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Financial Statements and Independent Auditor's Report

Al-Amal Microfinance Bank

(Yemeni Closed Joint Stock Company)

December 31, 2017

Al-Amal Microfinance Bank (Yemeni Closed Joint Stock Company)

)

Contents

Page

INDEPENDENT AUDITOR'S REPORT ....................................................................................... 0

STATEMENT OF FINANCIAL POSITION .................................................................................. 1

STATEMENT OF COMPREHENSIVE INCOME ......................................................................... 2

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY .................................................. 3

STATEMENT OF CASH FLOWS ................................................................................................... 4

NOTES TO THE FINANCIAL STATEMENTS ............................................................................. 5

Independent Auditor's Report

Chartered Accountants & Consultants

License No. 742 Member of Grant Thornton International

Audit .Tax . Advisory

Grant Thornton Yemen Algeria St. Sana'a - Republic of Yemen P.O. Box: 18045

Tel. + 967 1 465 024 / 5 Fax. + 967 1 465 026 www.gtyemen.com

To: The Shareholders’ of

Al-Amal Microfinance Bank

(Yemeni Closed Joint Stock Company)

Sana'a - Republic of Yemen

Report on the Financial Statements

Opinion

We have audited the accompanying financial statements of Al-Amal Microfinance

Bank which comprise of the statement of financial position as at December 31, 2017,

statement of comprehensive income, statement of changes in shareholders' equity and

statement of cash flows for the year then ended, and a summary of significant

accounting policies and other explanatory notes (1-39).

In our opinion, the accompanying financial statements present fairly, in all material

respects, the financial position of Al-Amal Microfinance Bank as at December 31,

2017, and its financial performance and its cash flows for the year then ended in

accordance with International Financial Reporting Standards (IFRSs), instructions

issued by Central Bank of Yemen and the relevant Yemeni laws and regulations.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing

(ISAs). Our responsibilities under those standards are further described in the

Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We are independent of the Bank in accordance with the International Ethics Standards

Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code)

that are relevant to our audit of the financial statements, and we have fulfilled our

other ethical responsibilities in accordance with these requirements. We believe that

the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our opinion.

Other Matters

The financial statements of the Bank for the year ended December 31, 2016, were

audited by another auditor who expressed an unmodified opinion on those statements

on April 3, 2017.

Emphasis of Matters

We draw attention to Note (37) to the financial statements related to the political

crisis, economic situation and current security events in the Republic of Yemen,

which indicate to the existence of an uncertainty about the improvement of the

political situation that may cast significant doubts about the Bank’s ability to continue

as a going concern in case of the continuation of these circumstances. Our opinion is

not modified in respect of this matter.

Chartered Accountants & Consultants License No. 742

Member of Grant Thornton International

Responsibilities of Management and Board of Directors for the Financial

Statements

Management of the Bank is responsible for the preparation and fair presentation of

these financial statements in accordance with IFRSs, instructions issued by Central

Bank of Yemen and the relevant Yemeni laws and regulations and for such internal

control as management determines is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the

Bank’s ability to continue as a going concern, disclosing, as applicable, matters related

to going concern and using the going concern basis of accounting unless management

either intends to liquidate the Bank or to cease operations, or has no realistic

alternative but to do so.

Board of Directors are responsible for overseeing the bank’s financial reporting

process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial

statements as a whole are free from material misstatement, whether due to fraud or

error, and to issue an auditor’s report that includes our opinion. Reasonable assurance

is a high level of assurance, but is not a guarantee that an audit conducted in

accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if,

individually or in the aggregate, they could reasonably be expected to influence the

economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and

maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements,

whether due to fraud or error, design and perform audit procedures responsive to

those risks, and obtain audit evidence that is sufficient and appropriate to provide

a basis for our opinion. The risk of not detecting a material misstatement resulting

from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of

internal control.

• Obtain an understanding of internal control relevant to the audit in order to

design audit procedures that are appropriate in the circumstances, but not for the

purpose of expressing an opinion on the effectiveness of the Bank’s internal

control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis

of accounting and, based on the audit evidence obtained, whether a material

uncertainty exists related to events or conditions that may cast significant doubt

on the Bank’s ability to continue as a going concern. If we conclude that a

material uncertainty exists, we are required to draw attention in our auditor’s

report to the related disclosures in the financial statements or, if such disclosures

are inadequate, to modify our opinion. Our conclusions are based on the audit

evidence obtained up to the date of our auditor’s report. However, future events

or conditions may cause the Bank to cease to continue as a going concern.


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Notes to the Financial Statements

1. Nature of operations

The Bank conducts its business by the Bank's Establishing Law No. (23) for the year 2002. The Bank is

a non-governmental organization has its own judicial personality; it is financially and administratively

independent, non-for profit organization and performs its duties mainly to help the poor clients

engaged in productive activities (micro-entrepreneurs) to improve their living standards through self-

employment, and saving initiatives. The Bank started conducting its business on August 23, 2008.

The Bank runs the operations through its head office with other branches located in Sana’a (Baggdad,

Al-Thawrah, Al-Wehdah, Al-Tahreer, and Airport St.), Hodidah (Hodidah and Bajel), Aden (Crater,

and Shaikh Othman), Taiz (May 22, St. and Oct. 14 St.), Haja (Haja, and Abs branch), Mukalla,

Dhamar, Ibb.

On May 13, 2013, the Extraordinary General Assembly of the Bank was held and approved to amend

some of the articles related to Bank's Establishing Law, including amendment the Bank’s name that

mentioned in the law from Al-Amal Microcredit Bank to Al-Amal Microfinance Bank. As of the

preparation date of the financial statements, the legal procedures for amending these articles have not

been completed in the Bank's Establishing Law.

2. General information and statement of compliance with IFRS

Al-Amal Microfinance Bank ("the Bank") was established by the Law No. (23) for the year 2002, with

Commercial Registration No. (3805/21) as a special purpose closed joint stock company. The Bank

was an outcome of the efforts of the Government of Yemen ("the GOY") represented by the Social

Fund for Development ("the SFD"), the Arab Gulf Fund for United Nations Development

Organizations ("the AGFUND"), and contributions of the Private Sector.

The address of Al-Amal Bank head office is Baghdad St. P.O. Box 15114 in front of Yemen American

Language Institute - Republic of Yemen.

The average number of employees of the Bank was 177 employees in 2017 (203 employees in 2016).

The financial statements of the Bank have been prepared in accordance with International Financial

Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The financial statements for the year ended 31 December 2017 (including comparative figures) have

been approved and authorized for issue by the Board of Directors on March 7, 2018 (see note No. 39).

2.1 Functional and presentation currency

The financial statements are prepared and presented in Yemeni Rials "YR", which is the functional

currency of the Bank.

For the year ended December 31, 2017


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2.2 Significant accounting judgments and estimates

The preparation of financial statements requires management to make judgments, estimates and

assumptions that affect the application of accounting policies and the reported amounts of assets,

liabilities, income and expenses. The estimates and associated assumptions are based on previous

experience of the Bank and various other factors that are believed by the Bank to be reasonable under

the circumstances, the results of which form the basis of making the judgments about carrying values

of assets and liabilities that are not readily apparent from other sources. Actual results may differ from

these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimates are revised and in any future periods

affected. Information about significant areas of estimation uncertainty and critical judgments in

applying accounting policies that have the most significant effect on the amounts recognized in the

financial statements.

3. Changes in accounting policies

3.1 New and revised standards that are effective for annual periods beginning on or after

January 1, 2017

The standards and amendments that are effective for the first time in 2017 (for entities with a

December 31, 2017 year-end) are:

Disclosure Initiative (Amendments to IAS 7)

Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)

Annual Improvements to IFRS 2014-2016 Cycle (Amendments to IFRS 12, “Disclosure of

Interests in Other Entities”)

These amendments do not have a significant impact on these financial statements. Accordingly, the

Bank has made no changes to its accounting policies in 2017. The information on the new standards

that could be applicable to the Bank is presented below:

1. “Disclosure Initiative” (Amendments to IAS 7)

The amendments respond to requests from investors for improved disclosures about an entity’s

financing activities. The amendments are designed to improve the quality of information provided to

users of financial statements about changes in an entity’s debt and related cash flows (and non-cash

changes).


7

2. Annual Improvements to IFRSs 2014-2016 Cycle

This publication is a collection of amendments to IFRSs resulting from issues that were discussed by

the IASB during the project cycle for making annual improvements that began in 2014 and which were

included in an Exposure Draft published in November 2015. The IASB uses the Annual Improvements

process to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of

any other project. By presenting the amendments in a single document rather than as a series of

piecemeal changes, the IASB aims to ease the burden of change for all concerned. A summary of the

issues addressed is set out below:

Standard

affected Subject Summary of amendment

IFRS 12

“Disclosure of

Interests in

Other Entities”

Clarification

of the scope

of the

Standard

Clarifies the scope of IFRS 12 by specifying that its disclosure

requirements (except for those in IFRS 12.B17) apply to an

entity’s interests irrespective of whether they are classified (or

included in a disposal group that is classified) as held for sale or as

discontinued operations in accordance with IFRS 5 ‘Non‑current

Assets Held for Sale and Discontinued Operations’.

The amendments are to be applied retrospectively in accordance

with IAS 8 “Accounting Policies, Changes in Accounting

Estimates and Errors” for annual periods beginning on or after

January 1, 2017.

3.2 Standards, amendments and interpretations to existing standards that are not yet

effective and have not been adopted early by the Bank

At the date of authorization of these financial statements, certain new standards, and amendments to

existing standards have been published by the IASB that are not yet effective, and have not been

adopted early by the Bank. Information on those expected to be relevant to the Bank’s financial

statements is provided below.

Management anticipates that all relevant pronouncements will be adopted in the Bank’s accounting

policies for the first period beginning after the effective date of the pronouncement. New standards,

interpretations and amendments are not expected to have a material impact on the Bank’s financial

statements.

Standard Title of Standard or Interpretation Effective date

IFRS 15 Revenue from Contracts with Customers January 1, 2018

IFRS 9 (2014) Financial Instruments January 1, 2018

IFRS 1 Annual Improvements to IFRS 2014-2016 Cycle (Amendments to IFRS

1)

January 1, 2018

IAS 28 Annual Improvements to IFRS 2014-2016 Cycle (Amendments to IAS

28)

January 1, 2018

IAS 40 Transfers of Investment Property (Amendments to IAS 40) January 1, 2018

IFRIC 22 Foreign Currency Transactions and Advance Consideration January 1, 2018

IFRIC 23 Uncertainty over Income Tax Treatments January 1, 2019

IFRS 16 Leases January 1, 2019

IFRS 9 Prepayment Features with Negative Compensation (Amendments to

IFRS 9)

January 1, 2019

IAS 28 Long-term Interests in Associates and Joint Ventures (Amendments to

IAS 28)

January 1, 2019


8

1. IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11

‘Construction Contracts’, and several revenue-related Interpretations. The new standard establishes a

control-based revenue recognition model and provides additional guidance in many areas not covered

in detail under existing IFRSs, including how to account for arrangements with multiple performance

obligations, variable pricing, customer refund rights, supplier repurchase options, and other common

complexities.

IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018.

2. IFRS 9 “Financial Instruments (2014)”

The IASB recently released IFRS 9 ‘Financial Instruments’ (2014), representing the completion of its

project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. The new standard

introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial

assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9

also provides new guidance on the application of hedge accounting.

Management has started to assess the impact of IFRS 9 but is not yet in a position to provide

quantified information.

IFRS 9 (2014) introduces a new mandatory effective date for the Standard of accounting periods

beginning on or after January 1, 2018.

3. Annual Improvements to IFRSs 2014-2016 Cycle

This publication is a collection of amendments to IFRSs resulting from issues that were discussed by

the IASB during the project cycle for making annual improvements that began in 2014 and which were

included in an Exposure Draft published in November 2015. The IASB uses the Annual Improvements

process to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of

any other project. By presenting the amendments in a single document rather than as a series of

piecemeal changes, the IASB aims to ease the burden of change for all concerned. A summary of the

issues addressed is set out below:

Standard affected Subject Summary of amendment

IFRS 1 “First-time

Adoption of

International

Financial

Reporting

Standards”

Deletion of short-

term exemptions

for first-time

adopters

A number of short-term exemptions have been deleted

because the reliefs provided are no longer available or

because they were relevant for reporting periods that

have now passed.

The amendments are effective for annual periods

beginning on or after January 1, 2018.

IAS 28

“Investments in

Associates and

Joint Ventures”

Measuring an

associate or a joint

venture at fair

value

Clarifies that a qualifying entity is able to choose

between applying the equity method of measuring an

investment in an associate or joint venture at fair value

through profit or loss, separately for each associate or

joint venture at initial recognition of the associate or

joint venture.

Similar clarifications have been made for a reporting

entity that is not an investment entity and that has an

associate or a joint venture that is an investment entity.

IAS 28 permits such a reporting entity the choice to


9

Standard affected Subject Summary of amendment

retain the fair value measurements used by that

investment entity associate or joint venture when

applying the equity method. The amendments clarify

that this choice is also made separately for each

investment in an associate or joint venture that is an

investment entity, at the later of the date on which:

a. the investment entity associate or joint venture is

initially recognized

b. the associate or joint venture becomes an investment

entity and

c. the investment entity associate or joint venture first

becomes a parent.

The amendments are to be applied retrospectively in

accordance with IAS 8 for annual periods beginning on

or after January 1, 2018, however early application is

permitted.

4. “Transfers of Investment Property” (Amendments to IAS 40)

The IASB has published 'Transfers of Investment Property (Amendments to IAS 40)' which clarifies

that transfers to, or from, investment property are required when, and only when, there is a change in

use of property supported by evidence.

In addition to clarifying the principle above, the amendments also re-characterize the list of

circumstances previously contained in IAS 40 ‘Investment Property’. This list was previously

characterized as a definitive list of circumstances where it would be considered that there has been a

change in use of a property. The amendments reposition the list as a non-exhaustive list of examples of

evidence that a change in use has occurred. The IASB has also clarified that a change in management’s

intent, by itself, does not provide sufficient evidence that a change in use has occurred. Evidence of a

change in use must be observable.

The amendments are effective for accounting periods on or after January 1, 2018, however early

application is permitted.

5. IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

The IFRS Interpretations Committee (IFRIC) has issued ‘IFRIC 22 Foreign Currency Transactions

and Advance Consideration’. It looks at what exchange rate to use for translation when payments are

made or received in advance of the related asset, expense or income. IFRIC 22 is effective for annual

reporting periods beginning on or after January 1, 2018. Earlier application is permitted.

6. IFRIC 23 “Uncertainty over Income Tax Treatments”

The IFRS Interpretations Committee (IFRIC) has published a new Interpretation IFRIC 23

‘Uncertainty over Income Tax Treatments’, specifying how entities should reflect uncertainty in

accounting for income taxes.


10

IFRIC 23 addresses uncertainty over how tax treatments should affect the accounting for income taxes.

IFRIC had observed that there was diversity in practice for various issues on the recognition and

measurement of a tax liability or asset in circumstances where there is uncertainty in the application of

the tax law in concern.

7. IFRS 16 “Leases”

IFRS 16 will replace IAS 17 and three related Interpretations:

IFRIC 4 ‘Determining whether an Arrangement contains a Lease’,

SIC 15 ‘Operating Leases-Incentives’

SIC 27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’).

It completes the IASB’s long-running project to overhaul lease accounting. Leases will be recorded on

the statement of financial position in the form of a right-of-use asset and a lease liability.

IFRS 16 is effective for annual periods beginning on or after January 1, 2019.

8. “Prepayment Features with Negative Compensation” (Amendments to IFRS 9)

The International Accounting Standards Board (IASB) has published ‘Prepayment Features with

Negative Compensation - Amendments to IFRS 9’ (the Amendments) that allow companies to

measure particular pre-payable financial assets with negative compensation at amortized cost or at fair

value through other comprehensive income - instead of measuring those assets at fair value through

profit or loss.

The Amendments also include clarifications to the accounting for a modification or exchange of a

financial liability that does not result in de-recognition.

The Amendments to IFRS 9 are effective for annual reporting periods beginning on or after January 1,

2019, with earlier application permitted. However, the text which has been added to clarify the

accounting for a modification or exchange of a financial liability that does not result in de-recognition

is effective for annual reporting periods beginning on or after January 1, 2018 (the effective date of

IFRS 9 itself) as this text merely clarifies the existing Standard rather than amending it.

9. “Long-term Interests in Associates and Joint Ventures” (Amendments to IAS 28)

The International Accounting Standards Board (IASB) has published amendments to IAS 28

‘Investments in Associates and Joint Ventures’ clarifying that companies account for long-term

interests in an associate or joint venture - to which the equity method is not applied - using IFRS 9

‘Financial Instruments’. This includes long-term interests that, in substance, form part of the entity’s

net investment in an associate or joint venture.

In the amendments to IAS 28, the IASB clarifies that the exclusion in IFRS 9 applies only to interests

accounted for using the equity method. Therefore, a company applies IFRS 9 to other interests in

associates and joint ventures, including long-term interests to which the equity method is not applied

and which, in substance, form part of the net investment in those associates and joint ventures.

The amendments are effective for annual reporting periods beginning on or after January 1, 2019, with

earlier application permitted.


11

4. Significant accounting policies

4.1 Overall considerations

The significant accounting policies that have been used in the preparation of these financial statements

are summarized below.

The financial statements have been prepared using the measurement bases specified by IFRS for each

type of asset, liability, income and expense. The measurement bases are more fully described in the

accounting policies below.

4.2 Presentation of financial statements

The financial statements are presented in accordance with IAS 1 Presentation of Financial Statements

(Revised 2007). Also, the total comprehensive income is presented in one statement: the 'Statement of

Comprehensive Income'.

4.3 Foreign currency transactions

The Bank maintains its records in Yemeni Rials; (the functional currency of the bank.). Transactions

denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the dates

of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the

rates prevailing on the statement of financial position date. Gains and losses arising from foreign

currency transactions are dealt with in the statement of comprehensive income.

4.4 Financial assets

All financial assets are recognized and derecognized on trade date where the purchase or sale of a

financial asset is under a contract whose terms require delivery of the financial asset within the

timeframe established by the market concerned, and are initially measured at fair value, plus

transaction costs, except for those financial assets classified as at fair value through profit or loss

(FVTPL), which are initially measured at fair value, if any.

Subsequent to initial recognition, all financial assets are measured at impaired cost or fair value.

Classification of financial assets

For the purposes of classifying financial assets an instrument is an 'equity instrument' if it is a non-

derivative and meets the definition of 'equity' for the issuer (under lAS 32 Financial Instruments:

Presentation) except for certain non-derivative pattern instruments presented as equity by the issuer.

All other non-derivative financial assets are 'debt instruments'.

The Bank classifies its financial assets in the following categories: held-to-maturity investments

(financial assets carried at amortized costs, in particular deposits with banks), loans and advances to

customers. Management determines the classification of its investments at initial recognition.

Financial assets at amortized cost and effective interest method

The financial debts measured at the amortized cost if:

- Financial assets that are held within a business model whose objective is to collect the

contractual cash flows; and

- Their contractual terms that have contractual cash flows that are solely payments of principal

and interest on the principal outstanding.


12

The financial assets that meet the above terms are initially measured at fair value, plus transaction costs

(other than those financial assets classified as at FYTPL). Held-to-maturity investments are measured at

amortized cost using the effective interest method less any impairment, with revenue recognized on an

effective yield basis.

The effective interest method is a method of calculating the amortized cost of a debt instrument and of

allocating interest income over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash receipts through the expected life of the debt instrument, or (where

appropriate) a shorter period, to the net carrying amount on initial recognition. Income is recognized

on an effective interest basis for debt instruments other than those financial assets classified as at

FVTPL, if any.

Loans to customer and unearned interest

Loans to customers are presented in the statement of financial position net of the doubtful debt

provision and unearned interest.

Impairment of financial assets

The Bank assesses at each statement of financial position date whether there is objective evidence that a

financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is

impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment

as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event')

and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or

group of financial assets that can be reliably estimated. Objective evidence that a financial asset or

group of assets is impaired includes observable data that comes to the attention of the Bank about the

following loss events:

1. Significant financial difficulty of the issuer or obligor;

2. A Breach of contract, such as a default or delinquency in interest or principal payments;

3. The Bank granting to the borrower, for economic or legal reasons relating to the borrower's

financial difficulty, a concession that the lender would not otherwise consider;

4. It becoming probable that the borrower will enter bankruptcy or other financial

reorganization

5. The disappearance of an active market for that financial asset because of financial difficulties;

6. Observable data indicating that there is a measurable decrease in the estimated future cash

flows from a group of financial assets since the initial recognition of those assets, although the

decrease cannot yet be identified with the individual financial assets in the group, including:

- adverse changes in the payment status of borrowers in the group; or

- national or local economic conditions that correlate with defaults on the assets in the

group.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets

that are individually significant, and individually or collectively for financial assets that are not

individually significant. If the Bank determines that no objective evidence of impairment exists for an

individually assessed financial asset, whether significant or not, it includes the asset in a group of

financial assets with similar credit risk characteristics and collectively assesses them for impairment.

Assets that are individually assessed for impairment and for which an impairment loss is or continues

to be recognized are not included in a collective assessment of impairment.


13

If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost

has been incurred, the amount of the loss is measured as the difference between the asset's carrying

amount and the present value of estimated future cash flows (excluding future credit losses that have

not been incurred) discounted at the financial asset's original effective interest rate. The carrying

amount of the asset is reduced through the use of an allowance account and the amount of the loss is

recognized in the statement of comprehensive income. If a loan has a variable interest rate, the

discount rate for measuring any impairment loss is the current effective interest rate determined under

the contract. As a practical expedient, the Bank may measure impairment on the basis of an

instrument's fair value using an observable market price.

The calculation of the present value of the estimated future cash flows of a collateralized financial asset

reflects the cash flows that may result from foreclosure less costs for obtaining and selling the

collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of

similar credit risk characteristics (i.e. on the basis of the Bank's grading process that considers asset

type, industry, geographical location, collateral type, past-due status and other relevant factors). Those

characteristics are relevant to the estimation of future cash flows for groups of such assets by being

indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets

being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are

estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss

experience for assets with credit risk characteristics similar to those in the group. Historical loss

experience is adjusted on the basis of current observable data to reflect the effects of current conditions

that did not affect the period on which the historical loss experience is based and to remove the effects

of conditions in the historical period that do not exist currently.

The Bank adheres to implement the Central Bank of Yemen guidance for the Basis of Classification of

Assets and Liabilities issued under letter No. (7761) dated February 7, 2010 as a retroactive guidance to

the date of these financial statements, special provisions are to be established for loans, advances and

contingent liabilities. Additionally, general provision is to be provided to face general risks. General

provision is to be calculated as a percentage of the total performing loans and advances to customers

based on detailed periodical studies on these loans and advances to customers.

As a result, the provision is calculated using the following rates at the minimum:

Performing loans and advances 5%

Non-performing loans and advances:

- Observable loans and advances 10%

- Substandard loans and advances 25%

- Doubtful loans and advances 50%

- Bad loans and advances 100%

Loans and advances to customers are presented in the statement of financial position net of the loans

and advances provision and unearned interest.

Loans are written off, when procedures to collect them have failed, or based on the Central Bank of

Yemen recommendations resulting from its reviews. Subsequent recoveries of loans and advances

previously written off are included in the statement of comprehensive income.


14

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment was recognized (such as an improvement in the

debtor's credit rating), the previously recognized impairment loss is reversed by adjusting the

allowance account. The amount of the reversal is recognized in the statement of comprehensive

income.

Derecognition of financial assets

Financial assets are derecognized when the rights to receive cash flows from the financial assets have

expired or where the Bank has transferred substantially all risks and rewards of ownership.

4.5 Financial liabilities

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with

the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after

deducting all of its liabilities. Equity instruments are recognized at the proceeds received, net of direct

issue costs.

Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities.

Financial liabilities at FVTPL

Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is

designated as at FVTPL.

A financial liability is classified as held for trading if:

- It has been acquired principally for the purpose of repurchasing it in the near term; or.

- On initial recognition it is part of a portfolio of identified financial instruments that the Bank

manages together and has a recent actual pattern of short-term profit-taking; or.

- It is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL

upon initial recognition if:

- Such designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise; or

- The financial liability forms part of a group of financial assets or financial liabilities or both,

which is managed and its performance is evaluated on a fair value basis, in accordance with the

Bank's documented risk management or investment strategy, and information about the

grouping is provided internally on that basis; or

- It forms part of a contract containing one or more embedded derivatives, and lAS 39 Financial

Instruments: Recognition and Measurement permits the entire combined contract (asset or

liability) to be designated as at FVTPL.


15

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on measurement

recognized in profit or loss. The net gain or loss recognized in the statement of comprehensive income

incorporates any dividend or interest earned on the financial asset.

Other financial liabilities

Other financial liabilities, including borrowings and customer deposits (saving accounts and time

deposits), are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest

method, with interest expense recognized (in the statement of operating activities) on an effective yield

basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and

of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash payments through the expected life of the financial liability, or (where

appropriate) a shorter period. To the net carrying amount on initial recognition.

Derecognition of financial liability

The Bank derecognizes financial liabilities when, and only when, the Bank's obligations are

discharged, cancelled or they expire.

4.6 Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise balances with less than

three months' maturity from the elate of acquisition, including: cash on hand, non-restricted cash

deposited with banks, and amounts due from other banks.

4.7 Property, and equipment

Property and equipment are stated at the historical cost less accumulated depreciation and any

identified impairment loss. Cost includes the purchase price and directly associated costs of bringing

the asset to a working condition for its intended use.

Properties in the course of construction for supply or administrative purposes, or for purposes not yet

determined, are carried at historical cost, less any recognized impairment loss. Cost includes

professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Bank's

accounting policy.

Depreciation is charged so as to write off the cost of assets, other than land, are recognized in the

statement of comprehensive income over their estimated useful lives, using the straight-line method.

The estimated useful lives, residual values and depreciation method are reviewed at each year-end with

the effect of any change in estimates accounted for a prospective method.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is

determined as the difference between the sales proceeds and the carrying amount of the asset and is

recognized in the statement of comprehensive income.


16

4.8 Impairment of tangible and intangible assets

At each financial position date, the Bank reviews the carrying amounts of its tangible and intangible

assets to determine whether there is any indication that those assets have suffered an impairment loss.

If any such indication exists, the recoverable amount of the asset is estimated in order to determine the

extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of

an individual asset, the Bank estimates the recoverable amount of the cash-generating unit to which the

asset belongs. Where a reasonable and consistent basis of allocation can be identified, assets are also

allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of

cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in

use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate

that reflects current market assessments of the time value of money and the risks specific to the asset

for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying

amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount.

An impairment loss is recognized immediately in the statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating

unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying

amount does not exceed the carrying amount that would have been determined had no impairment

loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss

is recognized immediately in statement of comprehensive income.

4.9 Provisions

Provisions are recognized when the Bank has a present obligation (legal or constructive) as a result of a

past event, it is probable that the Bank will be required to settle the obligation, and a reliable estimate

can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the

present obligation at the financial position date, taking into account the risks and uncertainties

surrounding the provisions. Where a provision is measured using the cash flows estimated to settle the

present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered

from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement

will be received and the amount of the receivable can be measured reliably.

4.10 Revenue recognition

In accordance with the Central Bank of Yemen guidance for the Basis of Classification of Assets and

Liabilities issued under letter No. (7761) dated February 7, 2010 as a retroactive guidance to the date of

these financial statements, revenue is recognized on accrual basis. The Bank stops recognizing interest

income on non-performing loans and advances starting from the three months following the

classification of these loans as non-performing loans and advances. Fees and commission income on

loans to customers are recognized when they occur.


17

4.11 Grants

Financial grants received by the foundation used to cover the operating expenses are recognized using

their fair value in the statement of comprehensive income. Physical grants are recognized as unearned

revenues and are amortized based on their expected useful lives. Conditional grants are recognized in

the statement of comprehensive income when it is foreseen that the grant will be received and the

Bank has met the conditions relative to the grant. The Bank presents the conditional grants as

unearned grants till grant conditions are met.

4.12 Interest income and expense

Interest income and expense are recognized in the statement of comprehensive income using the

effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial assets or a

financial liability and of allocating the interest income or interest expense over the relevant period.

The effective Interest rate is the rate that exactly discounts estimated future cash payments or receipts

through the expected life of the financial instrument or, when appropriate, a shorter period to the net

carrying amount of the financial asset or financial liability. When calculating the effective· interest

rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for

example, prepayment options) but does not consider future credit losses.

The calculation includes all fees and points paid or received between parties to the contract that are an

integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an

impairment loss, interest income is recognized using the rate of interest used to discount the future

cash flows for the purpose of measuring the impairment loss.

4.13 Leasing

Leases are classified as capital leases whenever the terms of the lease transfer substantially all of the

risks and rewards of ownership to the lessee. All leases other than capital leases are classified as

operating leases.

All rent agreements signed by the Bank are operating lease agreements, operating leases are charged to

statement of comprehensive income on a straight line basis over the term of the operating lease.

4.14 Income tax

According to the paragraph No. (2) in article No. (17) from the Bank's Establishing Law No. (23) for

the year 2002, the Bank is exempted from income tax. In addition, according to the Finance Minister’s

decree No (383 – 110 M.O) dated on April 28, 2013, the Bank shall be exempted from income tax

according to article No. (21/A) of Income Tax Law No. (17) for the year 2010, and the Tax Authority

has the right to claim the income tax from the Bank starting from the implementation date of the

Income Tax Law in case the Bank stop providing services.

4.15 Zakat

Zakat is calculated according to the instructions issued by the Zakat General Administration office in

the Republic of Yemen.


18

5. Critical accounting judgments and key sources of estimation

uncertainty

Applying the significant policies explained in Note (4) above, the preparation of the financial

statements requires management to make estimates and assumptions about carried amounts of assets

and liabilities that the management could not acquire from other sources. Such estimates and the

accompanied assumptions are undertaken based on the past experience and other appropriate factors

and actual results may differ from management's estimates resulting in future changes in estimated

assets and liabilities.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimate is reviewed and the revision affects only

that period or revision periods and future periods.

5.1 Key sources of estimation uncertainty

Reviewing credit portfolio

The Bank reviews its loan portfolio to assess the provision required for its portfolio of loans and

advances to customers based on the Central Bank of Yemen guidelines and regulations.

The hank management considers the following. Factors when reviewing its loans and advances

portfolio:

- Perform detailed analysis for the customer’s financial position by requesting the financial

statements and cash flow statement and reviewing the movement of the customer's account

with the Bank.

- Customer's credit limit;

- Identify credit risk, which considers the customer's ability to run profitable business and

collect sufficient cash to repay the credit;

- The value of the collaterals and possibilities of re-owning it, if any.

- Cost to collect the credit.

The methodology of the Bank requires regular reviews of the provision for loans and advances. The

Bank keeps classifying loans and advances as bad debts until they become performing loans and the

collection of loan interest and principle amounts are guaranteed. The provision for loans and advances

is recognized in the statement of comprehensive income.

Useful lives of property and equipment

Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The

calculation of useful lives is based on management's assessment of various factors such as the operating

cycles, the maintenance programs, and normal wear and tear using its best estimates.

Property and equipment is stated at cost less accumulated depreciation and impairment losses, if any.

Depreciation is charged to the statement of comprehensive income on the straight-line basis over the

estimated useful lives of items of property and equipment. The depreciation method, useful lives and

residual value, if any, are reassessed annually by the Bank’s management.


19

The estimated useful lives are as follows:

6. Capital management

The primary objectives of the Bank's capital management are to ensure that the Bank complies with

capital requirements which issued by Central Bank of Yemen (CBY) and law of microfinance banks

No. (15) for the year 2010, on banking supervision and that the Bank maintains strong credit ratings

and excellently capital ratios. The capital adequacy are monitored by the management of the Bank

employing techniques based on the guidelines as implemented by the CBY for supervisory purposes.

The required information is filed with the CBY on a quarterly basis, in order to comply with the

requirement of CBY circular no. (2) of 1997.

The CBY requires from each Microfinance Bank in Yemen according to the CBY circular no.(3) of

2011 to maintain a minimum ratio of total capital to the risk weighted assets at or above the

internationally agreed minimum of 12%. In addition, the Bank is required to maintain a minimum

ratio of total capital to the customers' deposits at or above 5%.

The capital employed ratio is calculated according to Central Bank of Yemen guidelines through

comparing the components of core and supplementary capital with the Bank’s total assets and

liabilities described in the financial statements after being risk weighted as follows:

The core capital consists of paid-up capital, reserves and retained earnings while supplementary capital

consists of general provisions on performing debts with percentage 5% which should not exceed more

than 2% of risk weighted assets.

Depreciation

rate

Furniture and office equipment 15%

Safes 2%

Computers, networks and accessories 20%

Electrical equipment 15%

Vehicles 20%

Leasehold improvements 20% Or lease period whichever is lower

2017 2016

YR YR

Core capital 9,015,423,599 7,561,526,341 Supplementary capital 7,545,794 5,686,376

Total capital 9,022,969,393 7,567,212,717

Risk-weighted assets and liabilities Total assets 5,243,618,295 3,674,181,437 Contingent liabilities and commitments - -

5,243,618,295 3,674,181,437

Capital adequacy ratio 172% 206%


20

7. Cash on hand and reserve balances with Central Bank of Yemen (CBY)

This item consists of the following as of December 31:

The reserve balances with CBY represent the reserve requirements against customers’ accounts in

Yemeni Rial and foreign currencies. These balances are not available for the Bank’s daily business. In

accordance with CBY Circular No. (1) of 2008 effective from April 1, 2008, the percentage of reserve

balances held at CBY on Yemeni Rial customer accounts was reduced from 10% to 7%. On March 26,

2011 the percentage of reserve balances on foreign currency customer accounts changed from 20% to

10%.

8. Due from banks and financial institutions


Deposits with banks are bearing fixed-interest rates. The average annual interest rate was 16% for YR

and 4% for USD (2016: 16% for YR) and the current accounts at those banks beard an average annual

interest rate of 12% for YR (2016: 12% for YR per annum).

2017 2016

YR YR

Cash on hand - local currency 441,465,820 148,000,750 Cash on hand - foreign currency 20,109,014 20,594,031

461,574,834 168,594,781

Reserve balances at CBY - local currency 422,037,000 74,357,000 Reserve balances at CBY - foreign currency 15,765,750 11,261,250

437,802,750 85,618,250

899,377,584 254,213,031

2017 2016

YR YR

Central Bank of Yemen

Current accounts - local currency 244,663,616 32,303,678 Current accounts - foreign currency 7,188,246 2,558,621 251,851,862 34,862,299

Local Banks

Current accounts - local currency 6,789,914,822 860,407,199 Current accounts - foreign currency 202,732,222 152,687,423 6,992,647,044 1,013,094,622 Foreign Banks

Current accounts - foreign currency 47,931,041 -

47,931,041 - Deposits at Local Banks

Deposits at banks - local currency 10,104,093,281 8,945,831,871 Deposits at banks - foreign currency 1,252,587,636 1,215,050,136

11,356,680,917 10,160,882,007

18,649,110,864 11,208,838,928


21

9. Loans and advances to customers, net


Notes

2017 2016 YR YR

Total loans and advances to customers 3,137,982,736 3, 155,298,970 Less: Unearned interest 9.1 (850,802,525) (856,151,844) Less: Undue interest receivable (1,762,789) (2,632,700)

Loans and advances to customers 9.2 2,285,417,422 2,296,514,426 Less: Provisions for performing loans and advances 9.3 (2,132,912,418) (1,562,370,763)

152,505,004 734,143,663

The loans and advances above do not include any loan to the members of the Board of Directors of the

Bank or employees or any other individuals relating to the Bank as of December 31, 2017 (2016: Nil).

Non-performing loans transaction amounted to YR 2,190,932,855 at December 31, 2017 (2016: YR

2,182,787,437) which classified as follows:

The loans and advances to customers balances includes the loans balances which were guaranteed by

the Social Welfare Fund totaling to YR 1,292,861,492 as at December 31, 2017 (2016: YR

1,293,339,284) and that scheduled for repayment based on the approval of Central Bank of Yemen as

per the Memorandum No. (3811) dated October 19, 2015. This Memorandum granted the Bank a

grace period of six months i.e. scheduling repayment effectively started from the end of October 2015.

At December 31, 2017, a precautionary general provision was made with a percentage of 100% of these

loans totaling to YR 1,292,861,492 (2016: 75% of the total of the loans YR 970,004,463).

9.1 Unearned interest


2017 2016 YR YR

Balance as at January 1 856,151,844 885,729,164 Additions during the year 34,810,318 221,589,679 Accrued interest income during the year (40,159,637) (251,166,999)

Balance as at December 31, 850,802,525 856,151,844

2017 2016

YR YR

Observable debts 3,068,264 16,181,054 Substandard debts 6,992,044 107,553,905 Doubtful debts 3,063,284 323,114,768 Bad debts 2,177,809,263 1,735,937,710

2,190,932,855 2,182,787,437


22

9.2 Loans to customers


2017 2016 2017 2016 Quantity Quantity YR YR

Loans as at January 1, 34,801 37,671 2,296,514,426 2,414,272,905 Loans granted during the year 427 3,331 171,866,940 748,842,960 Loans collected during the year (1,130) (6,201) (182,963,944) (866,601,439)

Loans as at December 31, 34,098 34,801 2,285,417,422 2,296,514,426

9.3 Provision for performing loans and advances

In accordance with the Central Bank of Yemen instructions and guidelines, the provision for loans and

advances are classified to specific and non-specific provision (general provision for performing loans).

As per the Central Bank of Yemen instructions and guidelines, a provision of 5% has been made as a

percentage of the total performing loans and indirect advances net of cash margins, if any.

As per the guidance set out in the International Accounting Standard No. (39) Financial Instruments:

Recognition and Measurement, it is accepted to measure and estimate the impairment on the

customers' loans and advances and financial assets applying the group basis., The group basis, requires

applying a study on observable data indicating that there is a measurable decrease in the estimated

future cash flows from a group of financial assets since the initial recognition of those assets. Although

the decrease cannot yet be identified with the individual financial assets in the group.

Below are the movements in the provision for the performing loans and advances to customers:

2017 Specific General 2017

YR YR YR

Balance as at January 1, 1,556,684,387 5,686,376 1,562,370,763 Transfer from general provision to specific - - - Provided during the year 576,095,638 4,113,368 580,209,006 Reversed during the year )7,413,401( (2,253,950) )9,667,351(

Balance as at December 31, 2,125,366,624 7,545,794 2,132,912,418

2016 Specific General 2016

YR YR YR

Balance as at January 1, 524,105,089 38,955,499 563,060,588 Transfer from general provision to specific 30,613,470 (30,613,470) - Provided during the year 1,007,919,623 5,686,375 1,013,605,998 Reversed during the year (5,953,795) (8,342,028) (14,295,823)

Balance as at December 31, 1,556,684,387 5,686,376 1,562,370,763


23

10. Debit balance and other assets


2017 2016 YR YR

Accrued interest income from deposits with banks 456,851,746 437,341,691 Accrued income from international organizations’ projects 436,801,545 - Expansion partners' debt balances (Due from agents) 294,614,668 1,567,301 United Nations International Children’s Emergency fund (UNICEF) 118,461,604 - Inter-branches cash transfers 50,000,000 - Loans and advances to employees 13,321,889 1 1,411,746 Prepaid expenses 12,310,489 5,782,353 Accrued fees on loans and advances to customers 5,728,244 7,009,339 Communication refundable deposit 4,521,488 1,270,000 General Authority for Postal and Saving 3,981,082 1,527,853 Accrued interest income from loans and advances to customers 1,762,789 2,632,700 Margin on letter of guarantee 1,000,000 - Others 3,816,955 4,772,637

1,403,172,499 473,315,620

11. Property and equipment


2017

Furniture and office

equipment

Computers Networks

and accessories

Electrical equipment

Motor

vehicles Leasehold

improvements

Total YR YR YR YR YR YR Gross carrying amount Balance as at January 1, 2017 39,044,262 100,378,390 80,733,848 15,749,178 104,742,154 340,647,832 Re-classification on the opening balance - (4,721,172) 4,721,172 - - - Additions 1,576,142 17,041,552 1,422,155 - 499,282 20,539,131

Disposals (463,362) (1,202,787) (7,429,381) - - (9,095,530)

As at December 31, 2017 40,157,042 111,495,983 79,447,794 15,749,178 105,241,436 352,091,433

Accumulated Depreciation 19,990,180 81,683,053 45,596,283 12,239,399 77,951,097 237,460,012

Balance as at January 1, 2017

Re-classification on the opening balance - (4,683,775) 4,683,775 - - - Depreciation for the year 3,751,427 11,796,793 10,154,557 3,149,835 13,642,576 42,495,188 Disposals (273,565) (838,951) (5,689,014) - - (6,801,530)

As at December 31, 2017 23,468,042 87,957,120 54,745,601 15,389,234 91,593,673 273,153,670

Carrying amount at December 31, 2017 16,689,000 23,538,863 24,702,193 359,944 13,647,763 78,937,763

2016

Furniture and office

equipment

Computers Networks

and accessories

Electrical equipment

Motor

vehicles Leasehold

improvements

Total YR YR YR YR YR YR Gross carrying amount Balance as at January 1, 2016 35,460,445 103,565,832 76,312,744 15,749,178 117,456,348 348,544,547 Re-classification on the opening balance (1,303,137) 510,256 792,881 - - - Transferred from projects in progress 3,381,633 488,961 1,388,942 - 4,243,102 9,502,638 Additions 1,524,221 2,722,967 3,021,742 - 1,556,173 8,825,103

Disposals (18,900) (6,909,626) (782,461) - (18,513,469) (26,224,456)

As at December 31, 2016 39,044,262 100,378,390 80,733,848 15,749,178 104,742,154 340,647,832

Accumulated depreciation

Balance as at January 1, 2016 17,240,607 74,614,128 34,710,356 9,089,564 76,226,306 211,880,961

Re-classification on the opening balance - 733,327 (733,327) - - -

Depreciation for the year 2,759,622 12,765,784 12,066,823 3,149,835 20,122,069 50,864,133 Disposals (10,049) (6,430,186) (447,569) - (18,397,278) (25,285,082)

As at December 31, 2016 19,990,180 81,683,053 45,596,283 12,239,399 77,951,097 237,460,012

Carrying amount at December 31, 2016 19,054,082 18,695,337 35,137,565 3,509,779 26,791,057 103,187,820


24

12. Projects in progress

This item consists of the following as at December 31:

During the year 2015, the Bank signed a contract with NATCO Information Technology Limited for

equipping data center room with total cost of USD 44,221 (equivalent to YR 9,502,638) which was

transferred to property and equipment in 2016.

Projects in progress as at December 31, 2016 represents travel and consultancy costs to change the

banking system. This amount was paid during 2013 and 2014.

On March 8, 2017, the Bank's Management decided to postpone the completion of this project for the

coming three years and to close the projects in progress balance in the costs of systems and programs

account in Note No. 29.

13. Customers’ current accounts


* Current accounts in local and foreign currencies included amounts related to the United

Nations International Children's Emergency Fund (UNICEF) and United Nations High

Commissioner for Refugees (UNHCR) for the social transfer’s project.

14. Customers’ deposits


Note

2017 2016 YR YR

Customers' deposits 194,772,944 157,394,127 Saving accounts 171,535,014 167,201,967 Customers’ investing deposits 14.1 169,010,000 677,070,000

Balance as at December 31 535,317,958 1,001,666,094

Based on the saving accounts agreements, the customers' returns on their saving accounts are

computed based on the year-end profit sharing rate approved by the Board of Directors. Whereas, and

as per the requests of some customers, some of the customers' saving accounts do not carry interest.

2017 2016

YR YR

Balance as at January 1 7,445,045 16,947,683 Provided during the year - Transferred to property and equipment - (9,502,638) Disposals (7,445,045) -

- 7,445,045

2017 2016

YR YR

Customers’ current account - local currency* 6,471,054,508 734,853,937 Customers’ current account - foreign currency* 416,179,716 43,435,579

Balance as at December 31 6,887,234,224 778,289,516


25

14.1 Customers’ investing deposits

This item consists of the following as at December 31:

2017 2016 YR YR

Al-Asmakh Charity Foundation 107,450,000 107,450,000 Yemen Commercial Bank 30,000,000 30,000,000 Salem Abdul Rahman Bagarash Sons Company 20,000,000 20,000,000 Automobiles and Motors Trading Center (AMTC) 10,000,000 10,000,000 Shamil Bank of Yemen and Bahrain - 500,000,000 Others 1,560,000 9,620,000

169,010,000 677,070,000

14.2 Distribution of customers’ deposits based on currencies


15. Credit balances and other liabilities


Notes

2017 2016 YR YR

Contributions to finance special projects 15.1 1,427,183,417 1,368,266,738 Incoming and outgoing transfers' creditors 942,345,003 66,017,562 Zakat provision 15.2 577,282,092 512,841,431 Expansion partners’ credit balances (Due to agents) 218,937,235 25,452 Social transfer creditors 15.3 187,731,798 267,750,275 Accrued interest income from deposits - investing deposits 185,007,026 197,063,137 SILATECH Institution 164,450,001 168,981,871 Loans’ guarantees from international organization 15.4 112,331,537 93,351,035 Conditional grants 68,574,531 83,099,913 Accrued expenses and other credit balances 66,936,900 39,856,460 Solidarity fund 58,875,234 64,148,735 Accrued interest expense on financing liabilities 15.5 25,936,165 17,189,678 Employees' vacations provision 7,315,130 7,466,906 Other liabilities 15.6 13,510,748 12,735,407

4,056,416,817 2,898,794,600

2017 2016

YR YR

Customers’ investing deposits - local currency 169,010,000 677,070,000 Customers’ investing deposits - foreign currency - -

169,010,000 677,070,000

Saving accounts - local currency 132,892,571 144,030,541 Saving accounts - foreign currency 38,642,443 23,171,426

171,535,014 167,201,967

Customers' deposits - local currency 155,376,438 1 12,333,770 Customers' deposits - foreign currency 39,396,506 45,060,357

194,772,944 157,394,127

535,317,958 1,001,666,094


26

15.1 Contributions to finance special projects


2017 2016 YR YR

Shaikhah/ Muzah’s deposit 427,600,000 427,600,000 Economic Opportunities Fund’s deposit 417,083,417 358,166,738 Shaikh/ Mohammed Hussen Alamuodi’s deposit 268,750,000 268,750,000 Shaikh/ Abdullah Bugshan’s deposit 213,750,000 213,750,000 Contribution of the Local Council to the Capital Secretariat 100,000,000 100,000,000

1,427,183,417 1,368,266,738

Contributions to finance special projects represent the deposits of ShaikhahMuzah's, Shaikh

Mohammed Alamuodi' and Shaikh Abdullah Ahmed Bugshan 's which aimed to invest in Al-Amal

Islamic Financing Fund which is managed by the Bank and the return thereof is allotted to support

Yemeni youth projects through Youth Borrowing Fund which support youths aging 18 to 30 years to

create job opportunities and to restrict the average of poverty and unemployment.

The Economic Opportunities Fund's deposit aimed for financing the rural areas, and also aimed to

extend Al-Amal Bank connections and network i n the rural areas and to build up the Bank abilities to

refine its current products and to improve new products.

The contribution of the Local Council in the Capital's Secretariat to establish a labor force fund in the

Capital Secretariat to establish a fund to provide youth with facilitation loans (running the labor force

in the capital secretariat).

15.2 Zakat provision


2017 2016 YR YR

Balance as at January 1, 512,841,431 450,051,177 Provided during the year 221,493,657 190,904,521 Paid during the year* (157,052,996) (128,114,267)

Balance as at December 31 577,282,092 512,841,431

During the year, the Bank paid an amount of YER 80,000,000 to the General Administration for

Zakat Duties (YER 80,000,000 in 2016) according the settlement statement signed between the

Bank and the General Administration for Zakat Duties dated February 17, 2015, which states that

the Zakat calculation start from 2008 (Bank establishment year) on the Bank's capital to the net

profit actually collected and to delay Zakat on deferred earnings until the collection date. The due

Zakat from 2008 tell December 31, 2013 reached an amount of YER 241,154,759 to be paid on

three installments the first installment with an amount of YER 81,154,759 to be paid on February

17, 2015 and the second& third installments with an amount of YER 80,000,000 for each one

dated on February 17, 2016 and February 17, 2017. The Bank committed to pay the due Zakat

for the years to come when matured and according to the Bank financial statements.

During the year, the Bank distributed an amount of YR 38,802,995 from its share (2016: YR

27,614,267).


27

15.3 Social transfer creditors


2017 2016 YR YR

Social transfer creditors financed by the Social Fund for Development 187,654,646 16,627,450 Creditors of social transfers funded by International CARE in Yemen 77,152 23,025,455 Social transfer creditors funded by UNICEF projects - 228,097,370

187,731,798 267,750,275

15.4 Loans’ guarantees form international organization


2017 2016 YR YR

Financed by KIVA Organization projects 86,996,537 75,746,035 Financed by International CARE in Yemen 25,335,000 17,605,000

112,331,537 93,351,035

.

15.5 Employees' vacations provision


2017 2016 YR YR

Balance as at January 1, 7,466,906 12,555,832 Provided during the year 4,146,464 4,062,726 Used during the year (4,298,240) (9,151,652)


15.6 Other liabilities


2017 2016 YR YR

Job Creation Fund in the Capital Secretariat 8,000,000 3,000,000 Social Welfare Fund 55,268 55,268 Ministry of Education (Education Development Project Unit) - 4,251,403 MEDA Organization - 2,261,003 Others 5,455,480 3,167,733

13,510,748 12,735,407

16. Borrowings


2017 2016 YR YR

Balance as at January 1, 99,500,985 124,376,230 Additions - - Retranslation differences of provision in foreign currency 11,174,259 - Paid during the year (24,875,245) (24,875,245)

Balance at December 31 85,799,999 99,500,985

On July 7, 2010, the Bank signed an agreement for a non-guarantee loan from Silatech institution

Establishment amounting to YER 800,000 with fixed interest rate of 4% per annum. The loan is

payable i n seven annual installments while the grace period is two years. The purpose of the loan is to

be used in re-lending to the youth. Moreover, the Bank will use loan interest in the training programs

for the Bank's employees and customers.


28

17. Shareholders’ current accounts

2017 2016 YR YR

Shaikh/ Abdullah Bahamdan 678,441 678,035

18. Paid-up capital

The Bank's Article of Association, which is in compliance with Al-Amal Microfinance Bank

Establishing law No. (23) for the year 2002, states that the authorized share capital of the Bank is 2

billion Yemeni Rials distributed over a number of 20,000 shares, nominal value of share is YR 100,000.

On September 9, 2012, an extra ordinary general assembly meeting was held in Mukalla City in which

shareholders approved to increase the authorized share capital from YR 2,000,000,000 to YR

4,000,000,000.

During the year 2013, the Bank received part of the second payment from the private sector

contributions related to Mr. Omar Abdul Rahman Bagarash amounting to YR 10,000,000 and Shaikh/

Abdullah Bugshan amounting to YR 55,000,000 which are part of the previously authorized share

capital amounting to (YR 2,000,000,000). The Economic Opportunities Fund EOF as a new

shareholder in the Bank's share capital was approved by 5% from the Bank's total capital to cover the

unpaid share of the private sector.

During the year 2014, the Bank received the contribution of Republic of Yemen Government share,

represented by Social Fund for Development (SFD) in the Bank's share capital increment amounting

to YR 900,000,000, the contribution of Arab Gulf Fund for United Nations Development

(AGFUND) in the bank's share capital increment amounting to YR 700,000,000, and the contribution

of Economic Opportunities Fund amounting to YR 205,000,000 from the authorized share capital (YR

4,000,000,000).

Until the date of preparation the financial statements, the legal procedures for amending the Bank’s

article of association were not completed. The paid up capital as of December 31, 2017 was amounting

to YR 3,760,000,000 (2016: YR 3,760,000,000), which represents 37,600 issued and paid up shares of

YR 100,000 per share, detailed as follows:

No. of

Authorized share capital

Paid share capital

Share YR YR Government of Yemen – represented by Social Fund for Development (SFD) 18,000 1,800,000,000 1,800,000,000 Arab Gulf Fund for United Nations Development (AGFUND) 14,000 1,400,000,000 1,400,000,000

Private Sector in the Republic of Yemen: Economic Opportunities Fund 2,050 205,000,000 205,000,000 Shaikh/ Abdullah Bahamdan 2,200 220,000,000 110,000,000 Shaikh/ Abdullah Bugshan 2,200 220,000,000 110,000,000 Hail Saeed Anam Group 370 37,000,000 37,000,000 Mr. Omar Abdul Rahman Bagarash 400 40,000,000 20,000,000 Yemen Commercial Bank 300 30,000,000 30,000,000 National Bank of Yemen 200 20,000,000 20,000,000 Mr. Abu Bakr Omar Bazara 100 10,000,000 10,000,000 Watani Bank for Trade and Investment 70 7,000,000 7,000,000 Yemen Kuwait Bank 30 3,000,000 3,000,000 Yemen Gulf Bank 30 3,000,000 3,000,000 Mr. Tawfiq Mohammed AI-Khamiri 20 2,000,000 2,000,000 Al-Watania Insurance Company 20 2,000,000 2,000,000 Adhban Trading Establishment 10 1,000,000 1,000,000 40,000 4,000,000,000 3,760,000,000


29

19. Statutory reserve


According to the Commercial Banks Law No. (38) for the year 1998, 15% of retained earnings

transferred to the statutory reserve from net comprehensive income for the year 2012 and the same

percentage from the net comprehensive income of each year must be transferred annually in future.

20. General reserve


According to the Board of Directors meeting dated on January 12, 2012, 15% of net comprehensive

income of each year is to be transferred to the general reserve account.

21. Expansions reserve


According to the board of directors meeting dated on January 12, 2012, 10% of net comprehensive

income for the year is to be transferred to the expansions reserve account.

22. Interest income on loans and advances to customers

This item consists of the following for the year ended December 31:

2017 2016 YR YR

Profit generated from financing portfolio - income received 28,661,780 224,290,918 Profit generated from financing portfolio which financed from contributions and customers’ investing deposit 9,617,420 24,243,381 Profit generated from financing portfolio - accrued income 1,762,789 2,632,700

40,041,989 251,166,999

2017 2016

YR YR

Balance at January 1, 518,903,839 501,942,098 Transferred from net comprehensive income for the year 242,316,210 16,961,741 Balance as at December 31 761,220,049 518,903,839

2017 2016

YR YR

Balance as at January 1, 661,032,806 644,071,065 Transfer from net comprehensive income for the year 242,316,210 16,961,741


2017 2016

YR YR

Balance as at January 1, 440,688,536 429,380,709 Transferred from net comprehensive income for the year 161,544,140 l l,307,827 Balance as at December 31 602,232,676 440,688,536


30

23. Interest income on deposits with banks


2017 2016 YR YR

Received interest income on deposits with banks 1,433,546,590 1,086,142,240 Accrued interest income on deposits with banks 456,851,746 437,341,691

1,890,398,336 1,523,483,931

24. Deposits and loans costs


2017 2016 YR YR

Dividends to customers’ investing deposit 64,870,628 74,657,335 Dividends contributions to finance special projects 32,912,842 20,957,401 Financing costs 18,327,908 4,118,235 Dividends to term deposits 17,555,137 10,217,764 Dividends to saving accounts 8,381,028 6,979,128 Other financing costs 75,700 -

142,123,243 116,929,863

25. Social transfers revenue, net


2017 2016 YR YR

Total revenue of social and cash transfers 725,231,721 168,409,169 Costs of social and cash transfers (332,744,193) (54,892,530)

392,487,528 113,516,639

26. Other income


2017 2016 YR YR

Cash grants and donations for operating expenses* 27,898,078 13,655,669 Reversed from the provision of loans and advances to customers 9,667,351 14,295,823 Solidarity Fund income 6,430,580 7,127,637 Transfers income 400,443 104,562 Income from forms sale 5,000 18,000 Other miscellaneous income 2,650,166 8,389,827

47,051,618 43,591,518

* Cash grants and donations for operating expenses represent the amounts granted by various

parties for promotional purposes and to cover the cost of training courses, travel allowance for

employees to attend conferences and grants for assets and equipment.


31

27. Gain on foreign currencies transactions


2017 2016

YR YR

(Loss) gain from revaluation of balances in foreign currencies (33,795,393) 12,498,003 Gain on dealing in foreign currencies 780,195,999 6,025,002

746,400,606 18,523,005

28. Emplyee costs


2017 2016 YR YR

Salaries and wages 186,932,974 186,185,324 Allowances and cash benefits 72,574,578 74,296,486 Social Security 9% 22,722,074 23,258,058 Tax 5,044,682 - Bonuses and incentives 4,850,804 7,859,927 Employees' vacations 4,146,464 4,062,726 Others 7,254,260 4,683,614

303,525,836 300,346,135

29. General and administrative expenses


2017 2016 YR YR

Rents 51,167,450 48,599,665 Building expenses *26,253,711 11,187,711 Communication and connectivity expenses 25,779,577 16,752,338 Training and development 18,180,152 26,182,619 Security expenses 15,039,843 12,870,334 Costs of systems and programs **11,805,814 2,517,823 Insurance expenses 10,504,140 4,674,888 Professional fees 10,445,612 5,029,341 Fees and subscriptions 8,261,657 6,748,583 Stationery 7,113,660 5,869,502 Travel expenses 5,730,149 3,747,168 Expenses related to furniture and equipment 4,550,429 6,928,222 Transportation expenses 4,027,025 2,351,719 Expenses related to vehicles 3,308,984 4,702,751 Marketing and promotion 1,109,917 2,897,584 Events and festivals 158,605 561,320 Other miscellaneous expenses 5,519,499 5,975,026

208,956,224 167,596,594

* This balance includes an amount of YR 6,990,545 against rehabilitation costs of the Head Office in

Sana'a - Republic of Yemen as a result of the security events occurred in December 2017.

** This balance includes an amount of YR 7,445,045 transferred from projects in progress account,

(note No. 12).


32

30. Earnings per share


31. Key management benefits

Employees cost includes the benefits and compensation for the Bank key management who are senior

management authorized and responsible for planning, guiding, monitoring bank activities, directly or

indirectly and including non-executive managers:

32. Operating leases

Future minimum operating leases payments at the end of each period under review were as follows:

The minimum payments of accrued operating leases

During the year From 1 year to 5

years After 5 years YR YR YR Total YR

December 31, 2017 Head Office 15,884,279 63,537,116 - 79,421,395 Branches 35,283,171 141,132,684 - 176,415,855

51,167,450 204,669,800 - 255,837,250

December 31, 2016

Head Office 16,199,980 60,749,923 - 76,949,903 Branches 32,399,685 80,298,572 - 112,698,257

48,599,665 141,048,495 - 189,648,160

The operating leases were admitted as expenses during the year amounting to YR 51,167,450 (2016: YR

48,599,665), and these amounts represent the minimum amounts of paid rents; also there are no

projected income from sub-lease, moreover, lease agreements do not include any items of the potential

rent.

Also, the agreements do not include the purchase options or restricted escalation relating to the

profits, external rent, or any additional debt.

33. Fair value information

Based on the valuation methodology outlined below, the fair values of all financial position financial

instruments as at December 31, 2017 are considered by the Bank's management not to be materially

different to their carry values.

2017 2016

YR YR

Net comprehensive income for the year 1,615,441,398 113,078,272

Weighted average of number of shares 37,600 37,600

Earnings per share 42,964 3,007

2017 2016

YR YR

Key management incentives and salaries 94,262,459 92,438,077


33

Estimation of fair values

The following summarizes the major methods and assumptions used in estimating the fair values of

assets and liabilities:

Loans and advances to customers

Fair value is calculated based on discounted expected future principal and interest cash flows. Loan

repayments are assumed to occur at contractual repayment dates, where applicable. For loans that do

not have specific repayment dates or that are subject to collections risk, repayments are estimated

based on experience in previous periods when interest rates were at levels similar to current levels,

adjusted for any differences in interest rate outlook. Expected future cash flows are estimated

considering credit risk and any indication of impairment. Expected future cash flows for homogeneous

categories of loans are estimated on a portfolio basis and discounted at current rates offered for similar

loans to new borrowers with similar credit profiles. The estimated fair values of loans reflect changes

in credit status since the loans were made and changes in interest rates in the case of fixed rate loans.

Current account balances due from banks

The carrying amount of current account balances due from banks was considered to be a reasonable

estimate of fair value due to their short term nature.

Saving accounts and customers deposits

For saving accounts and demand deposits with no defined maturities, fair value is taken to be the

amount payable on demand at the statement of financial position date. The estimated fair value of

fixed-maturity deposits is based on discounted cash flows using rates currently offered for deposits of

similar remaining maturities. The value of long-term relationships with depositors is not taken into

account in estimating fair values.

Other financial instruments

The fair values of all statement of financial position financial instruments are considered to

approximate their book values.

Fair value versus carrying amounts

The fair value of the financial assets and liabilities approximates their carrying value as stated in the

statement of financial position.

34. Significant foreign currency positions

To comply with CBY circular No. 6 of 1998, the Bank establishes limits for positions in individual

foreign currencies as well as an aggregate limitation for all currencies. These limits are set for each

foreign currency positions separately, as well as the total of the different foreign currency positions

combined. Accordingly, the bank should not maintain a position of foreign currencies more than 25%,

and 15% from one currency of the total shareholders' equity. The following schedule reflects the

Bank’s significant foreign currencies positions at the financial position date:

2017 2016 Surplus

(deficit) Percentage

to total equity Surplus (deficit)

Percentage to total equity

YR % YR %

USD 259,239,561 4.78% 1,143,469,107 14.29% Euro 14,854,463 0.27% 18,011,150 0.23% Saudi Rial 14,154,900 0.26% 14,926,826 0.19% Total 288,248,924 1,176,407,083


34

35. Risks management

The Bank manages its exposed types of financial risks through detailed strategies and policies, which

assess, address and mitigate those risks. The risk management framework is pivoted on a host of

committees involving the Board of Directors, the executive operation manger Committee of assets and

liabilities, financial manager, director of the treasury, operation manager, area managers and a host of

various committees at various administrative levels whom are subject to the supervision of the Bank

Management.

The following is a brief on how the Bank is managing variety of risks through:

a. Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in

financial loss to the Bank. The credit risk results from the normal course of the Bank's business.

As part of Bank's policy to develop, increase the business, and loans and advances portfolio, the Bank

is adopting high standards and best techniques and methodologies to manage the credit risk.

The above steps help to protect the quality of the credit portfolios and give it high level of

diversification.

The Bank is adopting the Central Bank of Yemen guidance for the Basis of Classification of Assets and

Liabilities issued under letter No. (7761) dated February 7, 2010 as a retroactive guidance to the date of

these financial statements, special provisions are to be established for loans and advances and

contingent liabilities. Additionally, general provision is to be provided to face general risks. General

Provision is to be calculated as a percentage of the total performing loans and advances to customers

based on detailed periodical studies on these loans and advances to customers.

The Bank also complies with the Central Bank of Yemen instructions issued in circular no. (9) in 2015,

(appendix to circular No. 4 of 2011) concerning raising the general provisions as a percentage of total

performing loans and advances from 2% to 5%.

The Bank's procedures include following to manage and control the credit risk:

- Prepare credit studies on its customers and identify the related credit risk.

- Obtain sufficient guarantees to minimize the positional risks that may arise in the case of

defaulting customers.

- Field visits to customers' premises and conduct regular analysis of their financial positions and

credit worthiness.

- Provide for the required provisions for the non-performing loans.

- Distribute the credit portfolio on different segments to avoid concentration of risk and

maintain specific limits for each industry.


35

The concentration of financial assets and liabilities are disclosed at the financial position date by

geographic region and type of customer as follows:

A.1 Geographical concentrations

Dec. 31, 2017 Dec. 31, 2016 Assets Liabilities Assets Liabilities YR YR YR YR

Sana'a 624,783,861 3,882,708,855 597,888,482 1,098,547,022 Taiz 240,569,375 506,540,335 156,772,710 228,365,090 Ibb 231,874,961 819,928,056 326,786,423 66,493,952 Aden 395,832,663 550,145,513 402,271,304 65,550,566 Hodidah 295,761,402 518,411,689 308,034,654 136,503,776 Mukalla 120,365,334 326,828,697 127,544,864 50,010,806 Haja 946,149,856 200,987,075 952,739,535 87,873,460 Dhamar 282,645,284 617,001,962 283,260,998 46,610,938

3,137,982,736 7,422,552,182 3,155,298,970 1,779,955,610

A.2 Customers concentrations

Dec. 31, 2017 Dec. 31, 2016 Assets Liabilities Assets Liabilities YR YR YR YR

Customers’ current accounts - 6,887,234,224 - 778,289,516 Saving accounts - 171,535,014 - 167,201,967 Deposit accounts - 363,782,944 - 834,464,127 Groups 82,657,584 - 87,823,037 - Individuals 51,424,240 - 73,652,175 - Investors 101,796,030 - 80,624,744 - Companies 2,849,142,744 - 2,884,556,579 - Projects 159,760 - 159,760 - Immediate 16,498,248 - 28,482,675 - Interest-free loan 36,304,130 - - -

3,137,982,736 7,422,552,182 3,155,298,970 1,779,955,610

The following table shows the maximum credit risk for the components of the financial position and

shows the maximum risk in total without taking into account the mitigating factors of the risk effect

before deducting any collateral:

2017 2016

YR YR

Reserve balance with the Central Bank of Yemen (not including cash on hand)

437,802,750 85,618,250

Balances with banks and financial institutions 18,649,110,864 11,208,838,928 Loans and advances granted to customers, net 152,505,004 734,143,663 Other receivables after deduction the prepayments 1,390,862,010 467,560,932

20,630,280,628 12,496,161,773


36

b. Liquidity risk

Liquidity risk is the potential inability to meet the Bank's liabilities as they become due. It arises when

the Banks are unable to generate cash to cope with declines in deposits or increase in assets.

The Bank monitors liquidity risk by maintaining adequate reporting "Maturity of Assets and

Liabilities Report" which captures all the classifying the assets and liabilities into various pre-set time

buckets ranging to one year or more.

Treasury department of the Bank controls and monitors the liquidity risk and ensures that the Bank is

not exposed to undue liquidity risk and at the same time makes optimum use of its funds.

The maturity profile of the Bank's financial assets and liabilities as of December 31, 2017 is as follows:

During 3 months

From 3 to 6 months From 6 to year

More than a year

Total

YR YR YR YR YR

Assets Cash on hand and reserve balances with Central Bank of Yemen 899,377,584 - - - 899,377,584 Due from banks and local financial institutions 15,026,452,322 3,232,877,500 341,850,000 - 18,601,179,822 Due from banks and foreign financial institutions 47,931,042 - - - 47,931,042 Loans and advances to customers 152,505,004 - - - 152,505,004 Debit balances and other assets 1,384,862,727 4,405,051 9,336,992 4,567,729 1,403,172,499

Total assets 17,511,128,679 3,237,282,551 351,186,992 4,567,729 21,104,165,951

Liabilities Customers’ current accounts 6,887,234,224 - - - 6,887,234,224 Customers’ deposits 211,250,116 62,374,851 92,682,991 169,010,000 535,317,958 Credit balances and other liabilities 2,187,442,231 - 275,822,349 1,593,152,237 4,056,416,817 Borrowings 24,875,246 - - 60,924,753 85,799,999 Shareholders current account 678,441 - - - 678,441

Total liabilities 9,311,480,258 62,374,851 368,505,340 1,823,086,990 11,565,447,439

Net 8,199,648,421 3,174,907,700 (17,318,348) (1,818,519,261) 9,538,718,512

Cumulative 8,199,648,421 11,374,556,121 11,357,237,773 9,538,718,512

The maturity profile of the Bank's financial assets and liabilities as of December 31, 2016 is as follows:

During 3 months

From 3 to 6 months From 6 to year

More than a year

Total

YR YR YR YR YR

Assets Cash on hand and reserve balances with Central Bank of Yemen 254,213,031 - - - 254,213,031 Due from banks and local financial institutions 6,366,988,928 1,341,850,000 3,500,000,000 - 11,208,838,928 Due from banks and foreign financial institutions - - - - - Loans and advances to customers 85,356,929 254,521,574 394,265,160 - 734,143,663 Debit balances and other assets 24,422,444 1,516,825 442,156,351 5,220,000 473,315,620

Total assets 6,730,981,332 1,597,888,399 4,336,421,511 5,220,000 12,670,511,242

Liabilities Customers’ current accounts 778,289,516 - - - 778,289,516 Customers’ deposits 157,473,519 60,652,590 106,469,985 677,070,000 1,001,666,094 Credit balances and other liabilities 1,195,497,629 3,524,125 431,506,108 1,268,266,738 2,898,794,600 Borrowings 24,875,245 - - 74,625,740 99,500,985 Shareholders’ current account - - - 678,035 678,035

Total liabilities 2,156,135,909 64,176,715 537,976,093 2,020,640,513 4,778,929,230

Net 4,574,845,423 1,533,711,684 3,798,445,418 (2,015,420,513) 7,891,582,012

Cumulative 4,574,845,423 6,108,557,107 9,907,002,525 7,891,582,012


37

c. Market Risk

Market risk includes foreign currency risk and interest rate risk.

Foreign currency risk

Foreign exchange risk is the risk that the value of a financial instrument will fluctuate due to changes

in foreign exchange rate and arises from financial instruments denominated in a foreign currency. The

Bank’s functional currency is the Yemeni Rial. Due to the nature of the Bank’s activity, the Bank deals

in different foreign currencies, hence it is exposed to exchange rate risk. In order to minimize the

exposure to exchange rate risk, the Bank is trying to maintain a balanced foreign currencies position in

compliance with CBY instructions and the requirements of CBY circular No. (6) of 1998 which

specifies that individual foreign currency positions should not exceed 15% of the Bank’s capital and

reserves, and that the aggregate open position for all foreign currencies should not exceed 25% of the

Bank’s capital and reserves.

In order to comply with CBY circular No. (6) of 1998, the Bank regularly monitors its foreign

currency positions and sells the excess funds in foreign currencies at the prevailing rates on the dates of

sale.

The table below shows the Bank’s significant net exposures to foreign currencies at the reporting date:

2017 US dollar Euro SR Total

YR YR YR YR

Assets 1,477,160,000 49,336,000 50,501,000 1,576,997,000 Liabilities (1,217,920,600) (34,482,000) (36,346,000) (1,288,748,600) Net foreign currency centers 259,239,400 14,854,000 14,155,000 288,248,400

2016 US dollar Euro SR Total

YR YR YR YR

Assets 1,300,509,000 48,079,000 54,363,000 1,402,951,000 Liabilities (157,039,000) (30,068,000) (39,436,000) (226,543,000) Net foreign currency centers 1,143,470,000 18,011,000 14,927,000 1,176,408,000

Effect of change in fair value for the currency (Foreign currencies sensitivity)

Below are the average exchange rates for the major currencies at year-end:

Closing rate as per Central Bank of

Yemen Average exchange rate as per parallel

market* 2017 2016 2017 2016 Equivalent in YR Equivalent in YR Equivalent in YR Equivalent in YR

US dollar 250.25 250.25 450 315 Euro 300.25 261.78 540 337 SR 66.74 66.74 120 83

*These rates were based on the average exchange rates in the parallel market used by the Bank’s

Management in the last foreign currencies transactions.

On December 31, 2017, the Central Bank of Yemen issued instructions to all banks and financial

institutions working in the Republic of Yemen that the closing rate for US Dollar should be 250.25

Yemeni Rial to 1 US Dollar and therefore their financial positions should be evaluated at the end of

December 2017 in this rate. Accordingly, the Bank’s Management used the closing rates of December

2017 that has been issued on December 31, 2017 to evaluate the foreign currencies positions as at

December 31, 2017.


38

Taking into account the average of exchange rates in the parallel market and the conditions

experienced by the country during the current period, the following table illustrates the sensitivity for

decrease of the Yemeni Rial exchange rate against other related foreign currencies and the expected

impact on the statement of comprehensive income and equity with all other factors remaining

constant:

Effect on Statement of Comprehensive Income and Equity

2017 2016 YR 000s YR 000s

US dollar 206,925,483 297,004,963 Euro 11,861,308 5,175,333 SR 11,297,831 3,647,785

Note 34 to the financial statements illustrates the major foreign currencies’ positions at the financial

statements date compared with the last year.

Interest rate risk

This is the risk of interest rate fluctuations that may affect the value of its financial instruments. The

Bank manages its interest rate risk through the following policies to minimize its risk to the lowest

level possible:

- Matching interest rates for loans borrowed with interest rates on loans to customers and by

obtaining loans, if needed, with less interest rate than those offered by local banks and by

determining fixed interest rates that exceed interest rates of banks on customer loans.

- Monitoring the maturity dates of financial assets and liabilities.

The average interest rate on assets and liabilities during the financial year ended December 31, 2017

was as follows:

YR USD SR % % %

Assets Customers’ current and saving accounts 12% 3% - Deposits with banks 16% 5% - Loans and advances to customers, net 18% - - Liabilities Customers’ deposits 9% 2.75% 2.75% Loans 4% - -

The average interest rate on assets and liabilities during the financial year ended December 31, 2016

was as follows:

YR USD SR % % %

Assets Customers’ current and saving accounts 12% 3% - Deposits with banks 16% 5% - Loans and advances to customers, net 18% - - Liabilities Customers’ deposits 8% 2.25% 2.25% Loans 4% 4% -


39

d. Capital risk management

The Bank manages its capital to secure its continuity as a going concern while maximizing

shareholders returns to be used in re-lending activities. The Bank's general policy is unchanged from

2016.

The capital structure of the Bank consists of paid share capital, and equity attributable to shareholders

of the Bank comprising issued capital and retained earnings.

e. Operational risk

Operational risk is the risk of direct or indirect loss due to an event or action causing failure of

technology, process, infrastructure, personnel and other risks having an operational risk impact. The

Bank seeks to minimize actual or potential losses from operational risks failure through a framework

of policies and procedures that identify, assess, control, manage and report those risks. Controls

include effective segregation of duties, access, authorization and reconciliation procedures, staff

education and assessment processes.

36. Contingent liabilities

The Bank has contingent liabilities against letters of guarantee as follows:

- A letter of guarantee amounting to YR 500,000 issued by Cooperative and Agricultural Credit

Bank in favor of the Public Authority for Post and Postal Savings for billing payment with a

margin of YR 500,000.

- Check amounting to YR 500,000 issued by Yemeni Commercial Bank on favor of Yemeni

Women's Union for submitting a tender of cash transfers.

37. Events in Republic of Yemen

Due to the current political crisis, economic situation and security events in the Republic of Yemen, it

is difficult for management to predict the effects of these events to the Bank activities and its financial

position for the coming period. The management is studying the effects of this crisis in the short term

and make the necessary precautions to ensure continuity.

38. Comparative figures

Certain comparative year figures have been reclassified to conform with the classification of the

financial statements for the current year for a better presentation. These classifications did not affect

the comprehensive income for the year or shareholder’s equity.

39. Authorization of financial statements

The financial statements were approved by the Board of Directors on March 7, 2018.

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