Ithmaar Holding B.S.C — Interim / Quarterly Report 2021

Nov 11, 2021

ITHMAAR HOLDING B.S.C.

INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2021

ITHMAAR HOLDING B.S.C.

INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2021

Contents	Pages
Independent auditor’s review report	3
Interim condensed consolidated statement of financial position	4
Interim condensed consolidated income statement	5
Interim condensed consolidated statement of changes in owners’ equity	6 - 7
Interim condensed consolidated statement of cash flows	8
Interim condensed consolidated statement of changes in restricted
investment accounts	9 - 10
Notes to the interim condensed consolidated financial information	11 - 31

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Review report on the interim condensed consolidated financial information to the Board of Directors of Ithmaar Holding B.S.C.

Introduction

We have reviewed the accompanying interim condensed consolidated statement of financial position of Ithmaar Holding B.S.C. ("Ithmaar") and its subsidiaries (the “Group”) as at 30 September 2021 and the related interim condensed consolidated income statement for the three and nine month periods then ended, and the related interim condensed consolidated statements of changes in owners’ equity, cash flows and changes in restricted investment accounts for the nine month period then ended and explanatory notes (on pages 4 to 31). The directors are responsible for the preparation and presentation of this interim condensed consolidated financial information in accordance with the basis of preparation stated in note 2 to this interim condensed consolidated financial information. Our responsibility is to express a conclusion on this interim condensed consolidated financial information based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial information (on pages 4 to 31) is not prepared, in all material respects, in accordance with the basis of preparation stated in note 2 to this interim condensed consolidated financial information.

PricewaterhouseCoopers M.E Limited Partner’s registration no. 196 Manama, Kingdom of Bahrain 11 November 2021

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

Ithmaar Holding B.S.C.

Interim condensed consolidated statement of financial position

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

Note 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 Insurance and related receivables Other assets 9 Investment in real estate Development properties Fixed assets Intangible assets Total assets LIABILITIES, EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS, NON-CONTROLLING INTEREST AND OWNERS’ EQUITY LIABILITIES Customers’ current accounts Due to banks, financial and other institutions Due to investors Other liabilities Insurance related reserves Total liabilities Equity of unrestricted investment accountholders 11 Non-controlling interests Total liabilities, equity of unrestricted investment accountholders and non-controlling interest Share capital 12 Treasury shares 12 Reserves Accumulated losses Total owners’ equity Total liabilities, equity of unrestricted investment accountholders, non-controlling interest and owners’ equity	At 30 September 2021 At 31 December 2020
	(Reviewed) (Audited) 621,985 650,798 370,560 280,100 2,152,895 2,405,755 1,328,450 929,496 2,408,050 2,157,179 635,282 623,161 397,831 385,534 111,863 101,107 214,724 151,459 240,379 256,304 232,509 272,018 166,747 81,307 80,525 89,447
	8,961,800 8,383,665
	1,875,471 1,753,006 1,345,133 1,114,914 1,279,779 1,364,020 465,294 372,785 128,584 123,167
	5,094,261 4,727,892
	3,578,298 3,363,636 277,218 277,375
	8,949,777 8,368,903
	757,690 757,690 (30,149) (30,149) 116,022 121,018 (831,540) (833,797)
	12,023 14,762
	8,961,800 8,383,665

This interim condensed consolidated financial information was approved by the Board of Directors on 11 November 2021 and signed on its behalf by:

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The notes 1 to 18 on pages 11 to 31 form an integral part of the interim condensed consolidated financial information.

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Ithmaar Holding B.S.C. Interim condensed consolidated income statement

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

Note INCOME Income from assets financed by unrestricted investment accounts Less: return to unrestricted investment accountholders and impairment provisions Group’s share of income from assets financed by unrestricted investment accounts as a Mudarib Income from murabaha and other financings Share of results after tax from associates Income from investments Other income 13 Total income Less: profit paid to banks, financial and other institutions – net Operating income EXPENSES Administrative and general expenses Depreciation and amortization Total expenses Net income/(loss) before provision for impairment and overseas taxation Reversal of/(provision for) impairment - net 10 Net income before overseas taxation Overseas taxation NET INCOME FOR THE PERIOD Attributable to: Equity holders of Ithmaar Non-controlling interests Basic and diluted earnings/(losses) per share 14	Nine months ended Three months ended
	30 September 2021 30 September 2020 30 September 2021 30 September 2020
	(Reviewed) (Reviewed) (Reviewed) (Reviewed) 213,662 180,665 75,737 62,265 (119,579) (107,306) (41,061) (39,075)
	94,083 73,359 34,676 23,190 50,574 97,291 12,873 23,174 26,040 20,594 9,011 5,546 87,564 117,291 28,801 37,649 75,176 61,785 24,465 7,331
	333,437 370,320 109,826 96,890 (116,788) (155,383) (37,592) (42,421)
	216,649 214,937 72,234 54,469
	(153,134) (141,124) (49,149) (47,632) (27,103) (24,535) (9,419) (8,272)
	(180,237) (165,659) (58,568) (55,904)
	36,412 49,278 13,666 (1,435) 5,458 (18,700) (2,460) 9,351
	41,870 30,578 11,206 7,916 (26,133) (21,799) (8,430) (6,540)
	15,737 8,779 2,776 1,376
	1,476 (3,288) (2,530) (1,999) 14,261 12,067 5,306 3,375
	15,737 8,779 2,776 1,376
	US Cts 0.05 US Cts(0.11) US Cts(0.09) US Cts(0.07)

This interim condensed consolidated financial information was approved by the Board of Directors on 11 November 2021 and signed on its behalf by:

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HRH Prince Amr Mohamed Al Faisal Chairman

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The notes 1 to 18 on pages 11 to 31 form an integral part of the interim condensed consolidated financial information.

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Ithmaar Holding B.S.C.

Interim condensed consolidated statement of changes in owners’ equity for the nine month period ended 30 September 2021

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

At 1 January 2021 (Audited) Net income for the period Increase in shareholding of a subsidiary (note 1) Movement in fair value of sukuk and investment securities (note 7) Movement in hedging reserve Movement in fair value reserve of associates Foreign currency translation adjustments At 30 September 2021 (Reviewed)	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 - - - - - - - - --1,4761,476 - - - - - - - - --781781 - - - - - 4,706 - - -4,706 -4,706 - - - - - - 3,560 - -3,560 -3,560 - - - - - 4,496 - - -4,496 -4,496 - - - - - (334) - (106) (17,318) (17,758) -(17,758)
	757,690 (30,149) 149,085 38,485 50,727 4,652 (3,764) 4,385 (127,548) 116,022 (831,540) 12,023

The notes 1 to 18 on pages 11 to 31 form an integral part of the interim condensed consolidated financial information.

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Ithmaar Holding B.S.C.

Interim condensed consolidated statement of changes in owners’ equity for the nine month period ended 30 September 2020

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

At 1 January 2020 (Audited) Adjustments resulting from adoption of FAS 33 At 1 January 2020 (Audited) Net loss for the period Modification loss (note 2) Increase in shareholding of a subsidiary (note 1) Movement in fair value of sukuk and investment securities Movement in fair value reserve of associates Foreign currency translation adjustments At 30 September 2020 (Reviewed)	Share capital Treasury shares Share premium Statutory reserve General reserve Investments fair value 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 (18,485) 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 (7,825) 4,178 (109,692) 124,958 (746,293) 106,206 - - - - - - - --(3,288) (3,288) - - - - - - - --(51,443) (51,443) - - - - - - - --3,4113,411 - - - - - (8,234) - -(8,234) -(8,234) - - - - - (24,548) - -(24,548) -(24,548) - - - - - (315) (1,959) (9,758) (12,032) -(12,032)
	757,690 (30,149) 149,085 38,485 50,727 (40,922) 2,219 (119,450) 80,144 (797,613) 10,072

The notes 1 to 18 on pages 11 to 31 form an integral part of the interim condensed consolidated financial information.

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Ithmaar Holding B.S.C. Interim condensed 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 Share of results after tax from associates (Reversal of)/provision for impairment - net 10 Income from investments Finance cost on net ijarah liability (Gain)/Loss on sale of fixed assets Operating loss before changes in operating assets and liabilities Changes in operating assets and liabilities: Balances with banks maturing after ninety days including central banks balances relating to minimum reserve requirement 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 generated from operating activities INVESTING ACTIVITIES Net changes in: Investment in associates Investment in real estate Assets acquired for leasing Sukuk and investment securities Fixed assets Dividend received from associates Net cash used in investing activities FINANCING ACTIVITY Repayment of net Iajrah liability Net cash used in financing activity Foreign currency translation adjustments Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 4	Nine months ended
	30 September 2021 30 September 2020
	(Reviewed) (Reviewed) 41,870 30,578 27,103 24,535 (26,040) (20,594) (5,458) 18,700 (87,564) (117,291) 5,751 - (1,532) 100
	(45,870) (63,972) 15,199 406,286 198,099 (296,178) (488,866) (131,132) (31,181) 26,037 213,146 204,502 271,827 1,458 547 (32,599) 37,531 9,187 279,458 379,072 (32,661) (12,445)
	417,229 490,216
	(205) - 2,130 - (12,297) 17,687 (304,839) (512,175) (12,303) (9,931) 22,777 26,892
	(304,737) (477,527)
	(11,000) -
	(11,000) -
	(29,348) (23,034)
	72,144(10,345)
	754,107 850,497
	826,251 840,152

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 18 on pages 11 to 31 form an integral part of the interim condensed consolidated financial information.

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Ithmaar Holding B.S.C.

Interim condensed consolidated statement of changes in restricted investment accounts

for the nine month period ended 30 September 2021

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

Shamil Bosphorus Modaraba European Real Estate Placements US Real Estate Placements TOTAL (Reviewed)*	At 1 January 2021 Foreign exchange movements At 30 September 2021
	6,250 - 6,250 12,748 1,902 14,650 25,236 - 25,236
	44,234 1,902 46,136

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

The notes 1 to 18 on pages 11 to 31 form an integral part of the interim condensed consolidated financial information.

9

Ithmaar Holding B.S.C.

Interim condensed consolidated statement of changes in restricted investment accounts

for the nine month period ended 30 September 2020

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

Shamil Bosphorus Modaraba European Real Estate Placements US Real Estate Placements TOTAL (Not reviewed)*	At 1 January 2020 Foreign exchange movements At 30 September 2020
	6,250 - 6,250 14,146 1,898 16,044 25,236 - 25,236
	45,632 1,898 47,530

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

The notes 1 to 18 on pages 11 to 31 form an integral part of the interim condensed consolidated financial information.

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Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 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”).

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

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.

The principal activities of Ithmaar and its subsidiaries (collectively the “Group”) include 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 Shari’a Supervisory Board.

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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 interim condensed consolidated financial information as equity of unrestricted investment accountholders and restricted investment accounts. In respect of equity of unrestricted investment accountholders, the investment accountholders authorise 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 it’s head office and its following principal subsidiaries:

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

30 September 2021 31 December 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 91 90 Cayman Islands Real estate 51 51 Kingdom of Bahrain Real estate % owned

During the period, 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 91% without change in control.

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Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

1 INCORPORATION AND ACTIVITIES (continued)

• 1.1 As of 30 September 2021, the total consolidated equity of the Group stood at $12.0 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 (refer note 1.2).

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 agreed with the CBB and Bahrain Bourse to hold the EGM, as required, by publication date of the results of the quarter ending 31 March 2022.

The Group’s management assessed its liquidity and equity projections for the coming twelve months from the date of the interim consolidated financial information. 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 government securities.

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

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 this interim condensed consolidated financial information. Accordingly, this interim condensed consolidated financial information is prepared on a going concern basis.

• 1.2 On 3 October 2021, Ithmaar Holding signed a non legally binding Memorandum of Understanding (MoU) with Al Salam Bank B.S.C. (Al Salam) for the potential acquisition by Al Salam of a group of assets from Ithmaar Holding’s group of companies. The potential acquisition will be subject to the completion of successful on going due diligence, the agreement of terms between both parties, and the receipt of all necessary regulatory and corporate consents.

• 1.3 Prior to the above, Ithmaar Holding signed a non legally binding Memorandum of Understanding (MoU) with the Bank of Bahrain and Kuwait B.S.C. (BBK) on 14 September 2020, for BBK to consider the acquisition of certain assets forming part of the Bahrain operations of Ithmaar Bank B.S.C (c) and other specific assets of a related party. Following the initial due diligence, with the assistance of appointed financial and legal advisors, both parties announced on 5 July 2021 that they could not agree on amicable terms and conditions that would maximize their shareholders’ interests. Accordingly, both parties have agreed to abandon all efforts in this connection.

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Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES

Basis of preparation

The interim condensed consolidated financial information of the Group has 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.

• 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 recognised in the interim condensed consolidated income statement. Any other financial assistance is recognised in accordance with the requirements of FAS.

The above framework for basis of preparation of the interim condensed consolidated financial information is hereinafter referred to as ‘Financial Accounting Standards as modified by CBB’.

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”). Accordingly, the interim condensed consolidated financial information of the Group has been presented in condensed form in accordance with the guidance provided by International Accounting Standard 34 – ‘Interim Financial Reporting’, using ‘Financial Accounting Standards as modified by CBB’ framework.

The accounting policies used in the preparation of annual audited consolidated financial statements of the Group for the year ended 31 December 2020 were in accordance with FAS as modified by the CBB. Except for the application of the new standards, all other accounting policies remain the same and have been consistently applied in this interim condensed consolidated financial information. The retrospective application of the change in accounting policies did not result in any change to the interim condensed consolidated financial information reported for the comparative period.

The interim condensed consolidated financial information of the Group does not contain all information and disclosures required for the annual audited consolidated financial statements and should be read in conjunction with the Group’s annual audited consolidated financial statements for the year ended 31 December 2020. Further, results for the interim periods are not necessarily indicative of the results that may be expected for the financial year ending 31 December 2021.

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 interim condensed consolidated financial information for the nine month period ended 30 September 2021 as appropriate.

The Sharia Supervisory Board has approved the Sharia Compliance Plan (“Plan”) for conversion of assets and liabilities which are not Sharia Compliant. The Sharia Supervisory Board is monitoring the implementation of this Plan.

The principal accounting policies adopted in the preparation of this interim condensed consolidated financial information are set out below:

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Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

2 SIGNIFICANT GROUP ACCOUNTING POLICIES (continued)

The accounting policies and methods of computation applied by the Group in the preparation of the interim condensed consolidated financial information are the same as those used in the preparation of the Group audited consolidated financial statements as at and for the year ended 31 December 2020, except for the adoption of following standards and amendments to standards effective from 1 January 2021. Adoption of these standards and amendments did not result in changes to previously reported net profit or equity of the Group, however it has resulted in additional disclosures.

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:

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Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 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.

15

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 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 30 September 2021	Total assets Total 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 (11,388) - 5,751 - (11,000) 4,170 3,922
	84,321 84,574

16

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 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 is currently evaluating and assessing the impact of adopting this standard.

2.1 COVID-19 IMPACT

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 interim condensed consolidated financial information, 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.

2.2 FINANCIAL RISK MANAGEMENT

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2020.

Credit Risk

The uncertainties due to COVID-19 and resultant economic volatility has impacted the Group's financing operations and is expected to affect most of the customers and sectors to some degree. Although it is difficult to assess at this stage the degree of impact faced by each sector, the main industries impacted are hospitality, tourism, leisure, airlines/transportation and retailers. In addition, some other industries are expected to be indirectly impacted such as contracting, real estate and wholesale trading.

Considering this evolving situation, 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 with additional profit 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.

17

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

2.2 FINANCIAL RISK MANAGEMENT (continued)

Credit Risk (continued)

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).

Liquidity risk and capital management

The effects of COVID-19 on the liquidity and funding risk profile of the banking system are evolving and are subject to ongoing monitoring and evaluation. The CBB has announced various measures to combat the effects of COVID-19 and to ease the liquidity in banking sector. Following are some of the significant measures that has an impact on the liquidity risk and regulatory capital profile of the Group:

• Payment holiday for 6 another months to eligible customers till 31 December 2021;

• Reduction of cash reserve ratio from 5% to 3%;

• Reduction of LCR and NSFR ratio from 100% to 80%;

• Aggregate of modification loss and incremental ECL provision for stage 1 and stage 2 from March to December 2020 to be added back to Tier 1 capital for the two years ending 31 December 2020 and 31 December 2021 and to deduct this amount proportionately from Tier 1 capital on an annual basis for three years ending 31 December 2022, 31 December 2023 and 31 December 2024.

The management of the Group has enhanced its monitoring of the liquidity and funding requirements.

Operational risk management

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.

2.3 JUDGMENTS AND ESTIMATES

Preparation of the interim condensed consolidated financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The areas of significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2020.

18

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

2.3 JUDGMENT AND ESTIMATES (continued)

Expected credit Losses

Due to the economic uncertainties caused by COVID-19, the Group has updated its inputs and assumptions used for the determination of ECL as at 30 September 2021. ECL were estimated based on a range of forecast economic conditions as at that date and considering the uncertainty of the situation, the Group has considered the impact of higher volatility in the forward-looking macro-economic factors, when determining the severity and likelihood of economic scenarios for ECL determination.

Scenario analysis has been conducted with various stress assumptions taking into consideration all model parameters i.e. probability weighting of economic scenarios, probability of default, loss given default, exposure of default and period of exposure. Furthermore, a comprehensive assessment of all corporate clients has been undertaken covering all relevant factors including but not limited to financial standing, industry outlook, facility structure, depth of experience, shareholder support etc. Given the fact that the client base is primarily based in Bahrain, all Government relief efforts to mitigate the impact of COVID-19 will also have a mitigating impact on ECL assessment. The Group has factored the impact of these efforts into its ongoing ECL assessment.

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 uncertain and, as a result, actual results may differ from these estimates.

Significant increase in credit risk (SICR)

A SICR occurs when there has been a significant increase in the risk of a default occurring over the expected life of a financial instrument. In the measurement of ECL, judgement is involved in setting the rules and trigger points to determine whether there has been a SICR since initial recognition of a financing facility, which would result in the financial asset moving from 'stage 1' to 'stage 2'.

The Group continues to assess borrowers for other indicators of unlikeliness to pay, taking into consideration the underlying cause of any financial difficulty and whether it is likely to be temporary as a result of COVID-19 or longer term.

During the period, in accordance with CBB instructions the Group has granted payment holidays to its eligible customers by deferring instalments up to six months, this is fourth in the series of payment holidays granted since March 2020. 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. Sufficient information is not available to enable the Group to individually differentiate between a borrowers' short-term liquidity constraints and a change in its lifetime credit risk.

Reasonableness of Forward Looking Information

Judgement is involved in determining which forward looking information variables are relevant for particular financing portfolios and for determining the sensitivity of the parameters to movements in these forward-looking variables. The Group derives a forward looking "base case" economic scenario which reflects the Group's view of the most likely future macroeconomic 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, applying expert judgement in this process. These economic variables and their associated impact on PD, EAD and LGD vary by financial instrument. Forecast of these economic variables (the "base, upside and downside economic scenario") are obtained externally on an annual basis, unless there is significant change in credit risk.

Macro-economic variables are checked for correlation with the probability of default and only those variables for which the movement can be rationalised statistically are used. Stress has been applied on existing macro-economic variable in ECL review exercise. Management has used its judgement to determine the relevant macroeconomic variables which were used in the ECL model based on information published by external agencies or government agencies.

Probability weights

Management judgement is involved in determining the probability weighting of each scenario considering the risks and uncertainties surrounding the base case scenario.

As with any economic forecasts, the projections and likelihoods of the occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projections.

19

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 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	30 September 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	98,572 13,323 111,895 101,500 9,867 111,367 379,302 130,788 510,090 404,038 135,393 539,431
	477,874 144,111 621,985 505,538 145,260 650,798

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

Commodity and other placements Less: expected credit loss	30 September 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	346,474 24,217 370,691 268,001 12,581 280,582 (131) -(131) (482) -(482)
	346,343 24,217 370,560 267,519 12,581 280,100

Cash and cash equivalents for the purpose of interim condensed consolidated statement of cash flows are as follows:

Cash and balances with banks and central banks Commodity and other placements with banks, financial and other institutions - net Less: Placements with original maturities more than ninety days Less: Balances with central banks relating to minimum reserve requirement	30 September 2020 30 September 2021
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	477,874 144,111 621,985 472,752 124,175 596,927 346,343 24,217 370,560 407,579 11,854 419,433 (54,399) - (54,399) (48,688) (11,854) (60,542) (98,572) (13,323) (111,895) (111,757) (3,909) (115,666)
	671,246 155,005 826,251 719,886 120,266 840,152

20

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

5 MURABAHA AND OTHER FINANCINGS

Murabaha and other financings Less: expected credit loss	30 September 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	885,070 1,618,446 2,503,516 1,359,218 1,408,082 2,767,300 (286,463) (64,158) (350,621) (314,205) (47,340) (361,545)
	598,607 1,554,288 2,152,895 1,045,013 1,360,742 2,405,755

The movement in expected credit loss is as follows:

At 1 January Charge for the period/year Write back during the period/year Write off during the period/year Reclassification Exchange differences and other movements	30 September 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 15,196 17,597 32,793 41,148 20,668 61,816 (24,158) (128) (24,286) (9,202) (58) (9,260) (11,609) - (11,609) (30,820) - (30,820) (325) - (325) 5,821 210 6,031 (6,846) (651) (7,497) (5,298) (104) (5,402)
	286,463 64,158 350,621 314,205 47,340 361,545

6 MUSHARAKA FINANCING

Musharaka financing Less: expected credit loss	30 September 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	154 1,342,828 1,342,982 268 939,836 940,104 -(14,532) (14,532) -(10,608) (10,608)
	154 1,328,296 1,328,450 268 929,228 929,496

21

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 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 – 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 Less: expected credit loss Investment securities carried at amortised cost Debt-type instruments – listed Debt-type instruments – unlisted Less: expected credit loss	30 September 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	109,104 - 109,104 40,959 - 40,959 4,677 - 4,677 3,848 - 3,848
	113,781 - 113,781 44,807 - 44,807
	189,752 92,388 282,140 204,334 101,598 305,932 1,254,672 241,216 1,495,888 1,009,478 250,778 1,260,256 87,281 585 87,866 85,623 - 85,623 279,601 - 279,601 279,377 - 279,377
	1,811,306 334,189 2,145,495 1,578,812 352,376 1,931,188 (206,567) -(206,567) (209,464) -(209,464)
	1,604,739 334,189 1,938,928 1,369,348 352,376 1,721,724
	46,405 241,276 287,681 52,185 270,930 323,115 11,022 65,609 76,631 12,000 65,110 77,110
	57,427 306,885 364,312 64,185 336,040 400,225 (8,971) -(8,971) (9,577) -(9,577)
	48,456 306,885 355,341 54,608 336,040 390,648
	1,766,976 641,074 2,408,050 1,468,763 688,416 2,157,179

During May 2006, Mastercard International awarded Shamil bank 15,310 class B common stock.

The shares received at the time by erstwhile Shamil Bank was inadvertently not recorded in the books nor the dividend relating to these shares were ever collected. No amount was paid for these at the initiation time as these shares were issued free of cost. Management was in the process of establishing the ownership of these shares, transferring the ownership to Ithmaar Bank as currently the shares are under the name of Shamil Bank, which is now Ithmaar Bank and arranging to collect the pending dividends. The process is now in its final stages.

The investment in these share is classified and recorded as "Investment securities at fair value through equity" in accordance with FAS 33. Since no cost was incurred at the time these shares were received, the fair value of these shares at that time amounted to $0.6 million is recorded as a gain in the interim condensed consolidated income statement. Subsequent fair value gain is recorded under fair value reserve in the interim condensed consolidated equity.

The Board of Directors believes that the impact of these adjustments is not material with relevance to the interim condensed consolidated financial information as a whole and the users of this interim condensed consolidated financial information. Hence the adjustments are reflected in the current period.

22

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

7 SUKUK AND INVESTMENT SECURITIES (continued)

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 30 September 2021 Investment securities at fair value through income statement Debt-type instruments Equity-type 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-type securities Investment securities at fair value through equity Debt-type instruments – listed Debt-type instruments – unlisted Equity-type securities Reconciliation of Level 3 Items	Level 1 Level 2 Level 3 Total	Level 1 Level 2 Level 3 Total
	- 109,104 - 109,104 4,677 - - 4,677 282,125 - - 282,125 - 1,494,058 - 1,494,058 79,341 9,849 73,555 162,745
	366,143 1,613,011 73,555 2,052,709
	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
Opening balance Total losses recognised in - Income statement - Equity Purchases Other movement Closing balance		Investment securities at fair value through equity
		30 September 2021 31 December 2020
		72,248 79,290 (2,531) (18,201) 106 2,928 4,139 - (407) 8,231
		73,555 72,248

Reconciliation of Level 3 Items
	Investment securities at fair value
	through equity
	30 September	31 December
	2021	2020
Opening balance	72,248	79,290
Total losses recognised in
- Income statement	(2,531)	(18,201)
- Equity	106	2,928
Purchases	4,139	-
Other movement	(407)	8,231
Closing balance	73,555	72,248

23

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

8 INVESTMENT IN ASSOCIATES

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

Name of entity	30 September 2021 31 December 2020 30 September 2021 31 December 2020 Country Activity % of Shareholding
Unlisted: Citic International Assets Management Limited Naseej B.S.C. (c) Health 360 Ancillary Services W.L.L. Faysal Saving Growth Fund Faysal Income & Growth Fund Faysal Cash Fund Faysal Asset Allocation Fund Listed: Bank of Bahrain and Kuwait B.S.C.	28,324 33,070 20 20 Hong Kong Asset management 72,614 73,027 31 31 Bahrain Infrastructure 453 487 20 20 Bahrain Third party administra 3,976 - 25 - Pakistan Mutual funds 4,133 - 70 - Pakistan Mutual funds 451 - 30 - Pakistan Mutual funds 435 - 21 - Pakistan Mutual funds 524,896 516,577 26 26 Bahrain Banking 635,282 623,161

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

Summarised financial position/performanace of associates that have been equity accounted:

Total assets Total liabilities Total revenues Total net profit	30 September 2021 31 December 2020
	10,186,758 10,480,239 8,367,428 8,695,653 242,759 330,004 110,312 120,114

In case of associates where audited/reviewed financial statements are not available, the Group’s share of results is arrived at by using the latest available financial information.

24

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

9 OTHER ASSETS

Accounts receivable Due from related parties (note 17) Taxes – deferred Taxes – current Non-current assets held for sale Less: provisions	30 September 2021 31 December 2020
	Relating to owners Relating to unrestricted investment accounts Total Relating to owners Relating to unrestricted investment accounts Total
	120,783 124,056 244,839 133,662 77,914 211,576 753 - 753 557 - 557 6,095 - 6,095 1,382 - 1,382 20,349 - 20,349 261 - 261 24,428 - 24,428 14,615 - 14,615
	172,408 124,056 296,464 150,477 77,914 228,391 (69,806) (11,934) (81,740) (64,993) (11,939) (76,932)
	102,602 112,122 214,724 85,484 65,975 151,459

10 PROVISION FOR IMPAIRMENT

At 1 January Charge for the period/year Write back during the period/year Write off during the period/year Exchange differences	30 September 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 21,866 29,527 51,393 80,683 26,127 106,810 (27,324) (6,991) (34,315) (51,993) (849) (52,842) (27,646) - (27,646) (30,821) (103) (30,924) (14,512) (1,794) (16,306) (3,375) (147) (3,522)
	782,500 90,628 873,128 830,116 69,886 900,002

During the nine month period ended 30 September 2021, the Group has recorded a net provisoin/(reversal) for impairment relating owners amounting to $5.5 million (30 September 2020: $18.7 million).

25

Ithmaar Holding B.S.C.

Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

10 PROVISION FOR IMPAIRMENT (continued)

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.

30 September 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 Sukuk and investment securities Other receivables Loss allowance Total 31 December 2020	Stage 1 Stage 2 Stage 3 Total
	992,676 - - 992,676 972,464 77,728 - 1,050,192 1,684,002 92,810 400 1,777,212 - 500,609 - 500,609 - - 318,006 318,006 2,656,466 671,147 318,406 3,646,019 1,384,234 25,027 65,401 1,474,662 4,040,700 696,174 383,807 5,120,681 332,488 22,924 8,900 364,312 284,842 8,458 74,801 368,101 (37,393) (76,080) (350,489) (463,962)
	5,613,313 651,476 117,019 6,381,808
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 Sukuk and investment securities Other receivables Loss allowance Total	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 30 September 2021 amounted to $3.2 billion, $0.7 billion and $0.4 billion for Stage 1, Stage 2 and Stage 3 (31 December 2020: $3.0 billion, $0.7 billion and $0.4 billion) respectively. Collateral coverage for gross financing as of 30 September 2021 was 70%, 45% and 33% for Stage 1, Stage 2 and Stage 3 (31 December 2020: 80%, 40% and 48%) respectively.

26

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

11 EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS

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

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 Other assets Fixed assets Due from the Owners (net) Customers’ current accounts Due to banks, financial and other institutions Other liabilities Equity of unrestricted investment accountholders	30 September 2021 31 December 2020
	144,111 145,260 24,217 12,581 1,554,288 1,360,742 1,328,296 929,228 641,074 688,416 394,747 382,401 112,122 65,975 48,319 - 713,729 703,937
	4,960,903 4,288,540 (930,447) (692,739) (269,532) (145,655) (182,626) (86,510)
	3,578,298 3,363,636

12 SHARE CAPITAL

Authorised Issued and fully paid Total outstanding as at 1 January 2021 Treasury shares At 30 September 2021 (Reviewed) Issued and fully paid Total outstanding as at 1 January 2020 Treasury shares At 31 December 2020 (Audited)	Number of shares (thousands) Share capital
	8,000,000 2,000,000
	3,030,755 757,690 (120,595) (30,149)
	2,910,160 727,541
	3,030,755 757,690 (120,595) (30,149)
	2,910,160 727,541

Ithmaar’s total issued and fully paid share capital at 30 September 2021 comprises 3,030,755,027 shares at $0.25 per share amounting to $757,690 thousands. The share capital of Ithmaar is denominated in United States dollars and these shares are listed on Bahrain Bourse in United States dollars and Dubai Financial Market in Arab Emirates Dirham.

Ithmaar owned 120,595,238 (31 December 2020: 120,595,238) of its own shares at 30 September 2021. The shares are held as treasury shares and Ithmaar has the right to reissue these shares at a later date.

27

Ithmaar Holding B.S.C.

Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

13 OTHER INCOME Income from banking services Insurance underwriting profit Income from commodity placements Foreign exchange income/ (loss) Others	Relating to owners
	30 September 2021 30 September 2020
	34,234 42,678 19,296 18,424 5,983 11,120 14,132 (10,469) 1,531 32
	75,176 61,785

14 BASIC AND DILUTED EARNINGS/(LOSSES) PER SHARE

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

Net income/(loss) attributable to shareholders ($’000) Weighted average number of issued and fully paid up ordinary shares (’000) (note 12) Earnings/(losses) per share (Basic & Diluted) – US Cents	Three monthperiod ended Nine monthperiod ended
	30 September 2021 30 September 2020 30 September 2021 30 September 2020
	1,476 (3,288) (2,530) (1,999) 2,910,160 2,910,160 2,910,160 2,910,160
	0.05 (0.11) (0.09) (0.07)

15 DIVIDEND

No dividend was declared for 2020 and 2019.

16 CONTINGENT LIABILITIES AND COMMITMENTS

Contingent liabilities

Endorsements Guarantees and irrevocable letters of credit Customer and other claims Commitments Undrawn facilities, financing lines and other commitments to finance	30 September 2021 31 December 2020
	76,617 66,883 751,542 589,686 198,035 224,481
	1,026,194 881,050
	30 September 2021 31 December 2020
	1,477,877 1,600,375

28

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

17 RELATED PARTY TRANSACTIONS AND BALANCES

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

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

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

• (c) Associated companies of Ithmaar.

• (d) Senior management.

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

Significant balances with related parties comprise:

Assets Murabaha and other financings Investment in associates Other assets Liabilities Customers’ current accounts Due to banks, financial and other institutions Equity of unrestricted investment accounts Other liabilities Income Return to unrestricted investment accounts Income from murabaha and other financings Share of results after tax from associates Profit paid to banks, financial and other institutions – net Expenses Administrative and general expenses	30 September 2021
	Shareholders & Affiliates Associates and other investments Directors and related entities Senior management Total
	390,527 - - 39 390,566 - 635,282 - - 635,282 - - - 753 753 24,043 2,754 - 865 27,662 21,729 7,560 - - 29,289 - - - 5,182 5,182 13 - - - 13 - - - (117) (117) 2,910 - - - 2,910 - 26,040 - - 26,040 - (221) - - (221) (600) - (38) - (638)

29

Ithmaar Holding B.S.C.

Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

17 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 Income Return to unrestricted investment accounts Income from murabaha and other financings Share of results after tax from associates Profit paid to banks, financial and other institutions – net 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 - 10,002 - - 10,002 32,661 - - 6,379 39,040 129 - - - 129 30 September 2020
	- - - (126) (126) 2,853 - - - 2,853 - 20,594 - - 20,594 - (1,402) - - (1,402) - 17,915 - - 17,915 (600) - (38) - (638)

30

Ithmaar Holding B.S.C. Notes to interim condensed consolidated financial information for the nine month period ended 30 September 2021

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

18 SEGMENTAL INFORMATION

The Group constitutes of three main business segments, namely;

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

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

Operating income/(loss) Total expenses Net income/(loss) before provision and overseas taxation Provision and overseas taxation - net Net income/(loss) for the period Attributable to: Equity holders of Ithmaar Minority interests Total assets Total liabilities and equity of unrestricted investment account holders	Retail & Corporate banking Asset Management / Investment Banking Others Total 186,135 4,176 26,338216,649 (140,612) (20,069) (19,556) (180,237) 45,523(15,893) 6,782 36,412 (17,761) (2,176) (738) (20,675) 27,762(18,069) 6,044 15,737 15,109 (16,249) 2,6161,476 12,653 (1,820) 3,42814,261 27,762 (18,069) 6,044 15,737 7,523,732 1,068,782 369,286 8,961,800 8,457,186 24,523 190,850 8,672,559 30 September 2021	30 September 2020
		Retail & Corporate banking Asset Management / Investment Banking Others Total
		205,792 (15,939) 25,084214,937 (129,261) (18,433) (17,965) (165,659)
		76,531(34,372) 7,119 49,278
		(48,692) 9,742 (1,549) (40,499)
		27,839(24,630) 5,570 8,779
		17,115 (22,834) 2,431(3,288) 10,724 (1,796) 3,13912,067
		27,839 (24,630) 5,570 8,779
		31 December 2020
		6,907,505 1,126,662 349,498 8,383,665
		7,838,742 72,547 180,239 8,091,528

31