Ithmaar Holding B.S.C — Annual Report 2021

Feb 15, 2022

ITHMAAR HOLDING B.S.C.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021

Ithmaar Holding B.S.C. Consolidated financial statements for the year ended 31 December 2021

Contents	Page
Report of the Sharia Supervisory Board	3 – 4
Directors’ Report	5 – 7
Independent auditor's report	8 – 15
Consolidated statement of financial position	16
Consolidated income statement	17
Consolidated statement of changes in owners’ equity	18 – 19
Consolidated statement of cash flows	20
Consolidated statement of changes in restricted investment accounts	21 – 22
Notes to the consolidated financial statements	23 – 84

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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 2021 until 31 December 2021, corresponding to the Year from 17 Jumada Al-Ula 1442 H until 27 Jumada Al-Ula 1443 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 2021:

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- Reviewed the report of the External Shariah Auditor and took his observations into consideration.

5- 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 2021. 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: 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.

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 Ithmaar when Shamil Bank merged with Ithmaar Bank in 2010, these have been identified, disclosed and published to the shareholders in Note (41) of the Consolidated Financial Statements, and the Sharia Supervisory Board directs Ithmaar towards continuous correction of the status of these investments.

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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 2021 until 31 December 2021, corresponding to the Year from 17 Jumada Al-Ula 1442 H until 27 Jumada Al-Ula 1443 H.

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.

Non-sharia compliant income:

To ensure compliance with the Fatwas and previous Directions of the Sharia Supervisory Board relating to conventional assets transferred to Ithmaar in 2010, the Sharia Supervisory Board has reviewed the consolidated income statement of Ithmaar for the year ended 31 December 2021 and has satisfied itself that Ithmaar has appropriately disclosed the income and expenses arising from the conventional assets and liabilities in Note (41). 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 2.70 US cents per share.

We pray to Almighty Allah to grant success to Ithmaar Holding 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.

This report has been issued on 27 Jumada Al-Akhirah 1443, 30 January 2022.

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Ithmaar Holding B.S.C. Directors' Report for the year ended 31 December 2021

The Directors submit their report dealing with the activities of Ithmaar Holding B.S.C. (“Ithmaar”) for the year ended 31 December 2021, 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 2021, 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 profit of $60.3 million for the year ended 31 December 2021, as compared to a net loss of US$21.5 million for 2020. The net profit attributable to the equity holders of the Group is $38.6 million for 2021, as compared to a net loss of $41.7 million for 2020. Total assets at 31 December 2021 amounted to $9,032.8 million (31 December 2020: $8,383.7 million).

During January 2022, Ithmaar Holding agreed in-principle with Al Salam Bank B.S.C. (Al Salam) on the acquisition of the consumer banking business of Ithmaar Bank, and Ithmaar Holdings’ ownership stake in both Bank of Bahrain and Kuwait B.S.C, and Solidarity Group Holding. This announcement followed the execution of a non-legally binding Memorandum of Understanding (MoU) between the two entities in October 2021. The transaction remains subject to the approval of Ithmaar Holding’s shareholders and the signing of definitive agreements.

Directors

The following served as Directors of Ithmaar during the year ended 31 December 2021:

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 Hassan Mr. Omar Abdi Ali

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Ithmaar Holding B.S.C. Directors' Report for the year ended 31 December 2021 (continued)

(Expressed in United States Dollars unless otherwise stated)

Directors’ & Executive Management Remuneration

In accordance with the provisions of the Commercial Companies Law No. (21) of 2001 and its amendments, and pursuant to the provisions of Article No. (188) of the Commercial Companies Law and Article No. (125) of the Executive Regulations of Resolution No. (3) for the year 2022, the table below shows the remuneration of members of the Board of Directors and the Executive Management for the fiscal year ended 31 December 2021.

Board of Directors’ Remuneration Details:

Name	Remunerations of the chairman and BOD	Total allowance for attending Board and committee meetings	Salaries	Others	Total
Independent Directors
1. Dr. Amani Khaled Bouresli	-	54,000	-	-	54,000
2. Ms. Elham Ebrahim Hassan	-	54,000	-	-	54,000
3. Mr. Abdulellah Ebrahim Al-Qassimi	-	60,000	-	-	60,000
4. Tunku Yaacob Khyra	-	36,000	-	-	36,000
5. Sheikh Zamil Abdullah Al-Zamil	-	36,000	-	-	36,000
Non-Executive Directors:
1. HRH Prince Amr Mohammed Al-Faisal	-	30,000	-	-	30,000
2. Mr. Omar Abdi Ali	-	30,000	-	-	30,000
3. Sheikh Mohamed Abdullah El Khereiji	-	30,000	-	-	30,000
Executive Directors:
1. Governor Abdelhamid Mohamed Abou Moussa	-	30,000	-	-	30,000
2. Mr. Mohammed A. Rahman Bucheerei	-	30,000	-	-	30,000
Total	-	390,000	-	-	390,000

Note:

1.The Bank does not have any variable remuneration payments, end of service benefits, or expense allowances paid to its directors. Further there is no remuneration proposed for the year.

1. Board remuneration represents payments made during the year 2021 based on the approval of the Annual General Meeting dated 28 March 2021.

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Ithmaar Holding B.S.C.

Directors' Report for the year ended 31 December 2021 (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 Hassan Mr. Omar Abdi Ali	Number of Shares
	31 December 2021 31 December 2020
	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 2021 (2020: Nil).

Auditors

The auditors, PricewaterhouseCoopers ME Limited, have expressed their willingness to be reappointed as auditors of Ithmaar for the year ending 31 December 2022.

By order of the Board of Directors

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14 February 2022

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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 material respects, the consolidated financial position of Ithmaar Holding Company B.S.C. (“Ithmaar”) and its subsidiaries (the “Group”) as at 31 December 2021, 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 2021;

• 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	● Impairment and credit losses on financing facilities, including impacts of COVID-19 pandemic ● Planned disposal and application of IFRS 5 ● Board of Directors’ assessment of the preparation of the consolidated financial statements on a going concern basis

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 matters (continued)
Key audit matter	How our audit addressed the Key audit matter
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 makes 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 4,008.5 million and off-balance sheet exposures amounting to USD 2,290.8 million as at 31 December 2021, which are material to the Group. Information on the credit risk including Group’s credit risk management is provided in note 37 to the Group’s consolidated financial statements.	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.

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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)

Planned disposal and application of IFRS 5

Our audit procedures included the following:

• On 27 January 2022, Ithmaar and Al Salam ● We reviewed and challenged the Board Bank B.S.C. have agreed to the acquisition of a of Directors assessment against the group of assets by Al Salam Bank from Ithmaar. relevant criterias of IFRS 5; The group of assets included in the acquisition consists of the consumer banking business in ● We read and reviewed the Board of Bahrain of Ithmaar wholly owned subsidiary, Directors’ minutes of meetings to Ithmaar Bank B.S.C. (c) (“Ithmaar Bank”), the evaluate and determine the appropriate entire indirect underlying shareholdings of treatment of the transaction in Ithmaar in Bank of Bahrain and Kuwait B.S.C. accordance with IFRS 5 requirements; and Solidarity Group Holding (the “transaction”). The transaction remains subject to the requisite ● We held meetings and performed approvals and the signing of definitive inquiries with the entity’s executive agreements. management to obtain an understanding of the disposal process as well as the

• The Board of Directors determined that the potential particularities and criteria of IFRS 5 were not met and the related contingencies of the transaction; and activities should not be presented as held-forsale and discontinued operations as at 31 ● We assessed the appropriateness and December 2021. As a result, this transaction has completeness of the related disclosures been considered by the Board of Directors as a in the consolidated financial statements. non adjusting event in these consolidated financial statements.

We considered the accounting treatment in the consolidated financial statements of this event as a key audit matter because of:

• The size and complexity of the transaction; and

• ● The judgment involved in the assessment of IFRS 5 applicability.

Refer to note 43 to 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)

Key audit matters (continued)

Board of Directors’ assessment of the preparation of the consolidated financial statements on a going concern basis The Group’s consolidated equity improved by USD 23 million from USD 14.8 million as at 31 December 2020 to USD 37.8 million as at 31 December 2021. Furthermore, the Group is reliant, for its liquidity requirements, on deposits aggregating to USD 631.5 million as at 31 December 2021 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 has 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 has considered the impact of the transaction with Al Salam Bank on the Group’s financial positions and 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) Other information

The Board of Directors is 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 is 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 Rulebook (Volume 4 and applicable provisions of Volume 6) 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, actions taken to eliminate threats or safeguards applied.

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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 Rulebook (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, CBB Rulebook (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 2021 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 1.1 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 Partner’s registration number: 196 Manama, Kingdom of Bahrain 14 February 2022

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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 6 Sukuk and investment securities 7 Investment in associates 8 Assets acquired for leasing 9 Insurance and related receivables 10 Other assets 12 Investment in real estate 13 Development properties 14 Fixed assets 15 Intangible assets 16 Total assets LIABILITIES, EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS, MINORITY INTERESTS AND OWNERS’ EQUITY Customers’ current accounts 17 Due to banks, financial and other institutions 18 Due to investors 19 Other liabilities 20 Insurance related reserves 11 Total liabilities Equity of unrestricted investment accountholders 21 Minority interests 22 Total liabilities, equity of unrestricted investment accountholders and minority interests Share capital 23 Treasury shares 23 Reserves Accumulated losses Total owners’ equity Total liabilities, equity of unrestricted investment accountholders, minority interests and owners’ equity	At 31 December 2021 At 31 December 2020
	(Audited) (Audited) 545,116 650,798 249,569 280,100 2,190,974 2,405,755 1,425,743 929,496 2,524,742 2,157,179 676,933 623,161 391,820 385,534 103,474 101,107 180,624 151,459 256,319 256,304 233,235 272,018 171,774 81,307 82,466 89,447
	9,032,789 8,383,665
	1,903,979 1,753,006 1,367,702 1,114,914 1,114,187 1,364,020 453,276 372,785 129,734 123,167
	4,968,878 4,727,892
	3,751,697 3,363,636 274,452 277,375
	8,995,027 8,368,903
	757,690 757,690 (30,149) (30,149) 109,009 121,018 (798,788) (833,797)
	37,762 14,762
	9,032,789 8,383,665

These consolidated financial statements were approved by the Board of Directors on 14 February 2022 and signed on its behalf by:

on its behalf by:
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ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ		ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ
HRH Prince Amr Mohammed Al-Faisal	Elham Hassan	Ahmed Abdul Rahim
Chairman	Director	CEO

The notes 1 to 43 on pages 23 to 84 form an integral part of the consolidated financial statements.

16

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 25 Share of profit from associates 8 Income from other investments 26 Other income 27 Total income Less: profit paid to banks, financial and other institutions – net Operating income EXPENSES Administrative and general expenses 28 Depreciation and amortization 9,15,16 Total expenses Net income before provision for impairment and overseas taxation Reversal of/(provision for) impairment - net 29 Net income before overseas taxation Overseas taxation 30 NET PROFIT/(LOSS) FOR THE YEAR Attributable to: Equity holders of the Ithmaar Minority interests 22 Basic and diluted earnings/(losses) per share 24	Year ended
	31 December 31 December 2021 2020
	(Audited) (Audited) 301,047 242,980 (159,181) (147,626)
	141,866 95,354 61,472 116,005 36,453 30,978 117,572 147,343 102,548 75,856
	459,911 465,536 (152,202) (196,256)
	307,709 269,280
	(208,764) (202,615) (35,914) (32,616)
	(244,678) (235,231)
	63,031 34,049 27,408 (28,690)
	90,439 5,359 (30,115) (26,838)
	60,324 (21,479)
	38,603 (41,719) 21,721 20,240
	60,324 (21,479)
	US Cts 1.33 US Cts(1.43)

These consolidated financial statements were approved by the Board of Directors on 14 February 2022 and signed on its behalf by:

==> picture [117 x 30] intentionally omitted <==

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

The notes 1 to 43 on pages 23 to 84 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 2021

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

At 1 January 2021 (Audited) Net profit for the year Increase in shareholding of subsidiary Transfer to statutory reserve Movement in fair value of sukuk and investment securities Movement in hedging reserve (note 37) Movement in fair value reserves of associates Foreign currency translation adjustments At 31 December 2021 (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 (4,216) (7,324) 4,491 (110,230) 121,018 (833,797) 14,762 - - - - - - - - --38,60338,603 - - - - - - - - --266266 - - - 3,860 - - - - -3,860(3,860) - - - - - - (3,161) - - -(3,161) -(3,161) - - - - - - 3,743 - -3,743 -3,743 - - - - - 4,712 - - -4,712 -4,712 - - - - - (217) - 60 (21,006) (21,163) -(21,163)
	757,690 (30,149) 149,085 42,345 50,727 (2,882) (3,581) 4,551 (131,236) 109,009 (798,788) 37,762

The notes 1 to 43 on pages 23 to 84 form an integral part of the consolidated financial statements.

18

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 7) 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 37) 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 43 on pages 23 to 84 form an integral part of the consolidated financial statements.

19

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 from associates 7 (Reversal of)/provision for impairment - net 28 Income from other investments Finance cost on net ijarah liability (Gain)/loss on sale of fixed assets (note 27) Operating loss before changes in operating assets and liabilities Increase 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 Increase in equity of unrestricted investment accountholders Taxes paid Net cash provided by operating activities INVESTING ACTIVITIES Net (increase)/decrease: Assets acquired for leasing Sukuk and investment securities Investment in real estate Purchase of fixed assets Dividend received from associates Net cash used in by investing activities FINANCING ACTIVITIES Repayment of net Iajrah liability Net cash used in financing activities Foreign currency translation adjustments Net decrease 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 2021 31 December 2020
	(Audited) (Audited) 90,439 5,359 35,914 32,616 (36,453) (30,978) (27,408) 28,690 (117,572) (147,343) 7,617 - (1,578) 133
	(49,041) (111,523) 30,867 407,060 226,949 (91,872) (725,461) (313,978) (17,153) 10,464 283,818 270,646 310,398 (151,515) (135,938) (145,070) 34,266 (9,011) 496,364 572,992 (42,316) (15,162)
	412,753 423,031
	(6,286) 7,263 (456,851) (515,549) 2,130 (915) (39,484) (10,230) 20,139 28,649
	(480,352) (490,782)
	(16,421) -
	(16,421) -
	(48,867) (28,639)
	(132,887) (96,390)
	754,107 850,497
	621,220 754,107

Non-cash items:

1. Additions to the fixed assets in relation to the recognition of right of use of assets amounted to $91.5 million (note 2).

2. Recognition of lease liabilities amounted to $85.9 million recorded in other liabilities (note 2).

3. Classification of investment securities to investment in associates amounted to $5.9 million.

The notes 1 to 43 on pages 23 to 84 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 2021 (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 2021 Fair value movements At 31 December 2021
	6,250 - 6,250 12,748 (35) 12,713 25,236 - 25,236
	44,234 (35) 44,199

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

The notes 1 to 43 on pages 23 to 84 form an integral part of the consolidated financial statements.

21

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 43 on pages 23 to 84 form an integral part of the consolidated financial statements.

22

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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 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:

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) Health Island WLL

2021 2020 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 92 90 Cayman Islands Real estate 51 51 Kingdom of Bahrain Real estate % owned

During the year, the Group acquired additional 200 units of Dilmunia Development Fund I L.P. as part of settlement of certain financings. The acquisition resulted in increase of shareholding from 90% to 92% 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.

23

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

1 INCORPORATION AND ACTIVITIES (continued)

• 1.1 As of 31 December 2021, the total consolidated equity of the Group stood at $37.8 million as compared to $14.8 million as at 31 December 2020. The current equity is still above the minimum threshold required for 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 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 (EGM) of the Shareholders in order to decide whether to continue with the operations of Ithmaar, reduce the capital or take other suitable measures, which is a non-compliance with Article 64(7) of its articles of association. The Group has obtained CBB and Bahrain Bourse approval to hold the EGM, as required, by the date of publication of its 31 March 2023 results.

The Group’s management assessed its liquidity and equity projections of the entity subsequent to the transaction with Al Salam (refer to note 44) for the coming twelve months from the date of the consolidated financial statements. The management assessment includes 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 interbank liquidity support facility.

The Board of Directors has 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 these consolidated financial statements. Accordingly,consolidated financial statements are prepared on a going concern basis.

24

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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 37 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 37 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 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 2021 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 41.

The consolidated financial statements comprise the financial information of the Group for the year ended 31 December 2021.

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

25

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

A. New standards, amendments, and interpretations issued and effective for annual periods beginning on or after 1 January 2021

1. FAS 32 ljarah

AAOIFI issued FAS 32 "ljarah" in 2020, this standard is effective for financial periods beginning on or after 1 January 2021. The standard supersedes the existing FAS 8 "ljarah and ljarah Muntahia Bittamleek".

FAS 32 sets out principles for the classification, recognition, measurement, presentation and disclosure of ljarah (ljarah asset, including different forms of ljarah Muntahia Bittamleek) transactions entered into by the Islamic financial institutions as a lessor and lessee.

The Group has applied FAS 32 "ljarah" from 1 January 2021. The impact of adoption of this standard is disclosed below:

a) Change in accounting policy

Identifying an ljarah

At inception of a contract, the Group assesses whether the contract is ljarah, or contains an ljarah. A contract is ljarah, or contains an ljarah if the contract transfers the usufruct (but not control) of an identified asset for a period of time in exchange for an agreed consideration. For ljarah contracts with multiple components, the Group accounts for each ljarah component within a contract separately from non-ljarah components of the contract (e.g. service fee, maintenance charges, toll manufacturing charges etc.).

Measurement

For a contract that contains an ljarah component and one or more additional ljarah or non-ljarah components, the Group allocates the consideration in the contract to each ljarah component on the basis of relative stand-alone price of the ljarah component and the aggregate estimated stand-alone price of the non-ljarah components, that may be charged by the lessor, or a similar supplier, to the lessee.

At the commencement date, a lessee shall recognise a right-of-use (usufruct) asset and a net ijarah liability.

i) Right-of-use (usufruct) asset

On initial recognition, the lessee measures the right-of-use asset at cost. The cost of the right-of-use asset comprises of:

• The prime cost of the right-of-use asset;

• Initial direct costs incurred by the lessee; and

• Dismantling or decommissioning costs.

The prime cost is reduced by the expected terminal value of the underlying asset. If the prime cost of the right-of-use asset is not determinable based on the underlying cost method (particularly in the case of an operating ljarah), the prime cost at commencement date may be estimated based on the fair value of the total consideration paid/payable (i.e. total ljarah rentals) against the right-of-use assets, under a similar transaction. As per the Group's assessment, at the time of implementation the fair value of right-of-use assets are equal to the net ljarah liability.

After the commencement date, the lessee measures the right-of-use asset at cost less accumulated amortisation and impairment losses, adjusted for the effect of any ljarah modification or reassessment.

The Group amortises the right-of-use asset from the commencement date to the end of the useful economic life of the rightof-use asset, according to a systematic basis that is reflective of the pattern of utilization of benefits from the right-of-use asset. The amortizable amount comprises of the right-of-use asset less residual value, if any.

The Group determines the ljarah term, including the contractually binding period, as well as reasonably certain optional periods, including:

26

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

• 2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

A. New standards, amendments, and interpretations issued and effective for annual periods beginning on or after 1 January 2021 (continued)

1. FAS 32 ljarah (continued)

• Extension periods if it is reasonably certain that the Group will exercise that option; and/ or

• Termination options if it is reasonably certain that the Group will not exercise that option.

The Group carries out impairment assessment in line with the requirements of FAS 30 "Impairment, Credit Losses and Onerous Commitments" to determine whether the right-of-use asset is impaired and to account for any impairment losses. The impairment assessment takes into consideration the salvage value, if any. Any related commitments, including promises to purchase the underlying asset, are also considered in line with FAS 30 "Impairment, Credit Losses and Onerous Commitments"

ii) Net ijarah liability

The net ijarah liability comprises of the gross ljarah liability, plus deferred ljarah cost (shown as a contra-liability).

The gross ljarah liability are initially recognised as the gross amount of total ljarah rental payables for the ljarah term. The rentals payable comprise of the following payments for the right to use the underlying asset during the ljarah term:

• Fixed ljarah rentals less any incentives receivable;

• Variable ljarah rentals including supplementary rentals; and

• Payment of additional rentals, if any, for terminating the ljarah (if the ljarah term reflects the lessee exercising the termination option).

Advance rentals paid are netted-off with the gross ljarah liability.

After the commencement date, the Group measures the net ljarah liability by:

• Increasing the net carrying amount to reflect return on the ljarah liability (amortisation of deferred ljarah cost);

• Reducing the carrying amount of the gross ljarah liability to reflect the ljarah rentals paid; and

• Re-measuring the carrying amount in the event of reassessment or modifications to ljarah contract, or to reflect revised ljarah rentals.

The deferred ljarah cost is amortised to income over the ljarah terms on a time proportionate basis, using the effective rate of return method. After the commencement date, the Group recognises the following in the interim condensed consolidated income statement:

• Amortisation of deferred ljarah cost; and

• Variable ljarah rentals (not already included in the measurement of ljarah liability) as and when the triggering events/ conditions occur.

ljarah contract modifications

After the commencement date, the Group accounts for ljarah contract modifications as follows:

• Change in the ljarah term: re-calculation and adjustment of the right-of-use asset, the ljarah liability, and the deferred ljarah cost; or

• Change in future ljarah rentals only: re-calculation of the ljarah liability and the deferred ljarah cost only, without impacting the right-of- use asset.

An ljarah modification is considered as a new ljarah component to be accounted for as a separate ljarah for the lessee, if the modification both additionally transfers the right to use of an identifiable underlying asset and the ljarah rentals are increased corresponding to the additional right-of-use asset.

27

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

A. New standards, amendments, and interpretations issued and effective for annual periods beginning on or after 1 January 2021 (continued)

1. FAS 32 ljarah (continued)

For modifications not meeting any of the conditions stated above, the Group considers the ljarah as a modified ljarah as of the effective date and recognises a new ljarah transaction. The Group recalculates the ljarah liability, deferred ljarah cost, and right-of-use asset, and de- recognise the existing ljarah transaction and balances.

Expenses relating to underlying asset

Operational expenses relating to the underlying asset, including any expenses contractually agreed to be borne by the Group, are recognised by the Group in income statement in the period incurred. Major repair and maintenance, takaful, and other expenses incidental to ownership of underlying assets (if incurred by lessee as agent) are recorded as receivable from lessor.

Recognition exemptions and simplified accounting for the lessee

The Group has elected not to apply the requirements of ljarah recognition and measurement of recognizing right-of-use asset and net ljarah liability for the following:

• Short-term ljarah; and

• ljarah for which the underlying asset is of low value.

Short-term ljarah exemption is applied on a whole class of underlying assets which have similar characteristics and operational utility. However, low-value ljarah exemption is applied on an individual asset/ljarah transaction, and not on group/ combination basis.

b) Impact of on adoption of FAS 32

The management of the Group has decided to apply FAS 32 using the modified retrospective approach (i.e. the impact of all the ljarah contracts outstanding as at 31 December 2020 are reflected in the balances as of 1 January 2021) and therefore comparative information has not been restated. The impact of adoption of FAS 32 as at 1 January 2021 has resulted in an increase in right-of-use asset and an increase in net ljarah liability by $91.5 million. The lease contracts comprise of Head office, ATM sites and branches.

As at 31 December 2020 Impact on adoption: Right-of-use assets Net ljarah liability Opening balance under FAS 32 on date of initial application - 1 January 2021 As at 1 January 2021 Depreciation during the period Finance cost Net ijarah rentals Exchange differences and other movements As at 31 December 2021	Total assets otal liabilities
	8,383,665 4,727,892 91,539 - - 85,901
	8,475,204 4,813,793
	Right-of-use assets Net ljarah liability
	91,539 85,901 (14,971) - 7,617 - (16,421) 8,042 7,998
	84,610 85,095

28

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

B. New standards, amendments, and interpretations issued but not yet effective

(i) FAS 38 Wa'ad, Khiyar and Tahawwut

AAOIFI has issued FAS 38 Wa'ad, Khiyar and Tahawwut in 2020. The objective of this standard is to prescribe the accounting and reporting principles for recognition, measurement and disclosures in relation to shariah compliant Wa'ad (promise), Khiyar (option) and Tahawwut (hedging) arrangements for Islamic financial institutions. This standard is effective for the financial reporting periods beginning on or after 1 January 2022.

This standard classifies Wa'ad and Khiyar arrangements into two categories as follows:

a) "ancillary Wa'ad or Khiyar" which is related to a structure of transaction carried out using other products i.e. Murabaha, ljarah Muntahia Bittamleek, etc.; and

b) "product Wa'ad and Khiyar'' which is used as a stand-alone Shariah compliant arrangement.

Further, the standard prescribes accounting for constructive obligations and constructive rights arising from the stand-alone Wa'ad and Khiyar products.

The Group does not expect any significant impact on adoption of this standard

(ii) FAS 39 Financial Reporting for Zakah

AAOIFI has issued FAS 39 Financial Reporting for Zakah in 2021. The objective of this standard is to establish principles of financial reporting related to Zakah attributable to different stakeholders of an Islamic financial Institution. This standard supersedes FAS 9 Zakah and is effective for the financial reporting periods beginning on or after 1 January 2023 with an option to early adopt.

This standard shall apply to institution with regard to the recognition, presentation and disclosure of Zakah attributable to relevant stakeholders. While computation of Zakah shall be applicable individually to each institution within the Group, this standard shall be applicable on all consolidated and separate / standalone financial statements of an institution.

This standard does not prescribe the method for determining the Zakah base and measuring Zakah due for a period. An institution shall refer to relevant authoritative guidance for determination of Zakah base and to measure Zakah due for the period. (for example: AAOIFI Shari’a standard 35 Zakah, regulatory requirements or guidance from Shari’a supervisory board, as applicable).

The Group is currently evaluating and assessing the impact of adopting this standard.

29

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

• 2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

• B. New standards, amendments, and interpretations issued but not yet effective (continued)

(iii) FAS 1 General Presentation and Disclosures in the Financial Statements

AAOIFI has issued the revised FAS 1 General Presentation and Disclosures in the Financial Statements in 2021. This standard describes and improves the overall presentation and disclosure requirements prescribed in line with the global best practices and supersedes the earlier FAS 1. It is applicable to all the Islamic Financial Institutions and other institutions following AAOIFI FAS’s. This standard is effective for the financial reporting periods beginning on or after 1 January 2023 with an option to early adopt. The revision of FAS 1 is in line with the modifications made to the AAOIFI conceptual framework for financial reporting.

Some of the significant revisions to the standard are as follows:

a) Revised conceptual framework is now integral part of the AAOIFI FAS’s;

b) Definition of Quassi equity is introduced;

c) Definitions have been modified and improved;

d) Concept of comprehensive income has been introduced;

e) Institutions other than Banking institutions are allowed to classify assets and liabilities as current and non-current;

f) Disclosure of Zakah and Charity have been relocated to the notes;

g) True and fair override has been introduced;

h) Treatment for change in accounting policies, change in estimates and correction of errors has been introduced;

i) Disclosures of related parties, subsequent events and going concern have been improved;

j) Improvement in reporting for foreign currency, segment reporting;

k) Presentation and disclosure requirements have been divided into three parts. First part is applicable to all institutions, second part is applicable only to banks and similar IFI’s and third part prescribes the authoritative status, effective date an amendments to other AAOIFI FAS’s; and

l) The illustrative financial statements are not part of this standard and will be issued separately.

The Group is assessing the impact of adoption of this standard and expects changes in certain presentation and disclosures in its consolidated financial statements.

30

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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).

31

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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) and presented in US Dollars (the presentation 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 nonmonetary 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.

32

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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.

1. 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 is 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.

The management uses the higher of VIU or FVLCTD method in assessing the recoverable amount of the goodwill and other intangible assets. As a result, the management uses 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.

33

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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 2021. 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 and 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 2020 and 2021, in accordance with CBB instructions the Group has granted payment holidays to its eligible customers by deferring up to six months instalments at a time. 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.

34

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (c) Accounting estimates and judgements (continued)

• 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 forwardlooking 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-current 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 43, the assets subject to the transaction with Al Salam were not classified as held for sale in the consolidated financial statement for the year ended 31 December 2021, based on the Group’s assessment of the criteria specified by IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations”. The Group’s assessment was mainly based on the fact that assets subject to transaction were not available for immediate sale in present condition and the transaction is subject to certain conditions such as identification of assets at business transfer date, the finalization of tentative and definitive agreements, indication of premium and price as of 31 December 2021. Further, the transaction remains subject to shareholders' and regulatory approvals. The Group will reassess such classification at each reporting period based on the development and progress of the transaction.

35

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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, non-restricted 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 as per note 2.

• (f) Musharaka financing

Musharaka financing is stated at cost less provision for impairment.

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

36

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (g) Investments

• 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 theGroup 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.

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.

37

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

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

• (g) Investments (continued)

  1. 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).

38

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

(g) Investments (continued)

1. 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 as per note 2

(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 non-financial 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.

39

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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.

40

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

• 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.

41

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

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

• (k) Intangible assets (continued)

  1. 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 (increased to 10% from 1 January 2021). 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.

42

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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.

43

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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.

44

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

(ii) Summary of significant accounting policies (continued)

• (x) Revenue recognition

• 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.

1. 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.

1. Income from assets acquired for leasing

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

1. 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.

1. Profit on Musharaka contracts

p

p , p

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.

1. Income from investments carried at amortised cost

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

1. 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.

1. 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.

1. 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.

45

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

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.

46

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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.

47

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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 12-month 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).

48

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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.

49

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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.

50

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

• 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

• 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.

51

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

• 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.

1. 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.

52

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

(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 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	92,402 18,010 110,412 101,500 9,867 111,367 248,250 186,454 434,704 404,038 135,393 539,431
	340,652 204,464 545,116 505,538 145,260 650,798

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

Commodity placements Less: Provision for impairment	31 December 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	249,700 249,700 268,001 12,581 280,582 (131) -(131) (482) -(482)
	249,569 - 249,569 267,519 12,581 280,100

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 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	340,652 204,464 545,116 505,538 145,260 650,798 249,569 - 249,569 267,519 12,581 280,100 (63,053) - (63,053) (52,843) (12,581) (65,424) (92,402) (18,010) (110,412) (101,500) (9,867) (111,367)
	434,766 186,454 621,220 618,714 135,393 754,107

53

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

(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 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	760,241 1,788,170 2,548,411 1,359,218 1,408,082 2,767,300 (289,193) (68,244) (357,437) (314,205) (47,340) (361,545)
	471,048 1,719,926 2,190,974 1,045,013 1,360,742 2,405,755

Other financings represents conventional loans and advances totalling $253.2 million (31 December 2020: $800 million) made by a subsidiary of Ithmaar.

Murabaha and other financings includes restructured facilities amounting to $535.1 million (31 December 2020: $7.1 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 2021 31 December 2020
	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 31,053 23,076 54,129 41,148 20,668 61,816 (29,981) (529) (30,510) (9,202) (58) (9,260) (14,880) (667) (15,547) (30,820) - (30,820) (319) - (319) 5,821 210 6,031 (10,885) (976) (11,861) (5,298) (104) (5,402)
	289,193 68,244 357,437 314,205 47,340 361,545

6 MUSHARAKA FINANCING

Musharaka financing Less: expected credit loss	31 December 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	115 1,439,478 1,439,593 268 939,835 940,103 -(13,850) (13,850) -(10,607) (10,607)
	115 1,425,628 1,425,743 268 929,228 929,496

54

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

7 SUKUK AND INVESTMENT SECURITIES

Investment securities at fair value through income statement Debt-type instruments – listed 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 Debt-type instruments – listed Debt-type instruments – unlisted Provision for impairment	31 December 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	174 - 174 - - - 66,022 - 66,022 40,959 - 40,959 4,916 - 4,916 3,848 - 3,848
	71,112 - 71,112 44,807 - 44,807
	187,535 90,153 277,688 204,334 101,598 305,932 760,857 846,482 1,607,339 1,009,478 250,778 1,260,256 82,482 567 83,049 85,623 - 85,623 293,924 - 293,924 279,377 - 279,377
	1,324,798 937,202 2,262,000 1,578,812 352,376 1,931,188 (209,541) -(209,541) (209,464) -(209,464)
	1,115,257 937,202 2,052,459 1,369,348 352,376 1,721,724
	43,788 313,329 357,117 52,185 270,930 323,115 10,424 42,259 52,683 12,000 65,110 77,110
	54,212 355,588 409,800 64,185 336,040 400,225 (8,629) -(8,629) (9,577) -(9,577)
	45,583 355,588 401,171 54,608 336,040 390,648
	1,231,952 1,292,790 2,524,742 1,468,763 688,416 2,157,179

Sukuk and investment securities include conventional investments totalling $1,067.2 million (31 December 2020: $1,311 million) made by a subsidiary of Ithmaar.

Certain assets totalling $4.5 million (31 December 2020: $4.5 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 Utilised during the year Reclassification Exchange differences and other movements At 31 December	31 December 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	219,041 - 219,041 202,504 - 202,504 12,463 - 12,463 22,260 - 22,260 (7,794) - (7,794) (3,197) - (3,197) (3,855) - (3,855) - - - 1,104 - 1,104 (2,757) - (2,757) (2,789) -(2,789) 231 - 231
	218,170 - 218,170 219,041 - 219,041

55

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

7 SUKUK AND INVESTMENT SECURITIES (continued)

FAS 33 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 2021 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 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	Level 1 Level 2 Level 3 Total
	174 66,022 - 66,196 4,916 - - 4,916 277,147 - - 277,147 - 1,606,581 - 1,606,581 74,528 10,400 83,803 168,731
	356,765 1,683,003 83,803 2,123,571
	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

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

Reconciliation of Level 3 Items

At 1 January Total gains/(losses) recognised in - Income statement - Equity Purchases Other movement At 31 December	Investment securities at fair value through equity	Investment securities at fair value through equity
		2021 2020
		72,248 79,290 (5,963) (18,201) (1,191) 2,928 6,011 - 12,698 8,231
		83,803 72,248

56

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

8 INVESTMENT IN ASSOCIATES

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

Name of company	2021 % of Share- holding	2020 % 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 Faysal Saving Growth Fund Faysal Asset Allocation Fund Listed: BBK B.S.C.	29,253 20 - 31 - 23 72,564 31 490 20 - 28 411 35 6,105 23 568,110 26 676,933	33,070 20 Hong Kong Asset management - 31 Pakistan Manufacturing - 23 Saudi Arabia Investment company 73,027 31 Bahrain Infrastructure 487 20 Bahrain Third party administrator - 28 Saudi Arabia Takaful - - Pakistan Mutual funds - - Pakistan Mutual funds 516,577 26 Bahrain Banking 623,161

*During the period, the Group's subsidiary increased its shareholding in these funds, thereby classiying them as associates.

During the year, the Group reversed an impairment provision amounting to $35 million (31 December 2020 $27 million) against one of its investment in a listed associate based on its assessment of the recoverable amount being higher than the carrying value. The recoverable amount is determined based on thebased on the market share price and the estimated fair value of the related significant influence premium the Group has over the associate, and the fair value determined by independent valuer (note 43)

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

Name of company	2021	2020
Unlisted: Solidarity Saudi Takaful Company Citic International Assets Management Limited Naseej B.S.C. (C) Others Listed: BBK B.S.C .	- (4,362) 2,699 357 37,759 36,453	4,074 (8,530) (1,624) (293) 37,351
		30,978

Share of reserves of Investment in associates amount to $36.5 million (31 December 2020: $37.9 million).

Investment in associates include conventional investments totalling $674.3 million (31 December 2020: $622.7 million).

Investment in associates amounting to $568.1 million (31 December 2020: $516.6 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 2021 amounted to $7.2 million (31 December 2020: $7.2 million).

Summarised financial position of associates that have been equity accounted:

Total assets Total liabilities Total revenues Total net profit	31 December 2021 31 December 2020
	10,169,973 10,480,239 8,352,352 8,695,653 328,722 330,004 150,311 120,114

57

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

9 ASSETS ACQUIRED FOR LEASING

		31 December 2021	31 December 2021		31 December 2020	31 December 2020
		Accumulated	Net book		Accumulated	Net book
	Cost	depreciation	amount	Cost	depreciation	amount
Property & equipment	457,624	(65,804)	391,820	439,717	(54,183)	385,534
The net book amount of assets acquired for leasing is		further analysed	as follows:
			31 December 2021		31 December 2020
Relating to owners				922		3,133
Relating to unrestricted investment accounts				390,898		382,401
				391,820		385,534

58

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

10 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 2021 Change in liabilities At 31 December 2021 Reported claims IBNR At 31 December 2021 Movement in Reinsurers, share of unearned contribution At 1 January 2021 Net movement At 31 December 2021 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 11 INSURANCE RELATED RESERVES Outstanding claims - Gross Unearned contributions, commission and other reserves	31 December 2021 31 December 2020	31 December 2021 31 December 2020
		54,008 20,760 36,614 58,064 34,023 15,950
		111,382 108,037 (6,930) (7,908)
		101,107 103,474
	Gross Reinsurance Net 37,723 (13,242) 24,481 11,442(2,708) 8,734 49,165 (15,950) 33,215 3,238(4,810) (1,572) 52,403 (20,760) 31,643 34,426 (17,834) 16,592 17,977(2,926) 15,051 52,403 (20,760) 31,643 Gross Reinsurance Net 74,002 (34,023) 39,979 3,329(2,591) 738 77,331 (36,614) 40,717 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 2021 31 December 2020 31 December 2020 31 December 2021	31 December 2021
		Gross Reinsurance Net
		37,723 (13,242) 24,481 11,442(2,708) 8,734
		49,165 (15,950) 33,215 3,238(4,810) (1,572)
		52,403 (20,760) 31,643
		34,426 (17,834) 16,592 17,977(2,926) 15,051
		52,403 (20,760) 31,643
		Gross Reinsurance Net
		74,002 (34,023) 39,979 3,329(2,591) 738
		77,331 (36,614) 40,717
		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
	74,002 49,165 52,403 77,331
	123,167 129,734

59

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

12 OTHER ASSETS

		31 December 2021		31 December 2020	31 December 2020
		Relating to		Relating to
		unrestricted		unrestricted
	Relating	investment	Relating to	investment
	to owners	accounts Total	owners	accounts	Total
Account receivable	141,385	83,925 225,310	125,938	77,914	203,852
Due from related parties	684	- 684	557	-	557
Taxes – deferred	9,326	1,164 10,490	1,382	-	1,382
Taxes – current	525	- 525	261	-	261
Non-current assets held for sale	23,623	- 23,623	22,339	-	22,339
	175,543	85,089 260,632	150,477	77,914	228,391
Provision for impairment	(67,904)	(12,104) (80,008)	(64,993)	(11,939)	(76,932)
	107,639	72,985 180,624	85,484	65,975	151,459
The movement in provision for impairment is as follows:
		31 December 2021		31 December 2020
		Relating to		Relating to
		unrestricted		unrestricted
	Relating	investment	Relating to	investment
	to owners	accounts Total	owners	accounts	Total
At 1 January	64,993	11,939 76,932	75,176	12,150	87,326
Charge for the year	1,716	182 1,898	2,033	-	2,033
Write back during the year	(843)	- (843)	(11,885)	-	(11,885)
Utilised during the year	(6,961)	- (6,961)	-	-	-
Reclassification	10,020	- 10,020	597	(209)	388
Exchange differences and
other movements	(1,021)	(17) (1,038)	(928)	(2)	(930)
At 31 December	67,904	12,104 80,008	64,993	11,939	76,932

60

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

13 INVESTMENT IN REAL ESTATE

INVESTMENT IN REAL ESTATE
Investment properties Less: Provision for impairment	31 December 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	266,289 - 266,289 292,050 - 292,050 (9,970) -(9,970) (35,746) -(35,746)
	256,319 - 256,319 256,304 - 256,304

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

Certain assets totalling $0.6 million (31 December 2020: $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 2021 31 December 2020 Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total 35,746 - 35,746 37,178 - 37,178 - - - 2,019 - 2,019 - - - (359) - (359) (15,141) - (15,141) - - - (10,613) - (10,613) (3,582) - (3,582) (22) -(22) 490 - 490 9,970 - 9,970 35,746 - 35,746

14 DEVELOPMENT PROPERTIES

DEVELOPMENT PROPERTIES
Land Development costs	Relating to owners
	31 December 2021 31 December 2020
	185,080 197,610 48,155 74,408
	233,235 272,018

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.

15 FIXED ASSETS

Land and building Leasehold improvements Furniture and equipment Motor vehicles Right-of-use assets	Relating to owners	Relating to owners
	31 December 2020 31 December 2021
	Cost Accumulated depreciation Net book amount Cost Accumulated depreciation Net book amount
	58,463 (10,143) 48,320 54,512 (10,593) 43,919 37,207 (24,276) 12,931 36,356 (23,362) 12,994 93,980 (69,445) 24,535 90,704 (67,779) 22,925 3,387 (2,009) 1,378 3,417 (1,948) 1,469 99,581(14,971) 84,610 - - -
	292,618 (120,844) 171,774	184,989 (103,682) 81,307

Depreciation charge for the year ended 31 December 2021 amounted to $12.8 million (31 December 2020: $8.9 million).

61

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

16 INTANGIBLE ASSETS

Goodwill Customer relations Core deposits Others	Relating to owners
	31 December 2021
	Cost Accumulated amortisation Provision for impairment Exchange differences Net book amount
	93,355 - (71,070) (12,619) 9,666 120,212 (83,505) - (11,911) 24,796 155,546 (119,586) - (13,711) 22,249 63,965(38,210) - - 25,755
	433,078 (241,301) (71,070) (38,241) 82,466

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

Amortisation charge for the year ended 31 December 2021 amounted to $15.9 million (31 December 2020: $16.2 million)

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

Faysal Bank Limited Solidarity Group Holding B.S.C. (C)	31 December 2021 31 December 2020
	7,088 7,529 2,578 2,578
	9,666 10,107

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.

17 CUSTOMERS’ CURRENT ACCOUNTS

Customers’ current accounts include balance relating to a counterparty amounting to $203.9 million which is subject to sanctions under US measures (31 December 2020: $223.2 million).

62

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

18 DUE TO BANKS, FINANCIAL AND OTHER INSTITUTIONS

Due to banks Due to financial and other institutions	31 December 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	822,562 427,690 1,250,252 847,841 145,655 993,496 63,902 53,548 117,450 121,418 - 121,418
	886,464 481,238 1,367,702 969,259 145,655 1,114,914

Due to banks, financial and other institutions include balances totalling $427.6 million from two counterparties which are subject to sanctions under US measures (31 December 2020: $438.2 million).

Due to banks, financial and other institutions include conventional deposits totalling $203.5 million (31 December 2020: $282.6 million), accepted by a subsidiary of Ithmaar.

At 31 December 2021, there were collateralized borrowings against an investment in associate in aggregate $146.8 million (31 December 2020: $192.5 million).

Cash dividends amounting to $18.8 million (31 December 2020: $26.9 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.

19 DUE TO INVESTORS

Due to corporate institutions Due to individuals Due to financial institutions	Relating to owners
	31 December 2021 31 December 2020
	705,221 713,135 197,561 578,757 211,405 72,128
	1,114,187 1,364,020

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

63

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

20 OTHER LIABILITIES

Accounts payable Due to related parties (note 38) Provision for taxation – current Provision for taxation – deferred	31 December 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	260,562 184,265 444,827 281,387 86,510 367,897 13 - 13 129 - 129 5,080 - 5,080 1,088 - 1,088 3,356 - 3,356 3,671 - 3,671
	269,011 184,265 453,276 286,275 86,510 372,785

21 EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS

The funds received from Unrestricted Investment Accountholders (URIA) are invested on their behalf without recourse to the Group. The statement of financial position of URIA is 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 6 Sukuk and investment securities 7 Assets acquired for leasing Other assets 12 Fixed assets Due from the Group (net) Customers’ current accounts 17 Due to banks, financial and other institutions 18 Other liabilities 19 Equity of unrestricted investment accountholders	31 December 2021 31 December 2020
	204,464 145,260 - 12,581 1,719,926 1,360,742 1,425,628 929,228 1,292,790 688,416 390,898 382,401 72,985 65,975 56,897 - 532,697 703,937
	5,696,285 4,288,540 (1,279,085) (692,739) (481,238) (145,655) (184,265) (86,510)
	3,751,697 3,363,636

Due from the Group represents amount invested by URIA with owners. This amount is eliminated on consolidated and reflected as URIA's share of jointly financed assets on the the consolidated balance sheet.

64

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

21 EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS (continued)

The assets attributable to unrestricted investment accountholders have been disclosed net of impairment provisions amounting to $94.2 million (31 December 2020: $69.9 million). The movement of impairment provisions relating to unrestricted investment accountholders has been disclosed in note 29.

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

At 1 January Net utilisation during the year At 31 December	31 December 2021 31 December 2020
	11,497 19,495 (7,339) (7,998)
	4,158 11,497

The average gross rate of return in respect of unrestricted investment accounts was 3.9% per annum for 2021 (2020: 4.9%) of which 2.4% per annum (2020: 3.2%) was distributed to the investors and the balance was either set aside as provision for impairment, management fees of $1.2 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.

22 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 2021 31 December 2020	31 December 2021 31 December 2020	31 December 2021 31 December 2020
	Minority %	Minority %
	33 45 50 8 49 50	117,997 33 101,871 45 33,668 50 21,546 10 (2,206) 49 1,576 50	116,101 101,002 34,150 27,273 (3,795) 2,644
		274,452	277,375

Minority interests in the consolidated income statement of $21.7 million (31 December 2020: $20 million) represent the minority shareholders' share of the earnings of these subsidiaries for the respective years.

65

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

23 SHARE CAPITAL

Authorised Issued and fully paid Total outstanding Treasury shares At 31 December 2020 (Audited) Issued and fully paid Total outstanding as at 1 January 2020 Treasury shares At 31 December 2021 (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 2021 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 2021 (31 December 2020: 120,595,238). The shares are held as treasury shares and the Group has the right to reissue these shares at a later date.

24 EARNINGS/(LOSSES) 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 profit/(loss) attributable to shareholders ($ ’000) Weighted average number of issued and fully paid up ordinary shares (’000) Earnings/(Losses) per share (Basic & Diluted) - US Cents	31 December 2021 31 December 2020
	38,603 (41,719)
	2,910,160 2,910,160
	1.33 (1.43)

Earnings per share on non-sharia compliant income and expenses is included under note 41.

66

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

25

INCOME FROM MURABAHA AND OTHER FINANCINGS

Income from Islamic financings Income from other financings 26 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 (Loss)/income from investment in real estate 27 OTHER INCOME Income from banking services Insurance underwriting profit (note 27.1) Income from commodity placements Foreign exchange income/ (loss) Gain on disposal of fixed assets 27.1 Breakdown of Insurance underwriting profit Net insurance premiums earned Net insurance claims incurred 28 ADMINISTRATIVE AND GENERAL EXPENSES Salaries and other benefits Office expenses Professional fees Other administrative expenses	Relating to owners
	31 December 2021 31 December 2020
	3,717 3,247 57,755 112,758
	61,472 116,005
	Relating to owners
	31 December 2021 31 December 2020
	2,490 3,581 101,304 117,209 20,919 23,937 (7,141) 2,616
	117,572 147,343
	Relating to owners
	31 December 2021 31 December 2020
	47,439 51,256 27,013 25,938 8,434 12,887 18,084 (14,358) 1,578 133
	102,548 75,856
	72,738 74,150 (45,725) (48,212)
	27,013 25,938
	Relating to owners
	31 December 2021 31 December 2020
	92,424 93,324 74,230 67,285 15,498 18,150 26,612 23,856
	208,764 202,615

67

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

29 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 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	830,116 69,886 900,002 835,622 44,858 880,480 46,210 32,954 79,164 80,683 26,127 106,810 (73,618) (5,678) (79,296) (51,993) (849) (52,842) (47,010) (667) (47,677) (30,821) (103) (30,924) (19,230) (2,297) (21,527) (3,375) (147) (3,522)
	736,468 94,198 830,666 830,116 69,886 900,002

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 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	289,193 68,244 357,437 314,205 47,340 361,545 - 13,850 13,850 - 10,607 10,607 131 - 131 482 - 482 176 - 176 176 - 176 9,662 - 9,662 51,049 - 51,049 218,170 - 218,170 219,041 - 219,041 49,735 - 49,735 49,735 - 49,735 7,908 - 7,908 6,930 - 6,930 66,040 12,104 78,144 63,250 11,939 75,189 1,864 - 1,864 1,743 - 1,743 12,549 - 12,549 16,689 - 16,689 9,970 - 9,970 35,746 - 35,746 71,070 - 71,070 71,070 - 71,070
	736,468 94,198 830,666 830,116 69,886 900,002

68

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

29 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 2021
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 2020	Stage 1 Stage 2 Stage 3 Total
	795,167 - - 795,167 930,205 190,215 - 1,120,420 1,616,002 86,407 - 1,702,409 - 479,855 - 479,855 - - 313,578 313,578 2,546,207 756,477 313,578 3,616,262 1,493,811 24,331 63,613 1,581,755 4,040,018 780,808 377,191 5,198,017 378,954 22,219 8,627 409,800 238,078 8,198 76,693 322,969 (38,131) (83,138) (348,688) (469,957) 5,414,086 728,087 113,823 6,255,996
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
	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

Gross financings (funded) as of 31 December 2021 amounted to $3.3 billion, $0.8 billion and $0.4 billion for Stage 1, Stage 2 and Stage 3 respectively (31 December 2020: $3.0 billion, $0.7 billion and $0.4 billion). Collateral coverage for gross financing as of 31 December 2021 was 82%, 55% and 34% for Stage 1, Stage 2 and Stage 3 respectively (31 December 2020: 80%, 40% and 48%).

69

Ithmaar Holding B.S.C.

Notes to the consolidated financial statements for the year ended 31 December 2021

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

30 OVERSEAS TAXATION

Current taxes Deferred taxes	Relating to owners
	31 December 2021 31 December 2020
	33,602 24,908 (3,487) 1,930
	30,115 26,838

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 2021 31 December 2020
	(827) 10,871 (33,602) (24,908) 42,316 15,162 (12,442) (1,952)
	(4,555) (827)
	31 December 2021 31 December 2020
	(2,289) 4,982 3,487 (1,930) 4,356 (3,729) 416(1,612)
	5,970 (2,289)

70

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

31 SEGMENTAL INFORMATION

The Group constitutes of three main business segments, namely;

(i) Retail & Corporate 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/(loss) 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 unrestric investment account holders	31 December 2021	31 December 2020
	Retail & Corporate banking Others Total Asset Management / Investment Banking	Retail & Corporate banking Others Total Asset Management / Investment Banking
	278,532 (9,946) 39,123307,709 (189,133) (29,515) (26,030) (244,678)	240,435 (9,782) 38,627269,280 (185,251) (25,326) (24,654) (235,231)
	89,399 (39,461) 13,093 63,031	55,184 (35,108) 13,973 34,049
	(20,303) 18,967 (1,371) (2,707)	(67,155) 13,452 (1,825) (55,528)
	69,096 (20,494) 11,722 60,324	(11,971) (21,656) 12,148(21,479)
	51,384 (18,039) 5,25838,603 17,712 (2,455) 6,46421,721	(25,159) (22,388) 5,828(41,719) 13,188 732 6,32020,240
	69,096 (20,494) 11,722 60,324	(11,971) (21,656) 12,148 (21,479)
	7,630,642 1,037,807 364,340 9,032,789	6,907,505 1,126,662 349,498 8,383,665
	ted
	8,484,557 49,398 186,620 8,720,575	7,838,742 72,547 180,239 8,091,528

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

Operating income/(loss) 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	31 December 2021	31 December 2020
	Middle East & Africa Rest of Asia Others Total	Middle East & Africa Rest of Asia Others Total
	101,869 203,272 2,568307,709 (112,595) (129,856) (2,227) (244,678)	65,432 202,118 1,730269,280 (110,703) (122,230) (2,298) (235,231)
	(10,726) 73,416 341 63,031	(45,271) 79,888(568) 34,049
	17,020(19,022) (705) (2,707)	(15,983) (39,616) 71 (55,528)
	6,294 54,394(364) 60,324	(61,254) 40,272(497) (21,479)
	2,756 36,211 (364) 38,603 3,538 18,183 -21,721	(68,032) 26,810 (497) (41,719) 6,778 13,462 -20,240
	6,294 54,394 (364) 60,324	(61,254) 40,272 (497) (21,479)
	3,584,288 4,935,056 513,445 9,032,789	3,503,404 4,340,175 540,086 8,383,665
	3,868,032 4,502,872 349,671 8,720,575	3,814,244 3,907,521 369,763 8,091,528

71

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

32 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.

33 CONTINGENT LIABILITIES AND COMMITMENTS

Contingent liabilities Acceptances and endorsements Guarantees and irrevocable letters of credit Customer and other claims Commitments Undrawn facilities, financing lines and other commitments to finance	31 December 2021 31 December 2020
	47,295 66,883 693,242 589,686 190,174 224,481
	930,711 881,050
	31 December 2021 31 December 2020
	1,550,227 1,600,375

72

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

34 CURRENCY RISK

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

31 December 2021 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 2020 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
	100,170 304,407 99,065 20,508 1,898 19,068 545,116 26,976 - 134,255 72,357 - 15,981 249,569 57,231 798,495 1,055,191 215,846 - 64,211 2,190,974 - 1,425,743 - - - - 1,425,743 198,615 2,048,552 238,932 1,338 - 37,305 2,524,742 - - 640,674 - - 36,259 676,933 - - 391,820 - - - 391,820 - - 19,041 61,231 - 23,202 103,474 8,301 64,496 50,408 5,437 - 51,982 180,624 13,316 6,544 179,095 - - 57,364 256,319 - - 233,235 - - - 233,235 - 121,526 33,935 - - 16,313 171,774 56,276 12,006 7,278 - - 6,906 82,466
	460,885 4,781,769 3,082,929 376,717 1,898 328,591 9,032,789
	163,274 1,249,536 243,888 221,790 404 25,087 1,903,979 371,299 571,904 6,182 78,661 327,144 12,512 1,367,702 30,254 1,081,117 - 967 - 1,849 1,114,187 65,807 208,811 101,244 5,206 3,658 68,550 453,276 - - 83,548 - - 46,186 129,734
	630,634 3,111,368 434,862 306,624 331,206 154,184 4,968,878
	415,084 1,075,482 2,261,131 - - - 3,751,697
	1,045,718 4,186,850 2,695,993 306,624 331,206 154,184 8,720,575
	805,902 1,416,586 4,054 54,894 3,225 196,277 2,480,938
	570,895 4,122,480 3,007,430 326,117 1,532 355,211 8,383,665
	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

73

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

35 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 2021 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 2020 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
	538,699 4,514 1,903 - - 545,116 131,066 57,353 43,605 17,545 - 249,569 511,087 277,493 339,118 497,695 565,581 2,190,974 422,314 46,705 144,711 579,622 232,391 1,425,743 81,631 472,944 106,579 1,411,155 452,433 2,524,742 - - - - 676,933 676,933 562 - 902 4,243 386,113 391,820 - - 103,474 - - 103,474 40,071 744 92,205 34,023 13,581 180,624 - - 6,544 24,826 224,949 256,319 - - - 233,235 - 233,235 - 128 9,049 38,315 124,282 171,774 - - - - 82,466 82,466
	1,725,430 859,881 848,090 2,840,659 2,758,729 9,032,789
	1,903,979 - - - - 1,903,979 661,280 308,197 178,083 17,672 202,470 1,367,702 628,669 297,383 184,278 3,852 5 1,114,187 128,215 18 127,917 81,737 115,389 453,276 - - 129,734 - - 129,734
	3,322,143 605,598 620,012 103,261 317,864 4,968,878
	2,065,792 395,276 900,536 390,093 - 3,751,697
	5,387,935 1,000,874 1,520,548 493,354 317,864 8,720,575
	(3,662,505) (140,993) (672,458) 2,347,305 2,440,865 312,214
	1,114,743 285,539 765,005 100,403 215,248 2,480,938
	1,329,888 1,473,550 986,218 1,777,769 2,816,240 8,383,665
	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

74

Ithmaar Holding B.S.C Notes to the consolidated financial statements for the year ended 31 December 2021

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

36 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 2021 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 2020 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
	545,116 - - - - - - 545,116 249,569 - - - - - - 249,569 225,061 730,323 314,516 63,988 741,734 96,313 19,039 2,190,974 95 747,583 242,428 127,114 173,403 95,519 39,601 1,425,743 2,301,568 58,375 151,043 13,174 582 - - 2,524,742 671,669 871 4,393 - - - - 676,933 - 4,260 922 203 386,435 - - 391,820 73,022 - - - - - 30,452 103,474 31,572 32,945 78,630 - 27,079 - 10,398 180,624 6,544 - 176,948 - - - 72,827 256,319 - - 233,235 - - - - 233,235 122,988 - 25,419 - - - 23,367 171,774 47,669 - - - - - 34,797 82,466
	4,274,873 1,574,357 1,227,534 204,479 1,329,233 191,832 230,481 9,032,789
	84,710 681,188 65,114 238,447 439,222 10,423 384,875 1,903,979 1,216,016 - 8,904 98,965 - - 43,817 1,367,702 185,432 449,656 11,949 103,367 98,664 1,535 263,584 1,114,187 198,707 14,624 81,218 1,762 10,350 - 146,615 453,276 - - - - - - 129,734 129,734
	1,684,865 1,145,468 167,185 442,541 548,236 11,958 968,625 4,968,878
	5,911 999,522 71,312 513,096 1,884,866 7,916 269,074 3,751,697
	1,690,776 2,144,990 238,497 955,637 2,433,102 19,874 1,237,699 8,720,575
	685,207 964,403 62,853 26,303 6,521 156,323 579,328 2,480,938
	3,559,038 1,481,857 1,142,150 578,866 1,302,329 106,431 212,994 8,383,665
	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

75

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

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

31 December 2021 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 2020 Total assets Total liabilities and equity of unrestricted investment accountholders Contingent liabilities and commitments	Asia / Pacific Middle East Europe North America Others Total
	351,858 138,871 27,964 26,423 - 545,116 900 243,838 4,831 - - 249,569 863,163 1,062,538 83,810 181,116 347 2,190,974 1,425,743 - - - - 1,425,743 2,052,661 443,990 6,046 22,045 - 2,524,742 35,768 641,165 - - - 676,933 - 391,820 - - - 391,820 - 42,243 61,231 - - 103,474 64,887 74,078 40,876 783 - 180,624 6,544 193,263 56,512 - - 256,319 - 233,235 - - - 233,235 121,526 48,787 1,461 - - 171,774 12,006 70,460 - - - 82,466
	4,935,056 3,584,288 282,731 230,367 347 9,032,789
	1,391,178 287,824 205,302 19,675 - 1,903,979 633,789 677,239 56,674 - - 1,367,702 1,114,182 5 - - - 1,114,187 209,493 175,763 68,020 - - 453,276 - 129,734 - - - 129,734
	3,348,642 1,270,565 329,996 19,675 - 4,968,878
	1,154,230 2,597,467 - - - 3,751,697
	4,502,872 3,868,032 329,996 19,675 - 8,720,575
	2,408,945 71,993 - - - 2,480,938
	4,340,175 3,503,404 274,868 264,871 347 8,383,665
	3,907,521 3,814,244 361,257 8,063 443 8,091,528
	2,379,062 102,363 - - - 2,481,425

76

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

37 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 has been 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.

77

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

37 RISK MANAGEMENT (continued)

Credit Risk (continued)

Modification loss net of Government assistance

During 2020, based on a regulatory directive issued by the CBB as concessionary measures to mitigate the impact of COVID-19, the one-off modification losses amounting to $54.8 million 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.

78

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

37 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	2021 2020
	Notional Amount Fair value Notional Amount Fair value
	174,000 3,581 174,000 7,324
	174,000 3,581 174,000 7,324
	2021 2020
	Less than one year More than one year Less than one year More than one year
	2,584 997 3,613 3,711 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.

As of 31 December 2021, the Group did not have any significant exposure to contracts linked to benchmark rates, except a long term borrowing, and it continues to enhance its systems and processes to cope with the change in benchmark rates.

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

79

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

37 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 2021 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 2020 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
	- - - - - 545,116 545,116 - 41,862 185,550 11,969 10,188 - 249,569 378,716 267,617 585,183 506,021 453,437 - 2,190,974 416,620 46,705 144,711 812,014 5,693 1,425,743 275,489 680,229 82,322 231,944 1,142,991 111,767 2,524,742 - - 382 2,087 389,351 - 391,820 - - - - - 103,474 103,474 - - - - - 180,624 180,624
	1,070,825 1,036,413 998,148 1,564,035 2,001,660 940,981 7,612,062
	- - - - - 1,903,979 1,903,979 753,346 106,783 123,838 383,735 - - 1,367,702 693,252 187,892 228,089 4,954 - - 1,114,187 - - - - - 453,276 453,276
	1,446,598 294,675 351,927 388,689 - 2,357,255 4,839,144
	1,837,329 331,995 1,121,550 460,823 - - 3,751,697
	3,283,927 626,670 1,473,477 849,512 - 2,357,255 8,590,841
	(2,213,102) 409,743 (475,329) 714,523 2,001,660 (1,416,274) (978,779)
	917,421 1,179,323 1,064,167 1,928,566 1,009,443 962,508 7,061,428
	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)

80

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

38 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 Sukuk and investment securities 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 2021
	Shareholders & Affiliates Associates and other investments Directors and related entities Senior management Total
	379,661 - - - 379,661 - 676,933 - - 676,933 13,310 - - - 13,310 - - - 684 684 21,583 7,047 - 980 29,610 25,159 5,200 - - 30,359 - - - 5,019 5,019 13 - - - 13 - (36,543) - - (36,543) - - - (151) (151) 3,782 - - - 3,782 - 36,453 - - 36,453 - (287) - - (287) - 35,000 - - 35,000 (1,190) - (50) - (1,240)

81

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

38 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 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
	392,972 - - 2,153 395,125 - 623,161 - - 623,161 - - - 557 557 14,054 538 - 2,460 17,052 32,661 10,002 - - 42,663 - - - 6,379 6,379 129 - - - 129 - (42,521) - - (42,521) - - - (191) (191) 3,781 - - - 3,781 - 30,978 - - 30,978 - (1,844) - - (1,844) - 27,350 - - 27,350 (1,208) - (50) - (1,258)

Certain collaterals amounting to $332 million (31 December 2020: $346 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 2020: $5.1 million) are legally held by related parties for the beneficial interest of the Group.

39 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.

40 PROPOSED DIVIDEND

The Board of Directors has not proposed any dividend for the year ended 31 December 2021 (31 December 2020: Nil).

82

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

41 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 2021 31 December 2020
	57,755 112,758 36,364 27,196 120,397 141,313 23,864 16,882
	238,380 298,149 (103,759) (137,345)
	134,621 160,804
	(59,330) (74,549) (21,750) (17,792)
	(81,080) (92,341)
	53,541 68,463 44,450 12,597
	97,991 81,060 (11,950) (15,090)
	86,041 65,970
	78,536 59,606 7,505 6,364
	86,041 65,970
	US Cts 2.70 US Cts 2.05

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 595 branches (2020: 576 branches) out of total 606 branches (2020: 500 branches).

42 SOCIAL RESPONSIBILITY

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

83

Ithmaar Holding B.S.C. Notes to the consolidated financial statements for the year ended 31 December 2021

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

43 SUBSEQUENT EVENT

During January 2022, Ithmaar Holding agreed in-principle with Al Salam Bank B.S.C. (Al Salam) on the acquisition of the consumer banking business of Ithmaar Bank, and Ithmaar Holdings’ ownership stake in both Bank of Bahrain and Kuwait B.S.C, and Solidarity Group Holding. This announcement followed the execution of a non-legally binding Memorandum of Understanding (MoU) between the two entities in October 2021. The transaction remains subject to the approval of Ithmaar Holding’s shareholders and the signing of definitive agreements.

The assets subject to the transaction were agreed in-principle based on 30 September 2021 carrying values as per below:

Cash and balances with banks and central banks Consumer business assets Bank of Bahrain and Kuwait B.S.C. Solidarity Group Holding B.S.C. (C)	30 September 2021
	57,825 1,460,584 520,751 105,918
	2,145,078

The consideration will be settled by transferring consumer business liabilities of $2.2 billion (as of 30 September 2021)

Final values and premium will be determined on the carrying values of assets and liabilities subject to the transaction as of the date of business transfer to be mutually agreed after completion of regulatory and legal formalities and shareholders' approval.

The assets subject to the transaction with Al Salam were not classified as held for sale in the consolidated financial statements as at 31 December 2021, based on the Group’s assessment of the criteria specified by IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations”. The Group’s assessment was mainly based on the fact that assets subject to transaction were not available for immediate sale in present condition and the transaction is subject to certain conditions such as identification of assets at business transfer date, the finalization of tentative and definitive agreements, indication of premium and price as of 31 December 2021. Further, the transaction remains subject to shareholders' and regulatory approvals.

84