Project paper:
Bahrain Islamic Bank vs. Emirates Islamic Bank
Accounting for Islamic financial transactions
FN 6103
By:
Omer Bin Thabet
0880944
1. Executive Summary
This paper tries to analysis the balance statements for both Bahrain Islamic Bank
(BIB) and Emirates Islamic Bank (EIB) for the duration from 2004-2007.therfore,
its better to start with short summary for each.
Bahrain Islamic Bank B.S.C. (“the Bank”) was incorporated in the Kingdom of
Bahrain in the year 1979 by Amiri Decree No.2 of 1979, under Commercial
Registration (CR) number 9900, to carry out banking and other financial trading
activities in accordance with the teachings of Islam (Sharia’a). The Bank operates
under a retail banking licence issued by the Central Bank of Bahrain (CBB). The
Bank’s Sharia’a Supervisory Board is entrusted to ensure the Bank’s adherence to
Sharia’a rules and principles in its transactions and activities.
The Bank holds 100% of the share capital of Abaa’d Real-Estate Company B.S.C.
(“Subsidiary”). The Subsidiary was incorporated in the Kingdom of Bahrain on 8
April 2003 with an authorized and fully paid-up share capital of BD 10 million. The
Subsidiary has started operations during the year 2007. The main activities of the
Subsidiary are the management and development of real estate in accordance with
the Islamic rules and principles.
The Bank’s registered office is at Building 722, Road 1708, Block 317, Manama,
and Kingdom of Bahrain. The Bank has twelve branches (2006: twelve), all
operating in the Kingdom of Bahrain
Emirates Islamic Bank formerly Middle East Bank (the “Bank”) was incorporated
by a decree of His Highness the Ruler of Dubai as a conventional Bank with limited
liability in the Emirate of Dubai on 3rd of October 1975. The Bank was reregistered
as a Public Joint Stock Company in July 1995.
At an extraordinary general meeting held on 10th of March 2004, a resolution was
passed to transform the Bank’s activities to be in full compliance with the Islamic
Sharia. The entire process was completed on 9th of October 2004 (the
“Transformation Date”) when the Bank obtained UAE Central Bank and other UAE
authorities’ approvals.
The Bank is a subsidiary of Emirates Bank International PJSC, Dubai (the “Group
Holding Company”).
In addition to its head office in Dubai, the Bank operates through 21 branches in the
UAE. The accompanying consolidated financial statements combine the activities of
the Bank’s head office and its branches and its subsidiaries. During the year ended
December 31, 2006, the Bank setup a brokerage company 'Emirates Islamic
Financial Brokerage' (the “Subsidiary”) a wholly owned subsidiary.
The Bank provides full banking services, and a variety of products through Islamic
financing and investing instruments.
2. Set of financial statement
This part summarize the financial statements( balance sheet, income statement, and cash
flow) for banks of time from 2004-2007.
BIB-Balance Sheet
Year
ASSETS
Cash and balances with the BMA and other
banks
Murabaha receivables
Mudaraba investments
Musharaka investments
Non-trading investments
Total Current Assets
Investments in associates
Investments in Ijarah assets
Ijarah Muntahia Bittamleek
2004
2005
2006
2007
9407
155476
11819
2721
55770
235,193
2953
5124
5116
10,448
156,421
29,459
9,889
80,749
286,966
3,382
5,174
11,876
15,469
241710
22,180
13,954
97,418
390,731
6,652
4,998
15,486
18,349
337055
43,609
39,426
156,161
594,600
7,045
5,893
13,574
Investments in properties
Ijarah rental receivables
Other assets
Other assets
Total None Current Assets
TOTAL ASSETS
LIABILITIES AND SHARE HOLDER'S
FUNDS
Current Liabilities
customers' current account
other liabilities
Total Current Liabilities
None Current Liabilities
unrestricted invesment account
Tatal None Current Liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share Capital
Reserves
share premium
retained earnings
proposed appropriate
Shareholders’ Funds
Total Share Holders Equity
TOTAL LIABILITIES AND
SHAREHOLDERS’ FUNDS
4044
2345
10,341
938
2,020
9,985
2,315
6,309
27,905
2,963
6,989
19,582
254,775
33,731
320,697
45,745
436,476
64,369
658,969
30,368
2,828
33,196
47,345
3,562
50,907
51,393
6,041
57,434
60,963
7,615
68,578
168,829
168,829
202,025
197,881
197,881
248,788
304,215
304,215
361,649
403,118
403,118
471,696
23,000
18,100
5,762
828
5,060
25,300
35,358
2,726
1,360
7,164
28,336
36,999
60,214
62,460
50,869
9,589
13,633
52,750
71,908
74,924
187,176
254,775
320,696
436,573
658,872
EIB-Balance sheet
Year
ASSETS
Cash, and balances with U.A.E Central Bank
Due from banks and other financial institutions
Due from Group Holding Company, net
Financing receivables
Loans and receivables
2004
2005
2006
2007
148764
19845
1417616
463593
39758
238,858
95,088
1,354,613
2,447,155
44,774
453,337
867,912
38,465
23,340
1,182,074
985,482
6,558,309
10,836,828
42,472
39,909
994,914
1,187,157
622,385
1,592,993
9,891,956
15,533,621
270,048
606,905
247,280
536,353
64,466
277,030
Investment securities designated at fair value
Other investments
Total Current Assets
Investment properties
Prepayments and other assets
Fixed assets
Other assets
339
2,089,915
172455
73007
10267
293,340
4,473,828
128,729
143,965
21,955
Total None Current Assets
TOTAL ASSETS
LIABILITIES AND SHARE HOLDER'S
FUNDS
Current Liabilities
customers' current account
other liabilities
Total Current Liabilities
None Current Liabilities
255,729
2,345,644
294,649
4,768,477
581,794
10,473,750
1,420,288
16,953,909
1,234,517
79,892
1,314,409
3,596,981
295,495
3,892,476
9,046,095
13,909,058
395,187
800,319
9,441,282
14,709,377
Due to banks and other financial institutions
14,768
2,080
0
198,066
214,914
1,529,323
17,932
5,704
0
0
23,636
3,916,112
55,983
158,200
10,613
13,426
500,000
106,935
64,857
650,000
111,233
54,308
Zakat payable
Investment Wakala
0
740,000
0
66,596
9,507,878
0
911,626
15,621,003
650,000
747,500
123,746
147,599
65,000
74,750
Revaluation reserve
-
144,000
Mudaraba pool reserve
-
6,175
due to group and holding company
Tatal None Current Liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital
Statutory reserve
General reserve
144,539
36,824
127,126
212,882
2,345,654
4,768,477
10,473,750
16,953,909
Retained earnings
TOTAL LIABILITIES AND
SHAREHOLDERS’ FUNDS
BIB- Income Statement
BIB
Year
Return on unrestricted investment accounts before
Bank’s share as a Mudarib
Bank’s share as a Mudarib
Return on unrestricted investment accounts
Bank’s share of income from unrestricted
investment
Income from investments
Gain on fair value adjustment for investments in
properties
Share of results of associates
Other income
Total income
EXPENSES
Staff costs
2004
2005
2006
2007
2,417
-343
2,074
5,627
-571
5,056
20,049
-7,389
12,660
25,433
-9,824
15,609
5,612
2,340
7,292
2,238
12,045
5,518
15,854
11,698
232
115
450
8,749
1,991
454
626
12,601
2,098
609
1,288
21,558
5,328
558
3,586
37,024
2,771
3,248
3,855
7,082
Depreciation
Other expenses
Total expenses
Net income before provisions
Provisions
Zakah
Net profit for the year
BASIC AND DILUTED EARNINGS PER SHARE
(fils)
545
1,421
4,737
4,012
-184
-123
3,705
564
1,399
5,211
7,390
0
0
7,390
2,854
1,646
8,355
13,203
-150
1,079
3,838
11,999
25025
0
13,053
25,025
15
30
41
64
2006
2007
277,407
498,399
100,684
40,620
25,391
69,784
42,521
129,855
EIB-income statment
Emirates
Income from financing activities, net
Income from investment securities designated at fair value
Income from other investments
Income from Group Holding Company, net
Property related income
Commissions and fees income, net
Other operating income
Total income before net interest
interest income
interest expenses
net interst income
Total Income
2004
2,089
2005
89,655
0
0
6,415
0
25,552
0
34,056
39,932
-9,045
30,887
64,943
0
0
34,990
8,986
55,391
58,900
0
-16,523
42,377
22,566
-2,996
19570
0.03
19,921
27,037
38,683
110,311
49,270
85,474
189,022
0
0
0
189,022
553,877
0
0
0
553,877
961,480
0
0
0
961,480
105,088
3,200
-6,575
101,713
87,309
-44,229
43080
0.07
161,695
271,050
2,508
5,817
33,903
41,872
198,106
318,739
355,771
642,741
-238,311
-404,208
117,460
238,533
0.16
0.32
EXPENSES
General and administrative expenses
Depreciation of investment properties
Allowances for impairment net of recoveries
TOTAL EXPENSES
NET OPERATING INCOME
Depositors’ share of profit
SHAREHOLDERS’ PROFIT (NET INCOME)
Earnings per share (Dirham)
BIB-Cash Flow
Bahrain Islamic bank
YEAR
2006
2007
13,053
25,025
2,845
150
-948
-2,098
-609
12,402
1,079
0
-190
-5,328
-558
20,028
Other liabilities
-1,550
-85,439
7,279
-4,065
-5,049
-1,377
-3,430
4,048
2,479
-4,770
-95,345
-21,429
-25,472
2,324
-648
-377
9,570
1,574
Net cash generated/(used in) from operating activities
-74,702
-114,545
1,305
0
-22,527
-2,714
-23,936
-14,042
-719
-50,551
0
-65,312
28,336
56,581
99,097
-5,667
-210
-170
0
102,109
0
0
106,237
-3,795
-120
-138
-75
177,967
3,471
4,483
-1,890
7,954
OPERATING ACTIVITIES
Net profit for the year
Adjustments:
Depreciation
Provisions
Gain on sale of investments in properties
Gain on fair value adjustment for investments in properties
Share of results of associates
Operating profit before working capital changes
WORKING CAPITAL ADJUSTMENTS:
Mandatory reserve with Central Bank of Bahrain
Murabaha receivables
Mudaraba investments
Musharaka investments
Ijarah Muntahia Bittamleek
Ijarah rental receivables
other assets
Customers’ current accounts
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchase) Proceeds of investments in properties
Purchase of investments in Ijarah assets
Purchase of investments
Proceeds from (Purchase of ) associates
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in capital
Share premium
Increase in unrestricted investment accounts
Dividends paid
Directors’ remuneration paid
Zakah paid
Charitable contributions paid
Net cash generated from financing activities
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS BROUGHT FORWARD
Foreign exchange differences on opening balance
CASH AND CASH EQUIVALENTS CARRIED FORWARD
ANALYSIS OF CASH AND CASH EQUIVALENTS
7,954
6,064
EIB-Cash Flow
Emirates Islamic bank
YEAR
CASH FLOWS FROM OPERATING ACTIVITIES
2006
2007
117,460
238,533
47,122
-4,697
-12,822
-66,033
-661
2,508
7,670
-5,704
84,843
-197,852
-750,473
-4,494,878
2,302
-103,315
5,446,539
78,528
65,694
73,728
-8,937
-10,678
5,065
5,817
14,162
-10,613
307,077
-368,282
2,804,344
-4,352,247
2,563
-289,073
4,862,963
403,063
3,370,408
-241,353
110,314
-916,653
31,086
-50,178
31
-1,066,753
-367,045
35,045
-1,370,711
211,733
-82,726
-1,573,704
0
0
-1,001,059
740,000
740,000
2,536,704
OPERATING ACTIVITIES
Net profit for the year
Adjustments:
Allowances for impairment on financing receivables
Gain on sale of investments
Gain on sale of investment properties
Loss/Gain on revaluation of investment securities
Gain on redemption of investment securities
Depreciation on investment properties
Depreciation on fixed assets
Zakat paid
Operating profit before working capital changes
Increase in reserves with UAE Central Bank
Decrease/increase in due from Group Holding Company
Increase in financing receivables
Decrease in loans and receivables
Increase in prepayments and other assets
Increase in customers’ accounts
Increase in other liabilities
Net cash generated/(used in) from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment properties
Proceeds from sale of investments properties
Purchase of investment securities
Proceeds from sale of investment securities
Additions to fixed assets
Proceed from sale of fixed assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
FINANCING ACTIVITIES
Investment Wakala
Net cash generated from financing activities
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS BROUGHT FORWARD
Foreign exchange differences on opening balance
CASH AND CASH EQUIVALENTS CARRIED FORWARD
ANALYSIS OF CASH AND CASH EQUIVALENTS
Cash and short term funds
1,319,668
318,609
318,609
2,855,313
6,847,135
7,484,090
3. Accounting policies ISRS and AAOIFI
Accountants inevitably make many accounting estimates and policy decisions when
preparing financial statements. They must select depreciable lives for long-lived assets,
choose an inventory costing method, make assumptions about pensions, and make many
more judgments. These accounting estimates are driven by an entity’s accounting policy
as it applies to the issues at hand. These decisions could significantly affect a company’s
financial statements and how users understand a company’s results and financial position.
There is no single list of accounting policies which are applicable to all circumstances.
The differing circumstances in which enterprises operate in a situation of diverse and
complex economic activity make alternative accounting principles and methods of
applying those principles acceptable. The choice of the appropriate accounting principles
and the methods of applying those principles in the specific circumstances of each
enterprise calls for considerable judgments by the management of the enterprise. The
following table summarizes the analysis of accounting policies within banks
Item
Balance sheet
Bahrain bank
Emirates bank
Notes
Have been prepared on a
historical cost basis,
except for investment in
properties and certain
investments “available
for sale” that have been
measured at fair value.
Historical cost
convention as modified
for the measurement at
fair value of financial
assets carried at fair
value through income
statement available for
sale investments.
Both banks use same
methods within 4 years
which comply with
IFRS.
None
Loans and receivables were
originated by the Bank
before the transformation
date of the Bank’s
EIB was comply with IFRS
regards the treatment of
this Product.
Assets:
Loans and
receivables
activities to be in full
compliance with the
Islamic Sharia. These are
reported net of impairment
allowance to reflect the
estimated recoverable
amounts
Investments in
associates
Ijarah/Lease
Investment/
Investments in
properties
Investments in
associates are accounted
for using the equity
method of accounting
from 2004-2007
These are initially
recorded at cost and
Depreciation is
calculated using the
straight-line method on
all Ijarah muntahiah
bitamlik
Initially recorded at cost
and measured at fair
value and changes in
fair value are recognized
income.
Investments in
associates are accounted
for using the equity
method of accounting
for the all yers.
IFRS requirements.
Recorded as financing
receivable and transfer all
risks to lessee.
It must be treated
receivables according to
IFRS like what EIB do,
but BIB treated as
operational assets.
Recognized at cost less
accumulated
depreciation and
impairment allowance,
if any.
Here banks deny with
IFRS because this profit
neither is nor realized.
Assets carried at fair value.
Difference between cost
and fair value, less any
impairment loss previously
recognized
in
the
consolidated
income
statement.
Assets carried at fair value.
Difference between cost
and fair value, less any
impairment loss previously
recognized
in
the
consolidated
income
statement.
Both are along with IFRS
and AAOIFI
Assets carried at cost.
Difference
between
carrying value and the
present value of future cash
flows discounted at the
current market rate of
return for a similar
financial asset.
Assets carried at cost.
Difference
between
carrying value and the
present value of future cash
flows discounted at the
current market rate of
return for a similar
financial asset.
Assets carried at amortized
cost. Difference between
carrying amount and the
present value of future cash
flows discounted at the
original effective profit
rate.
Assets carried at amortized
cost. Difference between
carrying amount and the
present value of future cash
flows discounted at the
original effective profit
rate.
historical cost
Fixed Assets are
recorded at cost, less
impairment allowance,
if any. Depreciation is
provided on a straightline basis over estimated
useful lives of all fixed
.
Financial assets
Fixed assets
Both comply with IFRS. in
same time they did separte
between them in balance
Sheet.
assets, other than
freehold land which is
not depreciated
Liabilities:
Unrestricted
investment account
holders
carried at cost plus
profit and related
reserves less amounts
repaid
Does not classify it under
its name.
Zakah
Zakah is paid by the Group
based on statutory reserve,
general reserve and
retained earning balances
at the beginning. of the
year. The remaining Zakah
is payable by individual
shareholders only.
There is no tax on
corporate income in the
Kingdom of Bahrain
Provisions are recognized
when the Group has a
present obligation arising
from a past event and the
costs to settle the
obligation are both
probable and able to be
reliably measured
Not practice
Recorded in liabilities side
and calculates Zakat based
on the guidance of its
Fatwa and Sharia
Supervisory Board
Tax
Provisions
Contingent
liabilities
Liable tax recorded
liability side
in
EIB follow FIRS to record
this liability because it not
fully adopts AAOIFI,
while BIB follows
AAOIFI.
Separate statement in BIB,
in liabilities side in EIB.
IFRS requirements.
Provisions are accounted
for when the Bank has an
obligation arising from a
past event, and the costs to
settle the obligation are
both probable and can be
reliably measured
IFRS
Not recognized in the
financial statements
Here EIB comply with
IFRS, but AAOIFI adopt
fully disclosure for all
liabilities.
Offsetting
Financial assets and
financial liabilities are only
offsetted and the net
amount is reported in the
consolidated balance sheet
when there is a legal
enforceable right to set off
the recognized amounts
Financial
assets
and
financial liabilities are only
offsetted and the net
amount is reported in the
consolidated balance sheet
when there is a legal
enforceable right to set off
the recognized amounts
Income is recognized on a
time-apportioned basis
over the period of the
contract based on the
principal amounts
outstanding.
Income is recognised on
the due dates of the
installments or when
received in case of sale
Musharaka
Income is recognised when
it is quantifiable or on
distribution by the
profit is recognized as it
accrues over the period of
the contract on effective
profit rate method on the
balance outstanding
According to IFRS and
AAOIFI
Not practice
According to IFRS and
AAOIFI
Income is recognised when
it is quantifiable or on
distribution by the
According to IFRS and
AAOIFI
Income Statement
Murabaha
receivables
Musharaka
investments
Mudaraba
investments
Mudarib, whereas the
losses are charged to
income on their declaration
by the Mudarib.
Dividends revenue is
recognized when the right
to receive the dividend is
established.
Mudarib, whereas the
losses are charged to
income on their declaration
by the Mudarib.
Dividend income is
recognized when the right
to receive it, is declared.
Ijarah and Ijarah
Muntahia
Bittamleek
Ijarah income and income
from Ijarah Muntahia
Bittamleek are recognised
on a time-apportioned basis
over the lease term against
depreciation and
maintenance costs.
Income from Ijarah is
recognized on an accrual
basis over the period of the
contract. They not adopt
ijarah muntahia bitamlik.
IFRS did not recognize any
losses (financial lease) like
what EIB did. But banks
BIB follow AAOIFI and
treat it as operation lease.
Wakala
Not practice
Is recognized on an accrual
basis over the period,
adjusted by actual income
when received. Losses are
accounted for on the date
of declaration by the agent
IFRS treatment.
Fee and commission
income
Income allocation
Fee and commission
income is recognized when
earned
Income is allocated
proportionately between
unrestricted investment
accounts and shareholders
on the basis of the average
balances outstanding
during the year
Prepared according to
IFRS requirement for all
years as well as AAOIFI.
Recognized off-balance
sheet includes: balance of
restricted accounts at the
beginning of the period,
number of investment
units, deposits received or
investment units,
withdrawals or repurchase
of units during the period.
No change in its
accounting policies within
these four years.
Dividends
Cash flow:
Restricted
investment
account:
Change in
Accounting policies
Both are Comply with
IFRS.
According to IFRS and
AAOIFI
allocated between
unrestricted investment
accounts and shareholders
on the basis of the average
balances outstanding
during the year
According to IFRS and
AAOIFI
Prepared according to
IFRS requirement for all
years
No separate statement for
this account instead it
recorded in liabilities side
with other liabilities.
Comply with IFRS.
The Bank has changed its
accounting policy related
to amortization of deferred
income
on
financing
receivables. Previously the
Bank used to amortize its
deferred income on straight
line basis (equally over the
period of the contract).
During 2004, 2005, and
2006 the Bank adopted the
effective rate of return
method in accordance with
IFRS 39.
Due to its change to fully
Islamic bank (no more
loans).
BIB follows AAOIFI
standards in this matter
while EIB adopts IFRS
because this deposit handle
for special investments
which out of bank
obligation according to
AAOIFI.
4. Vertical analysis
BIB -balance sheet
Year
Cash and balances with the BMA and other banks
Murabaha receivables
Mudaraba investments
Musharaka investments
Non-trading investments
Total Current Assets
Investments in associates
Investments in Ijarah assets
Ijarah Muntahia Bittamleek
Investments in properties
Ijarah rental receivables
Other assets
Other assets
Total None Current Assets
TOTAL ASSETS
LIABILITIES AND SHARE HOLDER'S
FUNDS
Current Liabilities
customers' current account
other liabilities
Total Current Liabilities
None Current Liabilities
unrestricted invesment account
Tatal None Current Liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share Capital
Reserves
share premium
retained earnings
proposed appropriate
Shareholders’ Funds
Total Share Holders Equity
TOTAL LIABILITIES AND
SHAREHOLDERS’ FUNDS
2004
4%
66%
5%
1%
24%
100%
15.1%
26.2%
26.1%
20.7%
0.0%
12.0%
0.0%
100.0%
91.5%
8.52%
100.00%
100%
100%
Vertical Analysis
2005
2006
3.6%
4.0%
54.5%
61.9%
10.3%
5.7%
3.4%
3.6%
28.1%
24.9%
100.0%
100.0%
10.0%
14.5%
15.3%
10.9%
35.2%
33.9%
30.7%
21.8%
2.8%
5.1%
6.0%
13.8%
0.0%
0.0%
100.0%
100.0%
93.0%
7.00%
100.00%
89.5%
10.52%
100.00%
2007
3.1%
56.7%
7.3%
6.6%
26.3%
100.0%
10.9%
9.2%
21.1%
43.4%
4.6%
10.9%
0.0%
100.0%
88.9%
11.10%
100.00%
EIB Balance Sheet
Year
Vertical Analysis
2005
2006
5.3%
4.6%
2.1%
0.4%
30.3%
11.9%
54.7%
66.3%
1.0%
0.4%
10.1%
6.6%
6.3%
100.0%
100.0%
43.7%
46.4%
48.9%
42.5%
7.5%
11.1%
2007
5.6%
0.2%
6.3%
69.8%
0.3%
7.6%
10.3%
100.0%
42.7%
37.8%
19.5%
100.0%
100.0%
100.0%
100.0%
93.9%
6.08%
100.00%
92.4%
7.59%
100.00%
95.8%
4.19%
100.00%
94.6%
2.69%
100.00%
2004
7%
1%
68%
22%
2%
Cash, and balances with U.A.E Central Bank
Due from banks and other financial institutions
Due from Group Holding Company, net
Financing receivables
Loans and receivables
Investment securities designated at fair value
Other investments
Total Current Assets
Investment properties
Prepayments and other assets
Fixed assets
Other assets
Total None Current Assets
TOTAL ASSETS
LIABILITIES AND SHARE HOLDER'S
FUNDS
Current Liabilities
customers' current account
other liabilities
Total Current Liabilities
None Current Liabilities
0%
100%
67.4%
28.5%
4.0%
Due to banks and other financial institutions
Zakat payable
Investment Wakala
due to group and holding company
Tatal None Current Liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
100%
Share capital
Statutory reserve
General reserve
Revaluation reserve
Mudaraba pool reserve
Retained earnings
TOTAL LIABILITIES AND
SHAREHOLDERS’ FUNDS
BIB-income statement
Year
100%
2004
Vertical analysis
2005
2006
2007
Return on unrestricted investment
accounts before
Bank’s share as a Mudarib
Bank’s share as a Mudarib
Return on unrestricted investment
accounts
Bank’s share of income from
unrestricted investment
Income from investments
Gain on fair value adjustment for
investments in properties
Share of results of associates
Other income
Total income
EXPENSES
Staff costs
Depreciation
Other expenses
Total expenses
Net income before provisions
Provisions
zakah
Net profit for the year
BASIC AND DILUTED EARNINGS
PER SHARE (fils)
EIB-income statement
Year
Income from financing activities, net
Income from investment securities designated at
fair value
Income from other investments
Income from Group Holding Company, net
Property related income
Commissions and fees income, net
Other operating income
Total income before net interest
interest income
interest expenses
net interst income
Total Income
EXPENSES
General and administrative expenses
27.6%
-3.9%
22.9%
-2.3%
81.2%
-29.9%
68.7%
-26.5%
23.7%
20.6%
51.2%
42.2%
64.1%
26.7%
29.6%
9.1%
48.8%
22.3%
42.8%
31.6%
2.7%
1.3%
5.1%
100.0%
8.1%
1.8%
2.5%
51.2%
8.5%
2.5%
5.2%
87.3%
14.4%
1.5%
9.7%
100.0%
31.7%
6.2%
16.2%
54.1%
45.9%
-2.1%
-1.4%
42.3%
13.2%
2.3%
5.7%
21.2%
30.0%
0.0%
0.0%
30.0%
15.6%
11.6%
6.7%
33.8%
53.4%
-0.6%
0.0%
52.8%
19.1%
2.9%
10.4%
32.4%
67.6%
0.0%
0.0%
67.6%
2004
6.1%
0.0%
0.0%
18.8%
0.0%
75.0%
0.0%
100.0%
117.3%
-26.6%
90.7%
190.7%
0.0%
173.0%
vertical analysis
2005
2006
50.1%
50.1%
2007
51.8%
0.0%
0.0%
22.5%
4.8%
29.3%
0.0%
100.0%
0.0%
0.0%
0.0%
100.0%
0.0%
55.6%
4.2%
7.3%
13.5%
2.8%
11.5%
8.9%
100.0%
0.0%
0.0%
0.0%
100.0%
0.0%
28.2%
18.2%
4.6%
7.7%
3.6%
7.0%
8.9%
100.0%
0.0%
0.0%
0.0%
100.0%
0.0%
29.2%
Depreciation of investment properties
Allowances for impairment net of recoveries
TOTAL EXPENSES
NET OPERATING INCOME
Depositors’ share of profit
SHAREHOLDERS’ PROFIT (NET INCOME)
BIB-Cash Flow
Net cash
generated/(used in)
from operating
activities
Net cash used in
investing activities
Net cash generated
from financing
activities
NET
INCREASE/(DECREA
SE) IN CASH AND
CASH
EQUIVALENTS
CASH AND CASH
EQUIVALENTS
BROUGHT
FORWARD
Vertical
2006
0.0%
-48.5%
124.4%
66.3%
-8.8%
0.574642
1.7%
-3.5%
53.8%
46.2%
-23.4%
-145,942
Vertical 2007
0.5%
6.1%
35.8%
64.2%
-43.0%
0.212069
Historical
2006
0.6%
4.4%
33.2%
66.8%
-42.0%
0.248089
Historical 2007
-1440.09%
-1666.34%
-35%
53%
-821.12%
-533.93%
-63%
173%
2237.45%
2277.69%
-43%
74%
-23.76%
77.43%
-284%
-154%
100.00%
100.00%
-44%
77%
EIB-Cash Flow
Vertical
2006
Vertical 2007
Historical
2006
Historical
2007
5030%
48%
100%
Net cash generated/(used in)
from operating activities
1057.85%
Net cash used in investing
activities
Net cash generated from
financing activities
4.98%
-80.83%
-493.93%
-%100
0.00%
232.26%
0
-100%
NET
INCREASE/(DECREASE)
IN CASH AND CASH
EQUIVALENTS
-75.86%
796.18%
-353%
-100%
CASH AND CASH
EQUIVALENTS
BROUGHT FORWARD
100.00%
100.00%
-76%
-100%
5. Horizontal analysis
Bah
BIB- Balance Sheet
Year
Cash and balances with the BMA and other
banks
Murabaha receivables
Mudaraba investments
Musharaka investments
Non-trading investments
Total Current Assets
Investments in associates
Investments in Ijarah assets
Ijarah Muntahia Bittamleek
Investments in properties
Ijarah rental receivables
Other assets
Other assets
Total None Current Assets
TOTAL ASSETS
LIABILITIES AND SHARE HOLDER'S
FUNDS
Current Liabilities
customers' current account
other liabilities
Total Current Liabilities
None Current Liabilities
unrestricted invesment account
Tatal None Current Liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share Capital
Reserves
2004
Horizontal Analysis
2005
2006
2007
11.1%
0.6%
149.3%
263.4%
44.8%
22.0%
14.5%
0.0%
132.1%
155.7%
0.0%
0.0%
48.1%
0.0%
-24.7%
41.1%
20.6%
36.2%
96.7%
0.0%
30.4%
-3.4%
0.0%
0.0%
18.6%
0.0%
96.6%
182.5%
60.3%
52.2%
5.9%
0.0%
-12.3%
179.5%
0.0%
0.0%
-100.0%
0.0%
-100.0%
-100.0%
-100.0%
-100.0%
-100.0%
0.0%
-100.0%
-100.0%
0.0%
-100.0%
72.3%
25.9%
35.6%
36.1%
40.7%
51.0%
-100.0%
-100.0%
55.9%
26.0%
53.4%
8.6%
69.6%
12.8%
18.6%
26.1%
19.4%
-100.0%
-100.0%
-100.0%
0.0%
17.2%
23.1%
0.0%
53.7%
45.4%
0.0%
32.5%
30.4%
0.0%
-100.0%
-100.0%
10.0%
95.3%
12.0%
4.6%
112.5%
68.8%
-100.0%
-100.0%
share premium
retained earnings
proposed appropriate
Shareholders’ Funds
Total Share Holders Equity
TOTAL LIABILITIES AND
SHAREHOLDERS’ FUNDS
-52.7%
64.3%
41.6%
-100.0%
-100.0%
33.8%
42.2%
-100.0%
36.3%
4.2%
149.8%
-100.0%
25.9%
36.1%
50.9%
-100.0%
EIB-balance sheet
Year
Cash, and balances with U.A.E Central Bank
Due from banks and other financial institutions
Due from Group Holding Company, net
Financing receivables
Loans and receivables
Investment securities designated at fair value
Other investments
Total Current Assets
Investment properties
Prepayments and other assets
Fixed assets
Other assets
Total None Current Assets
TOTAL ASSETS
LIABILITIES AND SHARE HOLDER'S
FUNDS
Current Liabilities
customers' current account
other liabilities
Total Current Liabilities
None Current Liabilities
Due to banks and other financial institutions
Zakat payable
Investment Wakala
due to group and holding company
Tatal None Current Liabilities
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital
Statutory reserve
General reserve
-100.0%
Horizontal Analysis
2004
60.6%
379.2%
-4.4%
427.9%
12.6%
0.0%
86431.0%
114.1%
-25.4%
97.2%
113.8%
2005
89.8%
0.0%
-12.7%
168.0%
-5.1%
0.0%
112.2%
121.1%
109.8%
71.8%
193.6%
2006
91.4%
0.0%
-16.6%
65.2%
-6.0%
0.0%
155.9%
57.0%
124.7%
116.9%
329.7%
2007
-100.0%
0.0%
-100.0%
-100.0%
-100.0%
-100.0%
-100.0%
-100.0%
-100.0%
-100.0%
-100.0%
15.2%
103.3%
97.5%
119.6%
144.1%
61.9%
-100.0%
-100.0%
191.4%
269.9%
196.1%
151.5%
33.7%
142.6%
53.8%
102.5%
55.8%
-100.0%
-100.0%
-100.0%
21.4%
174.2%
0.0%
0.0%
-89.0%
156.1%
212.2%
86.1%
0.0%
0.0%
181.8%
142.8%
182.6%
26.5%
0.0%
0.0%
1268.9%
64.3%
-100.0%
-100.0%
0.0%
0.0%
-100.0%
-100.0%
30.0%
4.0%
-16.3%
0.0%
11.2%
19.7%
15.0%
19.3%
15.0%
-100.0%
-100.0%
-100.0%
Revaluation reserve
Mudaraba pool reserve
Retained earnings
-74.5%
245.2%
67.5%
-100.0%
-100.0%
TOTAL LIABILITIES AND
SHAREHOLDERS’ FUNDS
103.3%
119.6%
61.9%
-100.0%
BIB- income statement
Year
Return on unrestricted investment accounts
before
Bank’s share as a Mudarib
Bank’s share as a Mudarib
Return on unrestricted investment
accounts
Bank’s share of income from unrestricted
investment
Income from investments
Gain on fair value adjustment for investments
in properties
Share of results of associates
Other income
Total income
EXPENSES
Staff costs
Depreciation
Other expenses
Total expenses
Net income before provisions
Provisions
zakah
Net profit for the year
Emirates Bank-income statement
Year
Income from financing activities, net
Income from investment securities designated at
fair value
Income from other investments
2004
Horizontal analysis
2005
2006
133%
66%
256%
1194%
27%
33%
-100%
-100%
144%
150%
23%
-100%
30%
-4%
65%
147%
32%
112%
-100%
-100%
758%
295%
39%
-107%
5%
34%
106%
71%
154%
-8%
178%
72%
-100%
-100%
-100%
-100%
17%
3%
-2%
10%
84%
0%
0%
99%
19%
406%
18%
60%
79%
0%
0%
77%
84%
-62%
133%
44%
90%
0%
0%
92%
-100%
-100%
-100%
-100%
-100%
0%
0%
-100%
2004
4192%
0%
0%
Horizontal analysis
2005
2006
209%
80%
0%
0%
-60%
175%
2007
2007
-100%
-100%
-100%
Income from Group Holding Company, net
Property related income
Commissions and fees income, net
Other operating income
Total income before net interest
interest income
interest expenses
net interest income
Total Income
EXPENSES
General and administrative expenses
Depreciation of investment properties
Allowances for impairment net of recoveries
TOTAL EXPENSES
NET OPERATING INCOME
Depositors’ share of profit
SHAREHOLDERS’ PROFIT (NET INCOME)
445%
0%
117%
0%
455%
-100%
-100%
-100%
191%
0%
78%
0%
-60%
140%
287%
1376%
120%
22%
122%
-30%
0%
193%
0%
0%
0%
193%
0%
54%
-22%
-616%
95%
307%
439%
173%
205%
36%
185%
73%
74%
0%
0%
0%
74%
0%
68%
132%
24%
61%
81%
70%
103%
-100%
-100%
-100%
-100%
-100%
0%
0%
0%
-100%
0%
-100%
-100%
-100%
-100%
-100%
-100%
-100%
6. Financial Ratio Analysis vs. Horizontal and Vertical Structure
This part will focus on the financial ratio analysis cross banks for 4 years which include
profitability, liquidity, debt, and efficiency ratios and their related with vertical and
horizontal structure.
1. Profitability ratios
Profitability ratios indicate the earnings capacity of customer in relation to sales and
investments.
Return on Assets
Year
BIB
EIB
2004
0.02
0.01
2005
0.02
0.02
2006
0.03
0.03
This measures the effectiveness with which assets have been employed to generate
profits. Both banks has quiet similar ratio within years, which means both banks has
2007
0.04
0.04
similar
effectiveness
in
term
of
using
Return on equity
Year
BIB
EIB
their
2004
0.08
0.03
assets
within
2005
0.10
0.10
time.
2006
0.18
0.37
2007
0.13
0.48
ROE relates to the profitability, productivity, and overall gearing of business. This means
the bank has higher return from use the depositors' money. BIB has gradual productivity
of using money in the 1st three years but its productivity is decreased in the last year may
be the reason is due to decrease in its sales.
Unlike, EIB has sharply increases in its productivity in its productivity yearly due to high
sales and high effectiveness of using its assets.
Gross profit margin ratio
Year
BIB
EIB
2004
0.88
0.52
2005
0.50
1.00
2006
0.87
1.00
2007
0.85
1.00
This ratio reflects the profitability after taking to account all expenses or cost incurred.
BIB has gradual ratio in the last 3 years this due to increase in this cost associated to
increase in its products such as mudharabe and musharaka. While EIB low ratio in 1st
year because it was practice non Islamic products which has associated operating
expenses, however, in last three year the operating cost for Islamic products was treated
with other expenses not with operates (IFRS standards) that’s why it get higher profit
gross margin.
2. Liquidity rations
Current Ratio
BIB
EIB
EIB
2004
7.084980118
1.590003568
2005
2006
5.637063665 6.80313055
1.149352751 1.047734407
2007
8.670419085
1.056035276
That means BIB has higher current ratio within years compare to EIB which decreased
form year to year. In other words EIB has ability to meet there short obligations when it
due more than EIB. From the other hand, higher current ratio indicates that the BIB has
poor collection or receivables or low stock tournover compare with EIB.
Quick Ratio
Year
BIB
EIB
2004
-1.590
1.668
2005
-1.723
1.080
2006
-1.398
0.993
2007
-1.585
1.023
It Shows BIB is law liquid compare with EIB. Which means BIB is unable to pay back its
short term liabilities in shorter period of time than 12 months.
Networking Capital
Years
BIB
EIB
2004
201,997
775,506
2005
236,059
581,352
2006
333,297
450,674
2007
526,022
824,244
This ratio indicates whether banks have sufficient working capital and from the
operation. BIB has increased working capital with years, but EIB get high ratio in 1st year
then it decreased in following tow years and shapely increased in last year. This increased
in working capital ratio due to increases in sales in both banks.
Net working capital -to-sales ratio
Year
BIB
EIB
2004
23.09
22.77
2005
9.60
3.08
2006
13.49
0.81
As mention above the higher sales is lower net working capital to sales. EIB is more sales
that why it has lower ration with years compare with BIB which has fluctuated sales
within years.
2007
14.21
0.86
3. Debt ratios
Total debt to assets ratio
Year
BIB
EIB
2004
0.7930
0.6520
2005
0.7758
0.8213
2006
0.8286
0.9078
2007
0.7158
0.9214
BIB seems has stable ratio of debt to assets which increased from year to year with EIB.
That means, BIB quiet balance the ratio between assets and debt, while EIB reduce it
relay of debt to finance it activities this due to transfer from conventional to Islamic bank.
BIB: FINANCIAL LEVERAGE RATIOS
year
Total Debt Ratio: (Total Assets – Total Equity) x 100% /
Total Assets
Debt-Equity Ratio: Total Debt x 100% / Total Equity
2004
Equity Multiplier: Total Assets / Total Equity
2005
2006
2007
79%
483%
78%
446%
83%
583%
72%
352%
4.83
4.46
5.83
3.52
76%
73%
80%
68%
Debts / Capitalization: Long-term Liabilities / (Long-term
Liabilities + Shareholder’s Equity)
EIB: FINANCIAL LEVERAGE RATIOS
2004
year
Total Debt Ratio: (Total Assets – Total Equity) x 100% / Total
Assets
Debt-Equity Ratio: Total Debt x 100% / Total Equity
Equity Multiplier: Total Assets / Total Equity
2005
2006
2007
65%
287%
82%
559%
91%
1084%
92%
1272%
2.87
5.59
10.84
12.72
21%
3%
6%
41%
Debts / Capitalization: Long-term Liabilities / (Long-term
Liabilities + Shareholder’s Equity)
Both BIB and EIB have high percentage of financing their activities from shareholders'
money, but this ratio is sharply increased in the last three years in EIB.
4. Efficiency ratios
Total asset turover
BIB
EIB
2004
0.03
0.01
2005
0.08
0.04
2006
0.06
0.05
2007
0.06
0.06
This ratio increased in 2nd year in BIB then remains stable in last two years while in
gradually increased within years in EIB. This means both banks are efficient in their
business but EIB has increase efficient with time compare with fluctuated efficiency in
BIB.
Market Valuation
Market evaluation can measure by price to earnings (P/E). A high P/E indicates that the
firm is highly valued by market whereas a low P/E indicates the firm is not highly values.
In our case BIB P/E ratio is 5.18 while same ratio for EIB is 1.71. This mean, that the
BIB is highly valued by market compare with EIB. Since EIB has good profitability, the
lower of P/E due to a bargain.
7. Products Analysis vs. Profitability and Performance
In BIB there are increased in all products except Musharaka along with that the deposit
was increased in 2nd year, this increasing have not effected the profitability and the
performance for 1st two years which remain stable due to decrease in sales and net profit
for that period. In the last two years the Ijarah Muntahi Bitamilk and Mudharaba
investment are slightly decreased while the other products were increased sharply. In the
same hand, there were there is slowly increase in the deposits associated with it.
Therefore, the profitability and performance for BIB for that time is increased due to
increases in sale and operating income and increases of efficiency.
In EIB, there is gradually decreased in short term products such as Murabaha from year
to year along with increasing in deposits for same periods, as aresult of that, the
profitability and performance for EIB is more better compare to BIB. The reason of that,
EIB produces high sales net profit due to high level of efficiency and productivity. The
most important factor of this performance is the diversity of products in EIB which are
not implemented in BIB such as Wakala and Istisna.
8. Conclusion and Recommendation
This paper tries to analysis the financial statements for BIB and EIB in term of their
accounting policies and financial ratios. It found that BIB adopted the AAOIFI standards
with IFRS standards in case if there is no treatments in AAOIFI in subject matter, while
EIB adopting IFRS and local standards which quite to AAOIFI. The vertical and
horizontal analysis for financial statements within years is increased similarly in both
banks.
Financial ratios analysis shows that both banks have profitability, but EIB are more
productivity within time than BIB due to high sales and high effectiveness of using its
assets. Unlike with liquidity ratios, EIB has ability to meet there short obligations when it
due, while BIB has poor collection or receivables or low stock turnover. In the same
hand, BIB has stable ratio of debt to assets within years with high market valuation
compare with EIB. Finally, EIB has more productivity, viability, and performance due to
its diversity of products which generate more sales and net profit at the end.
It's better to recommend here that EIB must follow the AAOIFI standards to get more
customers because Muslims more trust the banks who adopt Islamic standards. While
BIB needs to adopt some new products such as Istisna and wakalah to improve it's
profitability and performance.