Dr. Ahmed Siddig Gibreel

IFSB-INCEIF EXECUTIVE FORUMTowards Strengthening Corporate and Shari`ah Governance in Islamic Banks

Corporate Governance in Faisal Islamic Bank of Sudan

Sasana Kijang26 – 27 August 2013

Dr. Ahmed Siddiq GibreelManager of Risk Management Department

Faisal Islamic Bank, Sudan

by


Faisal Islamic Bank, Sudan Establishment and Development

Establishment:Faisal Islamic Bank was established in May 1977, 86 Sudanese and Saudi

founders as well as other nationals of some Islamic States, met and adopted the idea of establishing the Bank. They prescribed and paid up half of the authorized capital. On 18/08/1977, Faisal Islamic Bank was registered as a public incorporated Co. (ltd) according to the Co. Ordinance 1925. The bank commenced operations in May 1978.

The Bank Capital:Authorized capital 500 Millions SDG.Paid-up capital 350 Millions SDG.

Activities: To conduct all forms of banking activities, financial, commercial, investment as well as participation in economic development and social projects. To promote transactions and cooperation in the field of foreign trade, in conformity with Islamic Shari’a law, and advanced modern developed banking techniques.


Vision An Islamic Bank, of Islamic orientation, Sudanese features, adhering to quality and excellence in performance, satisfaction of customers, confidence in suppliers, and community development, takes care of owners’ equity and the welfare of employees.

Mission A bank with both Islamic face and Sudanese features, aiming to assume the best financial position through its efficiency and outstanding institution contemporary legal banking products, processing foreign relations, modern techniques, with a working term of high esteem, committed and sincere, trained and skillful, competent and knowledgeable transparent and aim to please the workers, the owners and the society.


Critical Success FactorsUsing modern methods and technique to ensure more production

and perform the activities with high competence and speed in controlled manner.

Choosing qualified working and drawing up a plain to upgrade their knowledge and skills, besides ensuring for them conductive atmosphere for stability and loyalty.

Attaching capital and deposit resources.Promoting and diversifying the means of banking services in an

excellent way and ensuring that implementation is accurately made in a legal way.

Implementing a vital credit policy to meet the demands of the customers, attract new customers and accommodate the old ones.

Maintaining progressive external relations policy.


Basic information: Bank Share:2012 2011 2010 2009 2008

Branches 31 31 31 29 28ATMs 112 91 80 72 64

Employees 942 904 886 805 789

Distribution to shareholders

67% 73% 55.1%

45.5%

40%

Distribution rate for the owners’ of Deposits

11.5%

10% 10% 10% 10%

Growth rate of Assets 46.2%

25% 40.1%

57% 50%

Growth rate of Deposits 48.6%

24% 40% 60.6%

54.1%

Growth rate of Income 28% 40% 48.6%

57% 49%

Return on Assets 4% 4% 3.1% 3% 3.1%

Return on Equity 33% 39% 35.8%

42.7%

37%

Operational Cost ratio 21.9%

19.9%

22.8%

22.6%

26.4%

Capital Adequacy Ratio 12.4%

12.8%

12% 14.2%

13.8%

2013

Deposits 13.1%

Equity 5%

Assets 11%

Finance 12%

Electronic Services

20%


Awards and Classifications Pioneer Bank In the SUDAN First Bank in leadership in the SUDAN. The Best bank of the year 2013 in the SUDAN – Global Finance,

USA. First bank in Return on Equity – Financial Times, London. Among the best 150 banks in the Arab World Country – Economy

and Business Group, Beirut.

Regulatory and supervisory agency The bank’s activities are subject to the Central Bank of Sudan Law for 2002 and the banking regulations law for 2004. The Bank complies with the rules and circulars issued by the Central Bank of Sudan.


The Bank Communications with Stakeholders

The Bank communicates with stakeholders across the following: Direct meeting separately. Annual & quarterly meeting. Website. Publications. Social events. Telephone, mobile, email, and others.


The Bank’s five Golden rules in Corporate and Sharia’a

Governance

The golden rules of the Bank in corporate and shariaa governance: Sharia’a compliance and Central Bank of Sudan

regulations. Align business goals. Strategic management. Organization. Transparency and accountability.


The Bank Corporate and Shariaa Governance Structure:

Shareholders' General Assembly

Board of Directors Sharia’a supervisory Board External Auditor Committee Board of Directors

Policies Committee Risk Committee Audit and Control Committee General Manager

Sharia’a Advisor

Compliance Officer


Executive StructureGeneral Manager

Deputy General ManagerAssistant general Manager for Administration Sector

Assistant general Manager for Corporate Finance Sector

Assistant general Manager for investment & Retail Banking Sector

Assistant general Manager for Financial Sector

IT Department

Human Resources & Admin Services

Corporate Finance

Investment Financial Affairs

Internal Audit Department

Building and Foundations

Foreign Relations

Retails Finance The central treasury

Risk Department

Research & Development

Forex Export & Import

Retails Banking Automated payment and ATM claims

Legal Affairs Department

Marketing and Planning


Training of staff and improve their salaries and allowances :

Proper training of staff members received special attention, both locally and abroad, which largely contributed to higher levels of performance and distinguished services. Better terms of service including higher remunerations were met with, satisfaction, high morale and enhanced sense of loyalty, on the part of the recipients.


Shari’ a Supervisory Board (SSB): The bank’s business activities are subject to the supervision of the Shari’a Supervisory Board, which has been appointed by the shareholders. The Shari’a Supervisory Board has the power to direct review and supervise the activities of the bank to ensure that they are in compliance with shari’a rules and principles. This includes issuing an annual report to the shareholders. As well the Shari’a advisor audit all investment operations.

Policies Committee:The Policies Committee is responsible for developing and agreeing the

policy stances of the bank. The Policies Committee consists of four members, and holds at least three meetings a year.

Risk Committee:The Risk Committee is responsible for providing oversight and advice to

the Board in relation to current and potential future risk exposures of the Bank and future risk strategy. The Risk Committee consists of four members, and holds at least three meetings a year.


Audit and Controls Committee:The Audit and Controls Committee is responsible for

assisting the Board in its supervision duties, through the periodic review of the financial information process and its executive controls, supervision of the internal audit. The Audit and Control Committee consists of four members, and holds at least three meetings a year.

Shari’ a Advisor:

The Shari’a advisor has the power to review all activities of the bank to ensure that they are in compliance with shari’a rules and principles.


Measurement of investments & finance:

Sales receivable are initially recorded at cost, at the end of the financial period sales receivables are measured at their net realizable value.

Mudaraba is measured by the amount paid or the amount placed under the disposition of the Mudarib less the portion of the Mudaraba capital recovered from the Mudarib (if any).

Musharaka is measured by the historical cost less provision for finance losses (if any).

Available for sale investments are measured at fair value which is the difference (surplus or deficits) between the book value and fair value recognised at the revaluation reserve until its nil then any deficit will recognised at the income statement. Investments which are classified “for trading” are initially recognized at cost, including acquisition charges associated with the investments. At the end of the period, held for trading securities and shares are re-measured at fair value, unless fair value cannot be reliably determined in which case they are measured at cost less impairment. The gains or losses resulting from the re-measurement at fair value are reported as “re measurement gains or losses on investments” in the income statement.


Return on unrestricted investment account holders:

The financial statements of the bank are prepared in accordance with the standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), as required by the Central Bank of Sudan and Shari’ a Supervisory Board (SSB) requirements.

The return on unrestricted investment accounts is calculated on a yearly basis.

The bank allows the investment account holders to withdraw funds from their investment accounts before the agreed period with a condition of losing the right to profits.

However, in case of mudaraba for a fixed period the bank (as mudarib) have a right not to allow them to withdraw funds from their investment accounts until the end of agreed period.

Profits are allocated between the unrestricted investment account holders and the equity owners’ according to the contribution of each of the two parties.


The unrestricted investment account holders’ profits are credited to their accounts after the approval of Shari’a Supervisory Board and the regulators.

Unrestricted investment deposits are shown in banks accounts as well as its not being used.

Investment deposit holders share in revenues except in banking services revenues, and other revenues.

Direct investment expenses count to investment operations before distribution. All administrative expenses count to the Bank side.


The method of calculating profits of investment Accounts in FIBS:1 Total points of current & saving deposits (local & foreign)2 Number (1) * share of contribution3 Net of capital points (capital – fixed assets - long-term investment)4 Sum of (2) + (3)5 Investment points (local & foreign)6 Sum of (4) + (5)7 Percentage of investment from total points = (5) / total of points %8 Net profit from investment9 Share of investment accounts points = (7) * (8)10 Administration margin 30%11 Deduction of Deposits guarantee fund contribution12 Deduction of Doubtful debts13 Net profit to the investment accounts (9) –(10+11+12)14 Share of investment accounts points (local) = (13) * investment accounts points (local) / total Investment points (local & foreign)

15 Share of investment accounts points (Equivalent SDG) = (13) * investment accounts points (foreign) / total Investment points (local & foreign)

16 Share of investment accounts points (Dollar) = (15) / exchange rate (average)

17 Average of investment accounts points (local) = total Investment points (local) / 365 days18 Rate of return (local) = Share of investment accounts points (local) / Average of investment accounts points (local) * 100%

19 Average of investment accounts points (Dollar) = total Investment points (Dollar) / 365 days

20 Rate of return (foreign) = Share of investment accounts points (foreign) / Average of investment accounts points (foreign) * 100%

21 Factor (local) = Share of investment accounts points (local) / Investment points (local)

22 Factor (foreign) = Share of investment accounts points (dollar) / Investment points (Dollar)


Q & A


Thank you

Dr. Ahmed Siddig Gibreel

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