book value (or carrying amount) and the net cash or cash equivalent proceeds from the sale for each investment separately. The resulting profit or loss together with the available balance on the investment in real estate fair value reserve account is recognised in the consolidated income statement for the current financial period.

All properties where decision is made to sell and the sale is expected to occur within 12 months of reporting date (subject to availability of identified willing buyer) are classified as Investment in real estate Held-for-sale.

Investment in real estate Held-for-sale is measured at fair value in accordance with the fair value model.

1. Development properties

Development properties represent land held by the Group for development and sale in the ordinary course of business, and include expenditure incurred in acquiring the properties and other costs incurred in bringing them to their existing condition.

Development properties are carried at lower of cost or estimated net realisable value. Estimated net realisable value is determined using the estimated selling price in the ordinary course of business, less estimated development expenditure.

1. Investment in mudaraba

Mudaraba investments are recorded at cost.

Share of the Group’s profit or loss from the Mudaraba are recognized in the consolidated income statement upon distribution or deduction from Mudaraba capital (in case of losses).

34

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• (ii) Summary of significant accounting policies (continued)

(g) Investments (continued)

7. Fair value

The fair value of quoted investments in active market is based on current bid price. If there is no active market for such financial assets, the Group establishes fair values using valuation techniques. These include the use of recent arm’s length transactions and other valuation techniques used by other participants. The Group also refers to valuations carried out by investment managers in determining fair value of certain unquoted financial assets.

In certain rare circumstances where the Group is unable to determine reliable measure of fair value of equity instrument on a continuing basis, the instrument is measured at cost.

(h) Assets acquired for leasing (Ijarah)

Assets acquired for leasing are stated at cost and are depreciated according to the Group’s depreciation policy for fixed assets or lease term, whichever is lower.

Provision are made in accordance with FAS 30 in accordance with note 2 (iv) (aa).

(i) Takaful and retakaful contracts

- Takaful contracts

As an Islamic insurance provider, the Group issues contracts that are based on cooperative activity by risk sharing. The Group classifies all its contracts individually as takaful contracts.

Takaful contracts are those contracts where the takaful operator accepts significant takaful risk from the participant by agreeing to compensate the participant if a specified uncertain future event adversely affects the participant. Such contracts may also transfer financial risk. As a general guideline, the Group defines significant takaful risk as the possibility of having to pay benefits on the occurrence of a takaful event. Takaful risk is risk other than financial risk that is transferred from the holder of a contract to the issuer. Financial risk is the risk of a possible future change in one or more of a security price, index of prices or rates or other variable, provided in the case of a nonfinancial variable that the variable is not specific to a party to the contract. Takaful risk is significant if, and only if, a takaful event could cause the Group to pay significant additional benefits. Once a contract is classified as a takaful contract it remains classified as a takaful contract until all rights and obligations are extinguished or expired.

- Retakaful contracts

Retakaful contracts are contracts entered into by the Group with retakaful operators for the purpose of limiting its net loss potential through the diversification of its risks, under which the Group is compensated for losses on takaful contracts issued.

Assets, liabilities, income and expense arising under ceded retakaful contracts are presented separately from the assets, liabilities, income and expense from the related takaful contracts because the retakaful arrangements do not relieve the Group from its direct obligations to its participants.

The benefits to which the Group is entitled under its retakaful contracts held are recognised as retakaful assets. These assets consist of balances due from retakaful operators on settlement of claims and other receivables such as profit commissions and retakaful operator’s share of outstanding claims that are dependent on the expected claims and benefits arising under the takaful contracts covered under retakaful contracts. Amounts recoverable from or due to retakaful operators are recognised consistently with the amounts associated with the underlying takaful contracts and in accordance with the terms of each retakaful contract. Retakaful liabilities are primarily contributions payable for retakaful contracts and are recognised as an expense when due.

The participants’ takaful funds comprises of general takaful and family takaful fund which represent the accumulated undistributed surplus or deficit in respect of contracts in force at the reporting date. It also includes fair value reserves of investments at fair value through equity.

35

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (i) Takaful and retakaful contracts (continued)

- Gross contributions

Gross contributions comprise the total contributions receivable for the whole period of cover provided by contracts entered into during the accounting period and are recognised on the date on which the policy incepts. Contributions include any adjustments arising in the accounting period for contributions receivable in respect of business written in prior accounting periods. Contributions collected by intermediaries, but not yet received, are assessed based on estimates from underwriting or past experience and are included in contributions written. The unexpired portion of such contributions is included under "Unearned contributions" in the statement of financial position. The earned proportion of contributions is recognised as revenue in the participants’ statement of revenues and expenses.

- Retakaful contributions

Retakaful contributions are amounts paid to retakaful operators in accordance with the retakaful contracts of the Group. In respect of proportional and non-proportional retakaful contracts, the amounts are recognised in the participants’ statement of revenues and expenses as per the terms of these contracts.

- Unearned contributions

Unearned contributions represent contributions under takaful contracts which are to be earned in the following or subsequent financial periods, for the unexpired period of takaful content as at the reporting date.

- Gross claims

Gross claims are recognised in the participants’ statement of revenues and expenses when the claim amount payable to participants and third parties is determined as per the terms of the takaful contracts. Gross claims include all claims occurring during the year, whether reported or not, related claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

- Claims recovered

Claims recovered include amounts recovered from retakaful operators and other insurance companies in respect of the gross claims paid by the Group, in accordance with the retakaful contracts held by the Group and also includes salvage and other claims recoveries. Claims recovered from retakaful and other parties are recognised when the related gross claims settled are recognised according to the terms of the relevant contracts.

- Outstanding claims

Outstanding claims are based on the estimated ultimate cost of all claims incurred but not settled at the statement of financial position date, whether reported or not, together with the related claims handling costs and reduction for salvage and other recoveries. Provisions for outstanding claims reported is based on estimates of the loss, which will eventually be payable on each unpaid claim, established by management based on currently available information and past experience modified for changes reflected in current conditions, increased exposure, rising claims costs and the severity and frequency of recent claims, as appropriate. Outstanding claims are not discounted for time value of money. The methods used, and the estimates made, are reviewed regularly.

The provision for claims incurred but not reported (‘IBNR’) is made per the actuarial valuation which is updated on the basis of the latest valuation reports.

Any difference between the provisions for outstanding claims at the statement of financial position date and settlements and provisions for the following year is included in the participants’ statement of revenues and expenses for that year.

- Takaful and insurance receivables

Takaful and insurance receivables are recognised when due and are measured on initial recognition at the fair value of the consideration received or receivable. The carrying value of takaful and insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the statement of income.

36

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• (ii) Summary of significant accounting policies (continued)

(j) Fixed assets

Fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line method to write off the cost of each asset over its estimated useful life as follows:

Buildings 50 years Leasehold improvements over the period of the lease Furniture, equipment and motor vehicles 3-10 years

Depreciation is calculated separately for each significant part of an asset category. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. The asset’s residual value and useful life are reviewed, and adjusted if appropriate, at each date of the statement of financial position.

Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. All other repairs and renewals are charged to the consolidated income statement during the financial period in which they are incurred.

Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amounts.

(k) Intangible assets

1. Goodwill

Goodwill acquired at the time of acquisitions of subsidiaries is reported in the consolidated statement of the financial position as an asset. Goodwill is initially measured at cost being the excess of the cost of acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary undertaking at the date of acquisition. Subsequently, the goodwill is tested for an impairment on an annual basis. At the end of the financial period, the goodwill is reported in the consolidated statement of financial position at cost less any accumulated impairment losses.

Negative goodwill resulting from the acquisition of a business or entity is recognised in the consolidated income statement.

Acquisition of minority interests is accounted using the Economic Entity Method. Under the Economic Entity Method, the purchase of a minority interest is a transaction with a shareholder. As such, any excess consideration over the Group’s share of net assets is recorded in owners’ equity.

37

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (k) Intangible assets (continued)

2. Computer software

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives (three to five years). Costs associated with maintaining computer software programs are recognised as an expense as incurred.

Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised using the straight line method over their expected useful lives.

1. Other acquired intangible assets

Other acquired intangible assets determined to have finite lives, such as core deposits, brand and customer relationships, are amortised on a straight line basis over their estimated useful lives of up to twenty years. The original carrying amount of core deposits and customer relationships is determined by independent appraisers, based on the profit rate differential on the expected deposit duration method.

Other acquired intangible assets are tested annually or more often if indicators exist for impairment and carried at cost less accumulated amortization.

Other acquired intangible assets with infinite lives are tested annually for impairment and carried at cost less accumulated amortization.

(l) Assets classified as held-for-sale

Non-current assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying value and fair value less costs to sell.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

(m) Current taxation

There is no tax on corporate income in the Kingdom of Bahrain. However, taxation related to the subsidiaries incorporated in tax jurisdictions are recorded as per local regulations.

(n) Value Added Tax (VAT)

The Group is subject to VAT at 5% on certain financial services as applicable from 1 January 2019. The amount of VAT liability is determined by applying the VAT rate on eligible turnover, reduced by the VAT paid on eligible expenses (input VAT). The irrecoverable portion of input VAT is recognized as expense in the consolidated income statement.

(o) Deferred taxation

Deferred taxation is recognised using the liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

A deferred tax asset is recognised for all deductible temporary differences and carry forward of unused tax losses and tax credits to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and unused tax losses and tax credits can be utilised. Enacted tax rates are used to determine deferred income tax.

38

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (p) Provision for staff benefits

Staff benefits and entitlements to annual leave, holiday air passage and other short-term benefits are recognised when they accrue to employees. The Group’s contributions to defined contribution plans are charged to the consolidated income statement in the period to which they relate. In respect of these plans, the Group has a legal and constructive obligation to pay the contributions as they fall due and no obligation exists to pay future benefits.

In respect of end of service benefits, to which certain employees of the Group are eligible, costs are assessed in accordance with the labour law requirements of the applicable jurisdiction.

For variable remuneration, a provision is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be measured reliably.

• (q) Due to investors

Funds received from depositors who take the corporate risk of Ithmaar or its subsidiaries are classified as “Due to investors”.

• (r) Equity of unrestricted investment accountholders

Under the equity of unrestricted investment accountholders (URIA), the investment account holder authorizes the Group to invest the accountholders’ funds in a manner which the Group deems appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested.

Investment accounts are initially recognised at fair value of the consideration received at the date on which the contract becomes effective.

After initial recognition, subsequent measurement of investment acocunts takes into account undistributed profits and other reserves created specifically for the account of investment accountholders less any losses on assets attributable to investment accountholders.

• (s) Profit Equalisation Reserve (PER)

PER is appropriated out of the income arising from owners or equity of unrestricted investment accountholders for the purpose of managing rate of return risk (including displaced commercial risk).

Contribution to PER is recognised in consolidated income statement allocated to owners or unrestricted investment accountholders as appropriate.

Utilization/ reversal of PER is recognised when the reserve is no longer needed as per management’s opinion. The reversal is recognised in consolidated income statement allocated to owners or unrestricted investment accountholders as appropriate.

PER is disclosed as part of the equity of unrestricted investment accountholders or owners’ equity as appropriate.

The adequacy of PER is assessed on annual basis using quick update approach in accordance with the Group’s risk management policies.

Adjustments or transfers between PER and IRR are accounted for when the underlying event occurs.

39

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(t) Investment Risk Reserve (IRR)

IRR is appropriated out of the income arising from owners or equity of unrestricted investment accountholders for the purpose of creating cushion against credit, market and equity investment risk mainly pertaining to residual future probable losses (after impairment and credit losses accounted for under impairment policy).

Contribution to IRR is recognised in consolidated income statement allocated to owners’ equity or unrestricted investment accountholders as appropriate.

Utilization/ reversal of IRR is recognised when the loss event occurs or the reserve is no longer needed as per management’s opinion. The reversal is recognised in consolidated income statement allocated to owners or unrestricted investment accountholders as appropriate and not netted off with the respective loss.

IRR is disclosed as part of the equity of unrestricted investment accountholders or owners’ equity as appropriate.

The adequacy of IRR is assessed on annual basis using quick update approach in accordance with the Group’s risk management policies.

Adjustments or transfers between PER and IRR are accounted for when the underlying event occurs.

(u) Restricted investment accounts (off-balance sheet)

Under the restricted investment accounts (RIA), the investment accountholders impose certain restrictions as to where, how and for what purpose the funds are to be invested. These accounts are disclosed separately in Statement of changed in RIA.

Investment accounts are initially recognised at fair value of the consideration received at the date on which the contract becomes effective.

After initial recognition, subsequent measurement of investment accounts takes into account undistributed profits and other reserves created specifically for the account of investment accountholders less any losses on assets attributable to investment accountholders.

(v) Treasury shares

These shares are treated as a deduction from the owners’ equity. Gains and losses on sale of own shares are included in owners’ equity.

(w) Statutory reserve

In accordance with the Bahrain Commercial Companies Law, 10% of the Group’s consolidated net income for the year is transferred to a statutory reserve until such time as reserve reaches 50% of the paid up share capital. The reserve is not distributable, but can be utilized as stipulated in the Bahrain Commercial Companies Law and other applicable statutory regulations.

40

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(x) Revenue recognition

1. Profit participation and management fees

Income from profit participation and management fees charged to funds managed by the Group is recognised on the basis of the Group’s entitlement to receive such revenue from restricted and unrestricted investment accounts as defined in the Mudaraba agreement (trust deed), except when the Group temporarily waives its entitlement.

2. Profit on Murabaha and other financings

Profit on Murabaha transactions is recognised by proportionately allocating the attributable profits over the period of the transaction where each financial period carries its portion of profits irrespective of whether or not cash is received. However, profit accrual is suspended on Murabaha transactions in respect of which repayment instalments are past due for more than ninety days, unless, in the opinion of the management of Ithmaar, the accrual is justified.

Income from other financings is accrued based on the effective yield method over the period of the transaction. Where income is not contractually determined or quantifiable, it is recognised when reasonably certain of realisation or when realised.

3. Income from assets acquired for leasing

Lease rental revenue is recognised on a time-apportioned basis over the lease term.

4. Income from Mudaraba contracts

Income from Mudaraba contracts are recognised when the Mudarib distributes profits. Any share of losses for the period are recognized to the extent such losses are being deducted from the Mudaraba capital.

5. Profit on Musharaka contracts

In respect of Musharaka contracts that continue for more than one financial period, the Group’s share of profits are recognised when a partial or final settlement takes place and its share of the losses are recognised to the extent that such losses are deducted from the Group’s share of Musharaka capital. However, in respect of diminishing Musharaka transactions, profits or losses are recognised after considering the decline in the Group’s share of the Musharaka capital and, consequently, its proportionate share of the profits or losses.

6. Income from investments carried at amortised cost

All gains or losses from investments carried at amortised cost are recognised in consolidated statement of income.

7. Income from investments carried at fair value through income statement

All gains or losses from investments carried at fair value through income statement are recognised in consolidated statement of income.

8. Income from investments carried at fair value through equity

The realised gains or losses along with the amounts previously recognised in equity are recognised in the consolidated income statement.

Dividend income is recognised in the consolidated statement of income when right to receive payment is established.

9. Fees and commissions

Fees and commissions are recognised when earned.

Commissions on letters of credit and letters of guarantee are recognised as income over the period of the transaction.

Fees for structuring and arrangement of financing transactions for and on behalf of other parties are recognised when the Group has fulfilled all its obligations in connection with the related transaction.

41

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(y) Profit allocation between group and investment accountholders

The Group holds separate books for assets financed by owners, unrestricted and restricted investment accounts. All income generated from the assets financed by the investment accounts are allocated to the customers after deducting provisions, investment risk reserve, profit equalisation reserves, mudarib’s share of profit and management fees.

Administrative expenses incurred in connection with the management of the funds are borne directly by the Group.

Some profit incentives are recognised based on term of the contracts with restricted account holders.

• (z) Assets transfer between Owner’s equity, Unrestricted Investment Accounts and Restricted Investment Accounts

Assets are transferred between Owner’s equity, Unrestricted Investment Accounts and Restricted Investment Accounts at fair value.

(aa) Shari’a compliant risk management instruments and hedge accounting

The Group uses certain shari’a compliant risk management instruments (similar to derivatives) to economically hedge exposures to foreign exchange and profit rate risks. Such instruments are initially recognised at fair value on the date on which the contract is entered into and are subsequently remeasured at their fair value. The fair value of a hedging instrument is the equivalent to its prevailing market rates or is based on broker quotes. Instruments with positive market values are disclosed as assets and instruments with negative market values are disclosed as liabilities in the statement of financial position.

In certain circumstances the Group enters into shari’a compliant risk management instruments to hedge foreign currency risks. Changes in the fair value of derivative financial instruments that are designated, and qualify as fair value hedges, are included in the consolidated income statement together with the corresponding change in the fair value of the hedged asset or liability that is attributable to the risk being hedged. Unrealised gains or losses on hedged assets which are attributable to the hedged risk are adjusted against the carrying values of the hedged assets or liabilities. For derivatives that are not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in the statement of changes in owners’ equity.

Cash flow hedging attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in statement of changes in owners’ equity and presented in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in consolidated income statement. The Group currently has hedged cash flows to manage its profit rate risk on variable rate financial liabilities.

Hedges directly affected by variable profit rate benchmark reforms

For the purpose of evaluating whether there is an economic relationship between the hedged item(s) and the hedging instrument(s), the Group assumes that the benchmark variable profit rate is not altered as a result of global variable profit rate benchmark reform.

For a cash flow hedge of a forecast transaction, the Group assumes that the benchmark variable profit rate will not be altered as a result of variable profit rate benchmark reform for the purpose of assessing whether the forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss. In determining whether a previously designated forecast transaction in a discontinued cash flow hedge is still expected to occur, the Group assumes that the variable profit rate benchmark cash flows designated as a hedge will not be altered as a result of variable profit rate benchmark reform.

The Group will cease to apply the specific policy for assessing the economic relationship between the hedged item and the hedging instrument (i) to a hedged item or hedging instrument when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the variable profit rate benchmark-based cash flows of the respective item or instrument or (ii) when the hedging relationship is discontinued. For its highly probable assessment of the hedged item, the Group will no longer apply the specific policy when the uncertainty arising from variable profit rate benchmark reform about the timing and the amount of the variable profit rate benchmark-based future cash flows of the hedged item is no longer present, or when the hedging relationship is discontinued.

42

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(ab) Impairment

Impairment of financial assets is assessed in accordance with FAS 30 “Impairment, credit losses & onerous commitments” as follows:

1. Financings & receivables

Financings, receivables (including off-balance sheet exposures) are measured using the Expected Credit Losses (ECL) model in accordance with the Credit Losses Approach.

FAS 30 replaces the 'incurred loss' model with an 'expected credit loss' model (“ECL”). The new impairment model also applies to certain financing commitments and financial guarantees. The allowance is based on the ECLs associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination in which case the allowance is based on the change in the ECLs over the life of the asset. Under FAS 30, credit losses are recognized earlier than under the previous standard.

The measurement of the expected credit loss allowance of a receivable or exposure measured with the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses).

A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:

• Determining the criteria for significant increase in credit risk;

• Determining the criteria for definition of default;

• Choosing appropriate models and assumptions for the measurement of ECL;

• Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL; and

• Establishing groups of similar receivables for the purpose of measuring ECL

ECL – Significant increase in credit risk (SICR)

To determine whether credit risk has significantly increased since initial recognition, the Group will compare the risk of default at the assessment date with the risk of default at initial recognition. This assessment is to be carried out at each assessment date.

For the Corporate portfolio, the Group assess for significant increase in credit risk (SICR) at a counterparty level as the internal rating is currently carried out at a counterparty level and rating is not assigned at facility level. The Group maintains a facility level rating being the counterparty’s internal rating at date of facility origination and date of assessment.

For the Retail portfolio, the Group currently manages its retail portfolio at a facility level, therefore assessment for SICR on the retail portfolio is done on a facility level. Days past due (DPD) of individual facilities will reflect on the counterparty SICR assessment.

Determining whether credit risk has increased significantly

In determining whether credit risk has increased significantly since initial recognition, the Group uses its internal credit risk grading system, external risk ratings, delinquency status of accounts, restructuring, expert credit judgement and, where possible, relevant historical experience.

Using its expert credit judgment and, where possible, relevant historical experience, the Group may determine that an exposure has undergone a significant increase in credit risk based on particular qualitative indicators that it considers are indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis.

The Group considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due as applicable. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower.

43

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• (ii) Summary of significant accounting policies (continued)

(ab) Impairment (continued)

1. Financings & receivables (continued)

The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews and validations.

The Group classifies its financial instruments into stage 1, stage 2 and stage 3, based on the applied impairment methodology, as described below: -

• Stage 1: for financial instruments where there has not been a significant increase in credit risk since initial recognition and that are not credit-impaired on origination, the Group recognises an allowance based on the 12month ECL.

• Stage 2: for financial instruments where there has been a significant increase in credit risk since initial recognition but they are not credit-impaired, the Group recognises an allowance for the lifetime ECL for all financings categorized in this stage based on the actual / expected maturity profile including restructuring or rescheduling of facilities.

• Stage 3: for credit-impaired financial instruments, the Group recognises the lifetime ECL. Default identification process i.e. DPD of 90 more is used as stage 3.

Default

FAS 30 seeks to align accounting for impairment of financial instruments with the manner in which credit risk is internally managed within the Group. In this context, the ‘risk of default’ of a financial instrument is a key component of the expected loss model under FAS 30.

In general, counterparties with facilities exceeding 90 days past due are considered in default.

Non-Retail:

The Group has set out the following definition of default (as provided by the Basel document and FAS 30 guidelines):

Non-retail customers with the following characteristics:

• All or any of the facility/ies in which any instalment or part thereof is outstanding for a period of 90 days or more

• All or any of the facility/ies put on non-accrual status (i.e. profit suspended)

• All or any of the facility/ies wherein ‘specific provision’ is set aside individually

Event driven defaults such as declaration of bankruptcy, death of borrower (in absence of succession plan or professional management), and other specific events which would significantly impact the borrower’s ability the Group.

The Group will not consider the 90 days past due criteria in cases of technical defaults (e.g. facilities marked as 90+DPD due to administrative reasons and not credit related concerns and there is no dispute regarding repayment).

Retail:

The Group has set out the following definition of default:

All facilities in which any instalment or part thereof is outstanding for a period of 90 days or more.

The Group will not consider the 90 days past due criteria in cases of technical defaults (e.g. facilities marked as 90+DPD due to administrative reasons and not credit related concerns and there is no dispute regarding repayment).

44

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(ab) Impairment (continued)

1. Financings & receivables (continued)

Measurement of ECL

ECL is a probability-weighted estimate of credit losses. It is measured as follows:

• financial assets that are not credit-impaired at the reporting date: as the value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);

• financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;

• financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to recover.

The Group measures an ECL at an individual instrument level taking into account the projected cash flows, PD, LGD, Credit Conversion Factor (CCF) and discount rate. For portfolios wherein instrument level information is not available, the Group carries out ECL estimation on a collective basis.

The key inputs into the measurement of ECL are the term structure of the following variables:

I. Probability of default (PD);

II. Loss given default (LGD);

III. Exposure at default (EAD).

These parameters are generally derived from internally developed statistical models and other historical data. They are adjusted to reflect forward-looking information as described above.

PD estimates are estimates at a certain date, which are calculated based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled data comprising both quantitative and qualitative factors. If a counterparty or exposure migrates between ratings classes, then this will lead to a change in the estimate of the associated PD.

LGD is the magnitude of the likely loss if there is a default. In case of non-availability of recovery data, the Group uses LGD estimate based on market practice.

EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract including amortization. The EAD of a financial asset is its gross carrying amount. For lending commitments and financial guarantees, the EAD includes the amount currently outstanding.

The period of exposure limits the period over which possible defaults are considered and thus affects the determination of PDs and measurement of ECLs (especially for Stage 2 accounts with lifetime ECL).

Subject to using a maximum of a 12-month PD for financial assets for which credit risk has not significantly increased, the Group measures ECL considering the risk of default over the maximum contractual period over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a longer period. The maximum contractual period extends to the date at which the Group has the right to require repayment of an advance or terminate a loan commitment or guarantee.

45

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• (ii) Summary of significant accounting policies (continued)

(ab) Impairment (continued)

1. Financings & receivables (continued)

Incorporation of forward looking information

The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. The Group annually source macro-economic forecast data from the International Monetary Fund (IMF) and Economist Intelligence Unit (EIU) database for the relevant exposure country.

Management judgement is exercised when assessing the macroeconomic variables. The macro economic variables used for FAS 30 PD modelling include, among others, GDP growth rate and oil price.

Generating the term structure of PD

Credit risk grades and days past due (DPD) are primary inputs into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analyzed by type of borrower, days past due and as well as by credit risk grading.

The Group employs statistical models to analyze the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time.

This analysis includes the identification and calibration of relationships between changes in default rates and macro-economic factors as well as in-depth analysis of the impact of certain other factors (e.g. forbearance experience) on the risk of default. For most exposures, key macro-economic indicators include: GDP growth rate and oil prices.

Based on consideration of a variety of external actual and forecast information, The Group calculates PiT PD estimates under three scenarios, a base case, good case and bad case. An appropriate probability weighted ECL is then calculated by assigning probabilities, based on current market conditions, to each scenario.

For Corporate portfolio, through the yearly review of the corporate portfolio, the Group observes yearly performances to compute a count based PD over the one-year horizon for the past 5 years. These PDs are grouped as per internal risk ratings (i.e. from 1 to 7). An average default rate of the 5 yearly observed default provides the through the cycle PDs.

The retail portfolio is segmented based on products that exhibit distinguished behavior into the following categories:

• Auto finance;

• Mortgage finance;

• Personal Finance; and

• Credit cards.

PDs for each segment are measured using Observed Default Estimation and thus PD is calculated based on DPD bucket level for each segment separately. Under this analysis, the delinquency status of accounts is tracked at an interval of one year with a moving month cycle. A minimum of 5 year DPD data is considered.

The PD’s derived are adjusted with forward looking information based on macro-economic variables and calibrated to derive the final PD’s separately for Corporate and Retail portfolio.

46

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(ab) Impairment (continued)

1. Financings & receivables (continued)

Impairment

The Group recognizes loss allowances for ECL on the following type of financial instruments:

• All Islamic financing and certain other assets (including Commodity and Murabaha receivables)

• Debt instruments that are measured at amortised cost or at fair value through equity.

• Financing commitments that are not measured at fair value through profit and loss (FVTPL)

• Financial guarantee contracts that are not measured at fair value through profit and loss (FVTPL)

• Lease receivables and contract assets

• Balances with banks

• Related party balances

• Contingent liabilities

The Group measures loss allowances at an amount equal to lifetime ECL, except for the other financial instruments on which credit risk has not increased significantly since their initial recognition, for which ECL is measured as 12-month ECL.

12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

Restructured financial assets

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognized and ECL are measured as follows:

• If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset.

• If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective profit rate of the existing financial asset

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortized cost are creditimpaired. A financial asset is 'credit-impaired' when one or more events that have detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable events:

• significant financial difficulty of the borrower or issuer;

• a breach of contract such as a default or past due event;

• the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; or

• it is becoming probable that the borrower will enter bankruptcy or other financial reorganization.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for ECL in case of financial assets measured at amortized cost: as a deduction from the gross carrying amount of the assets.

47

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• (ii) Summary of significant accounting policies (continued)

(ab) Impairment (continued)

1. Financings & receivables (continued)

Write-off

The Group’s existing policy remains the same under FAS 30. Financial assets are written off either partially or in their entirety only when the Group has stopped pursuing the recovery. If the amount to be written off is greater than the accumulated loss allowance, the difference is first treated as an addition to the allowance that is then applied against the gross carrying amount. Any subsequent recoveries are credited to credit loss expense.

The Group writes off financial assets, in a whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery (i) ceasing enforcement activity and (ii) where the Group’s recovery method is foreclosing on a collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full. The Group may however write-off financial assets that are still subject to enforcement activity.

2. Investments

Development properties

Development properties are carried at lower of cost or estimated net realisable value in accordance with the Net realisable value approach. This includes the situation when there is a possible indication of decline in the value of such properties. Estimated net realisable value is determined using the estimated selling price in the ordinary course of business, less estimated development expenditure. Impairment losses are recognised in the consolidated income statements.

Intangible assets

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised in the consolidated income statement.

Assets classified as held for sale

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

Other investments

All other investments (excluding investments carried at fair value through income statement) are assessed for impairment in accordance with the Impairment approach.

Impairment loss represents the amount by which an investment’s carrying value exceeds its recoverable amount.

In case of indications of possible impairment, the recoverable amount of an investment is determined as being the higher of its fair value less costs of disposal and its value-in-use.

Impairment losses are recognised in the consolidated income statement, taking into account the split between owners and unrestricted investment accounts.

48

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

3 CASH AND BALANCES WITH BANKS AND CENTRAL BANKS

Cash reserve with central banks Cash and balances with banks and central banks	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	101,500 9,867 111,367 166,162 2,950 169,112 404,038 135,393 539,431 437,607 85,877 523,484
	505,538 145,260 650,798 603,769 88,827 692,596

4 COMMODITY AND OTHER PLACEMENTS WITH BANKS, FINANCIAL AND OTHER INSTITUTIONS

Commodity placements Less: Provision for impairment	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	268,001 12,581 280,582 382,465 11,702 394,167 (482) -(482) (561) -(561)
	267,519 12,581 280,100 381,904 11,702 393,606

Cash and cash equivalents for the purpose of consolidated statement of cash flows are as under:

Cash and balances with banks and central banks Commodity and other placements with banks, financial and other institutions Less: Placement maturing after ninety days Less: Balances with central bank relating to minimum reserve requirement	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	505,538 145,260 650,798 603,769 88,827 692,596 267,519 12,581 280,100 381,904 11,702 393,606 (52,843) (12,581) (65,424) (54,891) (11,702) (66,593) (101,500) (9,867) (111,367) (166,162) (2,950) (169,112)
	618,714 135,393 754,107 764,620 85,877 850,497

49

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

5 MURABAHA AND OTHER FINANCINGS

Murabaha and other financings Less: Provision for impairment	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	1,359,218 1,408,082 2,767,300 1,854,329 1,301,995 3,156,324 (314,205) (47,340) (361,545) (312,556) (26,624) (339,180)
	1,045,013 1,360,742 2,405,755 1,541,773 1,275,371 2,817,144

Other financings represents conventional loans and advances totalling $800 million (31 December 2019: $1,279 million) made by a subsidiary of Ithmaar.

Murabaha and other financings includes restructured facilities amounting to $7.1 million (31 December 2019: $8.5 million)

The movement in provision for impairment is as follows:

At 1 January Charge for the year Write back during the year Utilised during the year Reclassification Exchange differences and other movements At 31 December	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	312,556 26,624 339,180 346,067 34,148 380,215 41,148 20,668 61,816 40,539 5,031 45,570 (9,202) (58) (9,260) (48,770) (2,300) (51,070) (30,820) - (30,820) (1,470) (9,751) (11,221) 5,821 210 6,031 (6,976) - (6,976) (5,298) (104) (5,402) (16,834) (504) (17,338)
	314,205 47,340 361,545 312,556 26,624 339,180

50

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

6 SUKUK AND INVESTMENT SECURITIES

Investment securities at fair value through income statement Held for trading Debt-type instruments – unlisted Equity-type securities – listed Investment securities at fair value through equity Debt-type instruments – listed Debt-type instruments – unlisted Equity-type securities – listed Equity-type securities – unlisted Provision for impairment Investment securities carried at amortised cost Sukuk – unlisted Other debt-type instruments – listed Other debt-type instruments – unlisted Provision for impairment	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	40,959 - 40,959 200,668 - 200,668 3,848 - 3,848 589 - 589
	44,807 - 44,807 201,257 - 201,257
	204,334 101,598 305,932 - - - 1,009,478 250,778 1,260,256 - - - 85,623 - 85,623 59,976 - 59,976 279,377 - 279,377 274,274 - 274,274
	1,578,812 352,376 1,931,188 334,250 - 334,250 (209,464) -(209,464) (188,624) -(188,624)
	1,369,348 352,376 1,721,724 145,626 - 145,626
	3,326 62,142 65,468 211,266 192,922 404,188 52,185 270,930 323,115 151,531 -151,531 8,674 2,968 11,642 647,066 - 647,066
	64,185 336,040 400,225 1,009,863 192,922 1,202,785 (9,577) -(9,577) (13,880) -(13,880)
	54,608 336,040 390,648 995,983 192,922 1,188,905
	1,468,763 688,416 2,157,179 1,342,866 192,922 1,535,788

Sukuk and investment securities include conventional investments totalling $1,311 million (31 December 2019: $1,098 million) made by a subsidiary of Ithmaar.

Certain assets totalling $4.5 million (31 December 2019: $5.1 million) included above are held by third parties as nominee on behalf of the Group.

The movement in provision for impairment relating to sukuk and investment securities is as follows:

At 1 January Charge for the year Write back during the year Reclassification Exchange differences and other movements At 31 December	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	202,504 - 202,504 185,717 - 185,717 22,260 - 22,260 19,431 - 19,431 (3,197) - (3,197) (401) - (401) (2,757) - (2,757) - - - 231 - 231(2,243) -(2,243)
	219,041 - 219,041 202,504 - 202,504

51

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

6 SUKUK AND INVESTMENT SECURITIES (continued)

FAS 25 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices (unadjusted) in active markets for identical investments.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the investments, either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 3 – inputs for the investments that are not based on observable market data (unobservable inputs).

This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible.

Investments measured at fair value

At 31 December 2020 Investment securities at fair value through income statement Debt-type instruments Equity securities Investment securities at fair value through equity Debt-type instruments – listed Debt-type instruments – unlisted Equity-type securities At 31 December 2019 Investment securities at fair value through income statement Debt-type instruments Equity securities Investment securities at fair value through equity Equity securities	Level 1 Level 2 Level 3 Total
	- 40,959 - 40,959 3,848 - - 3,848 301,200 - - 301,200 - 1,263,694 - 1,263,694 67,948 16,634 72,248 156,830
	372,996 1,321,287 72,248 1,766,531
	Level 1 Level 2 Level 3 Total
	- 200,668 - 200,668 589 - - 589 65,817 519 79,290 145,626
	66,406 201,187 79,290 346,883

There was no movement between level 1 and level 2 during the year.

Reconciliation of Level 3 Items

Reconciliation of Level 3 Items
At 1 January Total gains/(losses) recognised in - Income statement - Equity Reallocation At 31 December	Investment securities at fair value through equity
		2020 2019
		79,290 98,204 (18,201) (17,300) 2,928 (2,580) 8,231 966
		72,248 79,290

52

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

7 INVESTMENT IN ASSOCIATES

Investment in associated companies, as adjusted for the Group’s share of their results comprise:

Name of company	2020 % of Share- holding	2019 % of Share- holding Country Activity
Unlisted: Citic International Assets Management Limited Sanpak Engineering Industries (Pvt) Limited Ithraa Capital Company Naseej B.S.C. (C) Health 360 Ancillary Services W.L.L. Solidarity Saudi Takaful Company Listed: BBK B.S.C.	33,070 20 - 31 - 23 73,027 31 487 20 - 28 516,577 26 623,161	41,014 20 Hong Kong Asset management 608 31 Pakistan Manufacturing 1,924 23 Saudi Arabia Investment company 73,465 31 Bahrain Infrastructure - - Bahrain Third party administrator 18,800 28 Saudi Arabia Takaful 497,481 26 Bahrain Banking 633,292

During the year, the Group reversed an impairment provision amounting to $27 million against one of its investment in an associate based on its assessment of the recoverable amount being higher than the carrying value. The recoverable amount is determined based on the market share price and the estimated fair value of the related significant influence premium Ithmaar has over this associate.

Every 10% change in the significant influence premium used to determine the fair value of the investment in associate, with all other variables held constant, will reduce the carrying amount of the Group's investment in associates by $4 million.

If the market share price used to determine the fair value of the investment in associate had been 3% lower than estimate used as at 31 December 2020, with all other variables held constant, the carrying amount of its investment in associates will be reduced by $16 million.

Group’s share of their results comprise mainly from following associated companies:

Name of company	2020	2019
Unlisted: Solidarity Saudi Takaful Company Citic International Assets Management Limited Naseej B.S.C. (C) Others Listed: BBK B.S.C .	4,074 (8,530) (1,624) (293) 37,351 30,978	(7,515) (1,400) 1,564 (2,224) 49,990
		40,415

Share of reserves of Investment in associates amount to $37.9 million (31 December 2019: $42.5 million).

Investment in associates include conventional investments totalling $622.7 million (31 December 2019: $612 million).

Investment in associates amounting to $516.6 million (31 December 2019: $497.5 million) are pledged as collateral against borrowings with the terms and conditions in the ordinary course of business.

Amortisation charge for the intangible assets for the year ended 31 December 2020 amounted to $7.5 million (31 December 2019: $7 million)

Summarised financial position of associates that have been equity accounted:

Total assets Total liabilities Total revenues Total net profit	31 December 2020 31 December 2019
	10,480,239 10,522,736 8,695,653 8,673,977 330,004 325,991 120,114 141,171

53

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

8 ASSETS ACQUIRED FOR LEASING

		31 December 2020	31 December 2020		31 December 2019	31 December 2019
		Accumulated	Net book		Accumulated	Net book
	Cost	depreciation	amount	Cost	depreciation	amount
Property & equipment	439,717	(54,183)	385,534	431,199	(38,402)	392,797
The net book amount of assets acquired for leasing is		further analysed	as follows:
			31 December 2020		31 December 2019
Relating to owners				3,133		3,205
Relating to unrestricted investment accounts				382,401		389,592
				385,534		392,797

54

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

9 INSURANCE AND RELATED RECEIVABLES

Insurance and other receivables Reinsurers' share of outstanding claims Reinsurers' share of unearned contribution Less: Provision for impairment Movement in Reinsurers' share of outstanding claims Reported claims Incurred But Not Reported (IBNR) At 1 January 2020 Change in liabilities At 31 December 2020 Reported claims IBNR At 31 December 2020 Movement in Reinsurers, share of unearned contribution At 1 January 2020 Net movement At 31 December 2020 Movement in Reinsurers' share of outstanding claims Reported claims IBNR At 1 January 2019 Change in liabilities At 31 December 2019 Reported claims IBNR At 31 December 2019 Movement in Reinsurers' share of unearned contribution At 1 January Net movement At 31 December 2019 10 INSURANCE RELATED RESERVES Outstanding claims - Gross Unearned contributions, commission and other reserves	31 December 2020 31 December 2019	31 December 2020 31 December 2019
		58,064 15,950 34,023 62,828 37,404 21,080
		108,037 121,312 (5,879) (6,930)
		115,433 101,107
	Gross Reinsurance Net 43,925 (20,625) 23,300 6,727(455) 6,272 50,652 (21,080) 29,572 (1,487) 5,130 3,643 49,165 (15,950) 33,215 37,723 (13,242) 24,481 11,442(2,708) 8,734 49,165 (15,950) 33,215 Gross Reinsurance Net 79,116 (37,404) 41,712 (5,114) 3,381(1,733) 74,002 (34,023) 39,979 Gross Reinsurance Net 48,960 (22,209) 26,751 8,021(1,549) 6,472 56,981 (23,758) 33,223 (6,329) 2,678(3,651) 50,652 (21,080) 29,572 43,925 (20,625) 23,300 6,727(455) 6,272 50,652 (21,080) 29,572 Gross Reinsurance Net 77,892 (35,878) 42,014 1,224(1,526) (302) 79,116 (37,404) 41,712 31 December 2020 31 December 2019 31 December 2019 31 December 2020	31 December 2020
		Gross Reinsurance Net
		43,925 (20,625) 23,300 6,727(455) 6,272
		50,652 (21,080) 29,572 (1,487) 5,130 3,643
		49,165 (15,950) 33,215
		37,723 (13,242) 24,481 11,442(2,708) 8,734
		49,165 (15,950) 33,215
		Gross Reinsurance Net
		79,116 (37,404) 41,712 (5,114) 3,381(1,733)
		74,002 (34,023) 39,979
		31 December 2019
		Gross Reinsurance Net
		48,960 (22,209) 26,751 8,021(1,549) 6,472
		56,981 (23,758) 33,223 (6,329) 2,678(3,651)
		50,652 (21,080) 29,572
		43,925 (20,625) 23,300 6,727(455) 6,272
		50,652 (21,080) 29,572
		Gross Reinsurance Net
		77,892 (35,878) 42,014 1,224(1,526) (302)
		79,116 (37,404) 41,712
	79,116 50,652 49,165 74,002
	129,768 123,167

55

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

11 OTHER ASSETS

Account receivable Due from related parties Taxes – deferred Taxes – current Non-current assets held for sale Provision for impairment	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	125,938 77,914 203,852 151,774 47,426 199,200 557 - 557 515 - 515 1,382 - 1,382 9,333 - 9,333 261 - 261 12,176 - 12,176 22,339 - 22,339 8,232 8,671 16,903
	150,477 77,914 228,391 182,030 56,097 238,127 (64,993) (11,939) (76,932) (75,176) (12,150) (87,326)
	85,484 65,975 151,459 106,854 43,947 150,801

The movement in provision for impairment is as follows:

At 1 January Charge for the year Write back during the year Reclassification Exchange differences and other movements At 31 December	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	75,176 12,150 87,326 70,640 12,154 82,794 2,033 - 2,033 5,000 - 5,000 (11,885) - (11,885) (88) - (88) 597 (209) 388 - - - (928) (2) (930) (376) (4) (380)
	64,993 11,939 76,932 75,176 12,150 87,326

56

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

12 INVESTMENT IN REAL ESTATE

INVESTMENT IN REAL ESTATE
Investment properties Less: Provision for impairment	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	292,050 - 292,050 288,183 - 288,183 (35,746) -(35,746) (37,178) -(37,178)
	256,304 - 256,304 251,005 - 251,005

Fair value of investment properties at the year end approximates their carrying value.

Certain assets totalling $0.6 million (31 December 2019: $0.6 million) included above are held by third parties as nominee on behalf of the Group.

The movement in provision for impairment for investment in real estate is as follows:

At 1 January Charge for the year Write back during the year Utilised during the year Reclassification Exchange differences and other movements At 31 December	31 December 2020 31 December 2019 Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total 37,178 - 37,178 38,146 - 38,146 2,019 - 2,019 1,341 - 1,341 (359) - (359) - - - - - - (8,660) - (8,660) (3,582) - (3,582) 6,976 - 6,976 490 - 490(625) -(625) 35,746 - 35,746 37,178 - 37,178

13 DEVELOPMENT PROPERTIES

Land Development costs	Relating to owners
	31 December 2020 31 December 2019
	197,610 197,748 74,408 80,662
	272,018 278,410

Development costs represent the infrastructure costs incurred such as roads and networks, electricity stations and design and supervision costs and the infrastructure cost. The infrastructure cost commitments are expected to be met by anticipated sale of plots. Based on this, management has estimated that the current carrying value is lower than the net realisable value, and accordingly, no impairment has been considered necessary.

14 FIXED ASSETS

FIXED ASSETS
Land and building Leasehold improvements Furniture and equipment Motor vehicles	Relating to owners
	31 December 2020 31 December 2019
	Cost Accumulated depreciation Provision for impairment Net book amount	Cost Accumulated depreciation Provision for impairment Net book amount
	54,512 (10,593) - 43,919 36,356 (23,362) - 12,994 90,704 (67,779) - 22,925 3,417(1,948) - 1,469	55,780 (10,383) - 45,397 33,230 (21,780) - 11,450 85,245 (65,084) - 20,161 3,247(1,970) - 1,277
	184,989 (103,682) - 81,307	177,502 (99,217) - 78,285

Depreciation charge for the year ended 31 December 2020 amounted to $8.9 million (31 December 2019: $7.7 million).

57

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

15 INTANGIBLE ASSETS

Goodwill Customer relations Core deposits Others	Relating to owners
	31 December 2020
	Cost Accumulated amortisation Provision for impairment Exchange differences Net book amount
	93,355 - (71,070) (12,178) 10,107 120,212 (78,810) - (13,497) 27,905 155,546 (111,808) - (17,662) 26,076 60,120(34,761) - - 25,359
	429,233 (225,379) (71,070) (43,337) 89,447

Goodwill Customer relations Core deposits Others	Relating to owners
	31 December 2019
	Cost Accumulated amortisation Provision for impairment Exchange differences Net book amount
	93,355 - (60,500) (11,709) 21,146 120,212 (72,766) - (13,917) 33,529 155,546 (104,030) - (19,053) 32,463 56,209(32,416) - - 23,793
	425,322 (209,212) (60,500) (44,679) 110,931

Amortisation charge for the year ended 31 December 2020 amounted to $16.2 million (31 December 2019: $16.2 million)

The carrying amount of goodwill has been allocated to cash-generating units as follows:

Business units of ex-Shamil Bank of Bahrain B.S.C. (C) Faysal Bank Limited Solidarity Group Holding B.S.C. (C)	31 December 2020 31 December 2019
	- 10,570 7,529 7,998 2,578 2,578
	10,107 21,146

The recoverable amount of the cash-generating units were determined based on Value-in-Use (VIU) and Fair Value Less Cost to Sell (FVLCTS). VIU calculations were determined using cash flow projections from financial budgets approved by the Group’s senior management covering a three year period. The discount rate applied to cash flow projections represent the cost of capital adjusted for an appropriate risk premium for these cash-generating units. For FVLCTS calculations, the Comparable Companies Multiple (CCM) method was used, whereby the price to book value (P/B) multiple of the listed Islamic banks operating in the region was considered. The key assumptions used in estimating the recoverable amounts of cash-generating units were assessed to ensure reasonableness of the VIU and FVLCTS and resulting adjustment, if any, is recorded in the consolidated income statement. The impact of every 0.1 times change in P/B multiple will result in reduction of goodwill by $1 million.

16 CUSTOMERS’ CURRENT ACCOUNTS

Customers’ current accounts include balance relating to a counterparty amounting to $223.2 million which is subject to sanctions under US measures (31 December 2019: $203.8 million).

58

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

17 DUE TO BANKS, FINANCIAL AND OTHER INSTITUTIONS

Due to banks Due to financial and other institutions	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	872,894 120,602 993,496 1,037,845 172,889 1,210,734 121,418 - 121,418 72,133 - 72,133
	994,312 120,602 1,114,914 1,109,978 172,889 1,282,867

Due to banks, financial and other institutions include balances totalling $438.2 million from two counterparties which are subject to sanctions under US measures (31 December 2019: $428 million).

Due to banks, financial and other institutions include conventional deposits totalling $282.6 million (31 December 2019: $298.6 million), accepted by a subsidiary of Ithmaar.

At 31 December 2020, there were collateralized borrowings against an investment in associate in aggregate $192.5 million (31 December 2019: $228.9 million).

Cash dividends amounting to $26.9 million (31 December 2019: $36.3 million) on certain shares pledged as collateral was directly received by the lender (as per agreed terms and conditions) during the year and adjusted against the outstanding facility amount as per the agreed terms.

Assets which are pledged as collateral are conducted under terms that are usual and customary to standard lending and securities borrowing and lending activities.

18 DUE TO INVESTORS

Due to corporate institutions Due to individuals Due to financial institutions	Relating to owners
	31 December 2020 31 December 2019
	713,135 774,222 578,757 720,654 72,128 68,921
	1,364,020 1,563,797

Due to investors represent conventional deposits accepted by a subsidiary of the Group.

59

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

19 OTHER LIABILITIES

Accounts payable Due to related parties (note 37) Provision for taxation – current Provision for taxation – deferred	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	281,387 86,510 367,897 313,928 64,688 378,616 129 - 129 160 - 160 1,088 - 1,088 1,305 - 1,305 3,671 - 3,671 4,351 - 4,351
	286,275 86,510 372,785 319,744 64,688 384,432

20 EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS

The funds received from Unrestricted Investment Accountholders (URIA) are invested on their behalf without recourse to the Group as follows:

Notes Cash and balances with banks and central banks 3 Commodity and other placements with banks, financial and other institutions 4 Murabaha and other financings 5 Musharaka financing Sukuk and investment securities 6 Assets acquired for leasing 8 Other assets 11 Due from the Group (net) Customers’ current accounts 16 Due to banks, financial and other institutions 17 Other liabilities 19 Equity of unrestricted investment accountholders	31 December 2020 31 December 2019
	145,260 88,827 12,581 11,702 1,360,742 1,275,371 929,228 621,874 688,416 192,922 382,401 389,592 65,975 43,947 703,937 771,571
	4,288,540 3,395,806 (692,739) (355,885) (145,655) (172,889) (86,510) (64,688)
	3,363,636 2,802,344

Due from the Group represents net amount due to Unrestricted Investment Accountholders from owners.

60

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

20 EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS (continued)

The assets attributable to unrestricted investment accountholders have been disclosed net of impairment provisions amounting to $69.9 million (31 December 2019: $44.9 million). The movement of impairment provisions relating to unrestricted investment accountholders has been disclosed in note 28.

Other liabilities include profit equalization reserve and the movement is as follows:

At 1 January Net addition/(utilisation) during the year At 31 December Other liabilities include investment risk reserve and the movement is At 1 January Net addition/(utilisation) during the year Utilized for FAS 30 At 31 December	31 December 2020 31 December 2019
	19,495 22,048 (7,998) (2,553)
	11,497 19,495
	as follows:
	31 December 2020 31 December 2019
	- 1,500 - (1,500) - -
	- -

The average gross rate of return in respect of unrestricted investment accounts was 4.9% per annum for 2020 (2019: 4.6%) of which 3.2% per annum (2019: 3.1%) was distributed to the investors and the balance was either set aside as provision for impairment, management fees of $2.5 million (up to 1.5% of the total invested amount per annum to cover administration and other expenses related to the management of such funds) and/or retained by the Group as share of profits in its capacity as a Mudarib.

21 MINORITY INTERESTS

The consolidated financial statements include 100% of the assets, liabilities and earnings of subsidiaries. The ownership interests of the other shareholders in the subsidiaries are called minority interests.

The following table summarises the minority shareholders' interests in the equity of consolidated subsidiaries.

Faysal Bank Limited Solidarity Group Holding B.S.C. (C) Health Island B.S.C. (C) Dilmunia Development Fund I L.P. Cityview Real Estate Development B.S.C. (C) Sakana Holistic Housing Solutions B.S.C. (C)	31 December 2020 31 December 2019	31 December 2020 31 December 2019	31 December 2020 31 December 2019
	Minority %	Minority %
	33 45 50 10 49 50	116,101 33 101,002 45 34,150 50 27,273 34 (3,795) 49 2,644 50	104,344 96,173 40,202 71,544 (3,605) 2,645
		277,375	311,303

Minority interests in the consolidated income statement of $20 million (31 December 2019: $11.5 million) represents the minority shareholders' share of the earnings of these subsidiaries for the respective years.

61

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

22 SHARE CAPITAL

Authorised Issued and fully paid Total outstanding Treasury shares At 31 December 2019 (Audited) Issued and fully paid Total outstanding as at 1 January 2019 Treasury shares At 31 December 2020 (Audited)	Number of shares (thousands) Share capital
	8,000,000 2,000,000
	3,030,755 757,690 (120,595) (30,149)
	2,910,160 727,541
	3,030,755 757,690 (120,595) (30,149)
	2,910,160 727,541

Ithmaar’s total issued and fully paid share capital at 31 December 2020 comprises 3,030,755,027 shares at $0.25 per share amounting to $757,688,757. The share capital of Ithmaar is denominated in United States Dollars and these shares are traded on Bahrain Bourse in United States dollars and Dubai Financial Market in Arab Emirates Dirham.

Ithmaar owned 120,595,238 of its own shares at 31 December 2020 (31 December 2019: 120,595,238). The shares are held as treasury shares and the Group has the right to reissue these shares at a later date.

23 EARNINGS PER SHARE (BASIC & DILUTED)

Earnings per share (Basic & Diluted) are calculated by dividing the net (loss)/income attributable to shareholders by the weighted average number of issued and fully paid up ordinary shares during the year.

Net loss attributable to shareholders ($ ’000) Weighted average number of issued and fully paid up ordinary shares (’000) (Losses)/Earnings per share (Basic & Diluted) - US Cents	31 December 2020 31 December 2019
	(41,719) 669
	2,910,160 2,910,160
	(1.43) 0.02

Earnings per share on non-sharia compliant income and expenses is included under note 40.

62

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

24

INCOME FROM MURABAHA AND OTHER FINANCINGS

Income from Islamic financings Income from other financings 25 INCOME FROM OTHER INVESTMENTS Income from investment securities at amortised cost Income from investment securities at fair value through equity Income from investment securities at fair value through income statement Income from investment in real estate 26 OTHER INCOME Income from banking services Insurance underwriting profit (note 26.1) Income from commodity placements Foreign exchange loss Gain on disposal of fixed assets Income from fees and commissions 26.1 Breakdown of Insurance underwriting profit Net insurance premiums earned Net insurance claims incurred 27 ADMINISTRATIVE AND GENERAL EXPENSES Salaries and other benefits Office expenses Professional fees Other administrative expenses	Relating to owners
	31 December 2020 31 December 2019
	3,247 4,309 112,758 179,937
	116,005 184,246
	Relating to owners
	31 December 2020 31 December 2019
	3,581 93,319 117,209 1,226 23,937 26,782 2,616 3,270
	147,343 124,597
	Relating to owners
	31 December 2020 31 December 2019
	51,111 44,507 25,938 24,356 12,887 24,205 (14,358) (599) 133 798 145 8,160
	75,856 101,427
	74,150 74,305 (48,212) (49,949)
	25,938 24,356
	Relating to owners
	31 December 2020 31 December 2019
	93,324 85,665 67,285 66,173 18,150 14,781 23,856 24,465
	202,615 191,084

63

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

28 PROVISION FOR IMPAIRMENT

At 1 January Charge for the year Write back during the year Utilised during the year Exchange differences At 31 December	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	835,622 44,858 880,480 834,101 49,938 884,039 80,683 26,127 106,810 81,529 8,306 89,835 (51,993) (849) (52,842) (49,259) (2,638) (51,897) (30,821) (103) (30,924) (21,787) (9,751) (31,538) (3,375) (147) (3,522) (8,962) (997) (9,959)
	830,116 69,886 900,002 835,622 44,858 880,480

Provision utilised during the year represents write-offs during the year pertaining to stage 3.

The allocation of the provision for impairment to the respective assets is as follows:

Murabaha and other financings Musharaka financing Commodity and other placements with banks, financial and other institutions Investment in mudaraba Investment in associates Sukuk and investment securities Restricted investment accounts Insurance and related receivables Other assets Off-balance sheet related Development properties Investment in real estate Intangible assets	31 December 2020 31 December 2019
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	314,205 47,340 361,545 312,556 26,624 339,180 - 10,607 10,607 - 6,084 6,084 482 - 482 561 - 561 176 - 176 176 - 176 51,049 - 51,049 76,895 - 76,895 219,041 - 219,041 202,504 - 202,504 49,735 - 49,735 49,735 - 49,735 6,930 - 6,930 5,880 - 5,880 63,250 11,939 75,189 73,695 12,150 85,845 1,743 - 1,743 1,481 - 1,481 16,689 - 16,689 14,461 - 14,461 35,746 - 35,746 37,178 - 37,178 71,070 - 71,070 60,500 - 60,500
	830,116 69,886 900,002 835,622 44,858 880,480

64

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

28 PROVISION FOR IMPAIRMENT (continued)

Loss allowance

The following table sets out information about the credit quality of financial assets measured at amortized cost. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.

31 December 2020
Financial assets - amortized cost Cash, Commodity and other placements with banks, financial and other institutions Financings (Funded and unfunded exposure) Corporate Low risks (1-3) Acceptable risks (4-6) Watch list (7) Non performing (8-10) Carrying amount - Corporate Retail (un-rated) Carrying amount including unfunded Sukuk and investment securities Other receivables Loss allowance Total financial assets carrying amount 31 December 2019	Stage 1 Stage 2 Stage 3 Total
	931,380 - - 931,380 675,345 67,759 - 743,104 1,643,059 58,336 400 1,701,795 - 509,549 - 509,549 - - 302,165 302,165 2,318,404 635,644 302,565 3,256,613 1,297,500 136,491 100,775 1,534,766 3,615,904 772,135 403,340 4,791,379 390,693 - 9,532 400,225 229,498 2,884 62,901 295,283 (37,469) (79,212) (350,120) (466,801) 5,130,006 695,807 125,653 5,951,466
Financial assets - amortized cost Cash, Commodity and other placements with banks, financial and other institutions Financings (Funded and unfunded exposure) Corporate Low risks (1-3) Acceptable risks (4-6) Watch list (7) Non performing (8-10) Carrying amount - Corporate Retail (un-rated) Carrying amount including unfunded Sukuk and investment securities Other receivables Loss allowance Total financial assets carrying amount	Stage 1 Stage 2 Stage 3 Total
	1,086,760 - - 1,086,760 971,122 41,593 - 1,012,715 1,172,477 146,280 400 1,319,157 - 596,793 - 596,793 - - 371,781 371,781 2,143,599 784,666 372,181 3,300,446 1,342,312 21,246 54,479 1,418,037 3,485,911 805,912 426,660 4,718,483 1,188,737 - 14,049 1,202,786 253,617 13,028 62,539 329,184 (48,528) (69,598) (336,062) (454,188) 5,966,497 749,342 167,186 6,883,025

Gross financings (funded) as of 31 December 2020 amounted to $3.0 billion, $0.7 billion and $0.4 billion for Stage 1, Stage 2 and Stage 3 respectively (31 December 2019: $3.0 billion, $0.8 billion and $0.4 billion). Collateral coverage for gross financing as of 31 December 2020 was 80%, 40% and 48% for Stage 1, Stage 2 and Stage 3 respectively (31 December 2019: 81%, 42% and 53%).

65

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

29 OVERSEAS TAXATION

Current taxes Deferred taxes	Relating to owners
	31 December 2020 31 December 2019
	24,908 34,347 1,930(4,695)
	26,838 29,652

The Group is subject to income taxes in some jurisdictions. Estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences impact the income tax and deferred tax provisions in the period in which such determination is made.

Current tax receivable/(payable)

At 1 January Charge for the year Payments made Exchange differences and other movements At 31 December Deferred tax asset/(liability) At 1 January Charge for the year Charges due to fair value reserve Exchange differences and other movements At 31 December	31 December 2020 31 December 2019
	10,871 24,117 (24,908) (34,347) 15,162 29,895 (1,952) (8,794)
	(827) 10,871
	31 December 2020 31 December 2019
	4,982 5,367 (1,930) 4,695 (3,729) (2,166) (1,612) (2,914)
	(2,289) 4,982

66

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

30 SEGMENTAL INFORMATION

The Group constitutes of three main business segments, namely;

• (i) Retail/ Commercial banking business, in which the Group receives customer funds and deposits and extends financing to its retail and corporate clients.

• (ii) Asset Management/Investment Banking, in which the Group directly participates in investment opportunities.

Operating income Total expenses Net income/(loss) before provision and overseas taxation Provision and overseas taxation Net income/(loss) for the year Attributable to: Equity holders of Ithmaar Minority interests Total assets Total liabilities and equity of unrestrict investment account holders	Retail & Corporate banking Others Total 240,435 (9,782) 38,627269,280 (185,251) (25,326) (24,654) (235,231) 55,184 (35,108) 13,973 34,049 (67,155) 13,452 (1,825) (55,528) (11,971) (21,656) 12,148(21,479) (25,159) (22,388) 5,828(41,719) 13,188 732 6,32020,240 (11,971) (21,656) 12,148 (21,479) 6,907,505 1,126,662 349,498 8,383,665 ed 7,838,742 72,547 180,239 8,091,528 31 December 2020 Asset Management / Investment Banking	31 December 2019
		Retail & Corporate banking Others Total Asset Management / Investment Banking
		244,394 27,844 23,959296,197 (172,291) (25,495) (24,291) (222,077)
		72,103 2,349(332) 74,120
		(34,464) (25,689) (1,769) (61,922)
		37,639 (23,340) (2,101) 12,198
		24,062 (21,028) (2,365) 669 13,577 (2,312) 26411,529
		37,639 (23,340) (2,101) 12,198
		6,594,666 1,134,809 355,764 8,085,239
		7,406,311 75,978 196,101 7,678,390

The Group constitutes of four geographical segments which are Middle East, Asia and others

Operating income Total expenses Net income/(loss) before provision and overseas taxation Provision and overseas taxation Net income/(loss) for the year Attributable to: Equity holders of the Ithmaar Minority interests Total assets Total liabilities and equity of unrestricted investment account holders	Middle East & Africa Asia Others Total 65,432 202,118 1,730269,280 (110,703) (122,230) (2,298) (235,231) (45,271) 79,888(568) 34,049 (15,983) (39,616) 71 (55,528) (61,254) 40,272(497) (21,479) (68,032) 26,810 (497) (41,719) 6,778 13,462 -20,240 (61,254) 40,272 (497) (21,479) 3,503,404 4,340,175 540,086 8,383,665 3,814,244 3,907,521 369,763 8,091,528 31 December 2020	31 December 2019
		Middle East & Africa Asia Others Total
		97,784 190,645 7,768296,197 (110,411) (115,425) 3,759 (222,077)
		(12,627) 75,220 11,527 74,120
		(20,261) (34,867) (6,794) (61,922)
		(32,888) 40,353 4,733 12,198
		(30,920) 26,856 4,733 669 (1,968) 13,497 -11,529
		(32,888) 40,353 4,733 12,198
		3,655,750 3,971,227 458,262 8,085,239
		3,796,555 3,579,047 302,788 7,678,390

67

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

31 ZAKAH

Zakah is directly borne by the owners and investors in restricted and equity of unrestricted investment accountholders. Ithmaar does not collect or pay Zakah on behalf of its owners and its investment accountholders.

32 CONTINGENT LIABILITIES AND COMMITMENTS

Contingent liabilities

Acceptances and endorsements Guarantees and irrevocable letters of credit Customer and other claims	31 December 2020 31 December 2019
	66,883 59,038 589,686 438,773 224,481 234,002
	881,050 731,813

Commitments

Undrawn facilities, financing lines and other commitments to finance	31 December 2020 31 December 2019
	1,600,375 1,436,934

68

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

33 CURRENCY RISK

The currency exposure of the assets and liabilities, of the Group, including equity of unrestricted investment accountholders, is as follows:

31 December 2020 Cash and balances with banks and central banks Commodity and other placements with banks, financial and other institutions Murabaha and other financings Musharaka financing Sukuk and investment securities Investment in associates Assets acquired for leasing Insurance and related receivables Other assets Investment in real estate Development properties Fixed assets Intangible assets Total assets Customer current accounts Due to banks, financial and other institutions Due to investors Other liabilities Insurance related reserves Total liabilities Equity of unrestricted investment accountholders Total liabilities and equity of unrestricted investment accountholders Contingent liabilities and commitments 31 December 2019 Total assets Total liabilities and equity of unrestricted investment accountholders Contingent liabilities and commitments	United States Dollar Pakistan Rupee Bahraini Dinar Euro UAE Dirham Other Total
	158,868 306,957 106,670 48,846 1,532 27,925 650,798 39,246 31,208 187,136 8,940 - 13,570 280,100 72,242 1,008,222 1,004,612 256,468 - 64,211 2,405,755 - 929,496 - - - - 929,496 213,795 1,728,201 185,363 3,891 - 25,929 2,157,179 - - 588,090 - - 35,071 623,161 - - 385,534 - - - 385,534 - - 50,634 - - 50,473 101,107 15,007 43,452 44,485 7,972 - 40,543 151,459 - 6,143 169,246 - - 80,915 256,304 - - 272,018 - - - 272,018 - 57,020 7,713 - - 16,574 81,307 71,737 11,781 5,929 - - - 89,447
	570,895 4,122,480 3,007,430 326,117 1,532 355,211 8,383,665
	193,010 1,038,985 256,736 235,256 107 28,912 1,753,006 - 181,231 366,269 116,813 109,322 326,901 14,378 1,114,914 60,176 1,291,950 - 3,314 - 8,580 1,364,020 30,330 147,794 154,168 3,463 2,480 34,550 372,785 - - 76,906 - - 46,261 123,167
	464,747 2,844,998 604,623 351,355 329,488 132,681 4,727,892
	372,750 822,334 2,162,587 - - 5,965 3,363,636
	837,497 3,667,332 2,767,210 351,355 329,488 138,646 8,091,528
	751,192 1,503,068 5,922 65,449 66 155,728 2,481,425
	727,160 3,791,227 3,124,352 108,393 1,542 332,565 8,085,239
	970,963 3,273,542 2,677,890 323,079 328,954 103,962 7,678,390
	695,045 1,260,150 88,481 56,578 223 68,270 2,168,747

69

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

34 MATURITY PROFILE

The contractual maturity profile of the assets and liabilities of the Group, including equity of unrestricted investment accountholders, is as follows:

31 December 2020 Cash and balances with banks and central banks Commodity and other placements with banks, financial and other institutions Murabaha and other financings Musharaka financing Sukuk and investment securities Investment in associates Assets acquired for leasing Insurance and related receivables Other assets Investment in real estate Development properties Fixed assets Intangible assets Total assets Customer current accounts Due to banks, financial and other institutions Due to investors Other liabilities Insurance related reserves Total liabilities Equity of unrestricted investment accountholders Total liabilities and equity of unrestricted investment accountholders Net position Contingent liabilities and commitments 31 December 2019 Total assets Total liabilities and equity of unrestricted investment accountholders Net position Contingent liabilities and commitments	Up to 1 month 1 to 3 months 3 months to 1year 1 to 5years Over 5years Total
	646,964 1,658 2,176 - - 650,798 192,329 24,523 42,625 20,623 - 280,100 42,621 617,097 513,898 665,374 566,765 2,405,755 16,636 61,085 100,588 431,080 320,107 929,496 397,253 762,094 110,643 237,113 650,076 2,157,179 - - - - 623,161 623,161 562 8 941 6,405 377,618 385,534 - - 101,107 - - 101,107 33,523 7,002 100,479 3,213 7,242 151,459 - - 6,143 88,732 161,429 256,304 - - - 272,018 - 272,018 - 83 7,618 53,211 20,395 81,307 - - - - 89,447 89,447
	1,329,888 1,473,550 986,218 1,777,769 2,816,240 8,383,665
	1,753,006 - - - - 1,753,006 474,887 162,074 419,119 30,780 28,054 1,114,914 943,085 187,892 228,089 4,924 30 1,364,020 175,794 - 86,133 94,079 16,779 372,785 - - 123,167 - - 123,167
	3,346,772 349,966 856,508 129,783 44,863 4,727,892
	1,679,655 411,490 881,653 390,838 - 3,363,636
	5,026,427 761,456 1,738,161 520,621 44,863 8,091,528
	(3,696,539) 712,094 (751,943) 1,257,148 2,771,377 292,137
	1,422,470 453,252 251,357 323,074 31,272 2,481,425
	2,173,524 1,087,839 913,596 1,366,092 2,544,188 8,085,239
	4,069,507 1,278,720 1,568,091 760,569 1,503 7,678,390
	(1,895,983) (190,881) (654,495) 605,523 2,542,685 406,849
	1,195,976 380,597 272,442 296,690 23,042 2,168,747

70

Ithmaar Holding B.S.C

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

35 CONCENTRATION OF ASSETS, LIABILITIES AND LETTERS OF CREDIT AND GUARANTEE

Assets and liabilities of the Group, including equity of unrestricted investment accountholders, and letters of credit and guarantee are distributed over the following industry sectors and geographical regions:

31 December 2020 Cash and balances with banks and central banks Commodity and other placements with banks, financial and other institutions Murabaha and other financings Musharaka financing Sukuk and investment securities Investment in associates Assets acquired for leasing Insurance and related receivables Other assets Investment in real estate Development properties Fixed assets Intangible assets Total assets Customer current accounts Due to banks, financial and other institutions Due to investors Other liabilities Insurance related reserves Total liabilities Equity of unrestricted investment accountholders Total liabilities and equity of unrestricted investment accountholders Contingent liabilities and commitments 31 December 2019 Total assets Total liabilities and equity of unrestricted investment accountholders Contingent liabilities and commitments	Banks and financial institutions Trading and manu- facturing Property and Cons- truction Services Private individuals Textile Other Total
	650,798 - - - - - - 650,798 280,100 - - - - - - 280,100 463,076 707,862 110,778 175,118 759,815 73,984 115,122 2,405,755 1,353 471,412 12,781 207,663 164,575 32,447 39,265 929,496 1,420,622 264,976 363,176 87,575 - - 20,830 2,157,179 618,304 608 3,784 - - - 465 623,161 - 4,308 3,084 203 377,939 - - 385,534 - - - 101,107 - - - 101,107 28,005 32,691 79,591 7,200 - - 3,972 151,459 - - 256,304 - - - - 256,304 - - 272,018 - - - - 272,018 19,713 - 40,634 - - - 20,960 81,307 77,067 - - - - - 12,380 89,447
	3,559,038 1,481,857 1,142,150 578,866 1,302,329 106,431 212,994 8,383,665
	6,461 577,683 105,413 223,510 418,548 14,968 406,423 1,753,006 915,900 - 9,155 135,760 - - 54,099 1,114,914 72,129 419,390 46,821 235,647 301,381 42,754 245,898 1,364,020 - 50,300 41,750 116,641 9,172 80,767 74,155 372,785 - - - - - - 123,167 123,167
	994,490 1,047,373 203,139 711,558 729,101 138,489 903,742 4,727,892
	50,050 964,018 130,991 453,303 1,636,350 15,677 113,247 3,363,636
	1,044,540 2,011,391 334,130 1,164,861 2,365,451 154,166 1,016,989 8,091,528
	535,504 1,160,448 54,940 52,730 15,076 169,233 493,494 2,481,425
	3,239,755 1,202,404 681,375 1,241,461 1,356,041 72,844 291,359 8,085,239
	1,429,889 1,585,256 325,241 1,101,382 2,180,990 21,006 1,034,626 7,678,390
	632,271 871,609 37,865 157,487 19,444 117,267 332,804 2,168,747

71

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

35 CONCENTRATION OF ASSETS, LIABILITIES AND LETTERS OF CREDIT AND GUARANTEE (continued)

31 December 2020 Cash and balances with banks and central banks Commodity and other placements with banks, financial and other institutions Murabaha and other financings Musharaka financing Sukuk and investment securities Investment in associates Assets acquired for leasing Insurance and related receivables Other assets Investment in real estate Development properties Fixed assets Intangible assets Total assets Customer current accounts Due to banks, financial and other institutions Due to investors Other liabilities Insurance related reserves Total liabilities Equity of unrestricted investment accountholders Total liabilities and equity of unrestricted investment accountholders Contingent liabilities and commitments 31 December 2019 Total assets Total liabilities and equity of unrestricted investment accountholders Contingent liabilities and commitments	Asia / Pacific Middle East Europe North America Others Total
	386,373 128,190 54,921 81,314 - 650,798 31,208 244,462 4,430 - - 280,100 1,104,969 1,035,784 83,534 181,121 347 2,405,755 929,496 - - - - 929,496 1,733,484 414,415 6,844 2,436 - 2,157,179 35,191 587,970 - - - 623,161 - 385,534 - - - 385,534 - 101,107 - - - 101,107 43,491 66,459 41,509 - - 151,459 7,162 166,976 82,166 - - 256,304 - 272,018 - - - 272,018 57,020 22,823 1,464 - - 81,307 11,781 77,666 - - - 89,447
	4,340,175 3,503,404 274,868 264,871 347 8,383,665
	1,169,153 354,440 221,350 8,063 - 1,753,006 366,269 686,807 61,395 - 443 1,114,914 1,364,020 - - - 1,364,020 147,794 146,479 78,512 - - 372,785 - 123,167 - - - 123,167
	3,047,236 1,310,893 361,257 8,063 443 4,727,892
	860,285 2,503,351 - - - 3,363,636
	3,907,521 3,814,244 361,257 8,063 443 8,091,528
	2,379,062 102,363 - - - 2,481,425
	3,971,227 3,655,750 267,904 190,358 - 8,085,239
	3,579,047 3,796,555 294,563 7,009 1,216 7,678,390
	2,067,064 88,481 13,202 - - 2,168,747

72

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

36 RISK MANAGEMENT

Risk Management in the Group

The Group's activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the banking business, and these risks are an inevitable consequence of participating in financial markets. The Group's aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Group’s financial performance.

The Group's risk management policies, procedures and systems are designed to identify and analyze these risks and to set appropriate risk mitigants and controls. The Group reviews its risk management policies and systems on an ongoing basis to reflect changes in markets, products and emerging best practices.

Risk management is performed by the Risk Management Department under policies approved by the Board of Directors. The Risk Management Department identifies and evaluates financial risks in close co-operation with the Group's operating units. The most important types of risks identified by the Group are credit risk, liquidity risk, market risk, reputational risk and operational risk. Market risk includes currency risk, profit rate risk, and price risk.

Credit Risk

Credit risk is considered to be the most significant and pervasive risk for the Group. The Group takes on exposure to credit risk, which is the risk that the counter-party to a financial transaction will fail to discharge an obligation causing the Group to incur a financial loss. Credit risk arises principally from financing (credit facilities provided to customers) and from cash and deposits held with other banks and financial institutions. Further, there is credit risk in certain off-balance sheet financial instruments, including guarantees, letters of credit, acceptances and commitments to extend credit. Credit risk monitoring and control is performed by the Risk Management Department which sets parameters and thresholds for the Group's financing and off-balance sheet financial instruments.

Considering this evolving situation of COVID-19, the Group has taken preemptive measures to mitigate credit risk by adopting more cautious approach for credit approvals thereby tightening the criteria for extending credit to impacted sectors. Payment holidays have been extended to customers, including private and SME sector, in line with the instructions of CBB. These measures may lead to lower disbursement of financing facilities, resulting in lower net financing income and decrease in other revenue.

The risk management department has also enhanced its monitoring of financing portfolio by reviewing the performance of exposures to sectors expected to be directly or indirectly impacted by COVID-19 to identify potential Significant increase in Credit Risk (SICR).

The Group has updated its inputs and assumptions for computation of Expected Credit Losses (ECL) (refer to note 2).

On 11 March 2020, the COVID-19 outbreak was declared, a pandemic by the World Health Organization (WHO) and has rapidly evolved globally. This has resulted in a global economic slowdown with uncertainties in the economic environment. Global equity and commodity markets, and in particular oil prices, have also experienced great volatility and a significant drop in prices. The estimation uncertainty is associated with the extent and duration of the expected economic downturn and forecasts for key economic factors including GDP, employment, oil prices etc. This includes disruption to capital markets, deteriorating credit markets and liquidity concerns. Authorities have taken various measures to contain the spread including implementation of travel restrictions and quarantine measures. The pandemic as well as the resulting measures and policies have had some impact on the Group. The Group is actively monitoring the COVlD-19 situation, and in response to this outbreak, has activated its business continuity plan and various other risk management practices to manage the potential business disruption on its operations and financial performance.

The management and the Board of Directors (BOD) have been closely monitoring the potential impact of the COVlD-19 developments on the Group’s operations and financial position; including possible loss of revenue, impact on asset valuations, impairment, review of onerous contracts and debt covenants, outsourcing arrangements etc. The Group has also put in place contingency measures, which include but are not limited to enhancing and testing of business continuity plans including its liquidity requirements.

In preparing the consolidated financial statements, judgements made by management in applying the Group’s accounting policies and sources of estimation are subject to uncertainty regarding the potential impacts of the current economic volatility and these are considered to represent management‘s best assessment based on available or observable information.

73

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

36 RISK MANAGEMENT (continued)

Credit Risk (continued)

Modification loss net of Government assistance

During the current period, based on a regulatory directive issued by the CBB (refer note (BOP)) as concessionary measures to mitigate the impact of COVID-19, the one-off modification losses amounting to $54.8 arising from the 6-month payment holidays provided to financing customers without charging additional profits has been recognized directly in equity. The modification loss has been calculated as the difference between the net present value of the modified cash flows calculated using the original effective profit rate and the current carrying value of the financial assets on the date of modification. The Group provided payment holidays on financing exposures amounting to $1.5 billion as part of its support to impacted customers.

Further, as per the regulatory directive, financial assistance amounting to $3.4 million (representing specified reimbursement of a portion of staff costs and waiver of fees, levies and utility charges) received from the government and/or regulators, in response to its COVID-19 support measures, has been recognized directly in equity.

Credit Risk Mitigation

Group uses a variety of tools to mitigate its credit risk, the primary one being that of securing the exposure by suitable collateral. While the existence of collateral is not a precondition for credit, exposures are fully or partially collateralized as a second line of defense. The Group has in place a Credit Risk Mitigation policy which provides guidelines on the types of assets that may be accepted as collateral and the methodology of valuation of these assets. In general, all collateral valued periodically depending on the collateral type. The legal validity and enforceability of the documents used for collateral have been established by qualified personnel, including lawyers and Sharia scholars.

Group’s credit portfolio is supported by various types of collateral such as real estate, listed equity, cash and guarantees. Group prefers liquid and marketable credit collateral; however other types of collateral are accepted provided that such collateral can be reasonably valued. Third party guarantees are accepted as collateral only after analyzing the financial strength of the guarantors.

Collateral Valuation

Collateral when taken are identified as having reasonable value, their value would however change over a period of time due to prevailing economic conditions, plant and machinery becoming obsolete due to technological advancements, due to passage of time and due to increase in availability of similar collateralized securities. Listed securities are valued at monthly intervals, unlisted securities are valued at annual intervals, real estate properties are valued at least once in two years’ intervals, and special assets of the nature of marine vessels and aircrafts are valued at annual intervals. Value of collateral are accounted post assigning various levels of haircuts depending on the type of collateral, the same are provided in the Credit Risk Mitigation Policy.

Guarantees

Guarantees are taken from individuals and Corporates. In cases where a letter of guarantee from the counterparty’s parent company or from a third party is offered as credit risk mitigant, it is ensured that the guarantees must be irrevocable and unconditional. If the guarantor is located outside Bahrain, legal opinion is obtained from a legal counsel domiciled in the country of guarantor (overseas) regarding the enforceability of the guarantee. Further, the financial position of the guarantor is adequately analyzed to determine the value and commercial viability of the guarantee.

Collateral Concentration

Group has established internal limits to avoid over concentration on certain class of collateral. Prudent maximum limits have been set for the acceptance of collateral as credit risk mitigation.

74

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

36 RISK MANAGEMENT (continued)

Liquidity risk

Liquidity risk is the risk that Ithmaar is unable to meet its financial obligations as they fall due, which could arise due to mismatches in cash flows.

Liquidity risk arises either:

• From the inability to manage unplanned decreases or changes in funding sources; or

• from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

Liquidity risk management ensures that funds are available at all times to meet the funding requirements, Funding and liquidity management is performed centrally by the Asset and Liability Management Committee (ALCO). Group’s liquidity policies are designed to ensure it will meet its obligations as and when they fall due, by ensuring it is able to generate funds from the market, or have sufficient High Quality Liquid Assets (HQLAs) to sell and raise immediate funds without incurring unacceptable costs and losses. Ithmaar regularly monitors the concentration in the funding sources and ensures that the funding sources are adequately diversified.

Market risk

Market risk is the risk of potential loss arising from change in the value of any exposure due to adverse changes in the underlying benchmark market rates, i.e. foreign exchange rates, equity prices and profit rates.

Management of market risk is the responsibility of the relevant business units with the group companies with oversight by the Asset-Liability Committee (ALCO).

Shari’a compliant risk management hedging instruments

Types of instruments: Profit rate swaps - Liability Profit rate swaps: Net exposure Average fixed profit rate	2020 2019
	174,000 7,324 174,000 3,855
	174,000 7,324 174,000 3,855
	2020 2019
	Less than one year More than one year Less than one year More than one year
	3,613 3,711 1,711 2,144 3.03% 3.03% 3.03% 3.03%

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events which includes but not limited to legal risk and Sharia compliance risk. This definition excludes strategic and reputational risks.

Through a control framework and by monitoring and responding to potential risks, Ithmaar is able to manage the operational risks to an acceptable level.

In response to COVID-19 outbreak, there were various changes in the working model, interaction with customers, digital modes of payment and settlement, customer acquisition and executing contracts and carrying out transactions with and on behalf of the customers. The management of the Group has enhanced its monitoring to identify risk events arising out of the current situation and the changes in the way business is conducted.

Reputational Risk

The Reputational Risk Management is defined as the risk arising risk arising from negative perception on the part of customers, counterparties, shareholders, investors, debt-holders, market analysts, other relevant parties or regulators that can adversely affect a Group’s ability to maintain existing, or establish new, business relationships and continued access to sources of funding. The Group has developed a framework and has identified various factors that can impact its reputation. Management of reputation risk is an inherent feature of the Group’s corporate culture which is embedded as an integral part of the internal control systems

75

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

36 RISK MANAGEMENT (continued)

Profit rate risk

The table below summarises the Group’s exposure to profit rate risk. It includes the Group’s financial instruments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

31 December 2020 Cash and balances with banks and central banks Commodity and other placements with banks, financial and other institutions Murabaha and other financings Musharaka financing Sukuk and investment securities Assets acquired for leasing Insurance and related receivables Other assets Total financial assets Customer current accounts Due to banks, financial and other institutions Due to investors Other liabilities Total financial liabilities Equity of unrestricted investment accountholders Total financial liabilities and equity of unrestricted investment accountholders Total repricing gap 31 December 2019 Total financial assets Total financial liabilities and equity of unrestricted investment accountholders Total repricing gap	Up to one month One-three months Three-twelve months One-five years Over five years Non rate sensitive Total
	- - - - - 650,798 650,798 137,381 105,398 18,955 13,936 4,430 - 280,100 302,568 250,747 844,339 722,856 285,245 - 2,405,755 16,636 61,085 100,588 541,553 209,634 - 929,496 460,836 762,093 99,001 643,817 132,288 59,144 2,157,179 - - 1,284 6,404 377,846 - 385,534 - - - - - 101,107 101,107 - - - - - 151,459 151,459
	917,421 1,179,323 1,064,167 1,928,566 1,009,443 962,508 7,061,428
	- - - - - 1,753,006 1,753,006 507,007 157,894 391,177 58,836 - - 1,114,914 943,085 187,892 228,089 4,954 - - 1,364,020 - - - - - 372,785 372,785
	1,450,092 345,786 619,266 63,790 - 2,125,791 4,604,725
	1,560,095 455,229 1,031,001 317,311 - - 3,363,636
	3,010,187 801,015 1,650,267 381,101 - 2,125,791 7,968,361
	(2,092,766) 378,308 (586,100) 1,547,465 1,009,443 (1,163,283) (906,933)
	1,421,199 414,618 1,065,587 1,285,660 1,466,380 1,079,872 6,733,316
	3,057,479 799,994 1,331,482 382,708 13,126 1,963,833 7,548,622
	(1,636,280) (385,376) (265,895) 902,952 1,453,254 (883,961) (815,306)

76

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

37 RELATED PARTY TRANSACTIONS AND BALANCES

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence or joint control over the other party in making financial and operating decisions.

• (a) Directors and companies in which they have an ownership interest.

• (b) Major shareholders of Ithmaar, Ultimate Parent and companies in which Ultimate Parent has ownership interest and subsidiaries of such companies (affiliates).

• (c) Associated companies of Ithmaar.

• (d) Senior management.

A related party transaction is a transfer of resources, services, or obligations between related parties, regardless of whether a price is charged.

Significant balances with related parties comprise:

Assets Murabaha and other financings Investment in associates Other assets Liabilities Customers’ current accounts Due to banks, financial and other institutions Equity of unrestricted investment accounts Other liabilities Equity Fair value reserves Income Return to unrestricted investment accounts Income from murabaha and other financings Share of profit after tax from associates Profit paid to banks, financial and other institutions Reversal of provision for impairment on associate Expenses Administrative and general expenses	31 December 2020
	Shareholders & Affiliates Associates and other investments Directors and related entities Senior management Total
	417,883 - - 2,153 420,036 - 623,161 - - 623,161 - - - 557 557 7,558 538 - 2,460 10,556 29,282 10,002 - - 39,284 18,294 - - 6,379 24,673 129 - - - 129 - (42,521) - - (42,521) - - - (191) (191) 3,781 - - - 3,781 - 30,978 - - 30,978 - (1,844) - - (1,844) - 69,658 - - 69,658 (800) - (50) - (850)

77

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

37 RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Assets Murabaha and other financings Investment in associates Other assets Liabilities Customers’ current accounts Due to banks, financial and other institutions Equity of unrestricted investment accounts Other liabilities Equity Fair value reserves Income Return to unrestricted investment accounts Income from murabaha and other financings Share of profit after tax from associates Other income Profit paid to banks, financial and other institutions Expenses Administrative and general expenses	31 December 2019
	Shareholders & Affiliates Associates and other investments Directors and related entities Senior management Total
	417,798 - 12,809 2,095 432,702 - 633,292 - - 633,292 - - - 515 515 6,297 10,622 - 824 17,743 53,482 72,133 - - 125,615 24,020 - - 4,148 28,168 160 - - - 160 - (37,893) - - (37,893) - - - (124) (124) 3,910 - - - 3,910 - 40,415 - - 40,415 7,334 - - - 7,334 (2,103) (3,458) - - (5,561) (800) - (50) - (850)

Certain collaterals amounting to $346 million (31 December 2019: $320.9 million) with respect to certain financing facilities are legally held by related parties for the beneficial interest of the Group.

Certain assets amounting to $5.1 million (31 December 2019: $5.7 million) are legally held by related parties for the beneficial interest of the Group.

With respect to financing facility of $12.8 million relating to a member of the board of directors, no profit is accrued since profit is linked to exit of a specific investment (held as collateral).

38 CAPITAL MANAGEMENT

The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:

• To comply with the capital requirements set by the regulators of the banking markets where the entities within the Group operate;

• To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and;

• To maintain a strong capital base to support the development of its business.

The Group does not engage in any banking activity at solo level, hence Basel III requirements are not applicable. The Group complies with CBB directives with respect to its investment firm category 1 license. The subsidiaries comply with the directives of the respective local regulators for their capital management.

39 PROPOSED DIVIDEND

The Board of Directors has not proposed any dividend for the year ended 31 December 2020 (31 December 2019: Nil).

78

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2020

(Expressed in thousands of United States Dollars unless otherwise stated)

40 NON-SHARIA COMPLIANT INCOME AND EXPENSES

The Group has earned certain income and incurred certain expenses from conventional assets and liabilities. These conventional assets and liabilities are in accordance with the Sharia Compliance Plan. The details of the total income and total expenses are as follows:

INCOME Income from other financings Share of profit after tax from associates - note (i) Income from investments Other income Gross income Less: profit paid to banks, financial and other institutions - note (ii) Total income EXPENSES Administrative and general expenses - note (ii) Depreciation and amortisation Total expenses Net income before provision for impairment and overseas taxation Provision for impairment (net) Net income before overseas taxation Overseas taxation NET INCOME FOR THE YEAR Attributable to: Equity holders of the Bank Minority interests Basic and diluted earnings per share	Year ended
	31 December 2020 31 December 2019
	112,758 179,937 27,196 49,547 141,313 112,036 16,882 22,409
	298,149 363,929 (137,345) (162,758)
	160,804 201,171
	(74,549) (79,035) (17,792) (18,038)
	(92,341) (97,073)
	68,463 104,098 12,597 (12,115)
	81,060 91,983 (15,090) (27,001)
	65,970 64,982
	59,606 56,599 6,364 8,383
	65,970 64,982
	US Cts 2.05 US Cts 1.94

Note (i) – The share of profit attributable to non-sharia compliant associates is based on their accounting policies which are different from the Group accounting policies. Since the non-sharia income is already disclosed separately and hence no adjustment is made on impact of dissimilar accounting policies.

Note (ii) – Expenses relate to entities which are consolidated line by line and exclude associates.

Note (iii) – One of the subsidiaries presently operating as a conventional bank has increased the number of its Islamic branches during the year to 500 (2019: 414 branches) out of total 576 branches (2019: 555 branches).

41 SOCIAL RESPONSIBILITY

The Group discharges its social responsibilities through donations to charitable causes and organizations.

42 SUBSEQUENT EVENT

There have been no events subsequent to 31 December 2020 that would significantly impact the amounts reported in the consolidated financial statements as at 31 December 2020.

79