S.

N
o
1.

2.

Topic
Part One:
Historical Background

Organization

Corporate Social Responsibility

Part Two:
Comparing & Presentation of Total
Assets, Total Equity Capital, & Net
Loans and Losses of both the Banks

Profitability: ROA, ROE (its principal

Components), interest margin, net noninterest margin and net operating
margin.
Risk: Credit risk, liquidity risk, capital
risk and market risk.

Part Three:

20124656 Section 01

4.

3.

Pages

Calculation and graphical presentation

of Interest Sensitive Gap

Analysis of Findings
References

Table of content

Nawaf
13 Abdullah M

15
19

Part One
National Bank of Bahrain
National Bank of Bahrain (NBB) as being the leading provider of commercial
and retail services in the Kingdom of Bahrain has its headquarter located in
Manama. The bank has a countrywide network of 25 branches, 46 ATMs and
over 4,000 Point of sale terminal and also having its branches in Abu Dhabi
and Riyadh.

Ahli United Bank

Ahli United Bank (AUB) as being one of the largest banks in Kingdom of
Bahrain has its headquarters located in Al-Seef district. It is a symbol for the
banks commitment to the banking sector in Bahrain and in the Gulf region.
It has around 20 branches and 21 ATMs across the Kingdom.

I.

Historical Background
National Bank of Bahrain

Since its first establishment in 1957, and with time the organization has
been reformed in agile to the market place and in the future would like
expand the operation within the gulf region and worldwide. From being a
locally owned Bank, it is now a corporation and is publicly listed on the
Bahrain Stock Exchange. Now the Bank is owned by the private shareholders
at 44.94%, mainly Bahrainis, 10.88% by Social Insurance Organization, and
44.18% by Mumtalakat Holding Company, which is 100% owned by the
Government of Bahrain.

Ahli United Bank

Ahli United Bank B.S.C (AUB) was established on 31st May, 2000 due to a
merger between the United Bank of Kuwait PLC (UBK) and Commercial Bank
B.S.C (ACB), which was then followed by UBK and ACB each becoming wholly
owned subsidiaries of AUB. The Bank operates under a retail banking license
issued by the Central Bank of Bahrain (CBB). It is headquartered at Al-Seef
district which had its construction commenced in 2002 and its offices
occupied in early 2004.
1

In UK, the bank, being formerly known as United Bank of Kuwait PLC, was
established in 1966 to help expand the businesses in Kuwait and global
markets. It also has acquired 85% stake in AUB Egypt, 75% stake in AUB
Kuwait, 69% stake in Commercial Bank of Iraq, 40% stake in United Bank of
Commerce and Investment, Libya and 35% stake in Ahli Bank, Oman as a
part of expanding its business to reach the global markets and serve
different clients with different requirements, geographies and markets.The
bank also had acquired 50% stake in an insurance joint venture with UK
based Legal and General.

II.

Organization
National Bank of Bahrain

The Boards responsibility is to ensure the efficient and effective operations

and satisfying all the interest of stakeholders by charting the strategic
direction of the Bank. Monitoring Managements operation of business within
dictated framework has also been the Boards important role. The Board is
also trying to build an appropriate balance between long-term growth and
the short-term goals.

Ahli United Bank

Adel A. El-Labban has been the groups CEO and Managing Director since July
2000. He is assisted by six Deputy Group CEOs who are in charge of various
operations of the group and six CEOs who are in charge of the groups
subsidiaries operating in Kuwait, Libya, Oman, Egypt, Iraq and United
Kingdom.
As per the Central Bank of Bahrain (CBB) Corporate Governance
requirement, The board of directors comprises of 7 Independent Directors, 3
Non-Executive Directors and 1 Executive Director. Hamad Mishari AlHumaidhi, one of the Non-Executive Directors became the chairman of the
Board on 31st March 2015 after the resignation of ex-Chairman, Fahad AlRajaan on 22nd January 2015.
Ensuring adherence to laws and regulations and best business ethics, act
within the framework, setting the strategic goals for the bank are some of
the roles that the board has to play. The board committee is constituted by
the board which has personnel of appropriate profession, knowledge and
skills. The board committee consists of the Audit and Compliance Committee,
the Compensation Committee, the Executive Committee and the Nominating
Committee.

III.

Social Responsibility
National Bank of Bahrain

NBB has and will always stay as the heart of financial development in the
Kingdom of Bahrain. The bank has always played an important role in linking
volunteer work with financial assistance to assist local communities in
reaching their ambitions and goals. To be developed the society in a
responsible manner, the bank remains as faithful to all individuals in the
society as it can be.
During the year 2015, the bank contributed BD1.4 million of donations and
contribution program in the field of education, health care, research studies
and other social welfare projects. Other major projects of the year 2015 are:
Crown Princes International Scholarship Program
Support to government School Students
Sponsorships

Ahli United Bank

Ahli United Bank has the responsibility to contribute and add value to the
social and economic welfare of local groups in which it invests and operates.
The bank tries to find different ways to improve the quality of society and
small,local groups through its various initiative to support education,
charitable, medical, cultural, sports and environmental organizations. Staffs
also plays a vital role in by sharing their skills, financial and business
knowledge with the student communities. They also sponsored a number of
activities and events, sponsor students for education and charity funds.

Part Two
For the purpose of the project, the annual reports of Ahli United Bank (AUB)
and National Bank of Bahrain (NBB) for the 5 years period, i.e. 2010-2014 are
examined.
Presentation of information collected:
Total Assets, Total Equity Capital, & Net Loans and Losses

NBB (in BHD)

Year
2010

Total
Assets
2,274.05

Total
Equity
262.97
3

Net Loan &

Losses
950.80

2011
2012

2,388.65
2,654.56

274.73
318.94

972.07
888.25

2013

2,749.23

363.14

859.39

2014

2,738.46

378.02

780.97

AUB (in USD)

Year

2010
2011
2012
2013
2014

Total Assets

Total Equity

Net Loan &

Losses

26,457,461
28,329,762
29,872,574
32,651,893
33,444,888

2,392,181
2,537,431
2,776,209
3,148,824
3,390,874

14,477,713
15,495,961
15,972,219
17,305,682
18,464,536

Profitability: ROA, ROE (principal components) Interest margin, Net noninterest margin and net operating margin.

i. Return on Assets (ROA) is the measure of net

income over total assets of the bank.

NBB

Return on Assets (ROA)

1.96

1.96

1.95

1.80
1.70

2010

2011

2012
ROA

2013

2014

 AUB

Return on assets
(in %)
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

2010

2011

2012

2013

2014

ii. Return on Equity (ROE) is the measure of net

income over total equity capital of the bank. Its principal
components are (a) the net profit margin (NPM) (b) the
asset utilization ratio and (c) the equity multiplier
(EM).
These can be found by:
(a) The net profit margin is measured by taking net income over the
Total operating revenues.
(b)The asset utilization ratio is measured by taking Total operating
revenues over Total assets.
(c) The equity multiplier is measured by taking Total assets over Total
equity capital.

AUB
Year

ROE

Net Profit
Margin

Equity
Multiplier

50%

Asset
Utilization
Ratio
2.2%

2010

12%

2011

12.7%

52%

2.2%

11.16%

2012

13.0%

55%

2.3%

11.7%

11.05%

2013

13.4%

84%

2.3%

10.36%

2014

15.2%

59%

2.6%

9.86%

Return on equity
(in %)
15.2

12.7

13

13.4

12

2010

2011

2012

2013

2014

NBB
Years

ROE

Net Profit
Margin

Asset
Utilization
Ratio

Equity
Multiplier

2010

17.06%

60%

3.16%

8.64

2011

16.98%

57.1%

3.3%

8.7

2012

14.8%

54.8%

3.2%

8.32

2013

14.1%

60.6%

3.1%

7.57

2014

14.1%

60%

3.25%

7.24

Return on Equity ROE

17.06

16.98
14.8

2010

2011

2012

14.1

2013

14.1

2014

ROE

The next part below shows us the interest margin, net non-interest margin,
net operating margin and earnings per share.
I.

II.

III.

Interest margin: measures the interest efficiency of the bank. The

higher the net interest margin, the higher the net income. It is
measured by taking (Interest revenue - interest expense)/Total assets.
Net non-interest margin: it is measured by taking (non-interest
revenue - Provision for loans & lease losses - non-interest
expenses)/Total Assets
Net operating margin: measures the operating performance or
profitability of the bank. It is measured by taking Operating
Income/Total assets

Below we examine the two banks:

AUB(USD):
Year

Interest
margin
(Millions)

Net noninterest
margin

Net
operating
margin

2010

508,744

245,895

265,499

2011

566,927

275,185

310,610

2012

636,373

256,433

335,703

2013

713,249

245,080

579,374

2014

763,256

278,012

482,529

 NBB:
Year

Interest
Margin
(BHD Millions)

Net noninterest
margin

Net Operating
margin

2010

48.70

23.18

43.02

2011

55.37

24.55

45.64

2012

61.92

24.69

47.50

2013

59.82

24.83

51.36

2014

59.58

29.63

53.44

Risk: Liquidity Risk, Credit Risk Capital Risk, Market Risk

1.

Liquidity Risk:

The uncertainty of the bank to meet the financial obligation

on its maturity date.
AUB: (USD)

Liquidity risk
0.11
0.09
0.08

2010

0.11
0.1
0.09

0.12

0.11

0.1
0.07
0.06

2011

0.13

2012

0.09
0.08

0.07

2013

2014

Purchased funds to total assets

Cash and dues from balances held at other depository institutions to total assets
Cash assets and government securities to total assets

Liquidity risk of the bank is divided into 3 different parts, however all of the
3 ratios have gone back to the position that it was back in 2010. Perhaps the
bank finds that the position is optimal to its needs.
Purchased Funds to total assets.
Cash and due from balances held at other depository institutions to
total assets.
Cash assets and government securities to total assets.

NBB:

Liquidity Risk
0.1
0.09
0.08
0.08
0.07
0.06

0.06

0.06

0.04
0.02
0
2010

2011

2012

2013

2014

Liquidity Risk

2. Credit Risk:
The probability that the assets of the financial institution will decline in value
and become worthless. It is measured by different indicators such as nonperforming assets to total loans and lease, non-performing assets to equity
capital, total loans to total deposits etc.
9

Credit Risk
1.95
1.84

0.14
0.05
2010

1.83
1.74

1.82

1.77

1.71

0.14
0.04
2011

0.68
0.36
0.04
2012

0.65
0.36
0.04
2013

0.35
0.03
2014

Non-performing assets to total loans and leases

Non-performing assets to equity capital
Annual PLL to equity capital
Total loans to total deposits

AUB: (USD)
NBB: (BHD)
In the case of NBB the credit risk was measured with total loans total
deposits of the bank.

Credit Risk
60.00%
53.70%
50.00%

46.20%

40.00%

38.20%

36.30%

2012

2013

30.00%

33.60%

20.00%
10.00%
0.00%
2010

2011

Total Loans to Total Deposits

10

2014

3. Market Risk: The uncertainty of the market rates or prices. It

includes the two ratios: (a) Price Risk and (b) Interest Rate Risk.

AUB

Interest Rate Risk

70,000

65673

60,000
50,000
40,000
30,000
20,000
10065
10,000
853
2011

0
2010

8241

6920

2012

2013

2014

Interest Rate Risk

NBB

Interest Rate Risk

50,000

44,823

40,000

29,955

30,000
16,454
20,000

21,528
13,285

10,000
0
2010

2011

2012
Interest Rate Risk

11

2013

2014

4. Capital Risk: the impact of all risk that can affect a FI long run
survival.

AUB

Capital Risk
0.2500
0.2000
0.190

0.200

0.206

0.207

0.103

0.107

0.109

0.115

0.0037
2011

0.0035
2012

0.0022
2013

0.0028
2014

0.188

0.1500
0.104
0.1000
0.0500
0.0042
0.0000
2010

Stock price/share to annual EPS

Equity capital to total assets
Equity capital to risk assets

NBB

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Capital Risk
0.600
0.500
0.423

0.400
0.300
0.277
0.200
0.181

0.484

0.359
0.283

0.116
0.100

0.187
0.115

0.180
0.120

0.183
0.132

0.176
0.138

0.000
2010

2011

2012

2013

2014

Stock price/share to annual EPS

Equity capital to total assets
Equity capital to risk assets

PART III
Calculation and graphical presentation of interest
sensitive Gap of the two Banks
Interest Sensitive gap
AUB
Interest sensitivity gap is the measure used for figuring out how much the
value of the fixed asset will change in case the interest rate changes. Bonds
that are very volatile will give very high price fluctuations as compared to
those bonds that are less volatile. The interest sensitivity gap is important
when the bond is selected that can be sold in the secondary market. The
interest sensitivity gap of AUB is shown in the graph below

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Interest sensitive gap

2010

2011

2012

2013

2014

-5,323,306.00
-6,283,718.00
-7,404,167.00
-9,089,535.00 -9,041,904.00

NBB

14

Interest Sensitivity Gap (Bahraini Dinar)

1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
3 months

6 months

1 year

1-5 years

more than 5 years

Interest Sensitivity Gap (Bahraini Dinar)

Analysis
ANALYSIS OF PART II
Total assets for Ahli United Bank has increased by 26.4% over the
passage of 5 years. This is because of the expansion and growth of the
bank overseas and locally. While for National Bank of Bahrain, the
changes in the value of their Total Asset i.e.16.9% from 2010 to 2014
comes from the strategy of short term investment. The bank 2013
established a new strategy which affected the value of the bank
positively. But during 2014, there was a big decrease in the value of
the firm.
Total equity for Ahli United Bank has increased from $2,392,181,000
to $3,390,874,000 over the 5 year time period. This was due to the
expansion of the bank as more and more investors started considering
Ahli United Bank as a feasible long term investment. While the Total
Equity for the National Bank of Bahrain there is a small increase in the
15

equity from 26,292,000Bhd to 37,802,000Bhd for the periods 2010 to

2014 because of the fact that NBB started to encourage borrowing.
Net loans and losses competitive interest rate for Ahli United has
caused the total loans of the bank to increase by 27.53%. These
loans have not only supported household customers but also
businesses to grow and develop. While for NBB the Net Loans and
Losses decreased since the 2012, the loan decreases mainly because
of the reluctance of customers. There may be several reasons to
explain this decreasing like a weak marketing strategies and high
interest rates.

Profitability
Return on assets for Ahli United Bank increased from 1.2% in 2010 to
1.6% in 2014. This indicates how efficiently the bank is using its assets
in generating its earnings. While the Return on assets for National
Bank of Bahrain did not change in 2010 and 2011 and during 2012 it
decreased to 1.7%. The ROA increased in 2014 to 1.95% again. This
shows how efficiently the bank is using its assets in order to generate
earnings.

Return on Equity for the Ahli United Bank shows an increase from
12% in 2010 to 15.2% in 2014. It may be due to the increase of net
profit margin in 2013. While the equity multiplier declined across the 5
years, which means that the risk is low. Such a growth is not only good
for the current investors of the bank but it is also inviting more and
more investors to invest their money in the bank. As for National Bank
of Bahrain, the Return on Equity shows how the ROE decreased, from
17.06/% in 2010 to 14.8% in 2012 and remaining stable at 14.1% for
2013 and 2014. Such a decline is not healthy for the current investors
of the bank. It may be due to the decrease in the equity multiplier and
it is also of a concern to the other externals who are willing to invest in
the bank.
Net interest income for Ahli United Bank has grown from
$508,774,000 to $763,256,000. The investment strategies used for the
bank and the credit approval processes has helped the bank to
increase its net interest income by approving the right form of loans
and making the right investments. In case of National Bank of Bahrain,
the Net interest income was increasing rapidly in the years 2010
16

and 2011. It started to decline since 2012 to 2014 which is showing a

problem in the management strategies which the bank follows.
For a bank, the main source of income is interest. The Net noninterest income of a bank is not the main concern for the bank, which
can be seen by the 13.06% growth in non-interest income. As for NBB
can see that when the net interest income was dropping, the Net noninterest income was growing which gives us another evidence that
the problem is within the management department.
There has been an 81.74% rise in net income for the bank in the net
income of 2010. This also credited to the above-mentioned growths.
Net operating margin for NBB show us a sort of deceptive result.
The bank has achieved higher net income year by year. But as the
prior analysis of the net interest and non-interest income, the bank had
lesser income from interest activity while getting more and more from
non-interest activity.
Liquidity Risk
Liquidity risk of the AUB is divided into 3 parts, however all 3 ratios
have gone back to the position it was back in 2010. Perhaps the bank
finds that position optimal to its needs.

Purchased Funds to total assets: The liquidity risk under this

case has fluctuated since 2010 and currents stands at the same
position that it was in 2010 at 0.08. This need not be considered
high and therefore the bank is doing quite well in terms of liquidity
risk.

Cash and dues from balances held at other depository

institutions to total assets: The risk under this case has also
fluctuated however it stands at 0.11 as of 2014 (the same for 2010).
The higher this ratio the better it is for the bank as it has a cushion
against any liquidity crunches. But the number shouldnt become
very high and therefore the bank needs to maintain this ratio
carefully.

17

 Cash assets and government securities to total assets: The

risk under this case has the same features as the above and it has
been fluctuating since 2010 but currently stands at the same
position as of 2010 i.e. 0.09. this ratio also provides the bank with a
cushion against any liquidity crunches.
In the case for National Bank of Bahrain, as depicted in the graph
above, we can confirm that in the recent years NBB followed a
strategy to reduce its liquidity risk progressively and the figures
show that the strategy was successfully applied for the interest of
the bank position where it declined from 0.08 to 0.06. It was
expected that the liquidity risk will keep declining unless a change
appeared in the strategy.
CREDIT RISK
In the case of Ahli United Bank, the Non-performing assets to total
loans and leases declined from 1.84 in 2010 to 0.35 in 2014. This
ratio indicates that the non-performing assets are dropping which
means the bank is making use of almost all of their assets to increase
its income. Non-performing assets to total equity capital also
declined but at a minimal rate than the above ratio. Annual Provision
for Loan Losses to equity capital declined from 0.05 in 2010 to 0.03 in
2014. This means that the bank expects fewer losses from loans. Total
loans to total deposits has increased from 14% in 2010 to 67% in 2014.
This ratio indicates how well the deposits are protected from loans. A
bank cannot function well by keeping the ratio low as the major activity
of a bank is to accept deposits and give loans. The current ratio of 67%
is a good step to take and maybe it would go up to 75%. This ratio is
good in times of expansion.
As for NBB the decline in credit risk ratio graph indicates the serious
situation that NBB is suffering from regarding relationship between the
bank and its customers in the rules of payments imposed on
customers and whether customers are serious in committing to these
rules or not. The Non-application of rules will create more problems to
both the bank and its customers by losing the confidence within each
other. The graph depicts that the problem is growing.

MARKET RISK

18

Interest rate risk for AUB have increased greatly for the year 2014. Changes
affect the revenue and cost. More the risk, more will be the risk on the
interest rates of the bank. If the higher is interest rate, the stock price will be
higher and investors will not buy stocks. While Interest risk for the National
Bank of Bahrain rose sharply during the year of 2012. These changes will
affect the revenue and cost and they will change accordingly.

Capital Risk
For Ahli United Bank, the most significance change can be seen in
Equity to risk assets ratio for which from 2011 to 2014 has increased
greatly from 0.19 to 0.21 showing a positive effect for the bank .As for
Equity to Capital ratio, it has increased slightly from 0.10 in 2010 to
0.12 in 2014 showing increase in the risk in this regard. Finally, the
Stock price/share to annual EPS ratio has decreased slightly for the
bank from 0.42 to 0.28 showing that the bank is undercapitalized
related to risk taken. As for National Bank of Bahrain, the Equity capital
to risk assets ratio has increased in a great way from 0.28 in 2010 to
0.49 in 2014 showing a positive effect for the bank. As for its Equity
capital to total assets ratio, it has increased slightly from 0.12 in 2010
to 0.14 in 2014 showing a decrease in the risk of the bank. While its
Stock price/share to Annual ratio has decrease a little from 0.18 to
0.176 (2010 to 2014) showing that the bank is undercapitalized
related to the risk taken.
Analysis of Part III
INTEREST SENSITIVITY GAP
For AUB this gap has increased from -5,323,306,000 to
-9,041,904,000. An increase in this gap is not a bad thing as if the
interest rates decrease in future, the banks liabilities will be
reprised and this could be profitable for the bank. However if the
interest rates increase in the future, the exact opposite will happen.
While for NBB the lowest gap is for the bond of 3 months which is
just around 350,000. Similarly, as the maturity period increases the
sensitivity gap also increases. The highest sensitivity gap is for the
bonds that have the maturity period of more than 5 years. The
reason is that 5 years and more is a very unpredictable time period.
The interest rates can vary significantly during this period. Hence,

19

the sensitivity gap also tends to be more than 1 million for this
period

References
www.ahliunitedbank.com
www.nbbonline.com
http://www.ahliunited.com/pdfs/ar/consolidatedfinanstat2
011_en.pdf
http://www.ahliunited.com/pdfs/ar/AUBFS31Dec2012_NoD
irectorssignature.pdf
http://www.ahliunited.com/pdfs/qr/ConsolidatedFinancialS
tatements2014-eng.pdf
www.investopedia.com
www.bahrainbourse.net

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