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Focusing on building partnershipsANNUAL REPORT2009

ABC Jordan Annual Report 2009

CONTENTSOur Vision, Mission and ValuesBoard of Directors Organization ChartExecutive ManagementExecutive Management of ABC Financial InvestmentsDirectors’ ReportFinancial HighlightsFinancial RatiosOwners of 5% or more of ABC (Jordan) sharesBrief on ABC Financial InvestmentsABCI Organization Chart Review of OperationsBusiness Plan for the year 2010Shareholdings of the Chairman, Members of the Board, Executive Management and their RelativesRepresentation of the Board of Directors and Authenticity of the Financial StatementsIndependent Auditors’ ReportConsolidated Statement of Financial PositionConsolidated Income Statement Consolidated Statement of Comprehensive IncomeConsolidated Statement of Changes in Equity Consolidated Statement of Cash FlowsNotes to the Consolidated Financial StatementsABCJ DirectoryInternational Directory

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ABC started its operations in Jordan in January 1990 through its subsidiary Arab Banking Corporation Bank (Jordan) or ABC Bank (Jordan).

ABC bank (Jordan) is a universal bank that offers a wide range of corporate, retail and investment services. It has 19 branches spread mainly in Amman and the four other main cities namely, Zerka, Irbid, Karak, and Aqaba.

The Bank uses state-of-the-art banking technology to maintain its high level of customer service. Supported by the worldwide network of ABC units in 21 countries. ABC (Jordan) offers a unique capability to meet customers’ needs and expectations within and outside Jordan.

Focusing on building partnershipsAt ABC Group, we’re building closer relationships with customers by listening, creating and delivering tailor-made products and services that suit every customer, partner and investor. We believe this approach will build long lasting and mutually rewarding partnerships.

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ArAb bAnking CorporAtion (JorDAn)Annual Report 2009

A clear vision, specific mission and vivid strategy that keep pace with development are the solid bases of our entrepreneurship in the Jordanian banking market.

ViSionTo be recognized as the innovative and proactive Bank in Jordan with the Capacity and Experience of a Premier Financial Group in the Region.

MiSSionTo provide innovative and high quality services and products to our clients through user friendly, accessible facilities and delivery channels. To maximize benefits to our clients and transform their dealing with the Bank to a pleasant experience. To interact with the national and local community interests. To invest in providing a healthy and attractive environment for all personnel. To generate increasing value for our shareholders and safeguard the Bank’s assets.

VALUESComplete appreciation of the customer. Competency in procedures. Working as one team with high productivity. Credibility and integrity. Transparency and full exchange of information. Compliance with the local and international banking standards.

2 ABC Jordan Annual Report 2009

boArD oF DirECtorS

Mr. Hassan Ali Juma EC gC ‡

Chairman - bahraini citizen

Fellow of the Chartered Institute of Management Accountants

(FCIMA), U.K.

President & Chief Executive of Arab Banking Corporation (B.S.C);

Chairman of Arab Banking Corporation - Egypt (S.A.E.); Arab

Financial Services Co. (E.C.); ABC Islamic Bank and Deputy

Chairman of ABC International Bank plc, U.K. former Managing

Director of National Bank of Bahrain; former Chairman of

Bahrain Telecommunications Company. Mr. Juma has been a

Director of Arab Banking Corporation (B.S.C.) since 1994. He has

more than 34 years’ experience as a commercial banker.

Dr. Saleh Al Humaidan CC ‡

Deputy Chairman - Saudi citizen

Ph.D. in Agricultural Economics, Oklahoma State University,

U.S.A.

General Manager, Arab Investment Company, Riyadh; Member of

the Boards of Saudi International Petrochemical Company, Jubail

and Saudi Investment Fund, London, U.K.; Chairman, Financial

Investment Bank, Sudan. Dr. Humaidan is also a Director on the

Board of Arab Banking Corporation (B.S.C). He has over 26 years

of experience in the economic and investment fields gained

through his work at the Saudi Arabian Ministry of Planning, the

Saudi Development Fund, and the Arab Investment Company.

Dr. Humaidan joined Arab Banking Corporation (B.S.C.) as a

Director in 2001.

H.E. Eng. Shafiq Zawaideh AC rC CC § ‡

Director - Jordanian citizen

M.A. in Engineering, USA.

Chairman of Jordan Pipes Manufacturing Company and the

United Investors Company; Mr. Zawaideh serves as Director

on the Board of United Investors Company, Tameer and Union

Company for Cigarettes; former Minister of Housing and Public

Works; former General Manager of Public Housing Corporation.

Mr. Zawaideh participated in the establishment of various banks

and public shareholding, private and limited liability companies.

Dr. khaled kawan AC CC ‡

Director - Libyan citizen

Ph.D. (Doctorat D’Etat) in Banking Laws, University of Paris

(Sorbonne), France.

Secretary to Arab Banking Corporation (B.S.C.)’s Board of

Directors. Dr. Kawan joined ABC in June 1991, having previously

spent some time with a prime French Law firm in Paris. He had

been Group Legal Counsel until January 2010, when he was

appointed as Deputy Chief Executive. Dr. Kawan represents ABC

as a Director on the boards of Arab Banking Corporation – Egypt

(S.A.E.).

Mr. Yousef Abdelmaula AC rC ‡

Director – Libyan citizen

MBA Hartford University, U.S.A.

Mr. Abdelmaula is the Vice Chairman of Corinthia Group of

Companies, former Executive Director of the Libyan Foreign

Investment Board. He serves also as Director on the boards of

Libyan Foreign Bank and Arab Banking Corporation (B.S.C). Mr

Abdelmaula has more than 20 years of banking experience.

Shafiq ZawaidehHassan Ali Juma Dr. Saleh Al Humaidan

Dr. khaled kawan Yousef Abdelmaula

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Hareb Al Darmaki Sael Al Waary

Dr. Marwan Al Sayeh “Mohammad Akel” Al biltaji

Dr. Marwan Al Sayeh gC § ‡

Director - Jordanian citizen

Ph.D. in Electrical Engineering, Charles University Prague and

Ecole Genie Electrique de Lyon.

Managing Director of “Al Sayeh Project Development

Consultancy”; Regional Director for Arab Gulf region for ALCATEL–

ALSTOM group based in Beirut, Kuwait. Dr. Al Sayeh is the Vice

Chairman of the Board of Directors of Century Investment

Group and Chairman of the Board of Directors of Accelerator

Technology Holdings; Dr. Al Sayeh is also the President of the

French Foreign Trade Counselors for the Arab Gulf region and

Vice President of the French - Bahraini Business Club. Director

on the boards of Trustees and Member of the Management

Committee of the Welfare Association, a Palestinian NGO. As

acknowledgment of the French Government in developing the

trade business between France and the Arabian Gulf Region

the French President awarded Dr. Al Sayeh the following

decorations:

“Officier de la L’egion d’Honneur”. 1999

“Chevalier de L’ordre National du Merite” 1986

H.E. Mr.“Mohammad Akel” Al biltaji EC gC § ‡

Director – Jordanian citizen

Academic Achievements

Higher Diploma in Education / Eartham College, USA. Senior

Aviation Management Association.

Advisor to His Majesty King Abdulla II. ; Senator – Jordanian

Senate – Chairman, Tourism & Heritage Committee. Former

Chief Commissioner – Aqaba Special Economic Zone Authority.

Former Chairman – Jordan Tourism Board and former Senior

Vice President Royal Jordanian Airlines. Mr. Al Biltaji holds a

number of high Jordanian and Foreign decorations.

Mr. Hareb Al Darmaki EC rC ‡

Director – U.A.E. citizen

B.Sc. in Economics and Politics, Bristol University, England and

Master of Arts in International Studies, School of Advanced

International Studies of John Hopkins University, U.S.A.

Executive Director, Private Equities Department at Abu Dhabi

Investment Authority. Mr. Al Darmaki is also the incumbent

Chairman of Gulf Capital and Director of Qatar Telecom (Qtel)

(amongst other companies).

He joined the Board of Arab Banking Corporation (B.S.C.) in

March 2007 with over 30 years’ experience in international

finance.

Mr. Sael Al Waary AC rC ‡

Director – Jordanian citizen

B.Sc. (Hons) degree in Computer Science, University of Reading, U.K.

Mr. Al Waary was appointed to the role of Group Chief Operating

Officer for the ABC Group in 2006. Prior to that, he was Senior

Vice President and Head of Group Support. In 1997, Mr. Al Waary

relocated from London to the Bahrain Head Office to direct ABC’s

Global Information Technology functions. Mr. Al Waary originally

joined the ABC Group in 1981 and, from 1986, was the General

Manager of ABC (IT) Services Ltd., the wholly-owned subsidiary

and technology arm of the ABC Group. He has over 29 years

of experience in banking. Mr. Al Waary is a Director of Banco

ABC Brazil S.A., Arab Banking Corporation - Egypt (S.A.E.), Arab

Banking Corporation Bahrain – based Arab Financial Services

(AFS).

EC Member of the Executive CommitteeAC Member of the Audit CommitteeGC Member of the Corporate Governance CommitteeRC Member of the Risk CommitteeCC Member of the Compensation Committee‡ Non-Executiveæ Executive§ Independent


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ABC Bank branch in Wehdat area.

The Bank continued to carry out its social responsibility of supporting social building and development by providing local community with all means of financial and moral support.


EXECUtiVE MAnAgEMEnt

Mrs. Simona Sabella l general Manager B.A. in English Language, University of Jordan.Mrs. Sabella is Chairman of Arab Co-operation for Financial Investments Co. - ABCI (wholly owned subsidiary of the Arab Banking Corporation (Jordan); Member of the Board of Visa Credit Cards Services and Member of the Board of Amlak Finance (Jordan). Mrs. Sabella joined Arab Banking Corporation (Jordan) as General Manager on 15 September 2008. Mrs. Sabella began her banking career at Chase Manhattan Bank N.A. Amman in 1977 and Chase Manhattan Bank N.A. London, before moving to Bank of Jordan where she held the position of Manager of Corporate Department. In 1995 she moved to Cairo Amman Bank as Assistant General Manager – Retail Banking and her last position was Deputy General Manager for Banking Services.

Mr. tarek Akel l Deputy general Manager and Head of Corporate banking group MBA in Finance, Baylor University; MA in Economics, Texas Tech University; B.A. in Int’l Economics, Texas Tech University. Formerly First Vice President at Arab Banking Corporation, BSC. Before joining ABC Mr. Akel worked for Merrill Lynch International Bank (Bahrain) as a Financial Consultant and for the International Finance Corporation, World Bank Group, and Washington DC as an Investment Analyst.

Mr. tony Mukbel l Head of Support group B.A. in Accounting, University of Jordan; MSc. in Accounting, George Washington University, USA; Certified Public Accountant (CPA), member of AICPA since 1983.On 15 February 2009, Mr. Mukbel has been appointed “Head of Support Group” in ABC (Jordan) and previously he held the position of Assistant General Manager- Internal Audit. Mr. Mukbel is Chairman of Century Investment Group since 2003, Board Member of Jordan Tourism Investment Co. and Board Member of National Chlorine Industries Co. Mr. Mukbel has over (23) years experience in auditing financial institutions (USA, Kuwait, United Arab Emirates, Qatar, Jordan).

Mr. george Sofia l Head of retail banking groupB.Sc. in Science Management, Western International College, U.K.Mr. Sofia joined Arab Banking Corporation (Jordan) in 4/8/2009 as the Head of Retail Banking Group and he was formerly the Assistant General Manager – Personal Banking at Capital Bank (Jordan). Mr. Sofia previously held the position of Retail Banking Manager in SGBJ and worked for (11) years in HSBC Bank where his last position was Amman Branch Manager.

Mrs. nuha Matar l Assistant general Manager for Credit B.A. in Archaeology, University of Jordan.Mrs. Matar had worked for over (17) years with HSBC Bank (Jordan). Mrs. Matar joined Arab Banking Corporation (Jordan) in 2001 and was appointed to the position of Assistant General Manager for Credit and she is currently acting as the Secretary for ABC (Jordan) Board Risk Committee. She was a Board and Audit Committee member for Jordan Travertine Co., during the period from April 2005 until April 2009.

Mrs. rana naddeh l Assistant general Manager for Central operationsB.A. in Economics and Business Administration, University of Jordan.Before joining Arab Banking Corporation (Jordan), Mrs. Naddeh worked for (11) years for Union Bank for Savings and Investment as Trade Finance Manager. In 2001 Mrs. Naddeh joined Arab Banking Corporation (Jordan) and in 2007 she took over as Assistant General Manager for Central Operations.

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Mr. othman Shwaimat l Assistant general Manager for treasuryB.A. in Finance & Accounting, Yarmouk University; MBA in Finance, Arab Academy for Banking & Financial Sciences.Prior to joining Arab Banking Corporation (Jordan) in 2008, he had worked for four years with Jordan Kuwait Bank (Jordan) as Senior Manager / Treasury & Investment and for five years with Standard Chartered Bank (Jordan) as Head of Asset Liabilities Management & Money Market / Treasury. In 1989 he worked with Cairo Amman Bank (Jordan) as Assistant Manager / Treasury & Investment.

Mr. othman Al Azhari l Assistant general Manager for information technologyB.Sc. Computer Engineer, Soviet Union.Mr. Al Azhari started his banking career at Arab Jordan Investment Bank in 1991 after moving from Sinam Integrated Systems Co. where he held the position of Section Head of Information Technology Department. Mr. Al Azhari joined Arab Banking Corporation (Jordan) in 1997 as the Supervisor for the Information Technology Department. In 2004 he held the position of Executive Manager and in 2008 he took over as Assistant General Manager for Information Technology.

Mr. Suleiman Mbaidin l Assistant general Manager for Administration & Human resources B.A. in Managerial Sciences, University of Mou’ta; MA in Business Administration, University of Jordan.Formerly Assistant Manager for Administration & Employees Dept. at Deposit Insurance Corporation and Senior Employee at Central Bank of Jordan. In 2005 Mr. Mbaidin joined Arab Banking Corporation (Jordan) as the Human Resources Dept. Manager. In 2008, Mr. Mbaidin became the Acting Assistant General Manager for Administration and Human Resources and in 14/4/2009 he took over as the Assistant General Manager for Administration and Human Resources.

Mr. Adnan Al Shoubky l Assistant general Manager - Head of internal AuditB.A. in Public Administration (Major) Computer Science (Minor), Yarmouk University; CIA Certified.Mr. Al Shoubky worked in Amman Bank for Investment from 1994-1996 as an Internal Auditor. During 1996 – 2006 Mr. Al Shoubky worked with Arab Banking Corporation (Jordan) where his last position was a Manager in Internal Audit Department. Then he joined the Arab Co-operation for Financial Investments Co. (ABCI) as the Deputy CEO for Operations. In 2/2009 Mr. Al Shoubky joined again ABC (Jordan) as the Assistant General Manager - Head of Internal Audit.

Mr. basel naber l Assistant general Manager for Financial ControlB.A. in Accounting, University of Jordan; MA in Accounting and Business Administration, University of Jordan.Mr. Naber started his career in banking in 1992 when he joined Citibank- Amman as an Assistant Manager for Financial Control until 1995 then he moved to Cairo Amman Bank as Manager for the Business Process Reengineering Department. In 2004 Mr. Naber joined Arab Banking Corporation (Jordan) as Regional Manager for Financial Control Department, and he was promoted in 1/1/2009 to Assistant General Manager for the Financial Control.

Mr. “Mohammed naser” Abu Zahra l Acting Assistant general Manager for Corporate bankingB.A. in Accounting, University of Jordan; MBA in Financial Management, Arab Academy for Banking & Financial Sciences; Moody’s Risk Management Services, Moody’s Company.Mr. Abu Zahra started his banking career at Jordan Islamic Bank and Islamic International Arab Bank before moving to Housing Bank for Trade & Finance where he held the position of Senior Credit Officer for Corporate Department. In 2002 Mr. Abu Zahra joined Arab Banking Corporation (Jordan) and in 2007 he took over as Acting Assistant General Manager for Corporate Banking.


EXECUtiVE MAnAgEMEnt oF AbC FinAnCiAL inVEStMEntS

Mr. khaled Zakaria l C.E.oB.A. in Finance & Banking Science (Major) Accounting (Minor),Yarmouk University.Mr. Zakaria is the CEO of Arab Co-operation for Financial Investments Co.(ABCI).He has more than 20 years experience in treasury and investment in different banks in Jordan.

Mr. Moataz Maraqa l Deputy CEo for investments B.A. in Business Administration, University of Jordan; MA in Banking & Finance, Arab Academy for Banking Studies.Mr. Maraqa has more than 17 years experience in investments in private banking at Banks and Financial Institutes. He is holding the position of Deputy CEO for Investments, ABCI.

Mr. ibrahim ta’ani l Deputy CEo for operationsB.A. in Accounting (Major) Computer (Minor),Yarmouk University ;MA in Banking & Finance, Arab Academy for Banking Studies.Mr. Ta’ani has more than 20 years experience in Audit and Control at Central Bank of Jordan.He is holding the position of Deputy CEO for Operations, ABCI.

9

The Bank focused on expanding the scope of its projects in the retail banking sector.

The Bank continued to provide banking and financial services which meet the various banking and investment needs of its clients and enhance its overall competitive position.


DirECtorS’ rEport

On behalf of myself and my fellow members of the Board of Directors of ABC Bank, I am pleased to present you with the Twentieth Annual Report of the Arab Banking Corporation (Jordan) and its financial statements as of December 31, 2009.

The Arab Banking Corporation (Jordan) is one of the bases used by the Arab Banking Corporation Group to activate its investments in Jordan as a safe stimulating investment environment that attracts international investments within a banking sector operating under prudent control of the Central Bank of Jordan and implementing governance bases of high standard and performance.

The impact of the global crisis included economic events during last year and despite indications of change in the crisis, its impact was reflected in the performance of Jordanian economy where the growth rate dropped from (8%) in 2008 to nearly (3%) in 2009.

Despite challenges posed by the global financial crisis, the Jordanian banking system was able to overcome its impact and maintain a solid position achieving an increase in clients’ deposits and foreign currency reserves; which was the result of the wise decision of our good government to guarantee deposits in Jordanian Banks until the end of 2009 and extend deposit guarantee to the end of 2010, in addition to the efficient monetary policy implemented by the Central Bank of Jordan and its leading role and persistent follow-up to ensure the integrity of the Jordanian banking system.

Despite economic challenges in 2009, the Bank was able to achieve good results; with a total income of nearly (30) million Jordanian dinars in 2009 compared to (31.8) million in 2008; with a decrease of approximately (5.9%). Net profit after tax reached (9.2) million Jordanian dinars with a decrease of approximately (6.9%). In return, Bank assets as of December 31, 2009 reached nearly (611) million dinars compared to (587) million in the previous year; with an increase of (4%). Moreover, direct credit facilities by the end of 2009 reached nearly (284) million dinars compared to (267) million in the previous year; with an increase of (6.4%), which reflects the Bank’s approach to expand its business according to a well studies plan based on a prudent credit policy.

In line with the Bank’s policy which is based on expansion and in order to provide distinguished banking services and obtain a bigger share in the market, the Bank opened four new branches in the areas of Abu Nseir, Queen Rania Street/University of Jordan area, Al-Hashemi Al-Shamali and the city of Kerak; in addition to moving the Zerka branch to a new distinctive location in one of the city’s main streets; according to an approved modern design; bringing the total number of branches to (19), with (39) ATM machines. The Bank also continued to provide its

Mr. Hassan Ali Juma, Chairman

11

The Bank managed to achieve higher profit margins by attracting and reinvesting short and medium term deposits in its investment and credit portfolios.

financial and advisory services through the Arab Co-Operation for Financial Investments Company; a wholly owned

subsidiary of the Bank that acts as its investment arm in money markets and performs an integrated role therewith

in order to provide banking and financial services that meet the different banking and investment needs of Bank

clients; which enhances its overall competitive position.

In anticipation of potential challenges in 2010 and considering the fact that Jordan is part of the overall global

economic matrix and is affected by global economic conditions and changes, the Bank implemented a prudent

policy for investment of clients’ funds that was characterized by conservativeness and dealing with risks with

competent balanced management. The Bank also began implementing its policy which aims at rationalization of

expenditure and optimization of resources, both human and financial, by reviewing and controlling administrative

expenses without jeopardizing the desired service quality while maintaining cost-effective services. The Bank also

focused its efforts in training and enhancing the knowledge and skills of its employees to reflect the desired image

of a distinctive Bank employee; while continuously striving to develop its systems with the Board of Directors’

approval of the change of the automated banking system expected to commence in 2010.

Based on financial results of 2009 and in order to continue to support Bank’s capital, the Board of Directors presents

your honorable assembly with its recommendation to distribute stock dividends to shareholders equal to (12.8%) of

subscribed capital or the equivalent of (JD 9,080,937); bringing the Bank’s capital to (80) million Jordanian dinars.

Finally, allow me on behalf of myself and my fellow Board members to express my gratitude to employees of the

Bank and its subsidiary; particularly the Executive Management, for the great efforts they exerted in the previous

year; which enabled the Bank to maintain a good level of profit and a sound investment portfolio.

I would also like to thank our shareholders for their continued support of the Board of Directors and Executive

Management. I would also like to extend my thanks to control authorities; particularly the Central Bank of Jordan,

whose persistent follow-ups had obvious reflections on the integrity and soundness of the Jordanian banking system

and supporting our national economy under the leadership of His Majesty King Abdullah II.

Hassan Ali Juma

Chairman


FinAnCiAL HigHLigHtS

Statement / year

pretax profits

Distributed profits*

Dividends per Share

total Shareholders’ Equity

Share price

2009

13,191

9,081

12,8%

96,225

1,09

2008

14,988

6,447

10%

85,104

1,46

2007

15,215

8,409

15%

77,345

2,25

2006

15,952

11,212

25%

65,781

2,62

2005

16,527

10,350

30%

52,921

4,55

the bank’s Main Financial indicators between 2005-2009

* 2009 proposed dividends

(JD thousand)

Distributed profits2005

0

2,000

4,000

6,000

8,000

10,000

12,000

2006 2007 2008 200920050

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2006 2007 2008 2009

pretax profits

Share price

20050,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

5,00

2006 2007 2008 200920050

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2006 2007 2008 2009

total Shareholders’ Equity

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FinAnCiAL rAtioS

return on average equity (roE)

return on average assets (roA)

operating expenses/ total income

Direct credit facilities/ customers’ deposits and margin accounts

Capital adequacy

non-performing facilities/ total direct facilities

Employee profitability (JD, 000)

2009%

10,2

1,5

55,7

69,1

34,46

5,7

20,9

2008%

12,2

1,7

50,5

68,5

31,8

4

21

Main Financial ratios (2008 & 2009)

* the calculation of capital adequacy ratio for the years 2009 and 2008 was based on basel ll committee resolution.

oWnErS oF 5% or MorE oF AbC (JorDAn) SHArES

The Arab Banking Corporation (B.S.C.), Bahrain, is the sole shareholder of ownership of 5% or more of the ABC (Jordan) shares, whereby the share ownership of ABC (Bahrain) reached 86.679%.


briEF on AbC FinAnCiAL inVEStMEntS

AbC investmentsThe Arab Co-Operation for Financial Investments Company (ABCI) is one of the long established institutions of the Arab Banking Corporation Group. It was established in Jordan on January 25, 1990 as a limited liability company and is the owner of the trademark (ABC Investment). ABC Investment is a member of Jordan Capital Market Institutions and performs its business through highly qualified and competent technical and administrative staff. ABC Investment was one of the first financial services institutions licensed by Jordan Securities Commission to perform the following financial services:

Financial brokerage.Broker for own account.Financial advisory.Margin Finance.Investment management.IPO management “due diligence”.

Company’s capitalThe Company’s Capital is (JD 15,600,000) fifteen million and six hundred thousand Jordanian dinars divided into (15,600,000) fifteen million and six hundred shares with a value of one Jordanian dinars per share.The Arab Co-Operation for Financial Investments Company is a wholly owned subsidiary of ABC Bank (Jordan) with (43) employees as of the end of 2009.

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rEViEW oF opErAtionS

Financial results

Despite the difficult economic conditions witnessed by the global economy during 2009 which impacted the performance of the Jordanian economy, and the slowdown of certain economic sectors, the Bank managed to limit the adverse repercussions of the crisis with its prudent and conservative policy towards all types of risks. It also managed to re-direct financing activities away from crisis-affected economic sectors revise its investment policy and maintain high liquidity rates. The Bank also managed to continue its strategic plan which is represented in enhancing sources of funds and increasing market share by opening new branches, diversifying banking services and introducing innovative services and products- especially in the retail sector- realizing thereby high growth rates in this sector.

As for financial results, the Bank achieved net profits after tax that reached (JD 9,2) million compared to (JD 9,9) million during the previous year. This decrease was a natural result of the decrease in business volume in the banking sector as a whole. The gross income reached (JD 30) million compared to (JD 31,9) million during the previous year, where income from interest and commissions accounted for (78%) of said income. Income from resources other than interests and commissions decreased to (JD 6,6) million compared to (JD 7,4) million in the previous year due to the decrease in trading commissions realized in favor of the Arab Cooperation for Financial Investments at (32%) as a result of the decreased trading volume in Amman Stock Exchange at more than (50%) during 2009. In terms of expenses, the Bank managed to achieve evident surplus in expenditure, where total expenses amounted to (JD 16,8) million compared to (JD 16,9) million in the previous year despite the expansion of the Bank and opening new four branches during the year.

In addition, main balance sheet items marinated balanced growth, where the Bank’s assets increased from (JD 587) million to (JD 611) million, with a growth rate of (4%). The direct credit facilities portfolio also considerably increased during the year, where the portfolio balance increased (6,4%) to reach (JD 284) million, besides the qualitative development and improvement which accompanied such increase. This emphasizes the Bank’s success in maintaining the quality of credit portfolio as a result of the Bank’s wise assets management policy and the optimal utilization of available opportunities of funds investment, while maintaining a balance between liquidity, profitability and risk.

Mrs. Simona Sabella, general Manager

17

The Bank sought to launch marketing campaigns for new products, including personal loans for the public sector and car loans, which resulted in increasing the growth of retail facilities portfolio by (17%) compared to 2008.

Available-for-sale financial assets increased to (JD 151) million with an increase of (18,5%) since the beginning of the year, noting that most of these assets are government bonds or notes with very low risk and good return.

Client deposits witnessed a (5%) increase during the year, while the cost of such deposits decreased by more than (1%); which contributed to raising the Bank’s interest margin by approximately the same rate. Deposit increase helped improve the bank’s level of liquidity, where the statutory liquidity ratio reached (154%) in accordance with the instructions of the Central Bank of Jordan.

In terms of the most significant financial indicators, the return on shareholders’ equity amounted to (10,2%), while the return on the Bank’s assets amounted to (1,5% ) and the earnings per share amounted to (130) fils at (13%) of the par value per share.

The Bank continued its policy of supporting capital and increasing equity, as it raised its capital during the year from (JD 64) million to (JD 71) million by capitalizing carried forward profit. Moreover, total shareholders’ equity increased to (JD 96) million, with an increase of (JD 11) million compared to 2008, which reflects the sustainability of capital structure. The capital adequacy ratio increased to (34%), considerably exceeding the ratio required by the Central Bank.


Deposits

In line with the Bank’s endeavor to develop the available financial resources and provide the requirements to achieve expansion plans and various investments, the Bank continued the improvement and diversification of its appropriate saving schemes specifically designed to attract retail and corporate deposits. Such diversification contributed to reducing average cost of funds and therefore realizing higher margins on interest and commission revenues.

By the end of 2009, client balances and cash deposits amounted to (JD 411) million at (80%) of total liabilities. Current accounts and saving accounts accounted for (29%) of total deposits, while forward and notice accounts accounted for (71%) of total client deposits.

The Bank continued to attract short and medium term deposits to reinvest them in its credit and investment portfolio, in order to achieve higher profitability margins.

Credit Facilities portfolio

During 2009, the credit portfolio increased by (6.4%) compared to 2008 to reach (JD 284) million. This emphasizes the Bank’s success in the strategy it follows in branching and expanding in retail facilities, addressing existing economic situations and market decline which significantly affected the banking sector, particularly corporate facilities portfolios.

Given the utmost significance of the credit facilities portfolio emanating from the Bank’s different investments, it is worthy to indicate the solid institutional performance that is based on implementing the policies and procedures which highly contributed to the improvement of credit portfolio quality. This came as one of the integration efforts inputs into the institutional work which aims at realizing the Bank’s ultimate objectives and supportive role in our Jordanian economy.

retail banking

The Bank sought to launch marketing campaigns for new products, including personal loans for the public sector and car loans, which resulted in increasing the growth of retail facilities portfolio by (17%) compared to 2008.

The Arab Banking Corporation (Jordan) continues the development of its strategic plans which opens the doors for promoting its banking services and diversifying its products, and thereby expanding the clientele base to be one of the preferred banks for a large sector of the local community in terms of banking services.

This is all reflected in enhancing the Bank’s market share which contributes in turn to increasing its sources of


Despite economic challenges in 2009, the Bank managed to maintain a distinguished development pace as a result of expanding in accordance with studied plans based on a prudent credit policy.

19

operating profits and strengthening its role in the banking sector.

Within the framework of its strategic plan for branching, the Bank opened new branches in 2009 in Abu Nseir area, University of Jordan area, Kerak and Al-Hashmi Al-Shamali to join the network of its branches spreading in various strategic regions in the Kingdom. Moreover, Zerka’s branch was re-opened and relocated to other vital and more effective location to serve the local community in such governorate with a modern design approved by the Head Office.

In terms of products and marketing, the executive management introduced this year the personal loans for the public sector to be one of the various credit products targeting the retail sector. The marketing campaigns for products and public relations activities launched by the management this year contributed to the effective promotion of the Bank and its products. In addition, the Bank launched a marketing campaign for promoting credit cards with a view to increasing the use volume, a campaign for housing loans as well as the personal loans campaign in cooperation with one of the largest local companies. The Bank also launched a campaign for car loans.

The retail sector activities were reflected on the results of this sector, where the credit portfolio value of retail sector amounted to around (JD 133) million at the end of 2009, to account for (44%) of the total facilities portfolio, as it grew by (JD 19) million with an increase of (17%) compared to 2008.

The retail clients’ deposits accounted for (53%) of the total client deposits at the Bank. These results had a positive impact on increasing the contribution of retail sector revenues, as they accounted for (31%) of the Bank’s total revenues.

The objectives of the retail sector strategic plan in 2009 were as follows:

To develop the Bank’s competitiveness and increase its share in the banking sector market.1. To build a broad clientele base and focus on attracting cost-effective and stable deposits.2. To renew the branches to provide better service to clients. 3. To expand the network of branches and ATMs in areas which are consistent with the Bank’s strategic objectives. 4.

2009 witnessed a growth of ABC's branches network and provision of distinctive advanced banking services.



Corporate Credit Facilities portfolio Management

Although the Corporate Banking Department granted facilities during 2009 exceeding (JD 42) million distributed to a group of production, industrial and commercial sectors, the global crisis consequences witnessed by the international and local economy resulted in a considerable decrease in raw materials prices and accumulation of goods inventory in most companies, which led to a decreased demand volume. This in turn resulted in reducing the use of ceilings granted by most companies and therefore slightly decreasing the corporate facilities at no more than 1% of the portfolio balance at the end of 2008.

Despite these difficulties, the Corporate Banking Department realized (JD 8,3) million as revenues, with a decrease of (4%) from 2008 revenues, which accounted for (27%) of the Bank’s total revenues compared to (26.5%) in 2008. The Bank’s ability to realize revenues and maintain a level comparable to the previous year is attributed to the efforts exerted by the major Corporate Banking Department in balancing between credit management and marketing for less vulnerable sectors. In 2009, the focus was on improving profitability of existing accounts, enhancing mutual sale with other departments and associate units affiliated with the Arab Banking Corporation and handling accounts that may appear in default, which led to reducing the balances of these accounts and not classifying them within the default accounts.

treasury

Despite the difficult conditions and the financial crisis which cast its shadows in the second half of 2008, the decreased interest rates at the local and international levels, the increased liquidity volume at the local and international levels and the declined indicators of most local and international financial markets during 2009,

The Bank has been keen on providing advanced banking services by employing qualified and skilled human resources and using advanced banking systems.

21

the Treasury Department managed to maintain the growth levels achieved throughout the previous years in all its investment activities in financial markets, customer service and corporate services.

The Department also managed to achieve its established objectives during 2009 through the efficient management of the Bank’s assets and liabilities and maintaining a balance between risk and profitability, having thereby a higher contribution to the Bank’s realized profits.

In terms of its activity in the monetary market, the set objectives were achieved and the profit growth ratios for 2009 were maintained, compared to 2008 despite the increased liquidity volume in the banking system and the decrease of interest rates to their lowest levels in history.

The Bank’s expansion in establishing a network of branches and ATM machines in the areas consistent with its strategic objectives.

In the area of capital market, the department took part in all subscriptions of general debit instruments issued by the Central Bank of Jordan. It was able to achieve all its objectives specified in this activity, increase the percentage of profit growth in the government bonds and Amman Stock Exchange compared to 2008, where the growth rate amounted to (256%).

The success of the department’s business continues in the foreign exchange market. The department managed to maintain the levels of profit growth compared to 2008 despite the financial and economic conditions that negatively impacted this market in particular.

Providing innovative banking services is one of the main and permanent objectives of the Bank.



the Arab Co-operation for Financial investments Co. (AbCi)

The Arab Co-Operation for Financial Investments Company is a wholly-owned subsidiary of the Bank. It represents the investment arm of the Bank in Amman Stock Exchange and the international and regional financial markets. Moreover, it assumes a leading position among brokerage companies operating in Jordan. It aims at financial brokerage, margin finance, financial advisory, investment management, IPO management.

The Company consistently expanded in the international and regional financial markets in a manner that enables its client to direct their investments in such markets in order to provide the best investment services. Furthermore, the Company assumes a leading position among brokerage companies by being ready to launch securities trading via internet as soon as it is licensed by the competent bodies to provide such service. The Company’s management was able to accomplish its goals by managing the assets and liabilities effectively while reducing the risks related thereto with regard to credit, liquidity and profitability. By doing so, it increased its profitability in conformity with the prevailing circumstance of similar markets.

The Company sustained a profit- generating pattern even with the current global crisis and the difficulties facing the public sector in general and Jordan’s financial market in particular. The Company generated (JD 3) million net profits during 2009, with a decrease of (28.7%) due to the repercussions of the financial crisis. The Company was able to decrease its expenditures by (15%) from 2008 as a part of improving performance, increasing profits and keeping the level of services provided to clients. Not withstanding the fierce competition and current conditions of the market, the Company ranked fifth on the list of the (68) brokerage companies operating in Amman Stock Exchange. Its market share rose to (3.9%) and the trading volume during the year amounted to (JD 758) millions. The Company continued to provide brokerage services in international and regional markets. The company’s assets during the past two years were restructured in accordance with specific standards that cope with the hedging policy of the Company in order to avoid the complications of the current financial crisis on the Company and its clients. Therefore, ABCI sought to utilize the monetary and deposits during the last year as much as possible, which contributed to drive the operational activities of the Company according to a determined plan for the management of Company’s cash flows. At the end of the year, liquidity amounted to (23%) of total assets and the Company established a general provision that amounted to (JD 2) million by the end of the year to encounter any developments which may emerge in the coming years.

risk Management and internal Monitoring Systems

Management of credit departments includes risks and retail risks. Credit department conducted many studies and tests during the last year to measure the quality and strength of the facilities portfolio in the light of changes that accompanied

The Bank seeks to keep pace with technological advances and use state-of-the-art technologies in order to improve the standard of provided services.

23

the global economy and the potential effects on the national economy. Such studies demonstrated the quality of the facilities portfolio and its ability to face the existing and future challenges.

During the year, Credit department performed a comprehensive update of the policies and procedures that participate in elevating proficiency and productivity by means of global application of the up - to - date policies and instructions issued by the Central Bank of Jordan and ABC Group.

Due to overlap of missions of the Bank’s Departments in relation to the procedures and credit banking operations, and with the view of promoting the efficiency and effectiveness of work and prevent the associated risks as well as providing timely and quality services, the Credit Operations Unit of the Credit Department was changed to Credit Administration Unit (where another unit called the Credit Operations Unit was established in the Central Operations Department). The main duties of this unit is to document and review credit facilities, review companies’ credit authorities, maintain all documents and contracts in custody, and establish, cancel and amend credit limits of banking facilities.

As for Operational Risks Section, it continued to hold workshops for risks and controls self-assessment with the various departments of the Bank, where three new departments were covered, in addition to conducting the required semi-annual review with the remaining departments. Moreover, the Bank kept on collecting, updating and entering other operational risks components (operational losses statements and operational risks indicators) in the operational risks management’s system in addition to holding a training workshop in the Bank concerning operational risks in general and operational losses in particular to clarify the concept and framework of operational risks management in the Bank.

As for the business continuity plan, and with the Operational Risks Section, following the completion of equipping the alternative sites and carrying on to update the determined plans in addition to identifying the main procedures and steps required to be followed during and after the examination process, the Bank conducted on February 7, 2009 the first examination of the efficiency of the determined plans and operational readiness of alternative sites with the participation of senior officials of administrations, and branches and the officials in charge of the business continuity plan under the supervision of the executive management of the Bank and crisis management team. The examination was successful with relation to the ability to maintain the provision and execution of sensitive transactions of the Bank in addition to identifying problems and obstacles resulting from the examination in order to find the appropriate solutions and to pave the way for a second examination process in the next year that covers most normal operations and services performed by the Bank.

A second examination was conducted on 16/3/2009, which is a normal business day, by the Treasury Department performing its normal tasks as well as the Arab Co-Operation for Financial Investments Company in addition to dealings with external markets through the alternative site. The process was also successful.

The Bank managed to build a large base of clients and attract low-cost stable deposits.



technological Developments

As a continuation of the upgrades introduced by the Bank to its automated systems and in accordance with the implemented programs to serve the clients during the past few years, the Bank successfully completed the implementation of Card Verification Value CVV2 to all types of credit cards used in the Bank. This is the security feature of the credit cards in order to provide a higher level of protection.

The number of ATM machines raised to 40 machines deployed in various areas in the Kingdom to facilitate reaching them by the Bank clients and other clients. Despite economic challenges in 2009, the Bank managed to maintain a distinguished development pace as a result of expanding in accordance with studied plans based on a prudent credit policy.

The Bank provided an emergency center with electronic clearance system in addition to providing the Bank’s new branches with the state of the art devices as well as upgrading the Bank’s internal network to increase security and effectiveness by virtue of using the latest available systems and programs.

Many systems were developed such as, the Central Bank of Jordan Reporting System and Concentration of Client Cheques System in addition to many other control systems.

Administrative and organizational Developments

The Bank deems its human resources to be its true capital. Therefore, the Bank considers its investment in human resources a short - term goal to be achieved soon and a long – term strategic goal. The Bank persistently seeks to develop its plans in that field and to attract and implement pilot ideas that will firmly root the qualified human resources.

Based on that belief, a specialized consultation company was hired to conduct a thorough study which will enable the Bank to retain highly qualified cadres with top professional qualifications and advanced banking majors.

25

This study aims at:

Performing a survey for salaries and privileges offered by banks operating in Jordan in order to compare them with the salaries and privileges provided by the Bank and make recommendations to the Bank with relation to the required amendments to the system and procedures to maintain the competitive position of the Bank in attracting and conserving the qualifications of human resources and to keep pace with the evolving economic changes such as, inflation rate and price increase to ensure enhancing the Bank’s competitiveness in catching the attention of human resources and keep its qualified cadres.

Designing a system for planning career path in the Bank, which will be implemented to all occupational centers covered by the study to ensure the availability of technical, administrative and professional skills constantly, decrease the turnover rate and satisfy and meet the need and expectation of employees.

Designing a system for successive planning which aims at drawing a clear vision of the true opportunities for employees at the Bank and assist the process of identifying the appropriate employees to assume the sensitive position once they are vacant.

The Bank managed to build a large base of clients and attract low-cost stable deposits.

Major organizational and administrative accomplishments achieved in 2009 can be summarized as follows:

Performing some amendments to the organizational structure to conform with the practical application in 1. addition to establishing Credit Administration Unit that administratively reports to the Credit Department as an independent unit from the Credit Operations Unit that administratively reports to Central Operations Department, as well as a number of new tasks assigned thereto.Achieve an effective level of employee performance by concentrating on training activities to increase 2. employees’ competencies and skills, improve productivity level and elevate the efficiency of customer service. (162) training courses were conducted during 2009 and were attended by (950) employees.


In line with the Bank’s future and strategic vision set for the coming years, the Bank aspires to realize the following goals:

Increase shareholders equity and enhance the return thereof.Enhance the capital basis of the Bank and support the financial position thereof.Provide high quality banking services that meet the various needs of clients.Invest the wide international network of ABC Group to offer a better and wider package of banking services. Increase the Bank’s activity in Jordan and enhance its expansion in all areas of the Kingdom.Open more branches and increase the number of ATM machines.Update existing branches to better serve the clients.Increase the retail loans portfolio and raise its percentage to the total facilities in addition to expanding in the banking services offered to Small and Medium Enterprises and increase finance self – employed individuals. Keep the development of companies’ facilities portfolio, maintain the quality of the portfolio and sustain a low level of risks.Expand in the development and provision of investment consultations and offer investment programs and products that enable the clients to invest in the local and international markets.Establish a wide base of clients and concentrate on attracting low-cost stable deposits.Follow up the technological advancement and use modern technologies with the view of promoting the level of service provided, especially in the field of electronic services. Continue to develop Risk Management in accordance with the requirements of Basel II and work on disseminating the concept of dealing with all kinds of banking risks.Motivate and enhance the proficiency and effectiveness of our human resources and present the means of continued professional development.Increase training and qualification activities aiming at realizing high level performance. Continue to attract the appropriate competencies and expertise.Keep working on controlling expenditures while maintaining a high level of quality services.

bUSinESS pLAn For tHE YEAr 2010

The Bank’s expansion in establishing a network of branches and ATM machines in the areas consistent with its strategic objectives.

27

According to the Bank’s strategic plan and in order to reach the targeted client sections, the Bank opened four branches in various areas in addition to increasing the number of ATM machines to (39).

Opening the new branch in Zerka.


SHArEHoLDingS oF tHE CHAirMAn, MEMbErS oF tHE boArD, EXECUtiVE MAnAgEMEnt AnD tHEir rELAtiVES

A) Shareholdings of the Chairman and Members of the board

Name Country of Registration

Number of Shares

2009 2008

Mr. Hassan Ali Juma Chairman Bahrain 632 575

Dr. Saleh Al Humaidan Deputy Chairman

Saudi Arabia 1,771 1,610

Arab Banking Corporation, (B.S.C.) Bahrain,represented by: Mr. Sael Al Waary

Member Bahrain 61,471,912 55,881,946

Shereen Investments Limited, represented by:Mr. Hareb Al Darmaki

Member Jersey 632 575

Arab Banking Corporation (Securities) W.L.L.,Bahrain, represented by: Dr. Khaled Kawan

Member Bahrain 1,771 1,610

Mr. Yousef Abdelmaula Member Libya 1,283 1,167

H.E. Mr. “Mohammad Akel” Al Biltaji Member Jordan 3,595 3,269

Dr. Marwan Al Sayeh Member Jordan 24,027 16,959

H.E. Eng. Shafiq Zawaideh Member Jordan 438,622 398,748

C) Shareholdings of the relatives of Members of the board

Name Nationality Number of Shares

2009 2008

Mrs. Muna Oweis H.E. Eng. Shafiq Zawaideh’s wife Jordanian 18,111 16,465

b) there are no Shareholdings belonged by the Executive Management

29

The Board of Directors of the Arab Banking Corporation (Jordan) represents, as far as it knows and believes, that there are no fundamental issues that could affect the Bank’s ability to continue its activity throughout the next fiscal year of 2010. The Board also represents its responsibility for preparing the financial statements; that the information cited in the Board of Directors’ Report is in line with the enclosed financial statements; and that the Bank has an effective and efficient Internal Control System.

Hassan A. Juma Saleh Al Humaidan Shafiq Zawaideh Chairman Deputy Chairman Member

Khaled Kawan Yousef Abdelmaula Marwan Al Sayeh Member Member Member

“Mohammad Akel” Al Biltaji Hareb Al Darmaki Sael Al Waary Member Member Member

The Management of the Arab Banking Corporation (Jordan) represents the authenticity, accuracy and precision of the information and financial statements cited in this report.

rEprESEntAtion oF AUtHEnCitY oF tHE FinAnCiAL StAtEMEntS

rEprESEntAtion oF tHE boArD oF DirECtorS

Hassan A. Juma Simona Sabella Basel Naber Chairman General Manager Chief Financial Officer


Idependent Auditors’ Report 31Consolidated Statement of Financial Position 32Consolidated Income Statement 33Consolidated Statement of Comprehensive Income 34Consolidated Statement of Changes in Equity 35Consolidated Statement of Cash Flows 36Notes to the Consolidated Financial Statements 37

FinAnCiAL StAtEMEntS ContEntS

We have audited the accompanying financial statements of ARAB BANKING CORPORATION (JORDAN) (a public shareholding company), which comprise the consolidated statement of financial position at 31 December 2009 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statementsThe Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

auDitors’ responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

opinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Arab Banking Corporation (Jordan) as of 31 December 2009 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

report on legal & regulatory requirementsThe Bank maintains proper accounting records, and the accompanying consolidated financial statements are in agreement therewith and with the financial data presented in the Board of Directors’ report. We recommend that the General Assembly of Shareholders approve these consolidated financial statements.

The accompanying consolidated financial statements are a translation of the statutory consolidated financial statements which are in the Arabic language to which reference is to be made.

Amman – Jordan14 February 2010

inDepenDent auDitors’ report to the shareholDers of arab banKing corporation (JorDan)amman - JorDan

31


consoliDateD statement of financial position 31 December 2009(All figures in Jordanian Dinars)

The accompanying notes from 1 to 46 are an integral part of these financial statements and should be read with them

Notes 2009 2008assets

Cash and balances with Central Banks 4 72,122,160 67,091,186Balances at banks and financial institutions 5 67,437,667 99,500,957Deposits at banks and financial institutions 6 17,941,338 5,226,870Financial assets held for trading 7 3,088 2,862Direct credit facilities 8 284,333,399 267,259,973Financial assets available for sale 9 151,323,303 127,710,229Property and equipment 10 10,855,271 10,547,799Intangible assets 11 851,350 876,273Deferred tax assets 18 30,317 458,762Other assets 12 6,083,824 8,331,317

total assets 610,981,717 587,006,228

liabilities anD equityliabilities - Banks and financial institutions’ deposits 13 71,203,857 75,624,992Customers’ deposits 14 351,838,785 334,061,826Margin accounts 15 59,601,678 56,022,749Loans and borrowings 16 12,488,489 13,741,484Sundry provisions 17 1,155,487 1,194,271Income tax liabilities 18 4,877,267 5,952,877Deferred tax liabilities 18 426,223 - Other liabilities 19 13,165,189 15,304,425

total liabilities 514,756,975 501,902,624

equity

Paid in capital 20 70,919,063 64,471,875Statutory reserve 21 11,379,994 10,060,876Voluntary reserve 21 898,327 598,138General banking risk reserve 21 2,797,200 2,774,240Cumulative changes in fair value 22 994,521 (889,738)Retained earnings 23 9,235,637 8,088,213

total equity 96,224,742 85,103,604

total liabilities anD equity 610,981,717 587,006,228

33

consoliDateD income statement Year ended 31 December 2009(All figures in Jordanian Dinars)


Notes 2009 2008

Interest income 24 36,373,643 41,406,739Interest expense 25 (15,624,065) (19,318,400)

net interest income 20,749,578 22,088,339

Net commission 26 2,596,319 2,356,339

net interest anD commission income 23,345,897 24,444,678

Net gain from foreign currencies 27 910,629 1,045,221Net loss from financial assets held for trading 28 (555) (398,011)Net gain (loss) from financial assets available for sale 29 248,292 (1,043,028)Other income 30 5,489,411 7,822,187

gross profit 29,993,674 31,871,047

Employees’ expenses 31 (8,313,924) (8,037,906)Depreciation and amortization 10 , 11 (1,314,542) (1,268,128)Other expenses 32 (5,249,661) (5,530,638)Impairment loss on direct credit facilities 8 (1,827,048) (1,243,824)Sundry provisions 17 (97,316) (802,619)

total expenses (16,802,491) (16,883,115)

profit before tax 13,191,183 14,987,932

Income tax expense 18 (3,954,304) (5,068,049)

profit for the year 9,236,879 9,919,883

basic anD DiluteD earnings per share 33 0,130 0,140


consoliDateD statement of comprehensiVe incomeYear ended 31 December 2009(All figures in Jordanian Dinars)


Notes 2009 2008

profit for the year 9,236,879 9,919,883

add: other comprehensive income (expense)

Net gain (loss) on available for sale financial assets 1,884,259 (2,161,046)

total comprehensiVe income for the year 11,121,138 7,758,837

35

consoliDateD statement of changes in equity Year ended 31 December 2009(All figures in Jordanian Dinars)

paid in

capital

statutory

reaserve

Voluntary

reserve

general

banking

risk reserve

cumulative

changes in

fair Values

retained

earnings

total

equity


Included in the retained earnings is an amount of JD 30,317 representing deferred tax assets as of 31 December -2009 (2008: JD 39,356) which is not available for distribution according to the regulations of the Central Bank of Jordan.

The general banking risk reserve is not available for use according to the regulation of the Central Bank of -Jordan.

2008-

Balance as of January 1, 2008

Total comprehensive income for the year

Increase in capital

Transfer to reserves

balance as of December 31, 2008

56,062,500

-

8,409,375

-

64,471,875

8,562,083

-

-

1,498,793

10,060,876

420,994

-

-

177,144

598,138

2,529,960

-

-

244,280

2,774,240

1,271,308

(2,161,046)

-

-

(889,738)

8,497,922

9,919,883

(8,409,375)

(1,920,217)

8,088,213

77,344,767

7,758,837

-

-

85,103,604

2009-

Balance as of January 1, 2009

Total comprehensive income for the year

Increase in capital

Transfer to reserves

balance as of December 31, 2009

64,471,875

-

6,447,188

-

70,919,063

10,060,876

-

-

1,319,118

11,379,994

598,138

-

-

300,189

898,327

2,774,240

-

-

22,960

2,797,200

(889,738)

1,884,259

-

-

994,521

8,088,213

9,236,879

(6,447,188)

(1,642,267)

9,235,637

85,103,604

11,121,138

-

-

96,224,742



consoliDateD statement of cash floWsYear ended 31 December 2009(All figures in Jordanian Dinars)

Notes 2009 2008

cash floWs from operating actiVitiesProfit before income tax 13,191,183 14,987,932

aDJustments for -Depreciation and amortisation 1,314,542 1,268,128Impairment loss on direct credit facilities 1,827,048 1,243,824Sundry provisions 97,316 802,619Impairment loss on available for sale portfolio 641,926 1,348,659Reversal of losses on collateral pending sale (139,930) - Effect of exchange rate on cash and cash equivalents (872,788) (872,423)(Gain) loss on disposal of property and equipment (7,767) 272,159

operating profit before changes inoperating assets anD liabilities 16,051,530 19,050,898

changes in assets anD liabilities -Decrease in balances with Central Banksmaturing after more than three months 3,999,125 1,000,650Increase in deposits at banks and financialInstitutions maturing after more than three months (12,714,468) (4,057,020)(Increase) decrease in financial assets held for trading (226) 356,304Increase in direct credit facilities (18,900,474) (1,395,775)Decrease in other assets 2,387,424 456,960Increase (decrease) in customers’ deposits 17,776,959 (33,572,223)Increase in margin accounts 3,578,929 17,031,118Decrease in other liabilities (2,095,250) (5,521,329)Sundry provisions paid (180,088) (61,076)

Net cash from (used in) operatingactivities before income tax 9,903,461 (6,711,493)

Income tax paid (5,020,875) (4,505,753)

Net cash from (used in) operating activities 4,882,586 (11,217,246) cash floWs from inVesting actiVities

Purchase of available for sale investments (168,046,000) (78,137,860)Proceeds from sale of available for sale investments 146,520,889 52,152,096Purchase of property and equipment (1,381,532) (929,426)Proceeds from sale of property and equipment 62,717 21,145Purchase of intangible assets (270,509) (230,839)

Net cash used in investing activities (23,114,435) (27,124,884)

cash floWs from financing actiVitiesRepayment of loans and borrowings (1,252,995) (1,252,361)Dividends paid - (6,995) Net cash used in financing activities (1,252,995) (1,259,356) Net decrease in cash and cash equivalents (19,484,844) (39,601,486)

Effect of exchange rate changes on cashand cash equivalents 872,788 872,423

Cash and cash equivalents, beginning of the year 86,968,026 125,697,089

cash anD cash equiValents, enD of the year 34 68,355,970 86,968,026

37

notes to the consoliDateD financial statements31 December 2009

1. general information

Arab Banking Corporation (Jordan) was established as a public shareholding company on January 21, 1990 in accordance with the companies law act no (1) of (1989).Its registered office is at Amman; Jordan.

The Bank provides its banking services through its main branch located in Amman and through its 19 branches in Jordan and its subsidiary.

The bank shares are listed and traded in Amman Stock Exchange.

The financial statements were authorized for issue by the Bank’s Board of Directors in their meeting no. (1) held on (14 February 2010). These financial statements require the General Assembly’s and Central Bank of Jordan approval. 2. significant accounting policies

The significvant accounting policies adopted in the preparation of the financial statements are set out below Basis of preparationThe accompanying consolidated financial statements of the Bank and its subsidiary have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations (IFRICs), and in conformity with the applicable laws and regulations of the Central Bank of Jordan.

The consolidated financial statements are prepared on a historical cost basis, except for financial assets held for trading, available-for-sale investments, derivative financial instruments and financial assets and financial liabilities hedged, that have been measured at fair value.

The financial statements have been presented in Jordanian Dinars (JD) which is the functional currency of the Bank.

Changes in accounting policiesThe Bank’s accounting policies are consistent with those used in the previous year except for that the bank has adopted the following new and amended standards:

IAS 1 Revised Presentation of Financial StatementsThe Standard separates owner and non-owner changes in equity. The statement of changes in equity will include only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income which presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Bank has elected to present two statements.

IFRS 8- Operating Segments IFRS 8 replaces IAS 14, Segments Reporting. This standard requires entity to define operating segments and segments performance in the financial statements based on information used by the chief operating decision maker. Operating segments are the same as the business segments under IAS 14.

Summary of significant accounting policies

Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and its Subsidiary for which the Bank has the power to govern the financial and operating policies. All intra-company balances, transactions, income and expenses and profits and losses resulting from intra-company transactions that are recognized in assets or liabilities, are eliminated in full.

There is one Subsidiary which is Arab Co-operation for Financial Investments Co. Ltd. established on 25 January 1990. The Bank owns 100% of the paid in capital amounting to JD 15,600,000 as of December 31, 2009. The Company’s main activities include asset management and brokerage in securities on behalf of its clients at Amman Stock Exchange and abroad in addition to offering financial consulting in connection with securities. The financial statements of the subsidiary are prepared for the same reporting year as the Bank, using consistent accounting policies.



2. significant accounting policies (continueD)

Subsidiaries are fully consolidated from the date on which control is transferred to the Bank. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date of acquisition or up to the date of disposal, as appropriate.

If stand alone financial statements are prepared for the Bank, the investment in Subsidiary will be shown at cost in the balance sheet.

Segmental reportingBusiness segments represent distinguishable components of the Bank that are engaged in providing products or services which are subject to risks and rewards that are different from those of other segments, and are reported on using the reports that are used by the chief operating decision maker.

Geographical segments are associated to products and services provided within a particular economic environment, which are subject to risks and rewards that are in different from those of other economic environments. Financial assets held for trading Financial assets held for trading are those purchased with the intent to be resold in the near future to generate gains as a result of changes in market prices of such investments.

They are initially recognised at the fair value of consideration given (transaction costs are recorded in the income statement) and subsequently re measured at fair value. All realised and unrealised gains or losses are transferred to the income statement, including any gains or losses resulting from the translation of such assets held in foreign currencies.

Interest earned is included in interest income and dividends received are recorded in the income statement.

Direct credit facilities Credit facilities are financial assets with fixed on determinable payments the bank granted or acquired and do not have prices in active markets.

Impairment of direct credit facilities is recognized in the allowance for credit losses when events occur after the initial recognition of the facility that have an impact on the estimated future cash flows of the facilities that can be reliably estimated. The impairment is recorded in the income statement.

Interest and commission arising on non-performing facilities is suspended when loans become impaired according to the Central Bank of Jordan’s regulations.

Loans and the related allowance for credit losses are written off when collection procedures become ineffective. The excess in the allowance of possible loan losses, if any, is transferred to the statement of income, and cash recoveries of loans that were previously written off are credited to the income statement.

Financial assets available for sale Available-for-sale financial assets are those which are designated as such or do not qualify to be classified as designated at fair value through profit or loss, held-to-maturity or loans and advances.

Available for sale financial assets are recorded initially at fair value plus attributable transaction costs. After initial measurement, available-for-sale financial assets are measured at fair value. Unrealised gains and losses are recognised directly in equity as ‘Cumulative change in fair value reserve’. When the security is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the income statement.

The losses arising from impairment of such investments are recognised in the income statement and removed from the cumulative change in fair value reserve. Reversal of impairment on equity instruments is reflected in the cumulative change in fair value, while reversal of impairment on debt instruments is transferred to the income statement.

Gains or losses on debt instruments resulting from foreign exchange rate changes are transferred to the income statement. On equity instruments, such gains and losses are transferred to the cumulative change in fair value.

39



Interest earned on available-for-sale financial investments is reported as interest income using the effective interest method.

Financial assets for which fair value can not be determined reliably are recorded at cost, impairment is recorded in the income statement.

Financial assets held to maturity Held-to-maturity financial investments are those which carry fixed or determinable payments and have fixed maturities and which the Bank has the positive intention and ability to hold to maturity.

Held to maturity investments are initially recognized at cost, being the fair value of consideration given including directly attributable transaction costs. After initial measurement, held-to-maturity financial investments are subsequently measured at amortized cost using the effective interest method, less allowance for impairment.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate.

Fair valueFor investments and derivatives quoted in an active market, fair value is determined by reference to quoted market prices. Bid prices are used for assets and offer prices are used for liabilities.

For financial instruments where there is no active market fair value is normally based on one of the following methods:

Comparison with the current market value of a highly similar financial instrument. -The expected cash flows discounted at current rates applicable for items with similar terms and risk -characteristics.Option pricing models. -

The valuation method aims to reflect market expectations and expected risks and rewards when estimating the fair value. Where the fair value of an investment cannot be reliably measured, it is stated at cost and any impairment in the value is recorded in the income statement.

Impairment of financial assetsThe Bank assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. If such evidence exists, the recoverable amount is estimated in order to determine the amount of impairment loss to be recognised in the income statement.

Impairment is determined as follows:

For assets carried at amortised cost, impairment is based on the difference between the carrying value and the -estimated cash flows discounted at the original effective interest rate.

For assets carried at fair value, impairment is the difference between the fair value of consideration given and -the fair value.

For assets carried at cost, impairment is based on the difference between the fair value of consideration given -and the present value of future cash flows discounted at the current market rate of return from a similar financial asset.

Impairment is recognised in the income statement. If, in a subsequent period, the amount of the impairment loss decreases, the carrying value of the asset is increased to its recoverable amount. The amount of the reversal is recognised in the income statement except for equity instruments classified as available for sale investments for which the reversal is recognized in the statement of equity.




Property and equipmentProperty and equipment is measured at cost less accumulated depreciation and accumulated impairment in value. Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. Depreciation rates used are as follows:

%

Buildings 2-15Equipment and furniture 9-20Vehicles 15Computers 9-25Lease hold improvements 10

The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount, and the impairment is recorded in the income statement.

Useful lives of property and equipments are reviewed at the end of each year. If the expectations of useful lives are different from the carried ones, the changes is accounted for as a changes in estimate in future periods.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.

ProvisionsProvisions are recognized when the Bank has a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured. Employee end of service indemnityProvision for end of service indemnity is established by the bank to face any legal or contractual obligation at the end of employees’ services and is calculated based on the service terms as of the financial statements date.

Income TaxTax expense comprises current tax and deferred taxes.

Current tax is based on taxable profits, which may differ from accounting profits published in the income statement. Accounting profits may include non-taxable profits or tax deductible expenses which may be exempted in the current or subsequent financial years or accumulated losses that are acceptable as a tax deductions or items that are non taxable or not deductable for tax purposes.

Tax is calculated based on tax rates and laws that are applicable in the country of operation.

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on laws that have been enacted or substantially enacted at the reporting date.

The Bank calculates the deferred tax in accordance with IAS12. Management have made a judgment that it is more appropriate not to record the deferred tax effect as an asset in the financial statements.

Allowances for impairment are recorded for capital guaranteed portfolios that are managed on behalf of clients.

Fiduciary assets Assets held in a fiduciary capacity are not recognized as assets of the Bank. Fees and commissions received for administering such assets are recognized in the income statement. A provision is recognized for decreases in the fair value of guaranteed fiduciary assets below their original principal amount.

41



OffsettingFinancial assets and financial liabilities are only offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognized amounts and the Bank intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.

Revenue and expense recognition Interest income is recorded using the effective interest method except for fees and interest on non performing facilities, on which interest is transferred to the interest in suspense account and not recognized in the income statement. Expenses are recognized on an accrual basis. Commission income is recognized upon the rendering of services. Dividend income is recognized when the right to receive payment is established.

Trade date accounting Purchases and sales of financial assets are recognized on the trade date, i.e. the date that the Bank commits to purchase or sell the asset.

Fair value hedgesA fair value hedge is a hedge of the exposure to changes in the fair value of the Bank’s recognized assets or liabilities that is attributable to a particular risk.

For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognized in the income statement. The change in the fair value of the hedged item attributable to the risk hedged is recorded as adjustment to the carrying value of the hedged item and is also recognized in the income statement.

Cash flow hedges A cash flow hedge is a hedge of the exposure to variability in the Bank’s actual and expected cash flows which is attributable to a particular risk associated with a recognized asset or liability.

For designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is initially recognized directly in equity, and is subsequently transferred to the income statement in the period in which the hedged cash flows affect income, or at such time as the hedge becomes ineffective. The ineffective portion of the gain or loss on the hedging instrument is recognized immediately in the income statement.

Hedge of net investments in foreign operationsHedges of net investments in a foreign operation are accounted for by measuring the fair value of the hedging instrument. The effective portion of the gain or loss on the hedging instrument is initially recognized directly in equity, while the ineffective portion of the gain or loss on the hedging instrument is recognized immediately in the income statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recognized directly in equity is transferred to the income statement.

For hedges which become ineffective, gains or losses resulting from the change in fair value of the hedge instrument is recognized directly in the income statement.

Derivative financial instruments held for trading Derivative financial instruments such as foreign currency forward and future deals, interest rate forward and future deals, swaps, foreign currency options and others, are initially recorded at cost as other assets / liabilities, and subsequently carried at fair value in the balance sheet. Fair value is determined by reference to current market prices. In case such prices were not available, the method of valuation is stated. Changes in fair value are transferred to the income statement. Repurchase and resale agreementsAssets sold with a simultaneous commitment to repurchase at a specified future date (repos) will continue to be recognized in the Bank’s financial statements due to the Bank’s continuing exposure to the risks and rewards of these assets, using the same accounting policies.




The proceeds of the sale are recorded under loans and borrowings. The difference between the sale and the repurchase price is recognized as an interest expense over the agreement term using the effective interest method.

Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognized in the Bank’s financial statements as assets since the Bank is not able to control these assets. The related payments are recognized as part of deposits at banks and financial institutions or direct credit facilities as applicable, and the difference between purchase and resale price is recognized in the income statement over the agreement term using the effective interest method.

Assets obtained by the Bank through calling upon collateral Assets obtained by the Bank through calling upon collateral are shown in the statement of financial position under “Other assets” at the lower of their carrying value or fair value. Assets are revalued at the reporting date on an individual basis and losses from impairment are transferred directly to the income statement, while revaluation gains are not recognized as income. Reversal of previous impairment losses shall not result in a carrying value that exceeds the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. Intangible assets Intangible assets acquired through business combination are recorded at their fair value on that date. Other intangible assets are measured on initial recognition at cost. Intangible assets with finite lives are amortized over the useful economic life, while intangible assets with indefinite useful lives are assessed for impairment at each reporting date or when there is an indication that the intangible asset may be impaired. Internally generated intangible assets are not capitalised and are expensed in the income statement. Indications of impairment of intangible assets are reviewed for and their useful economic lives are reassessed at each reporting date. Adjustments are reflected in the current and subsequent periods. Intangible assets include computer software and programs. These intangibles are amortized over their estimated useful lives with rates ranging between 10% to 20% annually. Foreign currencies Transactions in foreign currencies are initially recorded in the functional currency at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities in foreign currencies are translated into respective functional currencies at rates of exchange prevailing at reporting date as issued by Central Bank of Jordan. Any gains or losses are taken to the income statement. Translation gains or losses on non-monetary items carried at fair value (such as stocks) through equity are included in equity as part of the cumulative changes in fair value. For non-monetary items carried at fair value through profit and loss, such gains and losses are taken to the income statement. Cash and cash equivalents Cash and cash equivalents comprises cash on hand and cash balances with banks and financial institutions that mature within three months, less banks and financial institutions deposits that mature within three months and restricted balances.

43

notes to the consoliDateD financial statements31 December 2009(All figures in Jordanian Dinars)

3. use of estimates

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of financial assets and liabilities and disclosure of contingent liabilities. These estimates and assumptions also affect the revenues and expenses and the resultant provisions as well as fair value changes reported in equity. In particular, considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required for non-performing credit facilities. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty and actual results may differ resulting in future changes in such provisions.

Provision for credit losses: The Bank reviews its loan portfolios to assess impairment based on Central Bank of a. Jordan instructions and International Financial Reporting Standards.

Impairment losses on collaterals acquired by the Bank are determined based on appraisal reports prepared by b. certified appraisers. Provisions are recognised when impairment is determined at the reporting date individually and any impairment is recorded in the income statement. Valuation is performed on a regular basis.

Income tax is calculated based on the tax rates and laws that are applicable at the date of the statement of c. financial position.

A periodic review is performed on financial asset- that are carried at cost to assess impairment at the financial d. statement date and any impairment is recorded in the income statement.

A periodic review is performed on assets’ estimated useful lives and assets that are subject to amortisation. In e. addition, they are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Provision against lawsuits is provided for based on the Bank’s legal advisor opinionf.

4. cash anD balances With central banKs

2009 2008

Cash on hand 4,164,353 6,394,723Balances at Central Banks- Current accounts - 5,080,484 Time and term deposits 44,000,000 2,500,000 Statutory cash reserve 23,957,807 30,516,796 Certificates of deposit - 22,599,183

total 72,122,160 67,091,186

Except for the statutory cash reserve held at Central Bank of Jordan there are no restricted cash balances as of -31 December 2009 and 2008.

The Bank does not hold certificates of deposit as of 31 December 2009 that mature betweenthree to six -months compared to JD 3,999,125 as of 31 December 2008.

44



5. balances at banKs anD financial institutions

Local Banks an Foreign Banks and Financial Institutions Financial Institutions Total

2009 2008 2009 2008 2009 2008

Current and demand deposits 275,212 2,321,061 2,449,594 4,574,395 2,724,806 6,895,456

Deposits maturing within 3 months 7,930,525 2,995,455 56,782,336 89,610,046 64,712,861 92,605,501

total 8,205,737 5,316,516 59,231,930 94,184,441 67,437,667 99,500,957

Non interest bearing balances at banks and financial institutions amounted to JD 5,784,365 as of 31 December 2009 (2008: JD 3,542,804).

No cash balances were restricted as of December 2009 and 2008 respectively.

6. Deposits at banKs anD financial institutions

Foreign Banks and Financial Institutions

2009 2008

Term deposits maturing between 3 month – 6 month 17,941,338 3,545,000 Term deposits maturing between 6 month – 9 month - 618,370 Term deposits maturing after more than one year - 1,063,500

total 17,941,338 5,226,870

7. financial assets helD for traDing 2009 2008 Quoted securities 3,088 2,862

total 3,088 2,862

45


8. Direct creDit facilities 2009 2008 consumer lendingOverdrafts * 19,354,788 17,199,811Loans and bills ** 73,496,109 53,475,652Credit cards 6,839,710 6,403,788residential mortgages 52,727,716 53,676,670

corporate lendingOverdrafts* 41,700,267 42,800,736Loans and bills ** 86,611,179 83,869,292

lending to governmental sectors ** 19,152,686 23,082,273

total 299,882,455 280,508,222

Less: Suspended interest (6,413,420) (5,917,659)Less: Provision for impairment losses (9,135,636) (7,330,590) Direct creDit facilities, net 284,333,399 267,259,973

* Net of interest and commissions received in advance of JD 14,553 as of December 2009 (2008: JD 42,026).

** Net of interest and commissions received in advance of JD 818,651 as of December 2009 (2008: JD 1,253,205)

At 31 December 2009, non-performing credit facilities amounted to JD 17,198,229 (2008: JD 11,194,996), representing 5.74% (2008: 3.99%) of gross facilities granted.

At 31 December 2009, non-performing credit facilities; net of suspended interest, amounted to JD 11,692,213 (2008: JD 6,587,077), representing 3.97% (2008: 2.4 %) of gross facilities granted after excluding the suspended interest.

At 31 December 2009, credit facilities granted to the Government of Jordan amounted to JD 14,600,745 (2008: JD 17,785,969), representing 4.87% (2008: 6.34%) of gross facilities granted.

46



2,694,031 1,237,460

(3,757)

3,927,734

1,850,630 2,077,104

3,927,734

97,400(14)

-

97,386

97,386 -

97,386

3,696,2226,378

(397,130)

3,305,470

2,804,635500,835

3,305,470

6,487,6531,243,824(400,887)

7,330,590

4,752,6512,577,939

7,330,590

2008-

At 1 January 2008Charge (surplus) for the yearAmounts written off

At 31 December 2008

Individual impairmentCollective impairment

At 31 December 2008

ConsumerResidentialmortgages Corporate Total

consumerresidentialmortgages corporate total

2009-

At 1 January 2009Charge (surplus) for the yearAmounts written off

At 31 December 2009

Individual impairmentCollective impairment

At 31 December 2009

3,927,734 1,128,328

(22,002)

5,034,060

3,455,002 1,579,058

5,034,060

97,386 62,554 -

159,940

159,940 -

159,940

3,305,470 636,166 -

3,941,636

3,319,912 621,724

3,941,636

7,330,590 1,827,048

(22,002)

9,135,636

6,934,854 2,200,782

9,135,636

total

5,917,6591,515,124

(964,724)(54,639)

6,413,420

2008-

At 1 January 2008Add: Suspended interest during the yearLess: Amount transferred to income on recoveryLess: Amounts written off

At 31 December 2008

Consumer

860,871439,409

(55,792)(229,126)

1,015,362

Residentialmortgages

83,48623,799

(19,165)-

88,120

Corporate

6,593,249555,964

(944,857)(1,390,179)

4,814,177

Total

7,537,6061,019,172

(1,019,814)(1,619,305)

5,917,659

2009-

At 1 January 2009Add: Suspended interest during the yearLess: Amount transferred to income on recoveryLess: Amounts written off

At 31 December 2009

consumer

1,015,362368,186

(61,424)(54,639)

1,267,485

residentialmortgages

88,12042,970

(2,910)-

128,180

corporate

4,814,1771,103,968

(900,390)-

5,017,755

provision for impairment losses

The movement of the provision for impairment losses for direct credit facilities is as follows:

Non-performing credit facilities that were settled or collected amounted to JD 1,001,081 during 31 December 2009 (2008: JD 700,151).

A reconciliation of suspended interest on direct credit facilities by class is as follows:

47


9. financial assets aVailable for sale 2009 2008quoted investmentsEquities 3,790,461 7,302,820 total quoteD inVestments 3,790,461 7,302,820

unquoted investmentsTreasury bills 60,511,932 34,201,070Government debt securities 67,715,820 65,901,950Corporate debt securities 8,300,000 9,300,000Other debt securities 8,000,000 8,000,000Equities 3,005,090 3,004,389

total unquoted investments 147,532,842 120,407,409

total financial assets aVailable for sale 151,323,303 127,710,229

analysis of debt instruments Fixed rate 144,527,752 117,403,020Floating rate - -

total 144,527,752 117,403,020

Included in unquoted equities are investments carried at cost with value of JD 178,057 as of 31 December 2009 (2008: JD 177,357). The investments were stated at the lower of cost and book value since the fair value could not be measured reliably.

48



2008-Cost:

At 1 January 2008

Additions

Disposals

At 31 December 2008

Depreciation and impairment:

At 1 January 2008

Depreciation charge during the year

Disposals

At 31 December 2008

Net book value of property and equipment

Advance payments on property and equipment

net booK Value of property anD equipment at 31 December 2008

3,013,869

-

(2,492)

3,011,377

-

-

-

-

3,011,377

-

3,011,377

6,305,865

53,534

(279,265)

6,080,134

1,937,508

109,547

-

2,047,055

4,033,079

2,492

4,035,571

2,941,809

284,598

(126,818)

3,099,589

1,822,517

316,286

(115,274)

2,023,529

1,076,060

17,862

1,093,922

499,657

37,000

-

536,657

251,535

51,926

-

303,461

233,196

-

233,196

2,174,027

359,640

-

2,533,667

1,556,761

320,065

-

1,876,826

656,841

59,943

716,784

2,243,800

315,109

-

2,558,909

926,747

191,291

-

1,118,038

1,440,871

16,078

1,456,949

17,179,027

1,049,881

(408,575)

17,820,333

6,495,068

989,115

(115,274)

7,368,909

10,451,424

96,375

10,547,799

2009-

Cost:

At 1 January 2009

Additions

Disposals

At 31 December 2009

Depreciation and impairment:

At 1 January 2009

Depreciation charge during the year

Disposals

At 31 December 2009

Net book value of property and equipment

Advance payments on property and equipment

net booK Value of property anD equipment at 31 December 2009

land

3,011,377

-

-

3,011,377

-

-

-

-

3,011,377

-

3,011,377

buildings

6,080,134

1,860

-

6,081,994

2,047,055

106,278

-

2,153,333

3,928,661

2,492

3,931,153

furniture

& fixtures

3,099,589

495,301

(14,978)

3,579,912

2,023,529

308,109

-

2,331,638

1,248,274

118,801

1,367,075

Vehicles

536,657

301

(42,051)

494,907

303,461

51,065

( 2,079)

352,447

142,460

-

142,460

computers

2,533,667

193,887

-

2,727,554

1,876,826

343,293

-

2,220,119

507,435

4,600

512,035

leasehold

improvements

2,558,909

277,612

-

2,836,521

1,118,038

210,365

-

1,328,403

1,508,118

383,053

1,891,171

total

17,820,333

968,961

(57,029)

18,732,265

7,368,909

1,019,110

(2,079)

8,385,940

10,346,325

508,946

10,855,271

10. property anD equipment

Fully depreciated property and equipment amounted to JD 6,105,247 as of December 31, 2009 (2008: JD 5,413,950).

49


2009 2008

11. intangible assets Computer Software and key money

2009 2008 At 1 January, 876,273 924,447Additions 270,509 230,839Amortisation during the year (295,432) (279,013)

at 31 December 851,350 876,273

12. other assets 2009 2008

Accrued interest and revenue 1,990,783 2,950,974Cheques under collection - 627Prepaid expenses 450,189 361,873Collateral pending sale 1,151,307 931,682Derivatives 37,885 - Customers receivables in subsidiary company 865,760 2,343,526Other 1,587,900 1,742,635

total 6,083,824 8,331,317

A reconciliation of assets obtained by the Bank by calling on collateral during the year is as follows:

2009 2008 At 1 January 931,682 1,889,903Additions 90,687 -Retirements (10,992) (958,221)Impairment loss recovery 139,930 -

At 31 December 1,151,307 931,682

13. banKs anD financial institutions Deposits

Current and demand depositsTime deposits

at 31 December

insideJordan

1,767,76115,126,876

16,894,637

outsideJordan

12,952,40341,356,817

54,309,220

total

14,720,16456,483,693

71,203,857

InsideJordan

890,35613,126,245

14,016,601

Total

10,797,54764,827,445

75,624,992

OutsideJordan

9,907,19151,701,200

61,608,391

50



2008-

Current and demand depositsSaving accountsTime and notice deposits

total

Consumer

35,975,2139,702,489

121,973,177

167,650,879

Corporate

28,033,1641,038,728

101,358,628

130,430,520

Governmentalsectors

2,589,199175,344

33,215,884

35,980,427

Total

66,597,57610,916,561

256,547,689

334,061,826

2009-

Current and demand depositsSaving accountsTime and notice deposits

total

consumer

41,284,46810,230,336

135,846,403

187,361,207

corporate

47,007,9751,296,030

80,028,628

128,332,633

governmentalsectors

1,753,877528,206

33,862,862

36,144,945

total

90,046,32012,054,572

249,737,893

351,838,785

14. customers’ Deposits

Governmental institutions deposits amounted to JD 36,144,945 as of 31 December 2009 (2008: JD 35,980,427) representing 10.27% (2008: 10.77%) of total customers’ deposits.

- Non-interest bearing deposits amounted to JD 78,264,490 as of 31 December 2009 (2008: JD 58,582,202) representing 22.24% (2008: 17.54 %) of total deposits.

- Restricted deposits amounted to JD 3,173,038 as of 31 December 2009 (2008: JD 2,770,660) representing 0.90% (2008: 0.83 %).

- Dormant accounts amounted to JD 2,802,006 as of 31 December 2009(2008: JD 2,735,316).

15. margin accounts 2009 2008 Margins on direct credit facilities 39,137,286 28,125,111Margins on indirect credit facilities 18,609,019 25,176,262Deposits against cash margin dealings’ facilities 241,246 739,877Others 1,614,127 1,981,499

total 59,601,678 56,022,749

51


outstanding payments

216

payableevery

variable

collaterals

mortgage deeds

interest rate

6.446%

8.332%variableMortgage

deeds

Balance at January 1

80,000165,500207,228

452,728

Providedduring the

year

-893,119

-

893,119

Utilisedduring the

year

(61,076)--

(61,076)

Returned to Income

-(90,500)

-

(90,500)

Transferred from other provisions

---

-

Balance at December 31

18,924968,119207,228

1,194,271

2008-

End of service indemnityLawsuit provision and contingent liabilitiesOthers

total

2009-

End of service indemnityLawsuit provision and contingent liabilitiesOthers

total

balance at January 1

18,924968,119207,228

1,194,271

provided during the

year

117,17680,140

-

197,316

utilisedduring the

year

(180,088)--

(180,088)

returned to income

--

(100,000)

(100,000)

transferred from other provisions

43,988--

43,988

balance at December 31

-1,048,259

107,228

1,155,487

2008-

Real Estate Mortgage Refinance Company 13,741,484

13,741,484

445 253

2009-

Real Estate Mortgage Refinance Company

amount

12,488,489

12,488,489

total no.of payments

429

16. loans anD borroWings

At December 31, 2009, borrowed funds which were re-lent to customers amounted to JD 12,488,489 (2008: JD 13,741,484) at an average interest rate of 10.1% (2008: 10.1%).

17. sunDry proVisions

52



2009 2008

balance at December 31

101,055

-

101,055

1,420,744

1,420,744

a) Deferred tax assetsAllowance for non-performing loans from prior yearsLoss on AFS financial assets revaluation*

total

b) Deferred tax liabilitiesGain on AFS financial assets revaluation

total

balance at January 1

112,445

1,309,144

1,421,589

-

-

amounts released

during the year

(11,390)

(1,309,144)

(1,320,534)

-

-

additions during the

year

-

-

-

1,420,744

1,420,744

Deferred tax

30,317

-

30,317

426,223

426,223

Deferred Tax

39,356

419,406

458,762

-

-

18. income tax

a-income tax liabilitiesThe movements on the income tax liability were as follows: 2009 2008 At January 1 5,952,877 5,408,145Income tax paid (5,020,875) (4,505,753)Income tax charge for the year 3,945,265 5,050,485

at December 31 4,877,267 5,952,877

Income tax appearing in the statement of income represents the following:

2009 2008 Current income tax charge 3,945,265 5,050,485Reversal of deferred tax assets 9,039 17,564

total 3,954,304 5,068,049

The Bank and the subsidiary reached a final settlement with the Income Tax Department for the year ended December 31, 2008

b-Deferred tax assets / liabilitiesMovement in temporary differences giving rise to deferred tax assets and liabilities were as follows:

53


2009 2008

* Deferred tax assets and liabilities resulting from gains/losses from the revaluation of financial assets available for sale are included in the cumulative change in fair value in equity.

The movement on deferred assets/ liabilities account is as follows:

assets liabilities Assets Liabilities At 1 January 458,762 - 56,920 365,017Additions - 426,223 419,406 - Released (428,445) - (17,564) (365,017)

at 31 December 30,317 426,223 458,762 -

c-the reconciliation between taxable profit and the accounting profit is as follows: 2009 2008

Accounting profit 13,191,183 14,987,932Non-taxable profit (5,100,853) (4,714,550)Expenses not deductible 1,013,749 3,129,554

taxable profit 9,104,079 13,402,936

Effective rate of income tax 29,98% 33,81%

The statutory tax rate on banks in Jordan is 35% and the statutory tax rate on subsidiaries is 25%.

19. other liabilities 2009 2008 Accrued interest expenses 1,142,895 1,907,335Payables 7,311,161 8,661,698Accrued expenses 1,739,026 1,633,742Negative fair value of derivatives (Note 35) 652,280 921,700Certified checks 1,190,098 1,130,506Universities fees 99,921 92,058Scientific research and vocational training 99,921 92,058Technical, vocational education and training support fund fees 79,504 85,141Board of Directors remuneration 72,731 74,167Incoming transfers 6,251 41,694Others 771,401 664,326

total 13,165,189 15,304,425

54



20. paiD in capital

Paid in capitalThe authorized and paid in capital amounted to JD 70,919,063 divided in to 70,919,063 shares at a par value of JD 1 per share (2008: JD 64,471,875).

Distributed stock dividendsThe Board of Directors approved in its meeting held on 15 February 2009 ,the increase in capital by JD 6.447.188 by distributing stock dividends representing 10% of the authorized and issued capital and completed the capital increase procedures in the Ministry of Commerce on 26 May 2009.

Proposed stock dividendsThe Board of Directors approved in its meeting held on February 14, 2010 ,the increase in capital by JD 9,080,937 representing 12,8% of the authorized and issued capital to reach JD 80,000,000 through distributing stock dividend on the share holders.

21. reserVes

Statutory ReserveAs required by the Law, 10% of the profit before tax and fees is transferred to the statutory reserve. The Bank may resolve to discontinue such annual transfers when the reserve equals the paid in capital. This reserve is not available for distribution to shareholders.

Voluntary ReserveThe balance represents up to 20% of the profit before tax and fees transferred to the voluntary reserve during current and previous years. The reserve shall be used at the discretion of the Board of Directors, and it is distributable to shareholders in part or in full.

General banking risk reserveThis reserve is appropriated from retained earnings in compliance with the regulations of the Central Bank of Jordan.

The use of the following reserves is restricted by law:

Description Amount Restriction Law

Statutory reserve 11,379,994 Banking Law General banking risk reserve 2,797,200 Central Bank of Jordan regulations

55


Financial assets available for sale

2009-

Balance at January 1,Unrealised gains Deferred tax liabilitiesDeferred tax assets(Profit) loss transferred to income statement

balance at December 31,

stocks

940,201929,196

(811,802)341,282495,329

1,894,206

bonds

(1,230,834)1,168,191

189,895(438,093)(132,248)

(443,089)

hedge derivatives

(599,105)269,420195,684

(322,595)-

(456,596)

total

(889,738)2,366,807(426,223)(419,406)363,081

994,521

2008-

Balance at January 1,Unrealised (losses)Deferred tax liabilitiesDeferred tax assets(Profit) loss transferred to income statement

balance at December 31,

1,646,467(2,525,832)

586,031(341,282)

1,574,817

940,201

(218,470)(1,215,401)

(136,643)438,093(98,413)

(1,230,834)

(156,689)(680,640)(84,371)322,595

-

(599,105)

1,271,308(4,421,873)

365,017419,406

1,476,404

(889,738)

22. cumulatiVe change in fair Value

The cumulative change in fair value is presented net of deferred tax assets of JD 426,223 as of 31 December 2009 against deferred tax liabilities of JD 419,406 as of 31 December 2008.

23. retaineD earnings (losses)

The retained earnings include an amount of JD 30,317 as of December 31, 2009 (2008:39,356) which represents deferred tax assets that are not available for distribution in accordance with Central Bank of Jordan regulations.

56



24. interest income 2009 2008

consumer lendingOverdrafts 174,429 347,194Loans and bills 5,990,334 4,690,887Credit cards 1,436,683 1,205,900

residential mortgages 4,528,619 4,334,621

corporate lendingOverdrafts 2,734,370 2,990,297Loans and bills 6,473,908 8,010,820

Public and governmental sectors 1,506,849 2,023,463Balances at the Central bank 583,902 1,662,976Balances at banks and financial institutions 1,476,662 3,856,314Financial assets available for sale 8,069,294 7,765,742Interest income on interest rate swap contracts 221,374 406,750Interest income on margin trading financing forSubsidiary’s customers 3,177,219 4,111,775 total 36,373,643 41,406,739

25. interest expense 2009 2008

Banks and financial institution deposits 1,692,221 2,809,137customers’ deposits -Current accounts and deposits 190,640 215,136Saving accounts 134,699 213,350Time and notice placements 10,389,784 12,516,342Margin accounts 1,180,430 1,329,034

Loans and borrowings 919,872 1,199,992Deposit guarantee fees 633,932 549,802Interest paid on interest rate swap contracts 480,189 485,509Others 2,298 98

total 15,624,065 19,318,400

57


26. net commission 2009 2008

Commission income -

Direct credit facilities 1,125,286 990,151Indirect credit facilities 1,490,092 1,381,631Less: commission expense (19,059) (15,443)

net 2,596,319 2,356,339

27. net gain from foreign currencies 2009 2008

Resulting from -Trading in foreign currencies 37,841 172,798Revaluation of foreign currencies 872,788 872,423 total 910,629 1,045,221

28. net gain arising from financial assets helD for traDing

realised unrealised Dividend gain (loss) gain (loss) income total

2009-Equities (601) - 46 (555)Managed funds and other - - - -

total (601) - 46 (555)

2008-Equities (68,130) - 2,239 (65,891)Managed funds and other (332,120) - - (332,120) total (400,250) - 2,239 (398,011)

58



29. net gain from financial assets aVailable for sale 2009 2008

Dividend income 611,373 433,376Gain (loss) from sale of financial assets available for sale 278,845 (127,745)Impairment losses on investments (641,926) (1,348,659)

total 248,292 (1,043,028)

30. other income 2009 2008

Brokerage commission 3,426,515 5,057,795Visa card income 867,925 837,825Management and consulting fees 4,182 59,110Transfers commission 376,879 298,904Recovery of written off debts 67,895 50,049Capital gain (loss) 147,697 (272,159)Rent revenue 26,572 26,598Returned cheques commission 97,010 73,940Others 474,736 1,690,125

total 5,489,411 7,822,187

31. employees’ expenses 2009 2008 Salaries and benefits 6,196,856 5,738,445Employees’ bonuses 926,863 1,013,683Social security contribution 654,415 554,330Medical expenses 235,008 198,432Training expenses 65,629 120,209Per diem 19,717 24,045Others 215,436 388,762 total 8,313,924 8,037,906

59


32. other expenses 2009 2008

Duties and Licenses 765,688 904,709Computer expenses 399,883 487,622Advertising expenses 455,847 801,137Travel expenses 52,014 49,028Communication 653,733 538,143Head office expenses – Bahrain - 106,350Rent 758,169 673,104Board of Directors’ expenses 338,733 261,471Printing and stationery 241,616 228,016Borrower’s transactions expenses 142,014 119,765Consultation expenses 50,706 65,894Subscription and magazines 7,026 8,339Professional fees 277,695 195,743Board of Directors’ remuneration 65,004 64,444Jordanian universities fees 99,921 63,875Scientific research and vocational training fees 99,921 85,915Technical, vocational education and training support fund fees 83,474 81,215Other expenses 758,217 795,868

total 5,249,661 5,530,638

33. earnings per share 2009 2008

Profit for the year 9,236,879 9,919,883Weighted average number of shares 70,919,063 70,919,063

basic anD DiluteD earnings per share 0.130 0.140

The diluted earnings per share equals the basic earnings per share.

60



par value maturity

Par value maturity

2009-Derivatives held for trading

Derivatives held as cash flow hedge: interest rate swap

contract *

positive fair

value

38

-

negative fair

value

-

652

total notional

amount

3,155

7,799

Within 3

months

3,155

-

3 – 12

months

-

-

1 – 3

years

-

-

more than 3

years

-

7,799

2008-Derivatives held for trading

Derivatives held as cash flow hedge: interest rate swap

contract*

Positive fair

value

2

-

Negative fair

value

-

922

Total notional

amount

355

7,799

Within 3

months

355

-

3 – 12

months

-

-

1 – 3

years

-

-

More than 3

years

-

7,799

34. cash anD cash equiValents

Cash and cash equivalents appearing in the statement of cash flows consist of the following items in the statement of financial position: 2009 2008

Cash and balances with Central BanksMaturing within 3 months 72,122,160 63,092,061Add: Balances at banks and financial institutionsmaturing within 3 months 67,437,667 99,500,957Less: Banks and financial institutions’ depositsmaturing within 3 months (71,203,857) ( 75,624,992)

total 68,355,970 86,968,026

35. DeriVatiVe financial instruments

The table below shows the positive and negative fair values of derivative financial instruments together with the notional amounts analyzed by their term to maturity.

The notional amounts indicate the volume of transactions outstanding at the year end and are neither indicative of the market risk nor the credit risk.* The Bank has entered into an interest rate swap contract as a hedging instrument against DIJAF bond to hedge the risk of interest rates.

61


Related Party Total

36. relateD party transactions

The accompanying consolidated financial statements of the Bank include the following subsidiaries:

Paid in capital

Company name Ownership 2009 2008

Arab Co- operating for Financial Investment 100% 15,600,000 15,600,000

The Bank entered into transactions with major shareholders, directors, senior management and their related concerns in the ordinary course of business at commercial interest and commission rates. All the loans and advances to related parties are performing advances and are free of any provision for credit losses.

The following related party transactions took place during the year:

Compensation of the key management personnel is as follows: 2009 2008

Benefits (Salaries, wages, and bonuses) of seniorManagement 1,588,935 1,409,511

balance sheet items:Direct credit facilities Deposits at the bank and financial institutions Customer’s depositsoff balance sheet items:Letters of guaranteeLetters of creditsInterest rate swap contractincome statement items:Interest and commission incomeInterest and commission expensePaid rent

Parent and affiliated

companies

-

35,957,956-

46,818,217865,532

7,799,000

875,564(501,540)

-

Bank’s employees

7,714,001

-2,014,675

---

112,643(77,108)

-

Board of Directors

124,861

-3,390,405

---

--

46,800

2009

7,838,862

35,957,9565,405,080

46,818,217865,532

7,799,000

988,207(578,648)

46,800

2008

3,084,125

50,410,2723,922,496

24,374,679190,012

7,799,000

2,619,254(699,148)

-

62



37. fair Value of financial instruments

The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly from market information and;Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:

31 December 2009 level 1 level 2 level 3 total

financial assetsFinancial assets held for trading 3,088 - - 3,088Financial assets available for sale 3,790,461 147,354,785 - 151,145,246

financial liabilitiesDerivative financial instruments - 652,280 - 652,280

31 December 2008 Level 1 Level 2 Level 3 Total

Financial assets held for trading 2,862 - - 2,862Financial assets available for sale 7,302,820 120,230,052 - 127,532,872

financial liabilitiesDerivative financial instruments - 921,700 - 921,700

38. fair Value of financial instruments not carrieD at fair Value

The financial instruments include cash balances, deposits with bank and Central Bank, direct credit facilities, other financial assets, customers, deposit and banks’ deposit and other financial abilities.

Included in unquoted equities are investments carried at cost with value of JD 178,057 as of 31 December 2009 (2008: JD 177,357). The investments were stated at cost since the fair value could not be measured reliably.

There are no material differences between the carrying values and fair values of the on and off balance sheet financial instruments.

39. risK management

The Arab Banking Corporation Bank operates within a conservative frame work towards all types of risks, employing a number of advanced policies to control and maintain such risks at low levels without compromising profitability. Risk management practices at the Bank are characterized by their conservativeness, taking into consideration the continual development resulting from compliance with various banking laws and regulations. The banking risk management bodies at the Bank include the Bank’s Board of Directors, the Executive Chairman, in addition to a number of committees, including the Steering Committee, Assets and Liabilities Committees, as well as the Credit Risk Committee which comprises a number of the Bank’s Board members, a member of the Credit Department at

63


the Parent Corporation in Bahrain, the Bank’s Executive Chairman, Head of the Credit Department, and a specialized and independent Risk Management Department.

The following represents the main banking risks which the Bank is exposed to and the ways in which they are managed.

39/a. creDit risKs

Credit risks are the risks arising from the default or inability of the financial instrument’s counterparty to meet its obligations towards the bank, leading to losses. The Bank adopts a policy of dividing the credit facilities portfolio into four sections. These are: facilities granted to sovereigns and financial institutions; to corporations which in their turn include large, small and medium-sized corporations; retail facilities, which include personal and housing loans; and other products like credit cards and personal car loans. Whereas the Bank operates within the Arab Banking Corporation (Bahrain) network, the Parent Corporation has undertaken reinforcement of credit control through issuing credit policies specified for each type of the above facilities’ divisions. Such policies include rules and procedures to be complied with when granting or renewing facilities. Policies also include specific assessments for clients according to their credit rating. The Bank is currently adopting the automatic Moody’s Risk Advisor model to rate facilities granted to large companies, and the Credit Scoring model to assess the clients listed under small-sized companies and/or retail facilities.

In view of the importance of credit risk, the Credit Department at the Parent Corporation in Bahrain has developed a special system to calculate the Risk Adjusted Return on Capital (RAROC), which takes into consideration the facility type’s credit rating and maturity date in pricing credit facilities, in addition to considering expected losses. The minimum accepted level has been determined as 15%.Controlling and managing of the credit portfolio for the Arab Banking Corporation is undertaken through a number of credit committees comprising three higher committees from the Group Board, and a fourth committee comprising members of the Bank Board in Jordan, and a main facilities committee comprising members of the Bank’s heads of departments in Jordan, as well as the Executive Chairman. Another sub-committee has been formed to examine small-sized facilities having a credit limit of less than 100 thousand Jordanian Dinars. Jurisdictions of each committee have been determined according to the client’s credit rating and the duration of the granted facilities.

The bank follows a diversification policy in relation to clients, economic sectors and geographical classifications, which contributes to minimizing the degree of credit risks. For the purpose of controlling lending risks, the Credit Risk Committee originated by the Board holds periodic meetings to discuss all issues relating to credit risks. The Committee is provided with quarterly reports on the allocation of the facilities in respect of the economic distribution, credit rating, geographic classification and facilities’ maturity dates. In addition, the adequacy of the loan loss provision is reviewed periodically.

Details of the direct credit facilities portfolio are stated in Note 8. The Bank’s other obligations carrying credit risks are detailed in Note 43.

The Bank restricts asset and liability risk concentrations through distributing its activities amongst several sectors and geographical classifications inside and outside the Kingdom.

64



The table below shows the maximum exposure to credit risk for the components of the balance sheet, including derivatives.

The maximum exposure is shown gross, before the effect of mitigation through the use of master netting and 1. collateral agreements and after impairment provisions.

2009 2008 balance sheet items

Cash and balances at Central Banks 67,957,807 60,696,463

Balances at banks and financial institutions 67,437,667 99,500,957

Deposits at banks and financial institutions 17,941,338 5,226,870

Direct credit facilities:

Consumer lending 93,389,062 72,136,155

Residential mortgages 52,439,596 53,491,164

Corporate lending 119,352,055 118,550,381

Lending to governmental sectors 19,152,686 23,082,273

Bonds and treasury bills:

Within financial assets available for sale 144,527,752 117,403,020

Other assets 2,966,203 5,771,042

total 585,164,166 555,858,325

off balance sheet itemsLetters of guarantee 90,428,041 79,793,249

Letters of credit 14,066,108 5,059,905

Acceptances 4,950,389 2,316,741

Irrevocable commitments to extend credit 70,303,616 58,135,531

total 179,748,154 145,305,426

granD total 764,912,320 701,163,751

Collaterals against facilities are as follows:

Real estate mortgage. -Financial instrument such as stocks. -Letter of guarantee. -Cash margins. -Governmental guarantee. -

The Management monitors the market value for these collaterals on a periodic basis. In case the value of the collateral decreases, the Bank requests additional collaterals to cover the value of the deficit. The Bank also periodically evaluates the collaterals against non-performing credit facilities.

65



213,91750,595,312

13,807,6912,946,8431,436,422

56,882138,874317,819

52,759,226

128,180

159,940

52,471,106

2009-

Low riskAcceptable riskPast dueUp to 30 daysFrom 31 to 60 daysWatchlist

Non performing:SubstandardDoubtfulLoss

total

Less: Suspended interestLess: provision forimpairment losses

net

consumer

1,205,83789,584,445

19,843,0984,349,9661,673,757

685,1473,597,9663,322,217

100,069,369

1,267,485

5,034,060

93,767,824

corporate

8,939,254111,704,596

56,156,3687,984,160

15,581,741

9942,185,7726,892,621

145,304,978

5,017,755

3,941,636

136,345,587

governmentalsectors

212,243,6874,551,942

---

---

216,795,629

-

-

216,795,629

banks & financials

-85,784,020

---

---

85,784,020

-

-

85,784,020

total

222,602,695342,220,315

89,807,15715,280,96918,691,920

743,0235,922,612

10,532,657

600,713,222

6,413,420

9,135,636

585,164,166

Total

189,617,212349,499,267

81,297,90719,974,45218,795,099

438,4181,946,4848,810,094

569,106,574

5,917,659

7,330,590

555,858,325


235,06651,525,179

12,206,5782,539,7821,680,417

101,800128,341166,239

53,837,042

88,120

97,386

53,651,536

2008-

Low riskAcceptable riskPast dueUp to 30 daysFrom 31 to 60 daysWatchlist

Non performing:SubstandardDoubtfulLoss

total

Less: Suspended interestLess: provision forimpairment losses

net

Consumer

3,496,26569,222,484

22,739,5845,934,6971,817,340

244,035494,138

2,408,171

77,682,433

1,015,362

3,927,734

72,739,337

Corporate

4,049,449118,526,874

46,351,74511,499,97315,297,342

92,5831,324,0056,235,684

145,525,937

4,814,177

3,305,470

137,406,290

Governmentalsectors

181,836,4325,296,304

---

---

187,132,736

-

-

187,132,736

Banks & Financials

-104,928,426

---

---

104,928,426

-

-

104,928,426

Ageing analysis by class of financial assets:2.

66




235,06648,265,9771,629,356

92,40084,243

122,662

50,429,704

63,27248,508,250

--

48,571,522

2008-

collateralised facilitiesLow riskAcceptable riskWatchlist Non performing:SubstandardDoubtfulLoss

total

Cash marginReal estateTraded equitiesVehicles and machinery

total

Consumer

3,496,26430,567,416

250,757

--

225,618

34,540,055

5,564,4474,876,572

16,243,2203,142,912

29,827,151

Corporate

4,049,44953,319,8778,000,147

21,7391,042,7341,294,583

67,728,529

16,007,44028,301,77519,359,807

674,857

64,343,879

Governmentalsectors

17,785,9695,296,304

-

---

23,082,273

----

-

Total

25,566,748137,449,574

9,880,260

114,1391,126,9771,642,863

175,780,561

21,635,15981,686,59735,603,0273,817,769

142,742,552


152,92146,875,673

1,086,022

-138,874270,477

48,523,967

61,17040,868,906

--

40,930,076

2009-

collateralised facilitiesLow riskAcceptable riskWatch list Non performing:SubstandardDoubtfulLoss

total

Cash marginReal estateTraded equitiesVehicles and machinery

total

consumer

1,069,66326,964,632

269,515

77,7003,233,209

481,694

32,096,413

3,423,0722,607,129

17,898,7932,080,783

26,009,777

corporate

8,731,01642,340,719

3,044,173

-2,099,6261,813,431

58,028,965

28,815,19714,694,94115,994,110

2,258,295

61,762,543

governmentalsectors

18,465,8864,551,942

-

---

23,017,828

----

-

total

28,419,486120,732,966

4,399,710

77,7005,471,7092,565,602

161,667,173

32,299,43958,170,97633,892,903

4,339,078

128,702,396

Distribution of collaterals measured at fair value over credit facilities

Rescheduled Debts: Rescheduled debts are debts which have been previously classified as non-performing credit facilities, then excluded from the non-performing credit facilities as a result of a rescheduling process, and then classified as watch list. The credit facilities that were rescheduled as of 31 December 2009 is JD 19,055. No credit facilities were rescheduled as 31 December 2008. Restructured Debts:Restructuring process refers to re-organizing the credit facilities’ standing in respect to adjusting premiums, extending the life of the credit facilities, postponing some premiums or extending the grace period etc, and then classifying such facilities as watch list. Re-structured debts totalled JD 6,761,754 as of 31 December 2009, compared to JD 3,614,756 as of 31 December 2008.

67


External rating agency

Fitch ratings--

included in financial assets

available for sale 2009

-16,300,000

128,227,752

144,527,752

Included in financial assets

available for sale 2008

-17,300,000

100,103,020

117,403,020

Risk Rating Class

BBB+Non-ratedGovernmental

total

2009-

Cash and balances at Central Banks

Balances at banks and financial

institutions

Deposits at banks and financial

institutions

Direct credit facilities:

Consumer

Residential mortgages

Corporate

Lending to governmental sectors

Bonds and treasury bills within:


Other assets

total 2009

total 2008

inside Jordan

67,957,807

8,205,737

-

93,389,062

52,439,596

119,352,055

19,152,686

144,527,752

2,561,287

507,585,982

455,840,583

othermiddle

eastern countries

-

20,293,914

-

-

-

-

-

-

289,956

20,583,870

34,290,630

europe

-

29,766,631

14,396,338

-

-

-

-

-

91,638

44,254,607

37,387,895

asia *

-

35,828

-

-

-

-

-

-

2,000

37,828

35,894

americas

-

9,118,534

3,545,000

-

-

-

-

-

21,322

12,684,856

28,283,332

other

-

7,845

-

-

-

-

-

-

-

7,845

9,408

total

67,957,807

67,437,667

17,941,338

93,389,062

52,439,596

119,352,055

19,152,686

144,527,752

2,966,203

585,164,166

555,858,325

africa

-

9,178

-

-

-

-

-

-

-

9,178

10,583

2009-


Balances at banks and financial

institutions

Deposits at banks and financial

institutions

Direct credit facilities


Other assets

total 2009

total 2008

Industrial

-

-

-

11,986,564

-

16,311

12,002,875

11,648,455

Commercial

-

-

-

50,669,119

300,000

80,882

51,050,001

48,935,083

Real estate

-

-

-

56,687,474

-

82,971

56,770,445

58,746,546

Agriculture

-

-

-

5,714,040

-

7,775

5,721,815

862,008

Shares

-

-

-

24,770,257

-

-

24,770,257

23,538,714

Services

-

-

-

20,711,287

8,000,000

133,072

28,844,359

38,208,299

Consumer

-

-

-

77,171,214

-

378,760

77,549,974

57,949,230

Public and

governmental

67,957,807

-

-

19,152,686

128,227,752

1,457,384

216,795,629

187,132,736

Total

67,957,807

67,437,667

17,941,338

284,333,399

144,527,752

2,966,203

585,164,166

555,858,325

Financial

-

67,437,667

17,941,338

17,470,758

8,000,000

809,048

111,658,811

128,837,254

Bonds and treasury bills:3.

The table below shows the classifications of bonds and treasury bills and their grading according to external rating agencies:

The Bank’s assets are analysed by the following geographical regions:4.

* Excluding Middle East countries

An industry sector analysis of the Bank’s financial assets, before taking into account collateral held or other 5. credit enhancements, is as follows

68



39/b. marKet risK

Market risks arise from losses incurred in financial positions , whether they are incorporated in the banking book or the trading book. Such losses may be a result of fluctuations in interest rates, currency exchange rates and stock & equity prices. Market risks are controlled and managed by Market Risk Department within the Risk Management department and are being overlooked and monitored by certain committees such as the Assets and Liabilities Committee and the Board Risk Committee which is constituted by some members of the Board who are well versed and maintains high experience in risk related issues.

The bank is responsible for managing the Market Risks that arise from the bank’s investments in stocks and bonds, foreign currency transactions, swap contracts, and certificates of deposits. In realization of this end, the bank should endeavor to apply a number of measures in order to manage the aforementioned risks in a comprehensive manner. Such measures include Value at Risk (VaR), which is daily computed by the bank, considering all portfolios vulnerable to risk (interest rate instruments, equity instruments in trading portfolios and foreign currency centers), based on the Historical Stimulation approach. This measure is also based on a number of assumptions, like One-day Time Horizon, and a confidence level of 99%. VaR results are daily compared to the profits and losses in the portfolios.

The bank also calculates the sensitivity impact of the change in the interest rates for the financial instruments; the value of which is subject to the change in accordance with the interest rates fluctuations. This also includes the major currencies the bank handles through the Basis Point Value measure (BPV) which is the basis for identifying the potential losses of interest rate change for a 0,01% point of delta value (DV01).

As for the subsidiary, its activities include client portfolio management and a range of other products. The Market Risk department oversees the subsidiary‘s activities on a daily basis, provides weekly reports and conducts research and stress tests covering the whole range of activities undertaken by the subsidiary.

Below is the market risk exposure according to VAR

*Trading Portfolio

2009-

AverageHigherLower

2008-

AverageHigherLower

effect ofcurrency risk

(64.58)(163.78)

(11.34)

Effect ofCurrency risk

(59.35)(98.55)(24.82)

effect onequity*

---

Effect onEquity*

(5.81)(17.02)(0.71)

effect of overlapping

---

Effect of overlapping

5.5017.021.42

total

(64.58)(163.78)

(11.34)

Total

(59.66)(98.55)(24.11)

69


Below is the financial instruments sensitivity to changes in interest rates:

By instrument type (BPV = DV01) -

By currency (BPV = DV01) -

Sensitivity of interest rates as of 31 December 2009:

Interest Rates Risks

Interest Re-Pricing GapInterest rates risks arise from the possible effect of changes in interest rates on the financial instrument value. The Bank is exposed to interest rate risks as a result of the incompatibility or the occurrence of a gap in the amounts of assets and liabilities according to the different terms, or as a result of reviewing interest rates in a specific duration. The Assets and Liabilities Management Committee at the Bank undertakes dealing with the effects of the total change in interest rates on the Bank’s financial standing. In general, the Bank matches the terms of its financial obligations, in addition to dealing with futures contracts or financial derivatives for the purpose of covering counterparty financial positions, so as to have limited final outcome.

financial instrument

2009-BondsBonds maturity gapCertificates of deposits and money marketInterest rate swap / Currency swap

2008-BondsBonds maturity gapCertificates of deposits and money marketInterest rate swap / Currency swap

Currency

2009-USDEURO

2008-USDEURO

DV01 value

(18.02)(1.15)(0.07)5.17

(22.93)(0.86)(0.50)5.60

DV01 value

(0.20)(0.34)

(0.81)(0.11)

70



2009-

assets


Balances at banks and financial institutions

Deposits at banks and financial institutions

Financial assets held for trading

Direct credit facilities


Property and equipment

Intangible assets

Deferred tax assets

Other assets

total assets

liabilities

Banks and financial institution deposits

Customers’ deposits

Margin accounts

Loans and borrowings

Sundry provisions

Deferred tax liabilities

Income tax liabilities

Other liabilities

total liabilities

interest rate sensitiVity gap

2008-Total Assets

Total Liabilities

interest rate sensitiVity gap

less than

1 month

44,000,000

38,791,442

-

-

6,590,574

-

-

-

-

1,065

89,383,081

66,203,857

238,189,756

38,105,023

62,852

-

-

-

-

342,561,488

(253,178,407)

78,998,516

324,006,787

(245,008,271)

1 – 3

months

-

22,861,860

-

-

248,316,020

7,945,510

-

-

-

2,130

279,125,520

5,000,000

19,573,189

-

79,926

-

-

-

-

24,653,115

254,472,405

303,860,437

56,665,121

247,195,316

3 – 6

months

-

-

17,941,338

-

3,616,573

35,968,314

-

-

-

3,195

57,529,420

-

5,025,678

-

8,188,556

-

-

-

-

13,214,234

44,315,186

44,698,732

15,048,791

29,649,941

6 – 12

months

-

-

-

-

3,453,711

34,378,108

-

-

-

15,306

37,847,125

-

10,721,775,

-

398,298

-

-

-

-

11,120,073

26,727,052

22,964,929

10,962,968

12,001,961

1 – 3

years

-

-

-

-

10,714,656

48,982,750

-

-

-

25,746

59,723,152

-

56,161

-

1,195,351

-

-

-

-

1,251,512

58,471,640

33,117,435

1,707,062

31,410,373

3 or more

years

-

-

-

-

11,641,865

17,253,070

-

-

-

27,927

28,922,862

-

7,736

-

2,563,506

-

-

-

-

2,571,242

26,351,620

27,395,456

3,021,033

24,374,423

non-interest

bearing

28,122,160

5,784,365

-

3,088

-

6,795,551

10,855,271

851,350

30,317

6,008,455

58,450,557

-

78,264,490

21,496,655

-

1,155,487

426,223

4,877,267

13,165,189

119,385,311

(60,934,754)

75,970,723

90,490,862

(14,520,139)

total

72,122,160

67,437,667

17,941,338

3,088

284,333,399

151,323,303

10,855,271

851,350

30,317

6,083,824

610,981,717

71,203,857

351,838,785

59,601,678

12,488,489

1,155,487

426,223

4,877,267

13,165,189

514,756,975

96,224,742

587,006,228

501,902,624

85,103,604

Interest rate sensitivity :

71


2008-assets

Cash and balances at Central BanksBalances at banks and financial institutionsDeposits at banks and financial institutionsFinancial assets held for tradingDirect credit facilitiesFinancial assets available for saleOther assetstotal foreign currency assets

liabilitiesBanks and financial institution depositsCustomers’ depositsMargin accountsOther liabilitiestotal foreign currency liabilities

net concentration in the balance sheet

net concentration off balance sheet

US Dollar

11,807,165

41,209,431

4,714,8502,862

8,616,0756,647,669(254,683)

72,743,369

4,241,35261,885,8266,623,043

3,454,839 76,205,060

(3,461,691)

67,485,630

Euro

248,069

51,785,823

--

13,770-

2,556,86954,604,531

24,967,67910,334,63418,564,478 161,10154,027,892

576,639

32,125,149

BritishPound

4,659

3,009,954

512,020---

(828,022)2,698,611

1882,654,496

57,191 41,1682,753,043

(54,432)

953,211

JapaneseYen

-

15,716

----

343,829359,545

-3,553

- -

3,553

355,992

-

Other

8,169

1,206,280

----

(49,195)1,165,254

245238,037108,545

746,5411,093,368

71,886

1,084,792

Total

12,068,062

97,227,204

5,226,8702,862

8,629,8456,647,669

1,768,798131,571,310

29,209,46475,116,54625,353,257 4,403,649134,082,916

(2,511,606)

101,648,782

2009-

assetsCash and balances at Central BanksBalances at banks and financial institutionsDeposits at banks and financial institutionsFinancial assets held for tradingDirect credit facilitiesFinancial assets available for saleOther assetstotal foreign currency assets

liabilitiesBanks and financial institution depositsCustomers’ depositsMargin accountsOther liabilitiestotal foreign currency liabilities

net concentration in the balance sheet

net concentration off balance sheet

us Dollar

5,728,782

33,031,124

7,090,0003,088

14,512,8037,747,256

852,83368,965,886

11,036,36357,855,8294,797,290

4,150,40477,839,886

(8,874,000)

82,222,828

euro

336,531

25,799,807

10,851,338-

184,246-

434,60537,606,527

16,853,07310,241,21210,455,052 2,266

37,551,603

54,924

67,077,387

britishpound

20,487

5,217,956

----

(283,040) 4,955,403

228,6903,975,829

75,589 640,4064,920,514

34,889

637,624

Japaneseyen

-

21,968

----

337,773359,741

345,2007,111

- 1,513 353,824

5,917

-

other

9,423

3,119,490

--

15-

67,8773,196,805

319471,226129,032

1,014,0811,614,658

1,582,147

1,164,685

total

6,095,223

67,190,345

17,941,3383,088

14,697,0647,747,256

1,410,048115,084,362

28,463,64572,551,20715,456,9635,808,670

122,280,485

(7,196,123)

151,102,524

Concentration in currency risk:

72



2008-

liabilities



Margin accounts


Sundry provisions


Other liabilities

total liabilitiestotal assets(as expected maturities)

Less than

1 month

55,800

281,430

38,386

63

-

5,953

8,924

390,556

172,878

1 – 3

months

20,073

36,611

6,203

381

-

-

1,579

64,847

86,075

3 – 6

months

-

6,984

2,137

8,444

-

-

58

17,623

67,582

6 – 12

months

-

10,687

6,826

689

-

-

-

18,202

65,138

1 – 3

years

-

241

821

1,735

-

-

-

2,797

73,198

More

than 3

years

-

48

2,102

3,723

1,194

-

4,743

11,810

110,761

No fixed

maturity

-

-

-

-

-

-

-

-

11,374

Total

75,873

336,001

56,475

15,035

1,194

5,953

15,304

505,835

587,006

39/c. liquiDity risKs

Liquidity risks represent the possibility of the Bank’s inability to provide necessary financing to fulfil its obligations as of their maturity dates as a result of the banks in ability to liquidate its assets. To mitigate such risks, the Bank’s Management undertakes diversifying of financing resources, managing assets and liabilities, adjusting their terms and maintaining adequate balance of cash and any of its equivalents, in addition to exchangeable securities. The Bank, within its general strategy framework, aims at achieving revenue on its investments through reviewing monetary liquidity and managing thereof at the Bank to be carried out at different levels including Treasury Management, Financial control Department, Risk Management Department, in addition to the Assets and Liabilities Committee which is specialized in this issue. The monetary liquidity review process includes full analysis of the extended maturity of assets and liabilities, where fund resources are analyzed. Such resources include customers, correspondent banks, subsidiary and allied establishments and the Bank branches in Jordan.

Contractual maturity dates for the assets are determined based on the remaining period beginning with the date of the financial statements the contractual maturity date, without considering the actual maturities reflected through the historical occurrences of holding deposits and liquidity provision.

The bank is adhered to Central Bank of Jordan requirements regarding the legal liquidity to maintain a minimum liquidity ratio of 100% for foreign currencies and 70% for Jordan Dinars.

The table below summarises the maturity profile of the Bank’s financial liabilities at 31 December based on contractual undiscounted repayment obligations:

2009-

liabilities



Margin accounts


Sundry provisions

Deferred tax liabilities


Other liabilities

total liabilitiestotal assets(as expected maturities)

less than

1 month

66,311

317,633

36,043

63

-

-

4,877

11,091

436,018

164,496

1 – 3

months

5,016

19,719

1,196

81

-

-

-

409

26,421

57,832

3 – 6

months

-

5,110

1,849

8,404

-

-

-

115

15,478

91,377

6 – 12

months

-

11,081

4,798

419

-

-

-

24

16,322

76,948

1 – 3

years

-

61

13,463

1,363

-

-

-

-

14,887

109,842

more

than 3

years

-

9

3,125

3,103

1,155

426

-

1,526

9,344

98,780

no fixed

maturity

-

-

-

-

-

-

-

-

-

11,707

total

71,327

353,613

60,474

13,433

1,155

426

4,877

13,165

518,470

610,982

73


2008-

Derivatives held for hedging

Interest rate swap

total

Less than

1 month

-

-

1 – 3 months

-

-

3 – 6 months

-

-

6 – 12 months

-

-

1 – 3 years

-

-

3 or more years

(921,700)

(921,700)

Total

(921,700)

(921,700)

2009-

Derivatives held for hedging

Interest rate swap

total

less than

1 month

-

-

1 – 3 months

-

-

3 – 6 months

-

-

6 – 12 months

-

-

1 – 3 years

-

-

3 or more years

(652,280)

(652,280)

total

(652,280)

(652,280)

The table below summarizes the maturities of financial derivatives as of the date of the financial statements:

Financial liabilities that are settled net consist of:a.

Foreign currencies derivatives: foreign currencies forward contracts ,foreign currencies swap contracts , 1. foreign currencies swap contracts traded in regulated markets .

Interest rate derivatives: interest rate swap contracts, interest rate forward contracts, interest rate swap 2. contracts traded in unregulated markets other interest rate contracts, and interest rate future contracts traded in regulated markets and interest rate option contracts traded in regulated markets.

Financial liabilities that are settled gross consist of :b.

Foreign currencies derivatives :foreign currencies forward contracts and interest rate swap contracts.1.

Interest rate derivatives: interest rate swap contract.2.

74



off balance sheet items

2008-

Derivatives held for trading:

Currency exchange rate swaps contracts

- Cash outflow

- Cash inflow

total cash outfloW

total cash infloW

Less than

1 month

353,477

355,487

353,477

355,487

1 – 3 months

-

-

-

-

3 – 6 months

-

-

-

-

6 – 12 months

-

-

-

-

1 – 3 years

-

-

-

-

3 or more years

-

-

-

-

Total

353,477

355,487

353,477

355,487

2009-

Letters of credit & Acceptances

Irrevocable commitments

to extend credit

Letters of guarantee

total

less than

1 year

19,016,497

70,303,616

49,387,772

138,707,885

1 – 5 years

-

-

41,040,269

41,040,269

total

19,016,497

70,303,616

90,428,041

179,748,154

2008-

Letters of credit & Acceptances

Irrevocable commitments

to extend credit

Letters of guarantee

total

Less than

1 year

6,927,328

58,135,531

71,880,854

136,943,713

1 – 5 years

449,318

-

7,912,395

8,361,713

Total

7,376,646

58,135,531

79,793,249

145,305,426

2009-

Derivatives held for trading:

Currency exchange rate swaps

- Cash outflow

- Cash inflow

total cash outfloW

total cash infloW

less than

1 month

3,116,889

3,154,774

3,116,889

3,154,774

1 – 3 months

-

-

-

-

3 – 6 months

-

-

-

-

6 – 12 months

-

-

-

-

1 – 3 years

-

-

-

-

3 or more years

-

-

-

-

total

3,116,889

3,154,774

3,116,889

3,154,774

75


Operational RisksThe risk of possible losses that may affect the bank’s revenues or capital due to weakness of or failure in internal procedures & processes, IT systems, human resources, or due to external circumstances that have tangible impact on the bank’s operations.

The abovementioned definition includes legal risks, however it excludes reputation and strategic risks. It is important to note that reputation risks were excluded in order to calculate the legal capital. Nevertheless, it is considered one of the significant operational risks that has a financial impact on the Bank, and thus should be taken into consideration.

Workshops on self-assessment of risks and related controls continue to be held in cooperation with the various departments at the Bank. During 2009, new workshops were conducted as well as review for existing ones are being conducted on semi annual basis. The Bank continued on collecting and updating other operational risk factors (operational loss data and key risks indicators). Such data were incorporated with the Operational Risk Management System in cooperation with the holding company.

A further workshop was held in the bank that tackled the operational risks in general and the operational losses in particular, in order to clarify the concept and the framework of operational risks management within the Bank.

In terms of The business continuity plan , the operational risk department has proceeded with its continuous update to cover all new systems and activities introduced . The department has also followed up the readiness of the Disaster Recovery centers and maintained follow up and update for the various action plans . The first test was conducted in Feb 2009, the test examined the degree of readiness of the disaster recovery centers and was overseen by executive management , the crisis management team as well as by officers from different departments and branches.

The test results were promising, since they marked the ability to resume work and accomplishment of critical operations at the Bank in addition to identifying the problems and drawbacks in order to find solutions to address them. This was a preliminary step towards conducting a second test during 2010 to cover all operations and ordinary services at the Bank.

A separate test was conducted in March 2009 (during a working day), to test the operations of the Treasury department. The results of the test were also successful.

76



Total

Total

Outside Jordan Jordan

Total incomeImpairment loss on credit facilitiesSegmental resultsUnallocated expenses

Profit before taxIncome tax

net profit for the year

other informationSegmental assetsUnallocated segmental assets

total assets

Segmental liabilitiesUnallocated segmental liabilities

total liabilities

Capital expenditureDepreciation and amortisation

Retail Banking

14,195,341(674,377)

8,525,392

129,610,810 -

129,610,810

318,463,839 -

318,463,839

Corporate Banking

13,848,100(627,671)

7,647,001

129,952,330 -

129,952,330

105,114,418 -

105,114,418

Treasury

17,400,029(525,000)

11,819,964

336,858,488 -

336,858,488

80,751,606 -

80,751,606

Other

174,269-

174,269

-14,560,089

14,560,089

-10,427,112

10.427,112

2009

45,617,739(1,827,048)28,166,626

(14,975,443)

13,191,183(3,954,304)

9,236,879

596,421,62814,560,089

610,981,717

504,329,86310,427,112

514,756,975

1,652,0401,314,542

2008

51,189,447(1,243,824)30,627,223(15,639,291)

14,987,932(5,068,049)

9,919,883

572,564,54914,441,679

587,006,228

490,665,24111,237,383

501,902,624

1,160,2651,268,128

Total profitsTotal assetsCapital expenditure

2009

44,264,046

532,833,113

1,652,040

2008

46,175,319

486,580,584

1,160,265

2009

1,353,693

78,148,604

-

2008

5,014,128

100,425,644

-

2009

45,617,739

610,981,717

1,652,040

2008

51,189,447

587,006,228

1,160,265

40. segment information

Primary segment information1.

For management purposes the Bank is organised into three major operating segments measured in accordance with the segments send to the chief operating decision makers:

Retail banking. -Corporate banking. -Treasury. -

These segments are the basis on which the Bank reports its primary segment information.

Geographical Information 2.

The following table shows the distribution of the Bank’s operating income and capital expenditure by geographical segment:

77


41. capital management

Description of what is considered capital: a. The primary capital of the Bank comprises the following:

Present capital (paid). - Registered provisions: (legal reserve, voluntary reserve) - Retained earnings after deducting any deferred taxations or any other restricted amounts. - Investments in capitals of banks and other financial institutions shall be deducted. -

The Bank’s supplementary capital comprises the following: Cumulative change in the fair value of the assets available for sale, which undergoes a 55% discount in case it -is positive, and is fully included if negative. General banking risks reserve. -

The Bank’s regulatory capital comprises the primary and supplementary capitals.

Capital Requirements of the Monitoring Authorityb. The Central Bank of Jordan’s instructions require that the regulatory capital minimum limit is an equivalent of (12%) of the assets and credit-weighted off-balance sheet items in addition to market risks. This percentage is considered the minimum limit to capital adequacy, as the Bank is committed in all cases to maintaining an adequacy percentage exceeding the minimum limit with a suitable margin, and conforming to the requirements of BASEL II.

Methods in Achieving the Capital Management Objectives c. Capital management involves the optimal employment of fund resources for the purpose of achieving the highest possible revenue on the capital, while maintaining the minimum limit required in accordance with laws and regulations. The Bank follows a policy based on striving to reduce cost of funds to the minimal possible limit through originating low-cost fund resources, working on increasing the client base, and the optimal employment of such resources in investments with reasonable risks to achieve the highest possible return on capital.

Capital Adequacy Ratiod. Capital adequacy ratio is calculated in compliance with the instructions issued by the Central Bank of Jordan which are based on Basel Committee decisions. The following represent capital adequacy compared to the previous year:

primary capitalPaid up capitalStatutory reserveVoluntary reserveRetained earningsLess: Intangible assetsLess: investments in banks and financial institutions equityTotal Primary capital

supplementary capitalCumulative change in fair valueGeneral banking risk reserveTotal Supplementary capitalLess: Investments in banks and financial institutions equity

total authoriseD capital

Total risk weighted assetsCapital adequacy (%)Primary capital adequacy (%)

2009

70,91911,380

8989,205(851)(567)

90,984

4482,7973,245(567)

93,662

271,83434,46%33,47%

2008

64,47210,061

5987,629(876)(768)

81,116

(890)2,7741,884(768)

82,232

258,58831,8%

31,37%

78



2008-

assetsCash and balances at Central BanksBalances at banks and financial institutionsDeposits at banks and financial institutionsFinancial assets held for tradingDirect credit facilitiesFinancial assets available for saleProperty and equipmentOther intangible assetsDeferred tax assetsOther assetstotal assets

liabilitiesBanks and financial institution depositsCustomers’ depositsMargin accountsLoans and borrowingsSundry provisionsIncome tax liabilitiesDeferred tax liabilitiesOther liabilitiestotal liabilities

net assets

Within1 year

67,091,18699,500,9574,163,370

2,862144,797,04873,127,7131,000,000

300,000 -

2,990,602392,973,738

75,624,992333,799,80456,022,7499,275,410

-5,952,877

- 10,638,712491,314,544

(98,340,806)

More than 1 year

--

1,063,500-

122,462,92554,582,5169,547,799

576,273 458,762 5,340,715194,032,490

-262,022

-4,466,0741,194,271

- -

4,665,713 10,588,080

183,444,410

Total

67,091,18699,500,9575,226,870

2,862267,259,973127,710,22910,547,799

876,273 458,762 8,331,317587,006,228

75,624,992334,061,82656,022,74913,741,4841,194,2715,952,877

- 15,304,425501,902,624

85,103,604

2009-

assetsCash and balances at Central BanksBalances at banks and financial institutionsDeposits at banks and financial institutionsFinancial assets held for tradingDirect credit facilitiesFinancial assets available for saleProperty and equipmentOther intangible assetsDeferred tax assetsOther assetstotal assets

liabilitiesBanks and financial institution depositsCustomers’ depositsMargin accountsLoans and borrowingsSundry provisionsIncome tax liabilitiesDeferred tax liabilitiesOther liabilitiestotal liabilities

net assets

Within1 year

72,122,16067,437,66717,941,338

3,088144,097,454

85,086,9151,000,000

300,000-

3,964,771391,953,393

71,203,857351,774,890

43,731,9308,729,632

-4,877,267

- 11,639,475491,957,051

(100,003,658)

more than 1 year

----

140,235,94566,236,388

9,855,271551,350

30,317 2,119,053219,028,324

-63,895

15,869,7483,758,8571,155,487

-426,223

1,525,714 22,799,924

196,228,400

total

72,122,16067,437,66717,941,338

3,088284,333,399151,323,303

10,855,271851,350

30,317 6,083,824610,981,717

71,203,857351,838,785

59,601,67812,488,489

1,155,4874,877,267

426,223 13,165,189514,756,975

96,224,742

42. maturity analysis of assets anD liabilities

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled:

79


43. contingent liabilities anD commitments

To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognised on the balance sheet, they do contain credit risk and are therefore part of the overall risk of the Bank.

The total outstanding commitments and contingent liabilities are as follows: 2009 2008

Letters of creditExport LCs 62,458,588 31,070,225Import LCs 14,066,108 5,059,905Acceptances 4,950,389 2,316,741Letters of guarantee -Payments 13,131,443 28,942,918Performance 61,348,481 29,698,328Other 15,948,117 21,152,003Irrevocable commitments to extend credit 70,303,616 58,135,531Other

Total 242,206,742 176,375,651

44. laWsuits

In the normal course of business the Bank appears as a defendant in a number of lawsuits amounting to approximately JD 1,195,781 as of December 31, 2009 (2008: JD 1,598,200) According to the Bank’s lawyer and Bank’s Management, no material liability will arise as a result of these lawsuits in excess of the amounts already provided for amounting to JD 1,048,259 as of December 31, 2009 (2008: JD 968,119).

45. neW issueD international financial reporting stanDarDs

Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listedBelow:

IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements(Amended)IFRS 3 (Revised), applicable for annual accounting periods beginning on or after 1 July 2009, introduces significant changes in the accounting for business combinations. Changes will affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results.

IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and

IAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests.The change in accounting policy will be applied prospectively next year.



IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged ItemsThese amendments to IAS 39 were issued in August 2009 and become effective for financial years beginning on or after 1 July 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item. The Company has concluded that the amendment will have no impact on the financial position or performance of the Bank, as the Bank has not entered into any such hedges.

IFRS 9 Financial InstrumentsPhase 1 of IFRS 9, the standard which will replace IAS 39 upon completion, was issued in November 2009. This phase includes guidance on classification and measurement of financial instruments, and is expected to result in [significant] changes in both classification and measurement of the Company’s financial instruments when adopted. The standard is mandatory for periods beginning on or after 1 January 2013 but early adoption is permissible. Management have not yet concluded on when the Company will adopt the standard.

46. comparatiVe figures:

Some of 2008 balances were reclassified to correspond with those of 2009 presentation. The reclassification has no effect on the profit for the year and equity.

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