One Page essay paper

CONSOLIDATED FINANCIAL

STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31st December 2021

CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 1One Page

CONSOLIDATED STATEMENT OF INCOME 2

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 3

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4

CONSOLIDATED STATEMENT OF CASH FLOWS 5

1 Incorporation and registration 6

2 Basis of preparation 6

3 Accounting policies 8

4 New and amended standards and interpretations 19

5 Accounting judgements estimates and assumptions 23One Page

6 Classification of assets and liabilities 24

7 Cash and other liquid assets 25

8 Securities purchased under agreements to resell 25

9 Placements 25

10 Trading securities 25

11 Investment securities 25

12 Loans and advances 27

13 Other assets 29

14 Post retirement benefits 29

15 Deposits 33

16 Securities sold under agreements to repurchase 33

17 Other liabilities 34One Page

18 Senior term financing 34

19 Share capital 34

20 Reserves 35

21 Dividends 35

22 Net interest income 36

23 Fee and commission income 36

24 Trading income 37

25 Foreign exchange income 37

26 Other income 37

27 Provision for expected credit losses 38

28 Taxation and zakat 38

29 Segmental information 39

30 Risk management 41

31 Geographical distribution of assets 52

32 Maturities of assets and liabilities 53

33 Interest rate risk 55

34 Derivatives and foreign exchange instruments 56

35 Credit-related financial instruments 61

36 Contingent liabilities 61

37 Capital adequacy 62

38 Fiduciary activities 62

39 Related party transactions 63

40 Fair value of financial instruments 64

41 Earnings per share 66

42 Principal subsidiaries 66One Page

43 Non-controlling interest 67

44 Average consolidated statement of financial position 68

45 Shariah compliant assets and liabilities 68

46 Comparatives 69

SUPPLEMENTARY DISCLOSURES TO THE CONSOLIDATED FINANCIAL INFORMATION 70

31st December 2021 GULF INTERNATIONAL BANK B.S.C.

A member firm of Ernst & Young Global Limited

Ernst & Young — Middle East P.O. Box 140 East Tower — 10th floor Bahrain World Trade Center Manama Kingdom of BahrainOne Page

Tel: +973 1753 5455 Fax: +973 1753 5405manama@bh.ey.com www.ey.com/mena C.R. no. 29977-1

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. Report on the Audit of the Consolidated Financial Statements Opinion We have audited the accompanying consolidated financial statements of Gulf International Bank B.S.C. (the “Bank”) and its subsidiaries (together the “Group”), which comprise the consolidated statement of financial position as at 31 December 2021, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2021, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”) as modified by the Central Bank of Bahrain (“CBB”). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in the Kingdom of Bahrain, and we have fulfilled our other ethical responsibilities in accordance with these requirements and IESBA. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended 31 December 2021. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9

Key audit matter How the key audit matter was addressed in the audit

The Group exercises significant judgment using subjective assumptions over both when and how much to record as loan impairment, and estimation of the amount of the Expected Credit Losses (“ECL”) for loans and advances.

The COVID-19 pandemic has impacted management determination of the ECL. This has resulted in an increased level of uncertainty associated with management judgement, which may result in outputs significantly different from the future credit losses and staging of the customers.

Loans and advances form a major portion of the Group’s assets, and due to the significance of the judgments used in classifying loans and advances into various stages stipulated in IFRS 9 and determining related ECL requirements, this audit area is considered a key audit risk.

As at 31 December 2021, the Group’s gross loans and advances amounted to US$ 11,952.6 million and the related impairment provisions amounted to US$ 295.1 million, comprising of US$ 128.7 million of provision against Stage 1 and 2 exposures and US$ 166.4 million against exposures classified under Stage 3.

The accounting policies relating to estimating ECL are presented in the accounting policies, and the associated credit risk disclosure is presented in Note 30 to the consolidated financial statements.

• We gained an understanding of the Group’s key credit processes comprising granting, booking, monitoring and provisioning, including an understanding of the design and operating effectiveness of relevant controls over the ECL model, including model build and approval, ongoing monitoring/validation, model governance and mathematical accuracy.

• We read the Group’s IFRS 9 based impairment provisioning policy and compared it with the requirements of IFRS 9 as well as relevant regulatory guidelines and pronouncements.

• We assessed the soundness of the Group’s loan grading processes.

Stage 1 and Stage 2 Provisions:

• For ECL against exposures classified as Stage 1 and Stage 2, we obtained an understanding of the Group’s provisioning methodology, the underlying assumptions and the sufficiency of the data used by management.

• We obtained an understanding of the Group’s internal rating model for loans and advances. We have read the annual external validation report on the internal rating model to assess the appropriateness of the rating model.

• We checked the appropriateness of the Group’s determination of significant increase in credit risk and the resultant basis for classification of exposures into various stages.

• For forward looking assumptions used by the Group in its ECL calculations, we held discussions with management and corroborated the assumptions using publicly available information. We also assessed the reasonableness of changes made to the economic scenarios to reflect the effect of COVID-19.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9 (continued)

Key audit matter How the key audit matter was addressed in the audit

• For a sample of exposures, we checked the appropriateness of the Group’s staging.

• For Probability of Default (“PD”) used in the ECL calculations we checked the Through the Cycle (“TTC”) PDs with internal historical data and checked the appropriateness of conversion of the TTC PDs to Point in Time PDs.

• We checked the appropriateness of the Loss Given Default used by the Group’s management in the ECL calculations.

• For a sample of exposures, we checked the appropriateness of determining Exposure at Default, including the consideration of repayments in the cash flows and the resultant arithmetical calculations.

• We checked the completeness of loans and advances and credit related contingent items included in the ECL calculations as of 31 December 2021.

• We involved Financial Services Risk Management and Information System specialists to verify the appropriateness of the model.

• We considered the adequacy of the disclosures in the consolidated financial statements in accordance with IFRS 9. Refer to the accounting policies, accounting judgements, estimates and assumptions, disclosures of loans and advances and credit risk management in notes 3, 5, 12 and 30 respectively to the consolidated financial statements.

• We assessed the basis of determination of the management overlays considering the impact of the COVID-19 global pandemic against the requirements of the Group’s ECL policy.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GULF INTERNATIONAL BANK B.S.C. (continued)

Report on the Audit of the Consolidated Financial Statements (continued)

Key audit matters (continued)

1. Impairment of loans and advances under IFRS 9 (continued)

Key audit matter How the key audit matter was addressed in the audit

Stage 3 (Specific) Provisions:

• For a sample of exposures determined to be individually impaired, we obtained an understanding of the latest developments in the counterparty’s situation and examined management’s estimate of future cash flows and checked the resultant provision calculations.

• For each exposure in the sample selected, we re-performed the provision calculation by considering the appropriateness of the management assumptions used and where possible benchmarked the provision held to that across the industry.

Other information included in the Group’s 2021 Annual Report Other information consists of the information included in the Group’s 2021 Annual Report, other than the consolidated financial statements and our auditor’s report thereon. The Board of Directors is responsible for the other information. Prior to the date of this auditor’s report, we obtained the Chairman’s Statement which will form part of the annual report, and the remaining sections of the annual report are expected to be made available to us after that date.

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

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of the auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.