The present study is about the different aspects related to a balance sheet of the Abu Dhabi Islamic Bank. ADIB established in the year 1997 through the Emiri Decree which began its commercial operations in the year 1998. This bank has been playing a leading role in the financial sector of the UAE with over around 52 branches all over the United Arab Emirates. The bank operates with an aim to offer Islamic solutions in finance for global community. The vision of the firm is to be the highest in the financial services group. The strategy of the bank is based mainly on three pillars naming, building leadership within the market of the UAE, creation of an incorporated financial services group and also pursuing the existing growth opportunities pertaining in the world. The performance of the ADIB is remarkable for the past few years, which is evidential from the financial report of the firm. The report shows an increase in the market share of the firm from 4.2% in 2007 to 4.9% in the year 2009. Similarly, the company accounts growth also in the Customer Financing. The Abu Dhabi Islamic Bank owns a few companies in the financial as well as the non-financial sector viz. Burooj Properties, ADIB Securities, Kawader Services and the National Bank for Development - Egypt. Through these subsidiaries, the bank could make it possible to extend its services to other sectors including the finance sector. (ADIB Annual Report, 2010)
The financial statements of any firm are considered very important as they reflect the current financial position of the particular. The Balance Sheet, the Profit and Loss Statement and the Income Statements are the three main financial statements any firm has to reveal to the public. As per the norms laid down by the Generally Accepted Accounting Principles, any firm should provide its financial statements to the public in a consistent, reliable and understandable manner. The balance sheet is one of the important financial statements of any firm. It depicts the financial position of a firm at a particular point of time. This financial position of the firm can be found out from the balance sheet by studying the assets and liabilities of the firm. The balance sheet is also used by the government agencies to regulate the firm and to protect the interest of both owners and lenders. Apart from this, the balance sheet provides information about the probable lenders of the business. Different users of the financial statements have different purposes to read the financial statements. The creditors are concerned with the credit reliability of the firm while shareholders are interested in the equity aspects, in the same way; different entities deal with different relevant aspects. The assets can be divided into fixed, current and liabilities can be divided into short-term liabilities and long-term liabilities. The Balance Sheet is based on the concept of balancing the assets and the liabilities i.e.
Assets = Liabilities + Owners Equity
The "assets" of a firm is the account in the balance sheet that represents the total value of the possessions of the firm that can be changed into money. This "assets" is divided into current assets and fixed assets. While current assets is the total value of the firm's assets that can be changed into cash within one year in the course of the business, fixed assets are those assets which stay in physical form and the firm doesn't view them to sell in the near future, like the land, machinery and buildings. Liabilities are the obligations of any firm. The debt that firm has to pay comes under this head. This can be of two types, short-term liabilities and long-term liabilities, the former being the obligations the firm has to meet within one year of operating business, latter accounts to the value of obligations the firm has to meet at a longer run of its operations. The assets and liabilities shown on the company's balance sheet are legally entitled to the firm. There is another category of assets and liabilities which the company is not legally bound to pay back or account for; this category is known as Off-Balance Sheet Activities. These are hard to find out and can be hidden very easily. Below is a discussion about the firm's assets and liabilities and also its off-balance sheet activities. (Basel 1 Definition)
ON-BALANCE SHEET ACTIVITIES
The current section deals with the figures of assets, both fixed and current assets of the firm ADIB. Asset, as mentioned above is any item that has an economic value to the firm by which it is owned, mainly, which can be changed into cash. It is a valuable entity which a firm owns with an expectation of having to use it in the future. As per the annual report of the firm, the firm has witnessed a growth of about 20% in the total assets under itself. The shareholders in the firm are: the members of the ruling family (39%) and Abu Dhabi Investment Authority and other prominent nationals account to 61%. (Subsidiary Companies)
The annual financial statement of the firm's subsidiaries when dealt first shows, an increase in the Total Assets and the Total Liabilities for the firm Abu Dhabi Islamic Financial Services, the same is for the Burooj Properties. Coming to the balance of the Abu Dhabi Islamic Bank itself, there is an appreciable percentage of increase in the total value of the assets of the firm. Looking at each of the headings in the balance sheets shows, an increase in the liquid assets i.e. the cash and the balance with the central banks which is AED 3,330,948,000 for the year 2009 while it was a mere AED 2,823,951,000 in the year 2008. Then coming to the balance and the Wakala deposits with the banks and the other financial institutions shows an increase in the value from AED 1,343,237,000 in 2008 to AED 2,467,919,000 in the year 2009. The Murabaha which shows value of sales made by the firm on a postponed basis while Mudarabah is a partnership kind under which one partner gives capital to another one in order to invest it in any commercial enterprise. Under this head, there is a tremendous increase from AED 7,553,729,000 to AED 12,189,945,000 in the year 2009. Further coming to the Murabaha and other Islamic financing also has increased from AED 18,338,318,000 to AED 20,910,890,000 just within one year. The Ijara financing means selling of the benefit of usage or a service or an asset by the bank to the customer. The assets can be automobiles, machinery, plant etc. Even this figure shows an increase in the figures from 15,840,298,000 to 19,563,010,000 AED in 2008 and 2009 respectively. The investments heading has declined from AED 1,209,034,000 in the year 2008 to AED 1,010,024,000 in 2009. Investments in associates have also seen a declination to AED 738,132,000 in 2009 from AED 797,086,000 in 2008. This trend follows even to the Investment Properties with 2008 figure standing at AED 220,215,000 and the 2009 figure at AED 206,761,000. This trend of decreasing in investments has changed when it comes to the development properties with increase from AED 688,623,000 in 2008 to AED 859,132,000 in 2009. The company did not held any properties for sale in the year 2008 but in the year 2009, it has held AED 71,938,000 worth properties for sale. The miscellaneous assets have increased from AED 2,074,016,000 in 2008 to AED 2,356,480,000 in 2009. The property and equipment also have increased from AED 321,549,000 to AED 378,825,000 for the year 2009. The overall status of the firm with regard to the assets remains in a positive scope with the figures increased compared to the previous year figures. (ADIB Annual Report, 2010)
Along with the assets of the firm, even the liabilities have increased to almost the same extent as that of the assets. This binds the firm to legally settle any debt. This also is both short as well as long term in nature like the assets, as dealt in the first section. Coming to liabilities aspect of the subsidiaries of the firms, Burooj Properties and Abu Dhabi Islamic Financial Services has witnessed an increase. Same trend is followed for the Abu Dhabi Islamic Bank. Under the Dues that the firm has to pay to the Financial Institutions, the numbers have decreased from AED 3,575,768,000 to AED 1,278,518,000 in the years 2008 to 2009 respectively. For the depositors account, the firm is obliged to pay a sum of AED 48,219,662,000 in 2009 while it was AED 37,486,246,000 in 2008. Miscellaneous obligations by the firm have also increased AED 1,573,330,000 to AED 2,295,880,000 in 2009. The tier-2 Wakala capital is merely the expert fee paid by a company to a mediator. The company hires an Islamic bank in order to manage the heavy funds deposited by the clients. This fund, which was not there in the year 2008 for the firm is valued at AED 2,207,408,000 in the year 2009. Sukuk is a certificate under which an issuer of this certificate sells the certificate to an investor group, in turn, the investor group rents this certificate back to issuer at a price determined earlier. The issuer agrees in the contract to buy back these certificates (bonds) in future at the par value. This figure is the same for the firm in both the years, 2008 and in 2009. The value of this liability to the firm is AED 2,938,000,000 for both the years. The total liabilities increased from the year 2008 to the year 2009 from AED 45,573,344,000 to AED 56,939,468,000.
OFF BALANCE SHEET ACTIVITIES
These include the activities of a business related to savings association which in general do not engross booking of assets and neither does it involve taking of deposits. These activities in general create fees, but also produce either liabilities or the assets which are deferred or are contingent and hence, these cannot be mentioned under any heads in the balance sheet. They can be included in the balance sheet only when they become the actual assets or actual liabilities with a particular value or a particular cost which can be determined. Examples are interest rate swaps, loan commitments, repurchase agreements, letters of credit and any such transactions. The different types of off balance sheet activities are Financial Guarantees which include standby letters of credit, bank loan commitments and note issuance facilities. Derivatives those includes interest rate swaps, futures, forwards and over the counter options.
The company has decreased figures in the Letters of Credit, while the 2008 figure for this head is AED 1,364,737,000 for 2009, it is AED 699,577,000. Then, coming to Letters of Guarantee, in 2008, it is AED 2,816,358,000 while in 2009 it is AED 570,968,000. The Risk Weighted Assets for the Basel 1 has also increased from AED 678,572,000 in 2008 to AED 3,289,496,000 in 2009. Basel 1 is a group of regulations laid down by the Basel Committee which says that the minimum capital requirements for institutions should be 8% so as to operate in the international market. This is set so as to minimize the credit risk. The claims on corporate is AED 3,289,496,000 under the off balance sheet. (McCraken, 2005)