Annual Report 2006 Eng (1)

7/27/2019 Annual Report 2006 Eng (1)

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Dynamic. Diversifed. Dierentiated.


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Hs Hghness Shakh

Khalia Bin Salman Al Khalia

The Prme Mnster o the Kngdom o Bahran

Hs Majesty Kng

Hamad Bin Isa Al Khalia

The Kng o Bahran

Hs Hghness Shakh

Salman Bin Hamad Al Khalia

The Crown Prnce and Commander-n-Che o the

Bahran Deense Force


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Al SAlAM BANK- BAHRAiN B.S.C. 5

Al SAlAM BANK - BAHRAiN B.S.C.

incorporated on 19 January 2006 n the Kngdom o Bahran, wth a pad-up capta o BD 120 mon(US$ 317 mon), A Saam Bank Bahran commenced commerca operatons on 17 Apr 2006. TheBank operates under isamc prncpes and n accordance wth reguatory requrements or isamcbanks set by the Centra Bank o Bahran.

The Banks inta Pubc O erng, comprsng 35 per cent o the pad-up capta, rased over BD 2.7bon (US$ 7 bon) and was the argest iPO n the Kngdoms hstory. The Bank was subsequentysted on the Bahran Stock Exchange on 27 Apr 2006.

The oundng sharehoders o the Bank hod 65 per cent o the pad-up capta. They ncude eadngregona nsttutons such as Emaar Propertes, Amak Fnance, Duba Hodng, Duba investmentGroup, and Goba investment House, together wth other strategc sharehoders rom across theMdde East.

The Bank s commtted to adoptng nternatonay recognsed standards and best practce n crtcaareas such as corporate governance, compance, ega, rsk management and operatons wth thehghest eves o ntegrty, transparency and trust.

Addtonay the Bank s equay commtted to ts roe as a concerned corporate ctzen, actvey seekngways to contrbute and add vaue to the soca and economc we-beng o the oca communtes nwhch t nvests and operates.

Corporate Overvew

To be a eadng orce n the isamc nanca servces ndustryby provdng a derentated Shara-compant oerng toocused segments, budng a reputaton as a Trusted isamcBank and enhancng sharehoder vaue.

Our Vision

To become a one-stop-shop or provdng derentatedisamc nanca products to specc target segments.To bud a strong goba presence and premer brand mageas an isamc nanca Shaper.To acheve hgh returns or nvestors and sharehoders basedupon dened rsk appettes.

Our Mission


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Al SAlAM BANK- BAHRAiN B.S.C.8 Al SAlAM BANK- BAHRAiN B.S.C. 9

The Board o Drectors

H. E. Mohamed A Aabbar - CharmanH.E. Mr. Mohammed Aabbar s currenty eadng many o the mportant nsttutons n the Unted Arabo Emrates and other countres. Mr. Aabbar s the Drector Genera o the Department o EconomcDeveopment, Government o Duba, whch he heped to set up n 1992. H.E. Aabbar s the Charmano Emaar Propertes, Emaar investments & industres Company, Duba Cabe Company, A Saam Bank- Sudan, A Saam Bank - Agera, and leader Capta. He s aso a Board member o Duba ExecutveCounc, Duba Economc Counc, Duba Aumnum Company, UAE Stocks & Commodtes Authorty.He s aso a ounder o Duba Fnanca Market. in addton, H.E. Aabbar s aso the Charman o the UAE

Go Assocaton and the Rashd Pedatrc Centre. He s aso a ounder member o the Arab BusnessCounc, whch was estabshed by the Word Economc Forum.

Husen Mohamed Saem Ameeza - Vce Charman and Managng DrectorMr. Husen Mohamed Ameeza s the Vce Charman and Managng Drector o A Saam Bank - Sudan& A Saam Bank - Agera and the Vce Charman o leader Capta; and the Vce Charman andManagng Drector o Duba isamc insurance and Rensurance Company. He s aso a man ounder oDuba isamc Bank and a Board member o Emaar i nvestments & industres Company, Board membero Gu Jet, and Commttee member o isamc Fnance Advsory Counc/ Duba internatona FnancaCentre. Pror to that, Mr. Husen Ameeza was Charman o Emaar Fnanca Servces Company, Boardmember and Charman o the Executve Commttee o Amak Fnance. He was aso the Charman o theCentre o lqudty Management. in 2006, Mr. Ameeza was awarded the isamc Banker o the Year2006 award at the Word isamc Bankng Conerence n the Kngdom o Bahran, n r ecognton o hssgncant contrbuton to the isamc bankng and nance sector.

Essam A Muhadeb - MemberMr. Essam A Muhadeb s Group Managng Drector o A.K. A Muhadeb & Sons; Managng Drectorand Board member o A Muhadeb Foods Group; and Presdent and Board member o Gant Stores andUnted Group Centra Markets, whch are a based n Saud Araba. Mr. A Muhadeb s the Charman oBahran Centra Markets Company, and Vce Charman o DNATA, Kuwat. He s aso a Board membero Gu Unon insurance Company, Mashaer Company (Kuwat), Nama Group (Qatar), Teeba HodngCompany (lebanon), Ge Hodng Company (Swtzerand), VeeTee investment Corporaton (UK), AMassa internatona (Canada), and Reem Rce Ms lmted (Pakstan).

Habb Ahmed Kassem - MemberMr. Habb Kassem has been a Member o the GCC Consutatve Counc or the Supreme Counc snce1997. Mr. Kassem s the Charman o Amahd investment Company, Bahran Ferro Aoys, BahranEectrcty Suppy & Transmsson Company, Bahran import Export Company (Esterad), Capta GrowthManagement, and Quaty Wre Products Company. He s aso the Charman o Amahd Day BoardngSchoo.

Mohamed Omer Bn Youse - MemberMr. Mohammed Omer s currenty the Che Executve Ocer o Omer Bn Youse Hodng Group. Mr.Youse s a Board member o A Saam Bank - Sudan.

Omar Mahmood A-Quqa - Member

Mr. A-Quqa s a Chartered Fnanca Anayst (CFA), and a co-ounder and Executve Vce Presdent,Corporate Fnance & Treasury, o Kuwat-based Goba investment House. Mr. A-Quqa s the Charmano Jordan Trade Factes Company. Hs Vce Charmanshps ncude: Housng Fnance Company(iSKAN) and iraq Hodng Company (both based n Kuwat); Araban Seas insurance Company (Jordan);and Bahran-based Rea Estate Fnance Company (Ree). He s aso a Board Member o the oowngcompanes: A-Manar Fnance & ijara (Kuwat); Bahran-based Khaeej Deveopment Company (Tameer);Unted Fnance Company (Oman); Baghdad Bank (iraq); A Saam Bank - Sudan; investment FundsCompany (Jordan); and the regona oce o Paestne Pubc Rea Estate Company n Jordan.

Saeh Saeed Ahmed lootah - MemberMr. Saeh lootah s currenty the Group Executve Drector o the S.S. lootah Group. Mr. lootah s aBoard member o Duba isamc Bank, Amak Fnance Company, and Duba insurance & RensuranceCompany. He s aso a member o the Board o Trustees o Duba Medca Coege.

Saem Rashed Saeed A Mohannad - MemberMr. Saem A Mohannad s currenty the Executve Drector or Fnance and Admnstraton at AbuDhab investment Authorty, aso a Board member o Emaar Propertes, and Board member o A SaamBank - Sudan. Mr. Saem A Mohannad was aso the Charman o Tunsa Emrates investment Bank.

Top Row (R-l): Essam A Muhadeb, Omar Mahmood A-Quqa

Bottom row (R-l): Saem Rashed Saeed A Mohannad, Saeh Saeed Ahmed lootah, Habb Ahmed Kassem,

H. E. Mohamed A Aabbar, Hussen Mohamed Saem Ameeza, Mohamed Omer Bn Youse.

The Board o Drectors (contnued)


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Shara Supervsory Board

Dr. Hussan Hamd Hassan - CharmanDr Hassan hods a Ph.D. rom the Facuty o Shara, A Azhar Unversty, Caro, Egypt; and a Mastersn Comparatve Jursprudence and Dpoma n Comparatve law (both o whch are the equvaent oa Ph.D.) rom the internatona insttute o Comparatve law, Unversty o New York, USA. He asohods a Masters n Comparatve Jures, and Dpomas n Shara and Prvate law, r om the Unverstyo Caro; and an ll B n Shara rom A Azhar Unversty. He s the Charman and member o theShara Supervsory Board n many o the isamc Fnanca insttutons. in addton, Dr. Hassan sCharman o the Assemby o Musm Jursts, Washngton, USA; a member o the European isamcBoard or Research & Consutaton, Dubn, ireand; and an Expert at the Unon o isamc Banks,Jeddah, Kngdom o Saud Araba.

Dr. A Mohuddn AQurra Dagh - MemberDr. AQurra Dagh hods a Ph.D. n Shara and law, and a Masters n Shara and Comparatve Fqh,rom A Azhar Unversty, Caro, Egypt. He aso hods a BSc. n isamc Shara rom Baghdad Unversty,iraq; a certcate o tradtona isamc Studes under the gudance o emnent schoars n iraq; and sa graduate o the isamc insttute n iraq. He s currenty Proessor o Jursprudence n the acuty oShara aw and isamc Studes at the Unversty o Qatar. He sts on the Boards o Shara SupervsoryBoards or severa banks and nanca nsttutons. Dr. AQurra Dagh s aso a member o the isamcFqh Academy, the Organsaton o isamc Conerence, the European Musm Counc or Eta andResearches, the internatona Unon o Musm Schoars, and the Academc Advsory Commttee othe isamc Studes Centre, Oxord Unversty, UK. He aso has pubshed severa research paperstackng varous types o isamc Fnance, isamc Fqh, Zakah and isamc Economy.

Shara Supervsory Board (contnued)

Shakh Adnan Abdua A Qattan- MemberShakh Adnan A-Qattan hods Masters degree n the Quran and Hadth rom the Unversty o UmA-Qura, Makka, Kngdom o Saud Araba; and Bacheors degree n isamc Shara rom the isamcUnversty, Madeena, Saud Araba. Shakh A Qattan s aso a Judge n the Shara Supreme Court,Mnstry o Justce Kngdom o Bahran. Shakh A Qattan s a Member o Shara Supervsory Boardsor severa isamc banks and he s aso Charman o A Sanab Orphans Pr otecton Socety, Charmano the Board o Trustees o the Roya Charty Estabshment under the Roya Court Kngdom oBahran, and Presdent o the Kngdom o Bahran Hajj Msson. in addton, he s a Frday sermonorator at A-Fath Grand Mosque. Shakh A Qattan contrbuted to dratng the Persona Status lawor the Mnstry o Justce and s a reguar partcpant n isamc commttees, courses, semnars andconerences.

Dr. Mohamed Abduhakm Zoer - Member & Commttee SecretaryDr. Zoer hods Ph.D. n isamc Economy; Masters degree n isamc Shara (Economy); Bacheorsdegree n Management Scences; and a Hgher Dpoma n isamc Studes. He s Member o the FatwaBoard n a number o isamc nanca nsttutons and has 18 years experence wth Egypt CentraBank. Dr. Zoer was aso the Head o Shara compance n Duba isamc Bank.


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Executve Management Team

Yous Abdua Taq - Che Executve OcerA Certed Pubc Accountant (CPA) and BSc n Accountng, Mr. Taq has over 24 years experence nthe bankng and nanca servces ndustry. Durng hs career Mr. Taq worked n eadng postons ora number o nsttutons n the Kngdom o Bahran. Pror to jonng A Saam Bank Bahran, he wasDeputy Genera Manager o Kuwat Fnance House (KFH) Bahran, and was responsbe or estabshngKuwat Fnance House Maaysa. Beore ths, Mr. Taq spent 20 years wth Ernst & Young, durng whchtme he provded proessona servces or many regona and nternatona nanca nsttutons. Durnghs career wth Ernst and Young, Mr. Taq was promoted to Partner, responsbe or provdng audtngand consutancy servces to the isamc nanca rms. He s currenty Charman o A Saam Banks

recenty estabshed rea estate deveopment company.

Ahmed Swaeh Abdshekh - Executve Vce Presdent, Che Rsk Ocer & Compance Group HeadMr. Abdshekh s a quaed Chartered Accountant (South Arca) and a member o South Arcaninsttute o Chartered Accountants (SAiCA) and Goba Assocaton o Rsk Proessonas (GARP). Mr.Abdshekh has over 11 years combned experence n audt proesson, rsk management and nancaservces. Mr. Abdshekh spent 5 years wth Deotte & Touche Tohmatsu workng n South Arca, NewZeaand and Qatar. in the ast 5 years he spent most o hs tme n the deveopment and mpementatono enterprse-wde rsk management systems and processes ncudng the mpementaton o Base ii ntwo promnent Qatar nsttutons. Pror to jonng the Bank, he was Assstant Genera Manager- Market& Operatona Rsk at Qatar Natona Bank.

Sttng: Yous Abdua Taq.

Standng (R-l): Mohamed Paracha, Dr. Omar Marwan Kama, Dr. Hassan Mahmood A Bastak,

Mukundan Raghavachar, Nabee Ebrahm A Tattan, Marco Dond.

Dr. Hassan Mahmood A Bastak - Executve Vce Presdent, Operatons, iT and Support ServcesGroup HeadDr. A Bastak hods a Ph.D. n Accountng rom the Unversty o North Texas, USA. He has over 20years experence o workng n the Kngdom o Bahran and North Amerca. He was Secretary Genera othe Bahran Centre or Studes and Research. Hs prvate sector experence ncudes senor managementand specast postons wth one o the nternatona audtng rms. in the academc word, Dr. ABastak was Vce Presdent or Fnance & Admnstraton at the Unversty o Bahran. Dr. A Bastak s anArbtrator and Expert at the Bahran-based GCC Commerca Arbtraton Centre and was apponted by aRoya Decree as a member n the Bahran Tender Board or the perod rom 2003 to 2007.

Mohamed Paracha - Executve Vce Presdent, Genera CounseA quaed Soctor (Engsh law), Mr. Paracha hods a Bacheor degree n law (llB Hons.) romBrune Unversty, UK and a Postgraduate Dpoma n law rom the Coege o law, UK. He was PartnerDesgnate at the nternatona aw rm Norton Rose. Notabe career achevements by Mr. Paracha ncudebeng named as lawyer o the Year n 2004 and n ther Hot 100 st n 2007 by the prestgous egapubcaton, The lawyer. He served as a member o the Bank o Engand Workng Party on isamc Fnance,asssted n the ormaton o the isamc Bank o Brtan, and advsed loyds TSB on the estabshment oan isamc bankng wndow.

Mukundan Raghavachar - Executve Vce Presdent , Che Fnanca Ocer

A Chartered Accountant and a Certed Pubc Accountant (CPA) rom Coorado state, USA, Mr.Raghavachar has over 20 years experence n the nanca servces ndustry. Durng hs career, hehas worked n severa countres n the Mdde East, ncudng Bahran, Egypt, Kuwat, lebanon, Qatarand the UAE. Pror to jonng A Saam Bank - Bahran, he hed the poston o Group Head o StrategcDeveopment at Ah Unted Bank. Mr. Raghavachar s an Assocate Member o the insttute o CharteredAccountants o inda.

Nabee Ebrahm A Tattan - Executve Vce Presdent, Bankng Group HeadA Chartered Fnanca Anayst (CFA), wth 19 years experence n bankng, nvestment and weathmanagement. Mr. A Tattan spent seven years wth Arcapta Bahran, where hs ast poston was Drector,investment Pacement. Beore ths, he hed senor management postons wth Shuaa Capta UAE, SiCOBahran, and Arab insurance Group, Bahran. He s experenced n settng up and managng nvestmentportoos or cents n areas such as treasury and xed ncome, equtes, dervatve products, prvateequty and structured nance. Mr. A Tattan has aso asssted two regona stock exchanges n settngup ther market ndex cacuatons.

Dr. Omar Marwan Kama - Executve Vce Presdent, investments Group Head

Dr. Kama has extensve experence n the ed o isamc Fnanca Servces, and hs career to date hasembraced nanca consutancy, nvestment bankng and academa. Through hs dversed exposure,Dr. Kama estabshed a strong network n the isamc Fnance ndustry at an nternatona eve. Hejoned A Saam Bank - Bahran ater workng or Ernst & Young, where he became the Partner n Chargeo the isamc Fnanca Servces Group (iFSG). He s recognzed as a eadng strategst wthn the ndustryand s consdered a promnent gure n contemporary isamc nanca markets. A hghy sought aterspeaker at ndustry conerences, Dr. Kama s aso a requent contrbutor to nternatona meda.

Marco Dond - Senor Vce Presdent, Head o Treasury and Capta MarketsMr. Dond has over 20 years regona and nternatona bankng experence, specasng n treasury,money markets, dervatves tradng, and bonds. He was Che Deaer and Deputy Treasurer at BNP-Parbas Bahran, where he hed a goba mandate or tradng, marketng and saes on GCC and NorthArcan currences. Beore ths, Mr. Dond spent our years wth Kuwat-based Gu Bank and eght yearswth the Brusses branch o Sumtomo Bank.

Executve Management Team (contnued)


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Desgnated Board MembersPrase s to Aah who takes a thngs towards perecton;

On beha o the Board o Drectors, t s my prvege to present the rst annua report o A Saam Bank-Bahran or the year ended 31 December 2006.

A Saam Bank Bahrans rst year has argey been a perod o estabshng corporate governancestructure, recrutng competent senor management personne and estabshng the necessary poces

and nrastructure as a preude to aunchng a gobay compettve Bank. Whst a substanta portono the tme and eort o the Board and senor management has gone nto estabshng a robustnrastructure, attenton has been pad to specyng the workng actvtes and n seecton o a state-o-the-art patorm to actate the banks operatons to provde the best servces or ts share hodersand to support the growth o the bank.

The Bank has adopted a unque unversa one-stop-shop isamc bankng mode and oers derentatedproducts and servces targetng the mdde and upper segment o the market. in the rst phase whchs panned or the rst quarter o 2007, the bank w aunch unque bankng products targetng tscorporate and ndvdua cents n addton to marketng thrd party Takau pr oducts to u customersappette. Addtonay, the Bank has acheved the endorsement o Vsa internatona to ssue isamccards and debt cards wth an EMV embedded chp. A Saam Bank-Bahran w be the rst nsttutonto ssue a card o ths knd n the oca market pace.

in the second phase whch s expected to start towards the end o 2007, the bank w be aunchngts own Takau products n addton to the other servces such as unds and asset management andprvate bankng.

One o the core pars o the bank strategy s to ocus on investment Bankng captazng mosty onrea estate nvestment or t s the most rewardng nvestment sector. The bank has secured a numbero attractve rea estate transactons n the GCC and South East Asa whch o er attractve rsk-returnover the medum term. On the prvate equty sde, we have a number o transactons n the ppenerom the Asa/Pacc regon. The bank s ocused on sourcng attractve prvate equty deas wthemphass on energy and heathcare sectors whch w satsy growng nvestor appette or exposureto Chna, inda and Pakstan.

As a start-up entty, A Saam Bank-Bahran aces the chaenge o rasng unrestrcted nvestmentdeposts both rom banks and customers, snce correspondent banks and customers preer deangwth nsttutons o track record or externa ratng. However, due to the credentas and experenceo the senor management, the bank s condent o overcomng ths chaenge where the credbtys borne out by a good rst year perormance. Ths s evdent rom the act that the bank managed torase over BD20 mon n deposts rom nter-bank Murabaha and Mudaraba n the very rst perod ooperatons.

Board o Drectors Report to the Sharehoders

in the name o Aah, the Most Compassonate, the Most Mercu

Mohammed AabbarCharman

Fnancay, the rst year o busness has been mpressve wth a net pr ot o BD16.4 mon (US$ 43.5)acheved n ess than a u year o operatons. Ths represented a return on average equty o 15.1%.The gross operatng ncome amounted to BD20.4 mon (US$ 54.1) and the operatng expenses wereBD4.0 mon (US$ 10.6 mon). The cost-to-ncome rato or the perod was 19.6%. The earnngs pershare (EPS) or the perod amounted to 151 s.

The net ncome BD16,418,792 has been approprated as oows:

BD

Transer to statutory reserve 1,641,879

Transer to nvestment reserve 11,443,688

Chartes & Donatons 100,000

Retaned earnngs 3,233,225

Drectors remuneraton, ees and expenses or attendance at Board meetng or 2006 amounted toBD509,123.

The oowng tabe shows the percentage o share ownershp n comparson to the number osharehoders as at 31st December 2006. it ndcates that 12 sharehoders owned 24% o the totashares, whe 30 sharehoders owned 19%. However, 57% o the shares are owned by over 22,000

nvestors.

Percentage o shares held No. o shares No. o Shareholders as

at 31 December 2006

% o total outstanding

shares

less than 0.5% 68,320,159 22,542 57%

Between 0.5% and 1% 22,912,638 30 19%

Between 1% and 5% 28,750,000 12 24%

Tota 119,982,797 22,584 100%

As requred by the Centra Bank o Bahran ruebook, set out beow are the nterests o Drectorsand Senor Managers n the shares o A Saam Bank - Bahran B.S.C. and ther dstrbuton o thesharehodng as o 31 December 2006.

Shares owners No. o Shares held at 31 December 2006

Drectors shares 2,400,000Senor Managers shares 505,787

Tota 2,905,787

Fnay, i woud ke, on beha o myse and the Board members, to thank Hs Majesty Kng HamadBn isa Bn Saman A Khaa, the Kng o Bahran, Hs Hghness Shakh Khaa Bn Saman A Khaa,The Prme Mnster and Hs Hghness Shakh Saman Bn Hamad A Khaa, The Crown Prnce andCommander-n-Che o the Bahran Deense Force or ther contnuous support. Aso to expressapprecaton to the Centra Bank o Bahran, correspondents, customers, sharehoders and empoyeeso the Bank or ther support and coectve contrbuton or the rst perod o successu operatons andwe ook orward to ther contnued support n the sca year 2007.

We Thank Aah the Most Compassonate, the Most Mercu.

Board o Drectors Report to the Sharehoders (contnued)


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Vce Charman & Managng Drectors Statement

Husen AmeezaVce Charman & Managng Drector

The remarkabe perormance by A Saam Bank - Bahran durng our rst nne months o operatonsceary ustrates the vson and oresght o our oundng sharehoders, who earer dented theopportunty that exsts or a truy unversa bank, operatng nternatonay and wth a broad productrange encompassng depost takng, nancng and nvestments.

Accordngy, we set ourseves the vson to be a eadng or ce n the goba isamc nanca servcesndustry, by deveopng a strong presence n seected regons, provdng a broad-based, d erentatedShara-compant oerng to ocused segments, and by budng a reputaton as the trusted isamc

bank whe enhancng sharehoder vaue.

Ths vson was strongy endorsed by the overwhemng support or the nta pubc oerng o theBank n Apr 2006. Oversubscrbed 63 tmes and rasng BD 2.7 bon n subscrptons, the iPO wasthe argest n the hstory o the Kngdom o Bahran. Snce the iPO and our subsequent stng onthe Bahran Stock Exchange, the progress o the Bank as a new payer n the isamc sector has beencosey watched by the regons nanca communty.

i am thereore deghted to report that our progress to date has exceeded a expectatons, and hasheped to poston the Bank as a dynamc, dversed and derentated isamc nanca nsttuton,more than capabe o deverng upon ts promse to a stakehoders. in a very short space o tme,we have but a strong organsatona nrastructure, acheved eary busness success, and grown ourpresence outsde Bahran to ncude Sudan and Agera.

A key achevement o 2006 was our successu acquston o a sgncant mnorty stake n E NenBankng Group, subject to reguatory approva. We competed wth over 20 nanca nsttutons thatwere bddng or the parta prvatzaton o the Group, whch has 34 domestc branches n Sudanand an nternatona branch n Abu Dhab, UAE. The acquston o a strategc stake n E Nen wcontrbute to the panned expanson o A Saam Bank - Bahran, and w pr ovde the opportunty topenetrate the growng Sudanese market and gan a oothod n the mportant Emrates market.

Overa, ths s an exceent start or a new bank wth goba aspratons. We now have everythngn pace to support our contnued growth and deveopment, and we are very optmstc about ouruture prospects. We are ready to aunch u bankng operatons durng the rst quarter o 2007, andhave but up a strong ppene o nvestment deas. We aso pan to ntroduce new treasury, assetmanagement and trust servces to meet the needs o our prestgous cent base.

The year ahead w not be wthout ts chaenges, but wth the grace o God, and the sks anddetermnaton o our management team and sta, we are condent n our abty to acheve ourambtous goas.

Commtted to acton, we rmy beeve that resuts are measured by actons rather than words, as ourprogress to date has ceary ustrated.

Management Revew o Operatons & Actvtes

Yous Abdua TaqChe Executve Ocer

Foowng the nta ega, commerca and reguatory procedures, together wth the aunch o the iPOand subsequent stng on the Bahran Stock Exchange, the key chaenge was to bud the nsttutonacapacty o the Bank, especay n terms o processes, peope, technoogy, and premses. At thesame tme, there was a need to begn sourcng new busnesses n order to meet the expectatons othe sharehoders. For that reason, we estabshed the derent groups, departments and sectons norder to satsy the derent r oes and needs o busness and support operatons. The oowng s therevew o the operatons and actvtes n addton to the achevements o 2006.

Bankng Group

A Saam Bank Bahran provdes a comprehensve range o derentated Shara-compant productsand soutons that cover reta bankng, weath management and corporate bankng, supported bythe hghest eves o personazed pr oessona servce.

Retail Bankingactvtes are targeted at the mdde-to-upper segment o the market. Durng theyear 2006, exceent progress was made towar ds the panned aunch o u-fedged reta bankngoperatons durng the rst quarter o 2007. The ttng-out o a prestgous bankng ha at the Banksheadquarters n the See dstrct was competed; arrangements were nazed or the ssue o the rstisamc chp-based ATM card wth an EMV-embedded chp; whe connectvty to the Vsa, Benetand GGCNet ATM networks s currenty n pr ogress t s expected to be accompshed by the end othe rst quarter o 2007.

The Banks reta abty products ncude current, savngs and ca accounts; Murabaha, Wakaa, andMudaraba deposts. Asset products ncude Murabaha, ijarah, istsnaa and Musharaka, wth d erentnancng purposes such as vehces, property and nvestments. in addton, the Bank s pannng to

oer a range o Takau (isamc nsurance) products. These w be provded ntay through careuyseected thrd partes, and eventuay oered drecty by the Ba nk. The provson o addtona deverychannes, ncudng e-Bankng and a Ca Centre servce, s p anned or md-2007.

Wealth Management servces are provded or utra hgh net worth and hgh net worth ndvduas nthe GCC and MENA regon. The man ocus d urng the year was on nazng the product sute n newth the needs o the Banks cents. These ncude nvestment unds and prvate equty nvestments,Sukuks, commodtes and precous metas tradng, pus brokerage, everage and sae custody servces.in addton, the Weath Management team w montor cents portoos and recommend changesas and when needed. Durng 2006, the Bank ntated dscussons to estabsh strategc aances wthnternatona product provders n order to be abe to serve cents needs on a goba bass.


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Corporate Bankingservces are ocused on meetng the specc nanca needs o arge corporatons,medum szed commerca organzatons, and sma-to-medum enterprses (SMEs), whch ar e ookngor proessona consutancy servces and nnovatve soutons to support the gr owth and expansono ther busness actvtes. Bankng actvtes are oered beyond the boundares o Bahran to theGCC and other seectve regona markets. Durng 2006, the Bank was successu n estabshnga szabe nta corporate cent base, budng a strong asset portoo, and attractng sgncantdeposts. At the same tme, the Corporate Bankng team deveoped a macro-eve strategy or thenext three years, and mpemented nterna pr ocesses and procedures to ensure the hghest eves ooperatona ecency and eectveness, and cent servce.

investments Group

The Bank has deveoped a dversed nvestment strategy, d erentated by geographc and sectorocus, to meet the expectatons and demands o ts cents and ensure hgh returns to ts sharehoders,whe addng vaue to the communty and postvey mpactng the envronment. The investmentsGroup comprses two specast unts that cover corporate nvestments and rea estate nvestments.Corporate nvestments are prmary ocused on the Asa and Asa-Pacc regon, wth partcuaremphass on the energy and aternatve energy sectors. Rea estate nvestments ocus on the Asa-Pacc, GCC and Mdde East regons, wth a prmary concentraton on rea estate deveopmentprojects rather than just nvestment n ncome-generatng propertes. Durng 2006, the Bank made

good progress n mpementng ts nvestment strategy.

in partnershp wth strategc nvestors, the Bank estabshed a rea estate deveopment companyto ocus speccay on projects n the Kngdom o Bahran wth the potenta to make a astngcontrbuton to the soca and economc we-beng o the communty. The new company, whch wbe ocay aunched n eary 2007, has aready concuded a major rea estate transacton.

in ts rst rea estate nvestment outsde Bahran, the Bank partnered wth Maaysan-based CiMBisamc Bank and E&O Property Deveopment Berhad, and Mapetree investments o Sngapore,to deveop a searont va component o the Ser Tanjung Penang deveopment on Penang isand.To be aunched durng the rst ha o 2007, the project w nvove budng 73 sea-rontng uxuryvas on a andscaped pot o 980 acres. The propertes w be targeted at oregners and Maaysannatonas seekng upper cass homes n Penang. The nta outay o the project s estmated at ar oundUS$ 20 mon. Ser Tanjung Pnang s reputed to be the argest and recamaton waterront p rojectundertaken to date n Maaysa.

Supportng ts Asa-Pacc regona ocus, n ate 2006 the Bank nazed negotatons or a strategc

partnershp agreement wth CMiA Capta Partners (CMiA), whch was subsequenty sgned n eary2007. Headquartered n Sngapore, wth oces n Shangha and Hong Kong, CMiA s a eadngregona prvate equty rm wth partcuar experence n Chna. The partnershp between A SaamBank Bahran and CMiA w nvove an nta nvestment o up to US$ 100 mon n successumedum-szed companes seekng growth capta, across a dversed range o sectors. As one o theeadng emergng markets n the word, wth GDP gr owth orecast to average over nne per cent overthe next ew years, Chna oers sgncant attractve nvestment opportuntes.

Havng but a strong ppene o deas, the prospect or the Banks nvestment actvtes n 2007 sextremey postve. The Bank has dented a number o new attractve rea estate opportuntes nBahran, the GCC and South East Asa, as we as promsng prvate equty opportuntes n emergngmarkets such as Chna, the Asan Subcontnent, and other Asa-Pacc countres.

Management Revew o Operatons & Actvtes (contnued)

Treasury & Capta Markets

One o the key strategc objectves o A Saam Bank - Bahran s to be recognsed as a eadngprovder o isamc treasury and asset management products and servces, and to deveop a strongreputaton wth isamc and conventona nanca nsttutons. Durng 2006, the Bank estabshed anumber o specast teams responsbe or managng propretary treasury and reated actvtes, andaso or provdng treasury and asset management servces to nsttutona, corporate and prvatecents. Core actvtes ncude nanca nsttutons reatonshps, asset and abty management,oregn exchange and commodtes, product structurng actvtes, and nvestment n equtes andsecurtes.

As a start-up entty, wth no estabshed track record or externa ratngs hstory, the Bank aces thechaenge o beng abe to attract unrestrcted nvestment deposts. However, wth the cabre andcredentas o the Banks Senor Management, and ts success n estabshng reatonshps wth othernanca nsttutons, A Saam Bank Bahran was abe to rase a consderabe amount o depostsrom nterbank Murabaha and Mudaraba durng the rst perod o operatons.

Trust Servces

Durng 2006, A Saam Bank - Bahran ocused on deveopng a range o nnovatve Shara-compant

trust servces the rst to be oered by an isamc bank or corporatons, amy busnesses, hghnet worth ames and ndvduas, whch are panned to be ormay aunched n 2007.

The Bank ntay pans to provde oshore trust servces to meet tax, nhertance, weath consodaton,and other specc needs o ts cents. There s a arge untapped potenta or isamc trust busnessn the regon, and the Bank has aready been approached by hgh net worth ndvduas wshng toava themseves o such servces

Fnance & Credt Group

The Fnance Group comprses the unctons o Fnanca Contros, Management inormaton Systems(MiS), Credt, and investment Admnstraton.

Durng 2006, the Group estabshed a robust strategc busness pan and the reportng requrementsnecessary to meet the medum term needs o r eguators as we as the Board and Senor Managemento the Bank. The Group aso successuy mpemented the accountng and reportng modues o thecore bankng system. Currenty, the Group s n the process o seectng and mpementng a data

warehousng souton or budgetng, reguatory reportng and management accountng to producetmey and accurate reports to support the busness requrements. Ths process w be competeddurng 2007 and w provde reevant and reabe normaton to enabe e ectve decson makng.

On the Credt ront, the Group s actvey nvoved n workng wth the Rsk Group n the pocyormuaton as ar as credt rsk s concerned. in addton, the Group s responsbe or credt anayssand recommendaton, credt admnstraton, and ongong montorng o a the credt actes.Durng 2006, the Group deveoped rsk ratng crtera or nancng actes to nanca nsttutons,corporates and reta cents. The Group has aso made good progress n deveopng an interna RskGradng System to provde a systematc methodoogy or anayzng credt rsk across the Bank n aconsstent manner.



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Operatons, iT and Support Servces Group

Durng 2006, A Saam Bank - Bahran estabshed a number o specased support unctons, ncudnghuman resources, normaton technoogy, admnstraton, bankng operatons and corporatecommuncatons, to support the Banks busness dvsons.

in the area oHuman Resources, the Bank was successu n dentyng and attractng some o thebest peope n the ndustry. The Bank now has n pace a hgh-cabre management team, and hased a key bankng and support postons. Ths was a consderabe achevement, gven the mtedavaabty o experenced and quaed isamc bankng proessonas due to the rapd growth o thendustry and the entry o many new payers to the market.

The chaenge now s to mnmze sta attrton n a hghy compettve market, whe contnung toattract addtona resources to support the Banks gr owth and expanson. Accordngy, the Bank hasretaned the servces o a eadng nternatona HR consutancy to deveop a rst cass managementperormance and measurement system, and ntroduce a sta ncentve program.

Inormation Technology has become a crtca busness drver and vaue-added enaber or nancansttutons. in 2006, the Bank sgned an agreement wth the Swss iT system provder Temenos orthe provson o a state-o-the-art core bankng system. Phase one o the mpementaton pan was

competed beore the year-end, wth the successu testng and commssonng o a genera edgerappcaton. Subsequent phases, ncudng crtca ront oce cent-acng appcatons, are due tobe mpemented to support the aunch o u-fedged bankng operatons durng the rst quarter o2007.

A key Administration achevement durng 2006 was the dentcaton o a sutabe new headquartersbudng and the smooth reocaton rom the Banks nta temporary accommodaton, whch wasacheved by the targeted date o November 2006. The new premses provdes a smart workngenvronment or sta and comortabe and convenent actes or cents. The Bank now has n paceecent support servces, ncudng saety and securty, mantenance, and ma and cargo, as we asa uy automated purchasng system.

Banking Operations s a key back oce uncton, responsbe or ensurng the accurate, smooth,speedy and hgh quaty processng o a bankng transactons. Durng 2006, the Bank estabshednostro correspondent reatons wth a number o oca, regona and goba nanca nsttutons, andacheved SWiFT membershp and connectvty.

The Bank s commtted to adoptng the hghest nternatona standards oCorporate Communications.Durng 2006, poces and procedures were deveoped and ntroduced to ensure that acommuncatons wth the Banks stakehoders both nterna and externa are conducted n aproessona, transparent, accurate and tmey manner, and that the Banks mage and brand equty sadequatey protected. A pro-actve reatonshp wth the meda was estabshed, an normatve anduser-rendy webste was aunched, and a range o hgh quaty corporate and marketng coateraand exhbton support materas were produced.


At A Saam Bank - Bahran we apprecate the act that we are n the busness o takng rsks and oursuccess s argey dependent on how ecenty we denty, measure, contro and manage these rsks.Hence, we vew rsk management as a core competency and rom a strategc pont o vew, we vewthe Base ii Accord as a catayst to the successu mpementaton o rsk management n the Bank.

The undamenta prncpe underyng our rsk management ramework s ensurng that acceptedrsks are wthn Board appr oved rsk appette and the returns ar e commensurate wth the rsks taken.The objectve s cr eatng sharehoder vaue through pr otectng the Bank aganst unoreseen osses,ensurng maxmzaton o earnngs potenta and opportuntes vs--vs the Banks rsk appette andensurng earnng stabty.

Wth ths n mnd, the Banks estabshment pan gave prorty to the deveopment o an e ectve andpractca rsk management ramework and ndependent rsk management and compance uncton nne wth best rsk management practce ocay and nternatonay, the requrements o Centra Banko Bahran and the Base ii Accord.

Rsk Management Framework

The rsk management ramework denes the rsk cuture o A Saam Bank - Bahran and sets the tonethroughout the Bank to practce the rght rsk behavor consstenty to ensure that there s aways abaance between busness prots and rsk appette.

The rsk management ramework acheves ths through the denton o the Banks key rskmanagement prncpes coverng credt, market, operatona, strategc and reputaton rsks, the roeand responsbtes o the Board, Rsk Management group and Senor Management towards rskmanagement, the rsk assessment methodoogy based on kehood and consequences, the majorrsk poces, procedures and rsk mts, the rsk management normaton systems and reports, thenterna contro ramework and the Banks approach to capta management. The eectveness othe rsk management ramework s ndependenty assessed and revewed through interna audts,Externa audts and Centra Bank o Bahran supervson.

Rsk Management & Compance


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As a resut, the rsk management ramework creates an agnment between busness and rskmanagement objectves.

Rsk Management & Compance (contnued)

Rsk Management and Compance Organsaton

A Saam Bank- Bahran rsk management uncton s headed by an ndependent Che Rsk Ocer &Compance Head wth drect reportng ne to the Che Executve Ocer.


Board Approved Poces, Procedures and lmts

Rsk AssessmentMethodoogy

Capta Management

in the cornerstone o a o ths, s the optmzaton o a rsk-reward reatonshp aganst the captaavaabe through a ocused and we montored capta management process nvovng RskManagement, Fnance and Busness groups.

Corporate Governance

The rsk management ramework s supported by an ecent Corporate Governance Frameworkdscussed on pages 28 to 30.

Rsks Ownershp

The mpementaton o the rsk management ramework bank-wde s the r esponsbty o the RskManagement & Compance Group. Ownershp o the varous rsks across the Bank es wth thebusness and support Heads and t s ther responsbty to ensure that these rsks are managed naccordance wth the rsk management ramework. Rsk Management w assst busness and supportheads n dentyng concerns and rsks, dentyng rsk owners, evauatng rsks as to kehood andconsequences, assessng optons or accommodatng the rsks, prortzng rsk management eorts,deveopng rsk management pans, authorzng mpementaton o rsk management pans andtrackng rsk management eorts.

Compance & Ant-Money launderng Unt

The Bank has estabshed an ndependent and ocused unt to coordnate the mpementaton ocompance and Ant-Money launderng and Ant-Terrorst Fnancng program. The program coverspoces and procedures or managng compance wth reguatons, ant-money aunderng, dscosurestandards on matera and senstve normaton and nsder tradng.

in ne wth ts commtment to combat money aunderng and terrorst nancng, A Saam Bank -Bahran through ts Ant-Money launderng poces ensures that adequate preventve and detectventerna contros and systems operate e ectvey. The poces govern the gudenes and proceduresor cent acceptance, mantenance and montorng n ne wth Centra Bank o Bahran and internatonastandards such as FATF 40 + 9 recommendatons.

The compance pr ogram aso ensures that a appcabe Centra Bank o Bahran reguatons arecomped wth and/or non-compance s detected and addressed n a tmey manner. The programncudes compance wth reguatons set by Bahran Stock Exchange and Mnstry o industry &Commerce.


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The Board s commtted to estabshng the hghest standards n corporate governance. To ths end,t has estabshed varous commttees n ne wth ndustry best practce and has aso drected theSenor Management to estabsh varous management commttees wth r eevant members. The BoardCharter mposes the hghest eve o ethca conduct; dong what t procams to be ts responsbty;reportng resuts wth accuracy and transparency n a tmey manner; and ensurng u compancewth the by-aws, a nd the rues and reguatons that govern the Ba nks busness. The Board hasadopted a Board Charter, whch together wth the Banks Memorandum and Artces o Assocatonand the Charters o varous Board Commttees, provdes the authorty and practces or governanceo the Bank.

The Board provdes centra eadershp to the Bank. it has estabshed and dened the objectves andstrateges that drect the ongong actvtes o the Bank to enabe t to acheve ts objectves. The roesand responsbtes o the Board o Drectors, ther ndependence, code o conduct and ethcs aredescrbed n the Board Charter.

The Bank s organzed as oows:

Corporate Governance

External Auditors

Sharehoders

Sharia Supervisory Board

Executve Commttee

Remuneraton Commttee

Audt Commttee

interna Audt Department

Shara Department

Management Commttees: Rsk/ Credt investment Asset labty inormaton Technoogy

Bankng

investments

Treasury & Fnanca Markets

Trust Servces

Rsk & Compance

Operatons, iTand Support Servces

Fnance & Credt

lega

Board o Drectors

Managng Drector

Che Executve Ocer

Support GroupsBusness Groups

2007 Pan

The ocus o the Rsk Management and Compance Group n 2007 w be on the mpementaton othe Rsk Management ramework, reated rsk poces and procedures, the Base ii Accord n ne wththe Centra Bank o Bahran tme-tabe and seected rsk management systems. Wth ths n mnd, ASaam Bank - Bahran w seek to everage Base ii as a catayst to mpementng best rsk managementpractces and osterng a common anguage or communcatng rsks to the Board, management andsta, sharehoders and cents.



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Board Commttees

Consstent wth the ndustrys best practce, the Board has estabshed three Commttees wth denedroes and responsbtes. The Standng Commttees o the Board are the Executve Commttee, theAudt Commttee, and the Remuneraton Commttee.

Executive Committee

Has deegated authorty wthn the overa Board authorty. Provdes drecton to the executvemanagement on a busness matters and assumes the roe o the Board to address matters arsngbetween Board meetngs. The Commttee s responsbe or busness matters concernng credt andmarket rsks, strategy revew and recommendaton to the Board.

Audit Committee

Has responsbty to assst the Boar d n dschargng ts oversght dutes reatng to matters such as rskand compance, ncudng the ntegrty o the Banks nanca statements, nanca reportng pr ocessand systems, nterna contros and nanca contros. The Commttee aso, acts as a ason between theExterna audtors and the Board and between the Reguators and the Board.

Remuneration Committee

The roe s to provde a orma and transparent procedure or deveopng a compensaton pocy or theManagng Drector, the Che Executve Ocer and senor management; ensures that compensatonoered s compettve, n ne wth the market/peer group and consstent wth the responsbtesassgned to empoyees. The Commttee approves poces coverng hrng, compensaton and tranng.in addton, the Commttee recommends to the Board speca compensaton pans, ncudng annuaperormance bonus and short/ong term ncentves, to a ttract, motvate and retan key empoyees.

Corporate Governance (contnued)

Commttee Roes and responsbtes

Credt/Rsk Commttee Recommendng the rsk pocy and ramework to the Board.Prmary roe s the seecton and mpementaton o rskmanagement systems, portoo montorng, stress testng,rsk reportng to Board, Board Commttees, Reguators andExecutve Management. in addton to these responsbtes,ndvdua credt transacton approva and montorng s anntegra part o the r esponsbtes.

Asset labty Commttee Ths Commttees prmary responsbty s to revew the tradngand qudty pocy or the overa management o the baance

sheet and ts assocated rsks.

investment Commttee The roe o the Commttee s to revew and approve atransactons reated to corporate and rea estate nvestments andmontorng ther perormance on an ongong bass. in add ton,the Commttee s responsbe to oversee the perormance othe und managers and recommend ext strateges to maxmzereturn to ts nvestors.

Technoogy Steerng Commttee TSC oversees the normaton technoogy uncton o the Bank.it recommends the annua iT budget and pans, drawn up naccordance wth the approved strategy or the Bank, to theCEO or submsson to the Board o Dr ectors or ther approva.it supervses the mpementaton o the approved iT annuapan wthn set deadnes and budgetary aocatons.

Management Committees

The Che Executve Ocer s supported by a number o management commttees each havng aspecc mandate to gve ocus to areas o busness, rsk and strategy. The varous commttees andther roes and responsbtes are:



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Code o Conduct

The Bank conducts tse n accordance wth the hghest standards o ethca behavour. A Codeo Busness Conduct has been deveoped to govern the persona and proessona conduct o astakehoders.

Compance

The Bank has n pace comprehensve poces and procedures to ensure u compance wth thereevant rues and reguatons o the Centra Bank o Bahran and the Bahran Stock Exchange, ncudngmoney aunderng, prudenta and nsder tradng reportng.

Communcatons

The Bank conducts a communcatons wth ts stakehoders n a proessona, honest, transparent,understandabe, accurate and tmey manner. Man communcatons channes ncude annua reports,corporate brochure and webste, and reguar announcements n the approprate oca meda and thenternet.


As nspred rom ts name A Saam Bank Bahran strves to spread peace, serenty and happnessto the members o the communty by ts conduct and support o varous soca mnded programmesn Bahran.As an isamc nanca nsttuton, A Saam Bank Bahran takes ts respnsbty very sncerey tocontrbute to the soca and economc we-beng o the communtes n whch t operates.

A Saam Bank Bahrans corporate soca responsbty ntatves cover three man areas: careeropportuntes or Bahran; contrbuton n the growth o the isamc bankng ndustry; and contrbutngto charty and donatons to worthwhe causes.

Career Opportuntes or Bahrans

in ne wth ts commtment to provdng young Bahran natonas wth rewardng career opportuntes,Bahrans accounted or 77 per cent o a empoyees at the end o 2006. A Saam Bank Bahrans rewardng the Bahran natonas or ther nvauabe contrbuton to the Banks success wth theoowng:

Compettve remuneraton package. Free medca takau or sta and ther ames.

le and persona accdent takau. Free reta-bankng basc servce or sta and ther ames. Taored n-house, oca and overseas tranng courses. Soca actvtes ed by the executve management and Board members.

Partcpatng n the growth o the isamc Bankng ndustry

The Bank s equay commtted to contrbutng to the growth and deveopment o the isamc bankngand nance ndustry. in 2006, the Bank sponsored and supported the oowng:

The pubcaton o the thrd Word isamc Bankng Conerence McKnsey CompettvenessReport.

The ntatves o the Bahran insttute o Bankng and Fnance and Accountng. The Bahran-based Audtng & Accountng Organzaton or isamc Fnanca insttutons. The isamc Fnanca Servces Board n Maaysa.

Contrbutng to charty and donatons

Aso durng 2006, the Bank made nanca donatons to a number o chartabe, soca, cutura,scentc, medca and educatona organzatons, and other worthwhe causes. The bank has setasde part o ts 2006 prot or chartabe actvtes, soca weare and other donatons n 2007.

Corporate & Soca Responsbtes


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Al SAlAM BANK- BAHRAiN B.S.C. 31

Fnanca Statements Shara Supervsory Board Report

in the name o Aah, The Benecent, The MercuPrase be to Aah, the lord o the words, and bessng and peace be upon Hs Pr ophet Mohammad

and the peope o Hs house and Hs companons.

Frsty:

The Shara Supervsory Board (The Board) o A-Saam Bank Bahran B.S.C. supervsed the Banksactvtes and transactons whch were carred out durng the year. They guded the varous departmentso the Bank to compy wth the prncpes o isamc Shara and wth specc Fatwa rungs andgudenes ssued by the Board wth regards to those actvtes and transactons. The Board hasconducted varous meetngs wth the Banks Management and acknowedged that they have beencompyng wth the prncpes o isamc Shara and the Shara Supervsory Board Fatwas.

Secondy:

The Board has revewed the contract and agreement tempates and asked the Banks management tompement those tempates. Moreover, the Board decded to prepare a pan or the empoyees to betraned n the new Shara agr eements and ths shoud be mpemented mmedatey.

Thrdy:

The Board has revewed the nanca statements and the reated notes and dscosures. The Boardbeeves that:

1. These nanca statements ary represent the Banks assets and r evenues.2. The Bank receved varous deposts as Wakaa nvestments or Reverse Murabaha where prots

were pad to account hoders. The Board r ecommended preparng a comprehensve system toreceve deposts and dstrbute the prots between the sharehoders and the account hoders.These deposts shoud be commnged wth the sharehoder unds n one poo and nvested nShara compant nvestments such as Murabaha, istsnaa or ijarah contracts etc.

We pray that Aah may Grant a o us Further Success and Prosperty

Shara Supervsory Board Members:

Shakh Adnan Abduah A QattanMember o Shara Supervsory Board

Dr. Shakh A Mohammed AbduhakeemMember o Shara Supervsory Board

Dr. Shakh A. Hussen Hamed HassanCharman o Shara Supervsory Board

Dr. Shakh A MohuddnMember o Shara Supervsory Board


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iNDEPENDENT AUDiTORS REPORT TO THE SHAREHOlDERS OF Al SAlAM BANK- BAHRAiN B.S.C.

We have audted the accompanyng nanca statements o A-Saam Bank Bahran B.S.C. (the Bank),

whch comprse the baance sheet as at 31 December 2006 and the ncome statement, statement ochanges n equty and cash fow statement or the perod 19 January 2006 to 31 December 2006, anda summary o sgncant accountng poces and other expanatory notes.

Board o Drectors Responsbty or the Fnanca Statements

The Board o Drectors are responsbe or the preparaton and ar pr esentaton o these nancastatements n accordance wth both Fnanca Accountng Standards ssued by Accountng andAudtng Organzaton or isamc Fnanca insttutons, to operate n accordance wth isamc Sharaand internatona Fnanca Reportng Standards. Ths responsbty ncudes: desgnng, mpementngand mantanng nterna contros reevant to the preparaton and ar presentaton o nancastatements that are ree rom matera msstatement, whether due to raud or error; seectng andappyng approprate accountng poces; and makng accountng estmates that are reasonabe n thecrcumstances. in addton, the Board o Drectors ar e responsbe or the banks undertakng to operaten accordance wth isamc Shara Rues and Prncpes.

Audtors Responsbty

Our responsbty s to express an opnon on these nanca statements based on our audt. Weconducted our audt n accordance wth internatona Standards on Audtng and Audtng Standardsssued by Accountng and Audtng Organzaton or isamc Fnanca insttutons. Those standardsrequre that we compy wth ethca requrements and pan and perorm the audt to obtan reasonabeassurance as to whether the nanca statements are ree rom matera msstatement.

An audt nvoves perormng procedures to obtan audt evdence about the amounts and dscosuresn the nanca statements. The procedures seected depend on the audtors judgement, ncudng theassessment o the rsks o matera msstatement o the nanca statements, whether due to raud orerror. in makng those rsk assessments, the audtor consders nterna contros reevant to the enttyspreparaton and ar presentaton o the nanca statements n order to desgn audt proceduresthat are approprate or the crcumstances, but not or the purpose o expressng an opnon on theeectveness o the enttys nterna contros. An audt aso ncudes evauatng the approprateness oaccountng poces used and the reasonabeness o accountng estmates made by management, aswe as evauatng the overa presentaton o the nanca statements.

We beeve that the audt evdence we have obtaned s sucent and approprate to provde a bassor our audt opnon.

Opnon

in our opnon, the nanca statements present ary, n a matera respects, the nanca poston othe Bank as o 31 December 2006 and o ts nanca perormance and ts cash fows or the perod 19January 2006 to 31 December 2006 n accordance wth Fnanca Accountng Standards ssued by theAccountng and Audtng Organzaton or isamc Fnanca insttutons and the isamc Shara Ruesand Prncpes as determned by the Shara Supervsory Board o the Bank.

Audtors Report

in addton, n our opnon, the nanca statements present ary, n a matera respects, the nanaposton o the Bank as o 31 December 2006 and o ts nanca perormance and ts cash fows or theperod 19 January 2006 and 31 December 2006 n accordance wth internatona Fnanca Reportng

Standards.

Other Reguatory Matters

We conrm that, n our opnon, proper accountng records have been kept by the Bank and thenanca statements, and the contents o the Report o the Board o Drectors r eatng to these nancastatements, are n agreement therewth. We urther report, to the best o our knowedge and bee,that no voatons o the Bahran Commerca Companes law, nor o the Centra Bank o Bahran andFnanca insttutons law, nor o the memorandum and artces o assocaton o the Bank have occurreddurng the perod 19 January 2006 to 31 December 2006 that mght have had a matera adverse eecton the busness o the Bank or on ts nanca poston, and that the Bank has comped wth the termso ts bankng cence. We obtaned a the normaton and expanatons whch we requred or thepurpose o our audt.

28 January 2007Manama, Kngdom o Bahran

Audtors Report (contnued)


19/29


Baance Sheet

31 December

2006

Notes BD

ASSETS

Cash and baances wth Centra Bank o Bahran 3 2,942,042

Murabaha and Mudaraba wth banks 4 105,089,786

Murabaha nancng 22,963,267

ijarah Muntaha Bttameek 10,382,429

Non-tradng nvestments 5 32,618,646

investment propertes 1,177,528

Recevabes and prepayments 6 10,857,954

Premses and equpment 2,026,884

TOTAL ASSETS 188,058,536

LIABILITIES, UNRESTRICTED INVESTMENT ACCOUNTS AND EQUITY

LIABILITIESMurabaha rom banks 23,647,305

Customers current accounts 5,673,812

Other abtes 2,223,863

31,544,980

UNRESTRICTED INVESTMENT ACCOUNTS 7 20,111,967

EQUITY

Share capta 8 120,000,000

Treasury stock 8 (17,203)

Reserves and retaned earnngs 9 16,418,792

136,401,589

TOTAL LIABILITIES, UNRESTRICTED INVESTMENTS ACCOUNTS188,058,536

The nanca statements have been authorsed or ssue n accordance wth a resouton o the Boar d oDrectors on 28 January 2007.

Mohammed Al-Abbar

CharmanHussein Mohammed Almeeza

Vce Charman & Managng DrectorYousi Taqi

Che Executve Ocer

31 December 2006

The notes on pages 38 to 55 orm part o these nanca statements.

AND EQUITY

Statement o income

Period rom

19 January

2006 to 31

December

2006

BD

OPERATING INCOME

income rom Murabaha and Mudaraba 8,501,816

income rom other isamc nancng contracts 643,221

9,145,037

Prot pad on Murabaha rom banks (42,368)

Share o prot to unrestrcted nvestment account hoders (387,697)

8,714,972

Gan o n nvest ments desgnated at a r vaue thr ough pr ot or oss 11,443,688

Fees and commsson 254,381

Foregn exchange gans 15,792

TOTAL OPERATING INCOME 20,428,833

OPERATING EXPENSES

Sta costs 2,393,760

Premses and equpment cost 219,525

Deprecaton 54,633

Other operatng expenses 1,342,123

TOTAL OPERATING EXPENSES 4,010,041

NET PROFIT FOR THE PERIOD 16,418,792

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 108,977,778

BASIC AND DILUTED EARNINGS PER SHARE (FILS) 151

19 January 2006 to 31 December 2006



20/29


Period rom

19 January

2006 to 31December

2006

OPERATING ACTIVITIES BD

Net prot or the perod 16,418,792

Adjustments:

Deprecaton 54,633

Changes n ar vaue o nvestments carred at ar vaue through prot or oss (11,443,688)

Operatng nco me beo re changes n operat ng assets and a btes 5 ,02 9,7 37

Mandatory reserve wth Centra Bank o Bahran (930,000)

Murabaha and Mudaraba wth Banks wth orgna maturtes o 90 days or more (14,816,100)

Murabaha nancng (22,963,267)

ijarah Muntaha Bttameek (10,382,429)

Recevabes and prepayments (10,857,954)

Customers current accounts 5,673,812

Murabaha rom banks 23,647,305

Other abtes 1,935,676

Net cash used in operating activities (23,663,220)

INVESTING ACTIVITIES

Premses and equpment (2,081,517)

investment propertes (1,177,528)

Non-tradng nvestments (20,886,771)

Net cash used in investing activities (24,145,816)

FINANCING ACTIVITIES

issue o equty shares, net o treasury stock 119,982,797

Unrestrcted nvestment accounts 20,111,967

Net cash rom fnancing activities 140,094,764

CASH AND CASH EQUIVALENTS AT 31 DECEMBER 92,285,728

Cash and cash equivalents comprise o:

Cash and other baances wth Centra Bank o Bahran 505,920

Baances wth other banks 1,506,122

Murabaha and Mudaraba wth banks wth orgna maturtes o ess than 90 days 90,273,686

92,285,728


Statement o Cash Fows


Share

Capital

Treasury

Stock

Statutory

Reserve

Retained

Earnings

Investment

Reserve Total Equity

BD BD BD BD BD BD

Proceeds romssue o sharecapta (Note 8) 120,000,000 (17,203) - - - 119,982,797

Net prot or theperod - - - 16,418,792 - 16,418,792

Transer to statutoryreserve (Note 9) - - 1 ,641,879 (1, 641, 879) - -

Transers - - - (11,443,688) 11,443,688 -

Balance at

31 December 2006 120,000,000 (17,203) 1,641,879 3,333,225 11,443,688 136,401,589


Statement o Changes in Equty



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1 iNCORPORATiON AND PRiNCiPAl ACTiViTiES

a) incorporaton

A-Saam Bank-Bahran B.S.C. (the Bank) was ncorporated n the Kngdom o Bahran under theBahran Commerca Companes law No. 21/2001 and was regstered wth the Mnstry o industry andCommerce under Commerca Regstraton Number 59308 on 19 January 2006. The Bank s r eguatedand supervsed by the Centra Bank o Bahran (CBB) (ormery the Bahran Monetary Agency) and hasa reta isamc bankng cence and s operatng under isamc prncpes, and n accordance wth athe reevant reguatory gudenes or isamc banks ssued by the CBB. The Banks regstered oce sP.O. Box 18282, Budng 22, Avenue 58, Bock 436, A See Dstrct, Kngdom o Bahran.

b) Prncpa actvtes

The Consttuent Statutory Genera Assemby Meetng hed on 17 Apr 2006 decared commencemento commerca operatons wth eect rom the date o that meetng. The Bank oers a u range oisamc bankng servces and products. The actvtes o the Bank ncude acceptng Shara moneypacements/deposts, managng Shara prot sharng nvestment accounts, oerng Shara nancngcontracts, deang n Shara compant nanca nstruments as prncpa/agent, managng Sharacompant nanca nstruments and other actvtes permtted or under the CBBs Reguated BankngServces as dened n the censng ramework.

2 ACCOUNTiNG POliCiES

2.1 BASiS OF PREPARATiON

The nanca statements are prepared on a hstorca cost bass, except or nvestments hed at arvaue through prot or oss, nvestment propertes and avaabe-or-sae nvestments, that have beenmeasured at ar vaue.

Statement o compance

The nanca statements o the Bank are prepared n accordance wth the Fnanca AccountngStandards (FAS) ssued by the Accountng and Audtng Organsaton or isamc Fnanca insttutons(AAOiFi) and internatona Fnanca Reportng Standards (iFRS) and n conormty wth the BahranCommerca Companes law and the Centra Bank o Bahran and Fnanca insttutons law.

These nanca statements are presented n Bahran dnars, beng the unctona currency o theBank.

2.2 SiGNiFiCANT ACCOUNTiNG JUDGEMENTS AND ESTiMATES

The preparaton o the nanca statements requres management to make judgements and estmatesthat aect the reported amount o nanca assets and abtes and dscosure o contngent abtes.These judgements and estmates aso aect the revenues and expenses and the resutant provsonsas we as ar vaue changes reported n equty.

Judgements are made n the casscaton o avaabe-or-sae, ar vaue through prot or oss or hed-to-maturty nvestments based on managements ntenton at acquston o the nanca asset. As uydescrbed beow, judgements are aso made n determnaton o the objectve evdence that a nancaasset s mpared.

Notes to the Fnanca Statements

2.2 SiGNiFiCANT ACCOUNTiNG JUDGEMENTS AND ESTiMATES (contnued)

Classfcaton o nvestments

Management decdes upon acquston o an nvestment whether t shoud be cassed as ar vauethrough prot or oss, avaabe or sae or hed-to-maturty.

imparment o avalable-or-sale equty nvestments

The Bank treats avaabe-or-sae equty nvestments as mpared when there has been a sgncantor proonged decne n the ar vaue beow ts cost or where other objectve evdence o mparmentexsts. in addton, the Bank evauates other actors, ncudng norma voatty n share prce orquoted equtes and the uture cash fows and the dscount actors or unquoted equtes.

Estmaton uncertanty

The key assumptons concernng the uture and other key sources o estmatng uncertanty at thebaance sheet date, that have a sgncant rsk o causng a matera adjustment to the carryng amountso assets and abtes wthn the next nanca year are dscussed beow:

imparment losses on fnancal contracts

The Bank revews ts probem nanca contracts on a reguar bass to assess whether a provson ormparment shoud be recorded n the statement o ncome. in partcuar, consderabe judgementby management s requred n the estmaton o the amount and tmng o uture cash fows whendetermnng the eve o provsons requred. Such estmates are necessary based on assumptonsabout severa actors nvovng varyng degrees o judgment and uncertanty, and actua resuts mayder resutng n uture changes to such provsons.

Collectve mparment provsons on fnancal contracts

in addton to specc provsons aganst ndvduay sgncant nanca contracts the Bank asoconsders the need or a coectve mparment provson aganst nanca contracts whch athoughnot speccay dented as requrng a specc provson have a greater rsk o deaut than whenorgnay granted. Ths coectve provson s based on any deteroraton n the status, as determnedby the Bank, o the nanca contract snce t was granted (acqured). The amount o the provsons based on the hstorca oss pattern or other contracts wthn each grade and s adjusted to refectcurrent economc changes.

Valuaton o unquoted equty nvestments

Vauaton o unquoted equty nvestments s normay based on one o the oowng:

recent arms ength market transactons; current ar vaue o another nstrument that s substantay the same ; the expected cash fows dscounted at current rates appcabe or tems wth smar terms and rsk

characterstcs; or other vauaton modes.

The Bank cabrates the vauaton technques perodcay and tests these or vadty usng ether prcesrom observabe current market transactons n the same nstrument or other avaabe observabemarket data.

Notes to the Fnanca Statements (contnued)


22/29


2.3 SUMMARY OF SiGNiFiCANT ACCOUNTiNG POliCiES

The prncpa accountng poces apped n the preparaton o these nanca statements are set out

beow:

Fnanca contracts

Fnanca contracts consst o cash and baances wth banks a nd the Centra Bank o Bahran, Murabaharecevabes (net o deerred prot), Mudaraba and ijarah Muntaha Bttameek. Baances reatng tothese contracts are stated net o provsons or mparment.

Murabaha recevabes

Murabaha recevabes are stated net o provson or mparment and deerred prots.

ijarah Muntaha Bttameek

ijarah Muntaha Bttameek assets comprses assets under ease, many arcrat, and and budngs,under terms that woud transer ownershp o the assets to thrd partes at the end o the respectveease perod.

Non-tradng nvestments

These are cassed as hed-to-maturty, avaabe-or-sae or ar vaue through prot or oss.

A nvestments are ntay recognsed at cost, beng the ar vaue o the consderaton gven ncudngacquston costs assocated wth the nvestment.

Foowng the nta recognton o nvestments, the subsequent perod-end reportng vaues aredetermned as oows:

investments held-to-maturty

investments whch have xed or determnabe payments and xed maturty whch are ntended to behed-to-maturty, are carred at amortsed cost, ess pr ovson or mparment n vaue.

investments avalable-or-sale

Ater nta recognton, nvestments whch are cassed avaabe-or-sae are normay remeasuredat ar vaue, uness the ar vaue cannot be reaby determned, n whch case they are measured atcost ess mparment. Far vaue changes are reported as a separate component o equty unt thenvestment s derecognsed or the nvestment s determned to be mpared. On derecognton ormparment the cumuatve gan or oss prevousy reported as cumuatve changes n ar vauewthn equty, s ncuded n the statement o ncome or the perod.

investments carred at ar value through proft or loss

investments n ths category are desgnated as such on nta recognton these nvestments areevauated on a ar vaue bass n accordance wth the rsk management pocy and ts nvestmentstrategy. These ncude a prvate equty nvestments ncudng those n jont ventures andassocates.

investments at ar vaue through prot or oss are recorded n the baance sheet at ar vaue. Changesn ar vaue are recor ded as Net gan or oss on nvestments desgnated at ar vaue through protor oss n the statement o ncome.


2.3 SUMMARY OF SiGNiFiCANT ACCOUNTiNG POliCiES (contnued)

investment propertes

investment propertes are those hed to earn r entas and/or or capta apprecaton. These are ntayrecorded at cost, ncudng acquston charges assocated wth the property.

Subsequent to nta recognton, a nvestment propertes are remeasured at ar vaue and changesn ar vaue are recognsed n the statement o ncome as gan or oss n nvestment propertes. Thear vaue o the nvestment propertes s determned ether based on vauatons made by ndependentvauers or usng nterna modes wth consstent assumptons.

investment reserve

Unreased gans resutng rom r evauaton o nvestments carred at ar vaue through pr ot or ossand nvestment propertes recorded n the statement o ncome are approprated to nvestmentrevauaton reserve n equty and are not avaabe or dstrbuton to the sharehoders. Upon dsposa othe nvestment carred at ar vaue through pr ot or oss or nvestment propertes, the cumuatvegans reated to the nvestment s transerred to retaned earnngs and s avaabe or dstrbuton.

Premses and equpment

Premses and equpment are stated a t cost ess accumuated deprecaton. Deprecaton s provdedon a straght-ne bass over the estmated useu ves o a premses and equpment, other thanreehod and and capta work-n-progress.

- Computer hardware and sotware 3-5 years

- Motor vehce 5 years

- Furnture and oce equpments 3 - 5 years

- leaseho d improvements Over the ease per od

Treasury stock

Treasury stock s stated at cost wth any gans and osses on sae recognsed n equty.

imparment and uncoectabty o nanca assets

An assessment s made at each baance sheet date to determne whether there s objectve evdencethat a specc nanca asset may be mpared. i such evdence exsts, any mparment oss, srecognsed n the statement o ncome.

imparment s determned as oows:

(a) or assets carred at amortsed cost, mparment s based on estmated cash fows dscountedat the orgna eectve prot rate;

(b) or assets carred at ar vaue, mparment s the derence between cost and ar vaue; and(c) or assets carred at cost, mparment s based on present vaue o uture cash fows dscounted

at the current market rate o return or a smar nanca asset.



23/29



For avaabe or sae equty nvestments reversa o mparment osses are recorded as ncreases n

cumuatve changes n ar vaue through equty.

in addton, a coectve provson s made to cover mparment or specc groups o assets wherethere s a measurabe decrease n estmated uture cash fows.

Osettng

Fnanca assets and nanca abtes can ony be oset wth the net amount beng reported n thebaance sheet when there s a egay enorceabe rght to set o the recognsed amounts and theBank ntends to ether sette on a net bass, or ntends to rease the asset and sette the abtysmutaneousy.

Empoyees end o servce benets

The Bank provdes end o servce benets to ts expatrate empoyees. Enttement to these benetss based upon the empoyees na saary and ength o servce, subject to competon o a mnmumservce perod. The expected costs o these benets are accrued over the perod o empoyment.

For natona empoyees, the Bank makes contrbutons to Genera Organsaton or Soca insurancecacuated as a percentage o the empoyees saares. The Banks obgatons are mted to thesecontrbutons, whch are expensed when due.

Revenue recognton

Murabaha

Where the ncome s quantabe and contractuay determned at the commencement o the contract,ncome s recognsed on a tme-apportoned bass over the perod o the contract based on theprncpa amounts outstandng. Where the ncome rom a contract s not quantabe, t s recognsedwhen reased. Accrua o ncome s suspended when the Bank beeves that the recovery o theseamounts may be doubtu or normay when the repayments are overdue by 90 days, whchever searer.

Mudaraba

income on Mudaraba transactons are recognsed when the rght to receve s estabshed or these are

decared by the Mudarb, whchever s earer.

Dvdends

Dvdends rom nvestments n equtes, other than those desgnated as ar vaue through prot oross, are recognsed when the rght to receve the dvdend s estabshed.

ijarah

ijarah Muntaha Bttameek ncome s recognsed on a tme-proportonate bass over the ease term.

Fees and commsson ncome

Fees and commsson ncome s recognsed when earned.



Far value o fnancal assets

For nvestments that are traded n organsed nanca markets, ar vaue s determned by reerenceto the prevang market bd prce on the baance sheet date.

For nvestments where there s no quoted market prce, a reasonabe estmate o ar vaue sdetermned by reerence to current market vaue o another nstrument, whch s substantay thesame, or s based on the assessment o uture cash fows. The cash equvaent vaues are determnedby the Bank at current prot rates or contracts wth smar terms and rsk characterstcs.

For nvestments havng xed or determnabe payments ar vaue s based on the net present vaueo estmated uture cash fows determned by the Bank usng current prot rates or nvestments wthsmar terms and rsk characterstcs.

Foregn currences

Foregn currency transactons are recorded at rates o exchange prevang at the vaue dates othe transactons. Monetary assets and abtes n oregn currences at the baance sheet date

are retransated at market rates o exchange prevang at that date. Gans and osses arsng ontransaton are recognsed n the statement o ncome. Non-monetary assets that are measured nterms o hstorca cost n oregn currences are recorded at rates o exchange pr evang at the vauedates o the transactons. Transaton gans or osses on non-monetary tems cassed as avaabe-or-sae are ncuded n equty unt the reated assets are sod or derecognsed at whch tme theyare recognsed n the statement o ncome. Transaton gans on assets and abtes cassed as arvaue through prot or oss are drecty recognsed n the statement o ncome.

Trade and settement date accountng

Purchases and saes o nanca assets are recognsed on the trade date, .e. the date that the Bankcommts to purchase or se the asset.

Derecognton o nanca assetsA nanca asset (n whoe or part) s derecognsed ether when the Bank has transerr ed substantaya the rsks and rewar ds o ownershp or when t has nether transerr ed nor retaned substantay athe rsks and rewards and when t no onger has contro over the asset or a proporton o the asset.

Derecognton o nanca abtes

A nanca abty s derecognsed when the obgaton under the abty s dscharged or canceedor expres. Where an exstng nanca abty s repaced by another rom the same ender onsubstantay derent terms, or the terms o an exstng abty are substantay moded, such anexchange or modcaton s treated as a derecognton o the orgna abty and the recognton o anew abty, and the derence n the respectve carryng amounts s recognsed n prot or oss.

Fducary assets

Assets hed n a ducary capacty are not treated as a ssets o the Bank.



24/29


25/29


10 RElATED PARTY TRANSACTiONS

Reated partes comprse major sharehoders, drectors o the Bank, cose members o ther a mes,

enttes owned or controed by them and companes aated by vrtue o common ownershpor drectors wth that o the Bank. The transactons wth these partes were made on commercaterms.

The sgncant baances wth reated partes at 31 December 2006 were as oows:

2006

Joint

Ventures

Directors

& Related

Entities

Senior

ManagementTotal

Assets BD BD BD BD

Murabaha nancng - 1,221,011 39,447 1,260,458

ijarah Muntaha Bttameek - 4,800,884 - 4,800,884

Liabilities

Customer current accounts 361,711 - - 361,711Un re st r cted nves tment accoun ts 4 ,332,436 9 , 052, 950 - 13, 385, 386

The ncome and expenses n respect o r eated partes ncuded n the nanca statements are asoows:

Income

income rom other isamc nancng contracts - 158,553 223 158,776

Fees and commsson - 21,101 - 21,101

Expenses

Share o prot to unrestrcted nvestment

account hoders 63,099 65,630 - 128,729

in addton to the above, ncome rom Murabaha and Mudaraba receved rom reated partes ncudeda prot o BD 3.77 mon whch was earned and receved through the co-ead manager, a reatedparty, n connecton wth nvestments made by the reated party on beha o the Bank usng the iPOproceeds.

Compensaton o key management personne, consstng soey o short-term benets, pad durngthe year was BD 1,229,200.

11 COMMiTMENTS

Undrawn nancng commtments

The Bank has a contracted commtment exprng n 2007 aggregatng to provde nance orBD 2,790,779 whch remaned undrawn as at the year end. in addton, the Bank had an undrawn capta


11 COMMiTMENTS (contnued)

commtment o BD 2,008,000 as o 31 December 2006 on account o nvestments. Commtments

generay have xed expraton dates, or other termnaton causes. Snce commtment may exprewthout beng drawn upon, the tota contract a mounts do not necessary represent uture cashrequrements.

Operatng ease commtment - Bank as essee

The Bank has entered nto a ve-year operatng ease or ts headquarters premses. Future mnmarentas payabe under the non-canceabe ease as at 31 December 2006 are as oows:

BD

Wthn 1 year 322,328

Ater one year but not more than ve years 978,984

1,301,312

12 CREDiT RiSK

Rsk management

Credt rsk s the rsk that one party to a nanca contract w a to dscharge an obgaton and causethe other party to ncur a nanca oss. The Bank contros credt rsk by montorng credt exposuresand contnuay assessng the c redtworthness o counterpartes.

Type o credt rsk

Varous contracts entered nto by the Bank comprse Murabaha recevabes, Mudaraba nvestments andijarah Muntaha Bttameek contracts. Murabaha recevabes contracts cover and, budng materas,motor vehces and others. Mudaraba nvestments consst o nancng transactons entered throughother isamc banks and nanca nsttutons. The varous nanca nstruments are:

Murabaha recevables

The Bank arranges Murabaha transactons by buyng a commodty (whch represents the object othe Murabaha) and then seng ths commodty to customers (benecary) ater addng a margn o

prot over the cost. The sae prce (cost pus prot margn) s repad n nstaments over the agreedperod.

Mudaraba nvestments

Mudaraba nvestments s a partnershp where the Bank, as an nvestor (Rab A-Ma), gves moneyto the nvestee (Mudarb) or nvestng or a dente perod o tme.

ijarah Muntaha Bttamleek

The ega tte o the eased asset under ijarah Muntaha Bttameek passes to the essee at the end othe ijarah term, provded that a ijarah nstaments are setted and the essee purchases the asset.



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13 CONCENTRATiON

Concentraton arses when a number o counterpartes are engaged n smar busness actvtes,

or actvtes n the same geographc regon, or have smar economc eatures that woud causether abty to meet contractua obgatons to be smary a ected by changes n economc, potcaor other condtons. Concentraton ndcates the reatve senstvty o the Banks perormance todeveopments aectng a partcuar ndustry or geographc ocaton. The Bank manages ts credt rskexposure through dverscaton o nancng actvtes to avod undue concentratons o rsks wthcustomers n specc ocatons or busnesses.

The dstrbuton o assets, abtes and unrestrcted nvestment accounts by geographc regon andndustry sector was as oows:

Assets

Liabilities,

Unrestricted

Investment

Accounts

& Equity

2006 2006

BD BDGeographic Region

GCC 153,948,549 48,318,047

Arab Word 17,250,408 -

Europe 16,581,353 3,338,900

Asa 255,606 -

Amerca 22,620 -

188,058,536 51,656,947

Equty - 136,401,589

188,058,536 188,058,536

Industry Sector

Tradng and manuacturng 6,668,012 3,225,972

Banks and nanca nsttutons 122,256,947 38,716,628

Rea estate 51,992,775 6,787,056

Avaton 4,800,884 -

indvduas 39,446 115,661

Others 2,300,472 2,811,630

188,058,536 51,656,947

Equty - 136,401,589

188,058,536 188,058,536


14 MARKET RiSK

Market rsk arses rom fuctuatons n goba yeds on nanca nstruments and oregn exchange

rates that coud have an ndrect e ect on the Banks assets vaue and equty prces. The Board has setmts on the rsk that may be accepted. Ths s montored on a reguar bass by the Asset and labtyCommttee o the Bank.

15 EQUiTY PRiCE RiSK

Equty prce rsk arses rom fuctuatons n equty prces. The Board has set mts on the amountand type o nvestments that may be accepted. Ths s montored on an ongong bass by the Banksinvestment Commttee.

16 PROFiT RETURN RiSK

As an isamc nsttuton, the Bank has exposure to fuctuatons n the ncome on ts assets and cost ots abtes. The Bank r ecognses ncome on certan nanca assets on a tme-apportoned bass. TheBank has set mts or prot return rsk.

The oowng tabe ndcates the gaps n the prot rate proe at the baance sheet date and theeectve yed/cost, set out as a percentage o prncpa, o assets/abtes on whch ncome s

generated or prot s payabe.

The Banks prot senstvty poston based on contractua reprcng arrangements or maturty at 31December 2006 has been shown n the oowng tabe:



27/29


16 PROFiT RETURN RiSK (contnued)

Up to 3

Months

3 Months to

1 Year

1 to 5

Years

Not Exposedto Proft

Rate Risk Total

EectiveProft

Rates

ASSETS BD BD BD BD BD

Cash & baances wthCentra Bank oBahran 2,942,042 - - - 2,942,042 -

Murabaha &Mudaraba wthbanks 90 ,27 3,6 86 14 ,81 6,1 00 - - 1 05,089 ,78 6 5.28%

Murabaha nancng 3,073,000 10,088,261 9,802,006 - 22,963,267 8.20%

ijarah MuntahaBt tameek 2,175,236 3,843,400 4,363,793 - 10,382,429 8.45%

Non-tradngnvestments - - 32,618,646 - 32,618,646 -

investment npropertes - - - 1,177,528 1,177,528 -

Recevabes andprepaymen ts 996,431 9 ,861,523 - - 10, 857,954 -

Premses andequpment - - - 2,026,884 2,026,884 -

99,460,395 38,609,284 46,784,445 3,204,412 188,058,536

LIABILITIES &

Murabaha rom banks 23,647,305 - - - 23,647,305 5.26%

Customers currentaccounts 5,673,812 - - - 5,673,812 -

Other ab tes 2,223,863 - - - 2,223,863 -

UNRESTRICTED

20,111,967 - - - 20,111,967 5.20%

51,656,947 - - - 51,656,947

Prot prcng gap 47,803,448 38,609,284 46,784,445 3,204,412 136,401,589

Cumuatve protprcng gap 47,803,448 86,412,732 133,197,177 136,401,589

UNRESTRICTED

INVESTMENT

ACCOUNTS

INVESTMENT

ACCOUNTS


17 CURRENCY RiSK

Currency rsk s the rsk that the vaue o a nanca nstrument w fuctuate due to changes n oregn

exchange rates. The Board has set mts on postons by currency. Postons are montored on a perodcbass to ensure postons are mantaned wthn estabshed mts.

Substanta porton o the Banks assets and abtes are denomnated n Bahran Dnars or US Doars.The Bank had the oowng sgncant net exposures denomnated n oregn currences as o 31December 2006:

2006

BD

US Doars 57,231,592

Saud Ryas 8,705,404

18 liQUiDiTY RiSK

lqudty rsk s the rsk that the Bank w be unabe to meet ts abtes as they a due. lqudtyrsk can be caused by market dsruptons or credt downgrades whch may mpact certan sources oundng. To mtgate ths rsk, management has dversed undng sources and assets are managedwth qudty n mnd, mantanng an adequate baance o cash and cash equvaents.The tabe beow summarzes the maturty proe o the Banks assets and abtes based on remanngcontractua repayment arrangements. Maturty perods or nvestments are based on expected extdates.



28/29


18 liQUiDiTY RiSK (contnued)

The maturty proe o assets and abtes as at 31 December 2006 s as oows:

Up to 3

months

3 months to 1

year 1 to 5 years Over 5 years Total

ASSETS BD BD BD BD BD

Cash & baances wthCentra Bank o Bahran 2,942,042 - - - 2,942,042

Murabaha and Mudarabawth banks 90,273,686 14,816,100 - - 105,089,786

Murabaha nancng 3,073,000 11,428,760 8,461,507 - 22,963,267

ijarah Muntaha Bttameek 354,774 534,408 9,493,247 - 10,382,429

Non-tradng nvestments - - 32,618,646 - 32,618,646

investment propertes - - - 1,177,528 1,177,528

Recevabes andprepayments 996,431 9,861,523 - - 10,857,954

Premses and equpment - - 2,026,884 - 2,026,884

97,639,933 36,640,791 52,600,284 1,177,528 188,058,536

LIABILITIES &

UNRESTRICTED

INVESTMENT

ACCOUNTS

Murabaha rom banks 23,647,305 - - - 23,647,305

Customers currentaccounts 5,673,812 - - - 5,673,812

Other abtes 2,223,863 - - - 2,223,863

UNRESTRICTED

INVESTMENT

ACCOUNTS 20,111,967 - - - 20,111,967

51,656,947 - - - 51,656,947

lqudty gap 45,982,986 36,640,791 52,600,284 1,177,528 136,401,589

Cumuatve qudty gap 45,982,986 82,623,777 135,224,061 136,401,589


19 SEGMENT iNFORMATiON

Prmary segment normaton

For management purposes, the Bank s organsed nto our major busness segments:

Commercal Bankng

prncpay managng Shara compant prot sharng nvestment accounts, and oerng Sharacompant nancng contracts and other Shara-compant products. Ths segment comprsescorporate bankng, reta bankng and prvate bankng and weath management. As o the year-end,reta bankng and prvate bankng and weath management were n the process o beng aunched.

Treasury

prncpay handng Shara-compant money market, tradng and treasury servces ncudng short-term commodty Murabaha.investments

prncpay the Banks propretary portoo and servng cents wth a range o nvestment products,

unds and aternatve nvestments.

Captal

manages the undepoyed capta o the bank by nvestng t n hgh quaty nanca nstruments,ncurs a expenses n managng such nvestments and accounts or the capta governance reatedexpenses.

These segments are the bass on whch the Bank reports ts prmary segment normaton. Transactonsbetween segments are conducted at estmated market rates on an arms ength bass. Transer chargesare based on a poo rate whch approxmates the cost o unds.

Segment normaton or the perod 19 January 2006 to 31 December 2006 was as oows:

Commercial

Banking Treasury Investments Capital Total

BD BD BD BD BD

Operatng ncome846,293 1,022,217 11,438,388 7,552,000 20,858,898

Segment resut 26,546 44,901 10,634,405 5,712,940 16,418,792

Other Inormation

Segment assets30,815,622 19,534,393 46,566,958 91,141,563 188,058,536

Segment abtes, 26,043,987 23,712,259 327,435 137,974,855 188,058,536



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Al SAlAM BANK- BAHRAiN B S C54 Al SAlAM BANK- BAHRAiN B S C 55

19 SEGMENT iNFORMATiON (contnued)

Secondary segment normaton

The Bank prmary operates n the GCC and derves substantay a ts operatng ncome and ncursa operatng expenses n the GCC.

20 FiDUCiARY ASSETS

Funds under management at the year-end amounted to BD 22,041,590. These assets are hed n aducary capacty and are not ncuded n the baance sheet.

21 SHARiA SUPERViSORY BOARD

The Banks Shara Supervsory Board conss

Annual Report 2006 Eng (1)

Documents

Transcript of Annual Report 2006 Eng (1)