Annual Report 2019

Your partner for growth.

Committed to the prosperity

and future of Afghanistan

Bank of the Year Best Corporate Governance

2012, 2013, 2014, 2015, 2016, 2017, 2018, and 2019 2014, 2015, 2016, 2017, 2018, and 2019
Afghanistan Afghanistan
Afghanistan International Bank Annual Report 2019 Statement in Changes of Equity 1 Afghanistan International Bank Annual Report 2019 Introduction 2

 1 Introduction

 2 Chairman’s Report

6 CEO’s Management Review
9 Financial Highlights
10 Afghanistan Economic Outlook
14 Governance Report and AIB Committees
18 Board of Supervisors
20 Record of Attendance
21 Organisation & Mangement Profiles
22 History & Performance of AIB
24 Financial Statements
71 Shariah Board’s Statement

Our Story From inception in 2004, Afghanistan International

Bank’s major objective has been to assist in Our Vision Our Mission Our Future
developing the Afghan economy and to conduct We aspire to remain the most reputable Our mission is to foster economic Through our financial performance
business in accordance with international standards financial institution and bank of choice development in Afghanistan, to be a and the specific investments we have
of governance and integrity. The many awards in Afghanistan. catalyst for growth, and ultimately made in our people and infrastructure,
contribute to the prosperity of the AIB has become a positive emblem
received from authoritative industry bodies is country and its people. for achievement and transformation,
independent endorsement of AIB’s success in despite its challenging environment.
We strive to adhere to international
achieving its goals, notably being named The Banker
best practices in corporate governance, As we look ahead to our tenth
magazine’s ‘Bank of the Year, Afghanistan’ for financial and risk management (including anniversary we remain committed to
eight consecutive years from 2012 to 2019. anti-money laundering and ‘know your enabling a better future for Afghanistan,
customer’), customer service, operations, and we are proud to play a role in
AIB is now well-established as an industry leader, information technology, and internal shaping the opportunities that lie ahead.
and widely acknowledged to be the nation’s controls. A major factor in our success
is dedication to staff development and
most respected and trusted financial institution.
training within a culture of integrity
Its growth as an enduring institution combines and professionalism.
international expertise with intimate local
knowledge and a deep-rooted understanding
of customer needs.
Afghanistan International Bank Annual Report 2019 Chairman’s Statement 2 Afghanistan International Bank Annual Report 2019 Chairman’s Statement 3

 “Today, AIB is the leading bank in Afghanistan

  in terms of deposits, profits and reputation.”

Chairman’s Statement Equity Equity Dividend Some of the major developments that have As the above section demonstrates, AIB is
helped AIB to achieve the distinction of well-positioned for the future barring any
4,500 becoming the leading bank in the country are: unforeseeable events.
4,000
400 • The purchase of the Afghanistan branch The future
3,500
of Standard Chartered Bank in 2012. This AIB recently completed a strategic forecast for
3,000 transaction brought a large number of the period through 2022. Not surprisingly, the
customers from multilateral institutions conclusion of the plan is business as usual based

AFN (Millions)
2,500
to AIB and established AIB’s reputation on the overall conditions we foresee in the
2,000
for operations’ excellence and good country, that is, some progress in addressing
3,679
1,500 governance. Much of the business is the political, economic and security issues, but
Notwithstanding the difficult 1,000
deposits and wire transfers which provides
a solid base of fee income.
insufficient to change business sentiment over
the next two years. Highlights of the plan are:
environment AIB operates in, I am proud 500
1,790
• The minority ownership of the Bank by the
to say that the bank has performed 0
2010 2019
Asian Development Bank (ADB) and, upon
ADB’s planned exit in 2016, the subsequent
• Maintain high quality service and US dollar
clearing for corporate and institutional
well over the past ten years thanks Net Profit
partial ownership by the International customers. This initiative requires the
Finance Corporation (IFC), the private Bank to maintain/increase the number of
to the support of all stakeholders: 700 sector arm of the World Bank. Involvement correspondent banks who will serve us.
shareholders, Board directors, customers in the ownership of AIB by these multilateral
organizations has benefitted the Bank in
• Increase penetration in small business and
consumer banking segments for future
600
and employees. Let me devote my last many ways, the most important being positioning as these segments grow
message to a review of the past ten years 500 the reputational halo effect of their
participation and the good governance
over time.
• Improve operational efficiencies

AFN (Millions)
and a view of the future of the Bank for 400
principles they bring to the Bank. through investment in automation
• The ability to maintain correspondent and re-engineering.
the next several years. 300
608 relationships with leading banks for US dollar • Obtain/maintain international standards
200 clearing purposes. These correspondent (BSA) in compliance.
Ronald Stride 326
relationships have allowed AIB to be • From a financial perspective, the Bank plans
Chairman 100 the dominant payments processor for to achieve a 15% Return on Equity, a Capital
international transactions. This is another Adequacy Ratio of 14% (above regulatory
0
factor in the strong fee-based business requirements), and Cost to Income ratio
2010 2019
AIB enjoys. of 60%.
Customer Deposits • Achieving world class standards in anti-
money laundering and financial crimes In departing from my position at AIB, I
70,000 compliance. Banks around the world are would like to thank the shareholders and all
now held responsible for their ability to the directors, past and present, who have
60,000
identify suspicious financial activity. AIB has contributed their time and energy to helping
50,000
invested large amounts of resources, time AIB to become a superior financial institution.
As the old saying goes “all good things must come to an end”. At the and money to establish an international Special thanks to Aditya Srivastava, who, after

AFN (Millions)
Annual General Meeting in March 2020, my tenure as an independent 40,000 level of performance in this area. seven years on the Board, is also stepping down
director and Chairman of the Board of Supervisors of Afghanistan • Befitting of AIB’s position, the completion in March, 2020. Finally, to the management
International Bank will come to an end. This is due to a ten year term 30,000 of the head office building in 2018 after and staff of AIB, I appreciate the dedication you
58,843
limit for independent directors as prescribed in the Bank’s Articles of experiencing many unavoidable construction have shown in a difficult environment to help
20,000
Association. Accordingly, this message will be my last! Notwithstanding delays. This building, built to international AIB achieve its objectives.
the difficult environment AIB operates in, I am proud to say that the bank standards, reflects the image of leadership
10,000
has performed well over the past ten years thanks to the support of all 17,728 that the Bank has in the country. Chairman’s concluding remarks
stakeholders: shareholders, Board directors, customers and employees. 0 • Recognition of performance by outside A last minute note. On February 29th, the
Let me devote my last message to a review of the past ten years and a 2010 2019 organizations. For eight consecutive years, Taliban and the United States signed a peace
view of the future of the Bank for the next several years. The Banker magazine has awarded AIB deal after 18 years of fighting between the two
Advances “Best Bank in Afghanistan”. For the sixth sides. Hopefully, this will lead to a permanent
The macro situation in Afghanistan in the past decade How did AIB do over this period 4,500
consecutive year AIB has been the recipient political agreement between the Afghanistan
When I joined the Board of AIB in late 2009, the banking system in In the decade since 2010 AIB has been a stable and financially sound of the “Best Corporate Governance – government and the Taliban and the beginning
Afghanistan was in a period of relative political and security stability and institution as illustrated in the charts below. Today, AIB is the leading 4,000 Afghanistan” award by the prestigious of a positive economic environment in
increased business confidence. This drove a positive scenario of enhanced bank in Afghanistan in terms of deposits, profits and reputation. 3,500 London-based Capital Finance Afghanistan. This will obviously be beneficial
business investment and corresponding growth in the banking system. International organization. to the country and it’s people, business
3,000
However, three factors negatively impacted this scenario over time. This distinction is attributable to the Bank’s consistent improvement • Adherence to international standards sentiment, and the banking industry.
AFN (Millions)

The first was in 2011 involving the financial scandal and subsequent in operational performance; organizational and human resource 2,500 of good governance. Thanks to the
takeover by the central bank of Kabul Bank, the largest bank in the development; commitment to integrity and transparency in our dealings 2,000 shareholders, management and staff, AIB
country at the time. The second factor was the resurgence of the Taliban with customers, counterparties and regulators; strong corporate 3,550 3,418
has instituted international best practices
1,500
and entry of the Islamic State (ISIS) in Afghanistan resulting in security and governance at all levels, and financially stability and satisfactory returns in governance throughout the organization.
economic volatility. The third factor was the failure of the political elite to to our shareholders. The only part of the Bank’s performance profile that 1,000 This has inculcated a cultural of conducting
address the issues facing the country. Hence, at the point of entering has not grown over the years is lending; however, this is attributable 500
the decision-making affairs of the Bank in a Ronald Stride
a new decade, the banking system is actually shrinking in size. to low economic activity and the poor creditworthiness of many planned and orderly manner. Chairman
Afghan companies. 0
2010 2019
Afghanistan International Bank Annual Report 2019 Chairman’s Statement 4 Afghanistan International Bank Annual Report 2019 Chairman’s Statement 5

 
 

A thank you to
Mr. Ronald Stride
2019 marks the final full year of Ronald Stride’s Mr. Stride also led the bank through a number
tenure as Chairman and Independent Supervisor of transformational changes. He was chairman
of AIB. In March 2020, the Chairman will hand when AIB acquired Standard Chartered’s
over the reigns of the board to his successor after Afghanistan branch and when IFC acquired
serving in the role for 10 years, which is the term a shareholding in the bank. He oversaw the
limit for an independent director of an Afghan decision to construct AIB’s new headquarters
bank. Over this period Mr. Stride has led the bank in Kabul, which is truly a new landmark in
from strength to strength, becoming the leading Afghanistan. He managed the transition of three
bank in Afghanistan – AIB has been recognized CEO’s of the bank and the hiring of new board
The Banker’s Bank of The Year in Afghanistan for members and audit committee members.
8 consecutive years from 2012-2019. He also kept the bank focused through a number
of shareholder changes.
One of the keys to AIB’s success has been
governance and this is embodied in the Throughout his tenure the supervisors and
chairmanship of Mr. Stride. He focused tirelessly shareholders have enjoyed serving alongside
on recruiting a professional board, having Mr. Stride and appreciate the hard work and
well prepared and efficiently run meetings, dedication he has put in to building such a strong
carefully managing conflicts of interest, and pillar for the economy of Afghanistan. We wish
making sure all decisions of the board are made him every happiness and success in the future.
with integrity. As a strong steward of AIB, the
chairman has made sure that AIB complies with Shareholders and Board of Supervisors
the laws of Afghanistan and the regulations of Afghanistan International Bank
Da Afghanistan Bank. This focus on governance
has been essential in making AIB the strong
institution it is today.
Afghanistan International Bank Annual Report 2019 CEO’s Management Review 6 Afghanistan International Bank Annual Report 2019 CEO’s Management Review 7

 “Within the country, the government continues to place an

  emphasis on infrastructure development.”

Overview showed an increase of 21% to AFN 0.61 billion Laundering (AML) procedures and onboarding
I am pleased to report revenue increased by (2018: AFN 0.48 billion). requirements are relatively demanding on our
14.01% to AFN 2.85 billion (2018: AFN 2.50 customers whom I would like to thank for their
billion), with non-interest income accounting New Head Office patience in this regard. Our resulting position
for 52% of total revenue. The growth was As discussed, Afghanistan’s efforts to establish of having the most robust AML in Afghanistan is
driven by a 9.13% increase in outward a stable political and security environment extremely important for all of our stakeholders.
international transfers fee to AFN 512 million continue with some signs of hope but overall
from AFN 469 million in 2018. The volume of limited success thus far. Business and Community Banking
outward transfers grew to 24,178 transactions, AIB continues to support the sector by making
while AIB also received 35,772 inward transfers In this context, AIB is setting a new standard in low-cost Afghani credit facilities available.
totalling AFN 331 billion. This growth was the quality of our Head Office and branches. Our impression is that the last twelve months
principally a factor of increased market 2019 saw us complete the transition to our have been particularly difficult for companies
share rather than an increase in aggregate Head Office which is built to international in the SME sector where we have seen

CEO’s Management Review

international transfers. These transactions standards regarding safety, comfort and increased defaults. In these incidences, we
underline the value of strong correspondent productivity, and access for physically impaired have focused on structuring workouts by
partnerships and sound regulatory compliance. staff and customers. rescheduling loans rather than foreclosing.

AIB’s deposits at year end decreased 11.93% In addition, our latest new branch in Mazar-e The Afghan Credit Guarantee Foundation
AFN 59.34 (2018: AFN 67.38 billion) but Sharif has been recognized by our customers (a German charitable organization supported
market share remained essentially unchanged. as offering a quality of facilities not previously by the World Bank) has been instrumental
Given AIB’s strong liquid position we found it experienced anywhere in Afghanistan. in assisting AIB to work with SMEs facing
unnecessary to compete for deposits based on financial difficulties whilst continuing to lend
interest rates. Institutional Banking and Trade to this sector.
Our initiatives to encourage exports
In line with the fall in deposits assets also from Afghanistan and investment into In all of our commercial lending activities AIB
decreased by 11.14% to AFN 63.73 billion Afghanistan continue. is alert to disproportionate distribution of the
(2018: AFN 71.72 billion), bringing compound development costs, environmental destruction,
annual asset growth since 2012 to 4.73%, Internationally, AIB supported and sponsored and unsustainable use of natural resources.

2019 was another successful year for which we consider a strong performance in the
context, given the withdrawal of international
the US-Afghanistan Business Matchmaking
Conference & Investment Summit organized by
Avoiding or mitigating negative effects
on people and the environment is a prime
Afghanistan International Bank (AIB), missions and their associated assets. the Afghan-American Chamber of Commerce in consideration of the bank.
AIB remains the largest bank in Afghanistan in Washington DC, and supported and sponsored
demonstrating the benefit of our terms of both deposits, assets and profitability. the 2nd Afghanistan-UK Conference organized Consumer Banking
conservative posture and our focus on Within the country, the government continues
by the Afghanistan Embassy in London.
AIB was again represented at SIBOS, the annual
The bank has developed a number of initiatives
to support the central bank’s goal of expanding
the highest standards of governance. to place an emphasis on infrastructure conference, exhibition, and networking event banking services to more of the population,

Our bank has now experienced this development. The financing is generally from
international donors, and whilst AIB’s resources
organized by SWIFT for the financial industry,
held in London, the event was an excellent
and to develop consumer protection rights.
At the end of 2019 we were pleased to
environment for the past 5 years and are too small to participate directly, we are able opportunity to refresh existing relationships announce that Afghani-denominated accounts
to provide performance guarantees backed and establish new ones. for individuals would become completely free:
has been able to deliver strong results by inward letters of credit from international No maintenance fees, domestic transfer fees
in this context. banks. These totalled AFN 2.23 billion relating
to 79 projects in addition to AFN 5.7 billion we
We continue to be the leading bank for
assisting imports, with the ability to make
or ATM fees.

Anthony Barned have provided in previous years. US$ payments worldwide, remaining able to To support the introduction of consumer
Chief Executive Officer make payments to most countries not subject rights the bank has developed and published
Active management of the Bank’s bond to international sanctions. a Consumer Rights Handbook in both English
portfolio contributed to growth, generating and local languages and appointed a bank
revenue of AFN 0.59 billion. Total revenue Our correspondent bank network includes Ombudsman. The Ombudsman will act as a
was also assisted by the liquidation of real State Commercial Bank of Turkmenistan and point of contact within the bank for more
estate collateral for AFN 46 million, even Aska Bank in Uzbekistan, CenterCredit Bank complex complaints or those complaints
though loan recovery was negatively affected in Kazakhstan and Transcapital Bank in Russia. where our customers remain unsatisfied with
by the arduous and very lengthy process for Crown Agents Bank in London, working with responses from other departments of the bank.
foreclosure and obtaining vacant possession. Citibank, has replaced the services previously Customers are able to contact the Ombudsman
Commercial lending was subdued throughout provided by Standard Chartered Bank. We are via our web page, social media, as well as by
2019 was another successful year for Afghanistan International Bank the year. working to further expand this network and phone and email.
(AIB) in an unsympathetic macroeconomic environment, demonstrating are optimistic about adding a new European
the benefit of our conservative posture and our focus on the highest Operating expenses increased by 10% as was bank in 2020. AIB is also an active participant AIB’s Ombudsman was the first such service in
standards of governance. Our bank has now experienced this environment anticipated when preparing the budget, and in Citibank’s Worldlink payment channel. Afghanistan thus use of the service was limited
for the past 5 years and has been able to deliver strong results in this largely driven by depreciation of the new Head Provision of these US$ clearing facilities requires in the first few months after its introduction in
context. This continued in 2019 with a return on equity of 16.53% and Office building. major investment in human resources and IT April 2019. Since then the number of customers
profitability in line with expectation. Ongoing uncertainty regarding systems totalling annually around 20% of our raising issues has increased to about twenty
political and security matters saw moderate declines in balance sheets With both revenues and expenses being in line post-tax profit. a month. We are pleased that we are able to
across the banking industry against 2018 levels, and whilst AIB’s balance with budget, the Bank was able to achieve a settle most issues in a few hours while very
sheet did experience a decline we remain extremely well capitalised and 3.95% increase in pre-tax profit to AFN 0.67 To be able to provide these and other complexed issues may take three or four days.
liquid by international standards. billion (2018: AFN 0.64 billion). Net profit international services, AIB’s Anti Money
Afghanistan International Bank Annual Report 2019 CEO’s Management Review 8 Afghanistan International Bank Annual Report 2019 Financial Highlights 9


“We were the first bank to provide ATM’s for the visually 
 impaired and have barrier-free branches to enable 
straightforward wheelchair access.”

Consumer Technology
Digitalization and the introduction of
phone banking is central to our future offer
for consumer banking in Afghanistan. The
Version 2019. In addition, we embarked on
ISO/IEC 27001 Certification Course training
to familiarize our employees with skills to
establish, implement and continually improve
bank continues to assist the progression of
women both as customers and members of
staff. The bank regularly sponsors the Afghan
Women Chamber of Commerce and Industry
Financial Highlights
cornerstone of our strategic plan from 2020 to an Information Security Management (AWCCI) in their efforts to support 850 women
2022 is to “Strengthen our competitive position System (ISMS). Similarly, we intensified the entrepreneurs across the country.
by investing in modern technical solutions and cyber-security awareness program for all
channels“ and I am pleased that progress has employees to improve situational awareness We also collaborated directly with the AWCCI to
continued apace in 2019. on Information Security practices. organize the “Bibi Khadija Award Ceremony” for
third consecutive year. Fifteen female Business
For many years AIB has been able to offer the The fundamental strength of the Financial Entrepreneurs were honored at the ceremony
full range of services available from MasterCard, Crimes Compliance initiatives rests on based on specific criteria developed by the
however, our Visa services were limited to optimizing technology deployments with AWCCI, AIB, Ministry of Commerce and Industry

2.85 608 94
ATM’s. Visa have now approved AIB to issue Visa compliance requirements to produce adequate and Ministry of Women Affairs. Furthermore,
credit and debit cards and to enable merchants detection, and response systems. Based on we granted a loan via a revolving credit facility
to accept Visa cards. Merchant uptake has this, we also greatly enhanced our software for AWCCI members to showcase their products
been strong with a substantial increase in
transactions and an increase in requests for
capabilities by upgrading our systems to
collect enriched client KYC data and provide
both domestically and internationally. AIB also
sponsored the operational costs of AWCCI,
bn mn mn
POS machines. AIB has also launched
e-commerce services allowing merchants to
enhanced Risk Assessment and Transaction
Screening capabilities.
allowing them to take part in corporate social
responsibilities of women in Afghanistan. Revenue Net Profit after tax Capital Growth
14% 27% 3%
accept payment from Visa and MasterCard on
their own websites. Social Responsibility Conclusion
AIB recognizes that it has a responsibility to the Overall I am pleased with the bank’s
Near Field Communication systems (allowing local community. Including out-sourced guards, performance in 2019, with our conservative
cardholders to tap their cards to perform we employ around one thousand staff in the stance again delivering returns in an uncertain
payments) are now available at our ATM’s and country. In addition, another 600 laborers environment. Our positioning, governance
POS machines. This facility is available for both were employed during the construction of our and integrity allow us to continue acting as an
Deposits Total Assets Capital
plastic cards and smart phones via our app. head office. As a result, we estimate that the essential piece of infrastructure for economic (AFN) Millions (AFN) Millions (AFN) Millions
bank has contributed to the sustenance of over growth in the country.
While our new branches are designed to enable eighteen thousand people.
easy access to the disabled, additional features Whilst the wider economic context currently 80,000 80,000 4,500
were required to assist the sight impaired. The bank has wider community involvement precludes more expansive activities, I am 70,000 70,000 4,000
Our new ATM machines now included braille extended to sponsoring and supporting the proud that we have extended our leadership 3,500
keyboards and a sound system to audibly Youth to Business Forum which is held by position in security, compliance and KYC, and 60,000 60,000
communicate instructions. Specially trained AIESEC (International Association of Students are quickly developing our consumer offering to 3,000
50,000 50,000
staff have also been assigned four branches to in Economic and Commercial Sciences) aim international standards. Lastly I would like 2,500
assist sight and hearing-impaired customers. to facilitate youth with business tips and to thank the shareholders, directors and all of 40,000 40,000
2,000
has also sponsored Afghanistan’s 100th my colleagues for their hard work in 2019, 30,000 30,000
Information Technology Independence Day celebrations in Dubai, and I look forward to another successful year 1,500
The year marked a major milestone in our United Arab Emirates. in 2020. 20,000 20,000 1,000
Service Resiliency improvement, Cyber Security 10,000 10,000 500
and Financial Crimes Compliance initiatives As part of its corporate social responsibility,
as we implemented and completed the major AIB has supported Charmaghz Cinema mobile 0 0 0
goals of our long-range plan. bus library which provides the children of Kabul 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
with access to books and movies, inspiring
This includes setting up a Tier 3 data center the next generation. AIB in cooperation with
that delivers redundancy in IT components Ministry of Education created five social media
and greater availability for our services. videos to raise awareness and encourage Anthony Barned
Revenues Net Profit Advances
With this achievement, we completed people to send their children to school. Chief Executive Officer (AFN) Millions (AFN) Millions (AFN) Millions
the scope of the upgrade of Information
Technology infrastructure backbone and In its effort to grow the socially responsible
Data center facilities. culture within the bank, AIB supports various 3,000 700 4,000
charitable initiatives. This includes employees 3,500
2,500 600
During the year, we made great progress in making blood donations to the Afghanistan
advancing Business Continuity through the National Blood Safety and Transfusing Service. 3,000
500
implementation of a Document Management 2,000
2,500
System for digital archiving and retrieval In addition, we are working hard to ensure AIB 400
of documents. This has helped to enhance is inclusive of those with disabilities. We were 1,500 2,000
300
efficiency in our operations, and improved the the first bank to provide ATM’s for the visually 1,500
general digitization posture. impaired and have barrier-free branches to 1,000
200
enable straightforward wheelchair access. 1,000
In delivering on our mission to advance our 500 100 500
Cyber Security capabilities, we successfully AIB also believes that gender equality is a
certified to the requirements of SWIFT key part of facilitating economic growth and 0 0 0
Customer Security Controls Framework poverty reduction in society. As a result, the 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
 Afghanistan International Bank Annual Report 2019 Afghanistan Economic Outlook 10 Afghanistan International Bank Annual Report 2019 Afghanistan Economic Outlook 11

Afghanistan Economic Outlook






GDP agriculture sector. It provides income to 61% exports. The outcome of peace negotiations with
Annual GDP Growth* (%) Inflation Rate – Monthly* (%) Afghanistan’s economic growth improved slightly (WB 2018) of all households across the country. the Taliban could also have a direct impact on the
in 2019, increasing to 3% (AIB Estimate), from country’s exports, either positive or negative.
2.9% the previous year. Stronger growth has According to the NSIA data, agriculture formed
25 5 been fueled by better weather, which allowed an average of 28.84% of GDP between 2002 and Imports
the agricultural sector to recover from last year’s 2018, with a minimum of 20.45% in 2018 and a As agriculture has recovered, the need to import
20 4 droughts. However, growth in manufacturing and maximum of 43.17% in 2002 (NSIA 2018). In 2019, goods has diminished. Imports declined markedly
services continues to be constrained by significant agriculture contributed over 25% (Estimated) of in 2019, falling 27.8% (NSIA Q3) compared
political uncertainty, election-related violence GDP. As a result of improving weather conditions, to last year. In value terms, imports declined
Percentage

Percentage
15 3 and worsening security conditions after the plus developments in infrastructure, this sector from US$7.4 billion in 2018 to approximately
suspension of peace negotiations with the Taliban is expected to contribute to more than 25% of US$5 billion (NSIA Q3) in 2019. Afghanistan’s
in the fall of 2019. the country’s GDP by the end of 2020. According major import partners are India, Pakistan,
10 2
to the most recent data, agriculture accounts for China, Turkey, Iran and the Commonwealth of
With rising production in agriculture, an increase more than 92.8% of Afghanistan’s total exports Independence States (CIS).
5 1 in household income is expected to support (NSIA and DAB 2018).
growth in private consumption. GDP growth According to the latest available data, consumer
of 3.4% is forecast for 2020 and is expected to Exports goods account for the largest share of imports
0 0 remain between 3% and 5% over the next three Exports grew by approximately US$125 million (38% of total imports) despite it a decrease
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov years (ADB 2019 Forecast). However, projections over the year, rising from US$875 million in 2018 of 1% compared to last year. The second
Financial Year 2018 2019 could prove vulnerable to any fallout from the to over US$1 billion in 2019 (DAB Q3) as better largest share came from capital goods, which
*Da Afghanistan Bank Data *National Statistics and Information Authority (NSIA) presidential election and the ease of political weather supported the agricultural sector. decreased from 38% to 35% in 2019. Fuel and
transition. The potential peace agreement with lubricants accounted for the third largest share
the Taliban and the continuation of international Developments in infrastructure have also led to if Afghan imports, which increased by almost
Afghanistan GDP – Share of Agriculture* (%) Afghanistan Export Data (Millions US$) security support could also have an impact. a tangible increase in exports. These include the 16%. Industrial supplies had the smallest share,
establishment of the Lapis Lazuli trade route, accounting for 12% of the country’s total imports
A stable political transition and any potential plus new air corridors and the initiation of the (NSIA Q3). Improving weather conditions and
50 1,000 political agreement with the Taliban would bring Chabahar Port Agreement, a trilateral transit recent economic improvements should support
major economic and financial benefits for the agreement signed by India, Iran and Afghanistan, further reduction in imports.
40 800 Afghan economy. Improving investor confidence allowing goods to move between India and
should see capital and skilled workers repatriated Afghanistan through Iran. Banking sector
from overseas. However, realising these benefits The Afghan financial system is dominated by
Percentage

Million US$

30 600 depends on achieving a stable security situation. Lapis Lazuli is an international transit route private banks. As of end-2019, the banking sector
opened in 2018 that connects Afghanistan to comprised 12 banks with total assets of US$3.82
Inflation the European and Balkan markets via the Caspian billion: customer deposits of US$3.25 billion and
20 400
Annual inflation accelerated from 0.65% a year and Black Sea ports, the shortest route. a gross loan portfolio of below US$0.6 billion
earlier to 2.27% in 2019. The increase is in line With the establishment of this trade route, (ABA Q3). The banking sector represents nearly
10 200 with high commodity prices in global markets. Turkey has become one of the top five export 21.51% of the country’s GDP (DAB Q2).
The depreciation of the Afghani against the US destinations for Afghan produce.
Dollar, alongside the government’s expansionary The three State-owned banks hold 27.65%
0 0 fiscal policies before the presidential election, led The Chabahar Port Agreement has provided a of banking assets and account for 27.13% of
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 2019 to a significant increase in inflation rates in the new supply route between Afghanistan, Iran and deposits, with 11.67% of total loan portfolio.
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Financial Year second quarter of 2019. India that allows Afghanistan to ship its goods to The seven privately-owned banks hold 66.82%
*National Statistics and Information Authority (NSIA) *Da Afghanistan Bank Data large South Asian markets, reducing the country’s of banking sector assets and 87.23% of the loan
However, inflation showed a downward trend dependency on Pakistan’s Karachi Port. portfolio, plus 68.15% of the sector deposits.
towards the end of the year and is now projected Recently, India added two new ports to the The banking sector is also home to branches of
to be markedly lower in 2020. Da Afghanistan Chabahar Port Agreement in order to strengthen foreign commercial banks, but they hold a far
Afghanistan Import Data (Millions US$) Banks Lending to Private Sector (Million US$) Bank has committed to keeping inflation in check its trading ties with Afghanistan. Afghanistan’s smaller share, with an asset share of 5.53%, a
primarily through foreign currency and capital exports to India have grown to approximately 1.09% share of the loan portfolio and 4.72% of
note auctions. In addition, the government US$0.4 billion (NSIA Q3) with growth expected deposits (ABA Q3, DAB Q2).
10,000 1,000 succeeded in banning foreign currency to continue throughout 2020 as a result of these
transactions in three main provinces which newly established trading routes. In Afghanistan, an estimated 10% of the adult
8,000 800 should provide some support for the Afghani as population own bank accounts (WB 2018, ABA
well as a slight decrease in inflation. Looking at According to the most recent data, India is Q3). This access rate is well behind regional
historic data, inflation averaged 3.12% between the largest buyer of Afghanistan’s exports, peers such as India (53%) and alongside other
Million US$

Million US$

6,000 600 2009 and 2019, but with considerable variability accounting for 46.4% of total exports. Pakistan conflict-affected countries such as Iraq (11%).
in between, reaching an all-time high of 12.23% shifts to second position with 36.3%. Turkey is Credit growth remains sluggish, with credit to the
in 2011 and a record low of 0.59% in 2018. in third position, drawing 3% of the country’s private sector falling by 5.42% in 2019. By value,
4,000 400
exports (NSIA Q3). The major exported total loans declined from US$572 million in 2018
Agriculture sector components are food items, medical seeds, to US$541 million in 2019 (ABA Q3).
2,000 200 Agriculture is a significant share of the Afghan carpets, leather, and wool. Exports have
economy. 71.25% (NSIA Q3) of Afghans live in increased significantly in recent years and are Total bank deposits decreased to US$3.25 billion
rural areas and according to International Labor expected to accelerate. in 2019 from US$3.78 billion in 2018. Banks
0 0 Organization (ILO), 38.32% (WB 2019) of the have tightened credit standards in response to
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 2019 2014 2015 2016 2017 2018 2019 total employed population is involved in Nevertheless, potential political disruption is a political uncertainty, which is likely to constrain
Financial Year Year risk. Previous elections have caused disruption to further lending.
*Da Afghanistan Bank and NSIA *Da Afghanistan Bank Data
Afghanistan International Bank Annual Report 2019 Afghanistan Economic Outlook 12 Afghanistan International Bank Annual Report 2019 Afghanistan Economic Outlook 13

 
 

Business reform However, the Taliban responded positively, which financing mechanism for the Government of Whilst the wider economic context currently
Afghanistan carried out a record number of
business reforms in 2019. On October 31, the
once again raised hopes that the elusive deal
might be possible. A prisoner swap between US
Afghanistan’s budget and national investment
projects. Since its inception, 34 donors have precludes more expansive activities, I am
World Bank published its Doing Business 2019 and Afghanistan suggested appetite for a deal. contributed over US$11.4 billion to the ARTF, proud that we have extended our leadership
report, which highlighted Afghanistan as one The current peace negotiations are reportedly making it the largest single source of budget
of the top 10 improvers on its ‘doing business’ close to establishing a mechanism to bring conflict financing for Afghanistan’s development. position in security, compliance and KYC, and
scores. Recent reforms have been focused
on starting a business, getting credit,
to an end. However, key disputes still need to be
resolved to achieve a long-lasting peace.
The Asian Development Bank’s commitments
now exceed $5.6 billion, which are mainly
are quickly developing our consumer offering to
protecting minority investors, paying taxes, granted for the national infrastructure international standards.
and resolving insolvency. Infrastructure development. Afghanistan’s international
After decades of war, Afghanistan’s infrastructure partners confirmed their long-term support
Key to this improvement has been the decision is a brake on economic recovery. It needs new for sustainable development in the country. Anthony Barned
of the High Economic Council led by President roads, bridges, power plants and the capacity to Chief Executive Officer
Ghani to reduce the cost of a business license maintain them. For nearly three decades, energy Islamic banking
from 82.3% of per capita income to just 6.4%. infrastructure and supply have been significantly As Islamic finance becomes more closely
At the same time, the Afghanistan Investment disrupted by conflict. Power generating facilities integrated with mainstream banking in
Climate Reform (AICR) program brought about have either been destroyed or are running at Afghanistan, expectations are high that Shariah-
business-boosting reforms, such as efficient low capacity. compliant banking will provide much-needed
and transparent business registration alongside momentum for the country’s economy, whose
licensing in Kabul and other provinces. After the collapse of the Taliban, more than 90% 99% Muslim population should create significant
of the population had no access to electricity. demand for an interest-free banking service.
Similarly, the Afghan Government has increased In January 2009, with a newly constructed
investment in accurate and real-time data transmission line running from Uzbekistan, To revive Islamic Banking, Da Afghanistan Bank,
collection. Recently, the National Statistics and the majority of the capital’s four million citizens Afghanistan’s Central Bank, issued a regulatory
Information Authority (NSIA) launched three had access to electricity for the first time. framework for Islamic banking in 2015, setting
online platforms (nsia.gov.af, stat.gov.af, data. In 2001, Afghanistan produced 430 megawatts clear legal standards with rules based on Bahrain-
gov.af), which are designed to provide accurate of electricity. As of 2018, the installed energy based Accounting and Auditing Organization for
dissemination of data and statistical reports. generating capacity had grown to more than Islamic Financial Institutions, a major standard-
These online platforms should help decision- 1400 megawatts. setting institution for Islamic finance. This
making, creating investment opportunities and regulatory framework helped three private banks
better credit analysis. On July 2019, President Ghani laid the foundation to establish Islamic Windows and it also paved
for a new administrative complex housing 27 the way for Da Afghanistan Bank to issue the first
Another pillar of reform has been the launch of ministries and public offices on 100 hectares of full-fledged Islamic banking license to a private
the Afghanistan Central Business Registry (ACBR). land. The cost is set at $1.6 billion and is a totally bank adhering fully to all the standards and
ACBR is a one-stop shop for speedy business new type of development for the country. principles of Sharia banking. These are concrete
registration, designed to help and encourage steps towards a diversified banking service in
businesses to enter the formal economy. The Afghan Government has also taken steps Afghanistan.
to align its practices with internationally-
Political outlook recognised norms. This has included establishing As of November 2019, the banking sector
The Presidential election was held in September key financial sector infrastructure such as public comprised one fully fledged Islamic Bank and
2019. Fifteen candidates, including President credit registry, movable collateral registry and a six Islamic Banking windows with total assets of
Ghani and CEO Abdullah, competed in the modernized payment system. The government US$471.8 million, customer deposits of US$349.6
elections. Preliminary results show President has also been supporting the development million and a total investment and financing
Ghani leading, with more than 50% of votes. of microfinance through the Microfinance portfolio of US$154.3 million. As of Q2 2019, the
However, runner-up CEO Abdullah is appealing Investment Support Facility for Afghanistan Islamic Banking sector represents 10.68% of the
the result. The relative stability of the political (MISFA), allowing small business to receive overall banking sector but has a 27.92% share in
climate continues to influence the country’s credits from financial organizations. gross loans and 10.30% share in deposits.
overall economic outlook.
Development support
The peace process gained some momentum after A wealth of international donors has contributed
the Kabul Conference in February 2018, when to Afghanistan’s national development projects,
President Ghani made an unconditional offer for either through direct grants to the government
talks with the Taliban, which was followed by a or through private sector investments. Since
ceasefire in June 2018. The Afghan government 2001, 40% of newly constructed roads have
hosted a Loya Jirga in April 2019 to create a road been built by USAID funds. Meanwhile, the
map for peace. After almost a year and nine World Bank has committed to provide more
rounds of peace negotiations between the US than US$4.4 billion to support development
and Taliban, there was considerable optimism for projects, including education, health,
intra-Afghan peace talks and a peaceful end to transportation, female empowerment and
the last four decades of war. economic management.

The talks were derailed in September 2019 Under the administration of World Bank, the
following the withdrawal of the US president Afghanistan Reconstruction Trust Fund (ARTF)
in response to a Taliban suicide attack in Kabul. was established in 2002 to provide a coordinated
Afghanistan International Bank Annual Report 2019 14 Afghanistan International Bank Annual Report 2019 Governance Report & AIB Committee 15

 
 

Philosophy of governance regulations and international governance laundering/compliance dashboard to ensure the
AIB endeavours to enhance shareholder value; standards. According to the Articles of Bank’s adherence to the policies and procedures
protect the interests of all stakeholders including Association, each shareholder has the right to established for this function by outside experts.
shareholders, customers, employees, regulators, appoint one shareholder-designated director. The Bank has invested significant resources
and the public at large; and ensure compliance The shareholders have agreed to a Board of into compliance, resulting in very satisfactory
with international best practices for financial Supervisors consisting of seven individuals. implementation of these policies and procedures,
institutions. The Bank complies with all legal and There are currently seven Board members: five although more needs to be done.
regulatory requirements of Afghanistan – but independent and two shareholder-appointed.
also formulates and adheres to strong corporate Brief biographical profiles of the directors are One of the key factors in the success of AIB is our
governance practices beyond what is mandated included in this annual report. correspondent banking relationships that permit
by Afghanistan regulators. In fact, ‘international’ the Bank to do direct clearing of US$ and other
in our name reflects the standard of performance The Chairman is a non-executive director currencies. The Board were intimately involved in
we strive to achieve. and is responsible for leadership of the Board the expansion of our correspondent relationship
and ensuring its effectiveness. Shareholder- network, resulting in new US$ nostro accounts
The adoption and implementation of corporate nominated directors are appointed by the with the UK, Kazakhstan, Russian, and Uzbekistan
governance is the direct responsibility of the respective shareholders and represent their banks. We look forward to the continued
Board of Supervisors. In this role, the Board interests. There are currently two shareholder- expansion of our network of correspondent banks
ensures that the management of the Bank is appointed directors. in 2020 to other countries.
meeting the requirements and obligations of
good governance. Independent directors are expected to bring Another key success factor is to have a physical
impartial judgement to the Board through environment conducive to operating efficiency
Shareholders their expertise in the financial world, as well as and staff productivity as well as putting forth
The Bank has three shareholders, each with an governance experience through having served an image of financial success and achievement
ownership percentage as shown below. The on other boards. Independent directors and befitting the largest bank in the country.
shareholders operate under a policy of non- directors who are shareholder representatives are To that end, AIB has constructed a new head
interference in management decisions and the elected/appointed for terms of four years, but office building in Kabul, completed in 2019.
Bank’s operations. The positive reputation and must stand for reappointment each year. We are proud to finally have our own
widespread business interests and relationships headquarters and the Board held its first
of the Bank’s shareholders in Afghanistan have The Board has five committees: Remuneration; meeting on the premises in 2019.
contributed significantly to the success of the Nominating; Risk; Planning and Strategy, and
institution. Each shareholder has the right to Audit. Each committee has a Chairman and a Planning and Strategy Committee
appoint one individual to the Board formal charter to guide its activities. The Board The Planning and Strategy Committee is
of Supervisors. Chairman, with advice and consent of the responsible for the development and monitoring
full Board, selects committee members and of AIB’s Strategic and Annual Operating Plans, and
Board of Supervisors committee chairs annually. for monitoring the Bank’s investment portfolio.

Governance Report
The major purpose of the Board of Supervisors
is to formulate the overall strategic and The Board of Supervisors meets monthly: four In 2019, the committee met four times in person.
financial objectives of the Bank; to monitor times in person and the balance by conference Specific accomplishments during the year were:
these objectives to ensure they are met by call. The committees of the Board meet four
management; and to ensure that the risks times a year in person and in conjunction with • Reviewed and approved the Strategic Plan for

& AIB Committee

associated with operating a financial institution Board meetings, with occasional conference 2020-22, and the business and financial Plan
in Afghanistan are managed and mitigated calls. Board committee meetings are attended for 2020; the 2020 Operating Plan shows an
as far as possible. Ensuring the upholding of by the Chief Executive Officer. Minutes of increase of 6% in pre-tax net profit and return
good corporate governance is key to the Bank committee meetings are circulated to all Board on equity of 15.4% before dividend payment.
achieving its goals, and the Board ensures that members for their information. The role of these • Monitored management initiatives to improve
best practices are maintained. committees is explained in more detail in the customer service in branches. These initiatives
following subsections. comprise both technology and process
As a matter of principle and good business The Board is composed of the Chairman,
shareholder-appointed directors, and In 2019, the Board met 14 times. During each
enhancements to improve service delivery
to customers.

practice, AIB has conducted its banking business independent directors. The Chairman is an
independent director, which complies with
meeting the Board monitored the financial
performance of the Bank as well as the status
• Refined planning by business unit/segment,
including; development of plans for each

in an ethical, prudent, and professional manner,

central bank regulations. Independent Board of non-performing loans and operational risks. business unit: corporate and institutional,
members are in the majority, in line with Each quarter, the Board reviewed the anti-money business banking, community banking,

according to international standards Shareholder Beneficial Shareholder Type of Company Incorporated Board Members Ownership (%)

of governance. International Finance Corporation (IFC) Not applicable Global development institution Washington,
District of Columbia
No one appointed 7.50

Horizon Associates Mohammed Abrahim Mohib Holding Company Delaware, USA Lutfullah Rahmat 46.25

Wilton Holdings Lutfullah Rahmat, Holding Company Cayman Islands Hamidullah A. Mohib 46.25
Izzatullah Rahmat,
Nasrullah Rahmat
Afghanistan International Bank Annual Report 2019 Governance Report & AIB Committee 16 Afghanistan International Bank Annual Report 2019 Governance Report & AIB Committee 17

 
 

and consumer banking; development of Similar to previous years, the Bank retained the The AC also reviews the Bank’s annual budget Supervisors, the Management Board, and other
profit and loss statements and balance sheets services of external consultants who completed a and business plan, and recommends to the Board key senior managers as determined by the
for business units; monitoring of plans and credit risk review of the Bank’s loan portfolio, with of Supervisors the payment of dividends. Committee.
performance for business units; Initiated recommendations being implemented as well
the development of a Customer Profitability as refinements to the Bank’s business continuity The AC receives quarterly reports from major In 2019, the Committee met seven times in
tracking system. plan. In addition, the Legal team reviewed all the operational segments such as non-performing person, in conjunction with Board meetings,
• Monitored the investment portfolio and security documents to ensure that all security is loans, operational loss, and financial reports and held conference calls to interview Board and
approved allocation of funds across a enforceable if required. Their findings are being of the Bank, reviewed at every quarterly Audit Committee candidates. The Committee’s
number of investment instruments and asset implemented by the Bank. AC meeting. The reports include the key major activities were:
managers: the investment portfolio yielded performance indicators of these segments
2.88% in interest income, amounting to $6.3 Due to uncertainties in the economic outlook and issues related to operational and • Focusing on succession planning. The
million and comprising 18.4% of total revenue. for Afghanistan, the Risk Committee adopted a financial controls. committee spent significant time with
• Recommended a greater shift to bonds from conservative approach to the Bank’s risk profile. management, to make sure its training plans
placements to optimise returns in the current This approach will continue in 2020 to ensure During 2019, the AC continuously focused on support Afghanization at all levels, and to
and expected interest rate environment. that the balance between risk and return the status of overall internal controls of the Bank ensure the bank has individuals ready to take
• Monitored ongoing initiatives for branch is maintained. and issues relating to money laundering and on all key management roles:
rationalization program aimed at branch countering financial terrorism. • Supporting management in the recruitment
network cost in a challenging Audit Committee process of a new Head of Business.
business environment. The Audit Committee (AC) is responsible for Remuneration Committee Development and subsequently nominating
• Reviewed necessary changes to the overseeing financial reporting; compliance The Remuneration Committee has five him to the Board of Management.
organisation structure for the Bank. with risk management policies and procedures; major responsibilities: • Recommending the reappointment of the
internal controls; ethical behavior; and Chief Compliance Officer.
As a part of its on-going responsibilities, the management and functioning of the Internal • Establish compensation policies for the Bank’s • Commencing a review of candidates to
committee actively monitored progress of the Audit Department. senior management, including base salary, replace two independent board members due
2019 Operating Plan each quarter. As Afghanistan fringe benefits, and bonus scheme. to retire in 2020 including the Chairman who
and it’s economy continue to face significant The AC currently has three members, all qualified • Establish performance goals for each is term limited to 10 years. The committee
political, security and economic challenges, the and experienced in audit, accounting, business, member of senior management and monitor interviewed an initial candidate and are
committee maintains a conservative approach or banking. The Board of Supervisors appoints performance against these goals. reviewing further candidates.
based on robust risk management, maintaining members to the AC, from qualified person, who • Establish and review development and • Interviewing a number of candidates for
asset quality, and pursuing selective growth are not members of the Board of Supervisors succession plans for senior management. the audit committee, three of whom were
opportunities to grow core earnings sustainably. subject to the approval of Da Afghanistan • Recommend to the full Board for final decision nominated and subsequently submitted to
Bank (the central bank). At least one of the AC matters relating to senior management DAB for confirmation which was still awaited
Risk Committee members must have sufficient experience in compensation and bonus actions. at year end.
The Board’s committee to provide banking, accounting, or financial management. • Review and approve the Bank’s human • Nominating persons related to the bank’s
comprehensive oversight and best practices in Any individual, who is proposed to join the AC, is resource policies. sharia banking activities including the Chief
risk governance and risk management. subject to the same ‘fit and proper’ requirements of Islamic Banking and a member of the
as members of the Board of Supervisors. The AC The Committee has four members, three of Sharia Board.
The principal role of the committee is to review currently has one non-Board member and two whom are independent directors including the • Submitting existing board members for re
the Bank’s risk exposure under different products. members of the Board of Supervisor who will be Chairperson. The Committee met four times appointment at the Annual General Meeting
This encompasses foreign exchange positions, replaced by non board members early in 2020 in person during 2019. Key issues addressed of Shareholders.
assets and liabilities, capital adequacy, credit and included:
market risk, and sovereign risk. The committee The AC is responsible for relationships with the
also reviews performance of the classified and external auditors, and meets them on completion • Reviewed, approved, and monitored senior
non-performing loan portfolio, and, most of the annual audit and quarterly reviews. On the management goal achievements.
importantly, reviews and submits to the Board AC’s recommendation, the Board of Supervisors • Reviewed and approved 2019 bonus scheme
of Supervisors all the Bank’s policies associated approves the annual audited financial statements adjustment and approved 2020 bonus pool.
with risk management. Finally, the committee and three quarterly reviewed interim financial • Reviewed and approved remuneration for
identifies unacceptable risk conditions to the full statements. These meetings enable AC members new Member of the Management Board
Board for consideration and action. to discuss matters relating to the external and approved long term absence of another
auditors’ remit and issues arising from the audit. Member of the Management Board.
The Board and the shareholders of AIB continued • Reviewed and revised executive management
to place high priority on implementing, Consistent with previous years, in 2019 the compensation policy.
maintaining, and developing the highest AC assessed and approved the annual internal
standards in anti-money laundering (AML) and audit plan, including budget and resources, and Good staff retention and attraction remains
counter-terrorism financing (CTF). During the regularly monitored progress of the plan. The AC the primary goal of the management and the
year, AIB continued to work with a prominent discusses control environment issues reported by committee. In the uncertain Afghan political and
consulting firm, which works closely with several the Internal Audit Department, their root causes economic environment, the committee believes
international financial institutions, to ensure and management responses, and remediation that they succeeded in this direction.
that AIB’s AML and CTFs processes were working activities including any significant audit issues
satisfactorily. The findings were positive and was that were brought to the AC’s attention. Nominating Committee
one of the factors that allowed us to widen our The AC regularly monitors and assesses the role The Nominating Committee works as a
network of correspondent banks. and effectiveness of the internal audit function. preparatory committee for the Board of
Supervisors with respect to nomination and
appointment of candidates to the Board of
Afghanistan International Bank Annual Report 2019 Board of Supervisors 18 Afghanistan International Bank Annual Report 2019 Board of Supervisors 19

Board of Supervisors


Ronald Stride Mansoor Tirmzi Hugo Minderhoud Aditya Srivastava

Independent Director, Chair of the Board of Supervisors, Member of the Independent Director, Chair of the Strategy & Planning Committee and Independent Director, Chair of the Remuneration Committee and Independent Director, Chair of the Risk Committee, and Member of the
Strategy and Planning Committee, the Remuneration Committee, the member of the Nominating Committee Member of the Risk and Audit Committee Strategy and Planning Committee
Nominating Committee, and the Risk Committee

Mr Stride spent most of his career with Booz Allen & Hamilton, the Mr Tirmzi is a qualified Chartered Accountant (1981, Institute of Chartered Mr Minderhoud joined the board in December 2017. He is based in Tashkent, Mr Srivastava has been a Board member since August 2012. He is Chief
management consulting firm, where he was a senior vice-president and Accountants, England & Wales), and has 34 years of international banking Uzbekistan, where he is senior advisor to Ipak Yuli Bank Uzbekistan. He has Commercial Officer of Wasl Asset Management Group, a Government
managing partner for Asia. He also served on the firm’s Board of Directors experience in the Middle East and Asia Pacific with Citibank and HSBC. Key worked in various capacities in Central Asia and the former Soviet Union of Dubai-owned corporation with interests in property, hospitality, and
in the US. Mr Stride has been a member of AIB’s Board since November roles as Chief Financial Officer include Saudi Arabia, Philippines, Indonesia, since 1994, at first with ABN AMRO Bank, Netherlands, and since 2006 as leisure. Before joining Wasl in 2008, he had a 20-year career in banking,
2009. He is currently a member of several boards as well as chairing a large Hong Kong, and Singapore – as well as three regional CFO roles in Asia independent financial advisor and board member of various banks and the last 10 years with Société Générale where he was GCC head of project
Singapore-based charity – Food from the Heart. He was formerly president Pacific. He was also director of audit and risk review with Citibank Asia companies in the region. He holds a law degree from Leiden University in finance and corporate relationships. Mr Srivastava holds a master’s degree
of the American Association of Singapore, a position he held for five years. Pacific. He is currently a financial consultant based in Singapore, focused on The Netherlands. in economics from the Delhi School of Economics and is a member of the
Mr Stride received his BA from Providence College in the USA. assignments in the Middle East and Asia Pacific. Institute of Chartered Accountants in England and Wales.

Samuel Sidiqi Hamidullah A. Mohib Lutfullah Rahmat

Independent Director, Chair of Nomination Committee, and member of Shareholder-appointed Member of the Board of Supervisors, Member Shareholder appointed Member of the Board of Supervisors. Member of
the Strategy and Planning and Remuneration Committees of the Remuneration Committee, the Nominating Committee, the Risk the Strategy and Planning, the Nominating, and the Risk Committees
Committee, and the Audit Committee

Mr. Sidiqi joined the Board in 2017 he is currently the Chairman and Co- Mr Mohib has been a member of the Board since 2005. He is an executive Mr Rahmat is past-chairman of AIB and has been a member of the Board
Founder of Silk Road Mining, the first company to receive a large-scale director at Mohib Holdings, responsible for strategic planning and treasury since the Bank’s inception in 2004. He is also managing director of the
exploration mining exploration in Afghanistan. Previously he was CEO of operations for the group’s various activities in Central Asia and the Middle Rahmat Group, that has Star Textile Mills Ltd as its principal member;
two of the largest real estate companies in the Middle East: Abu Dhabi East. Mr Mohib was educated at King’s University College at the University president of Rahmat Fruit Processing Corporation; and a partner in the
listed RAK Properties, and Kuwait listed NREC, both with assets of more of Western Ontario. sole agents for Samsung Electronics and Appliances in Afghanistan.
than USD 1.5 billion. Prior to that Mr. Sidiqi worked for Agility Logistics He graduated with a BCom from Bombay University.
across the Middle East, North America, Europe and South Asia. He began his
career with Bain and Company where he advised Fortune 500 companies on
strategy. He received his MBA from Wharton and his MA from the University
of Pennsylvania. He has degrees in economics and political science from MIT.
Afghanistan International Bank Annual Report 2019 Record of Attendance 20 Afghanistan International Bank Annual Report 2019 Organisational & Management Profiles 21

Record of Attendance Organisational Structure Management Profiles

 

Board of Supervisors Remuneration Committee

Record of attendance of Board meetings
Risk Committee
Nominating Committee
Call Call Live Call Call Live Call Call Live Call Live Call Live Call
Planning and Strategy Committee
22 Jan ‘19 26 Feb ‘19 16 Mar ‘19 16 Apr ‘19 14 May ‘19 29 Jun ‘19 23 Jul ‘19 06 Aug ‘19 31 Aug ‘19 24 Sep ‘19 29 Oct ‘19 12 Nov ‘19 16 Nov ‘19 17 Dec ‘19
Audit Committee
Ronald Stride
Aditya Srivastava
Hamidullah A. Mohib
Hugo Minderhoud Management Board
Lutfullah Rahmat
Mansoor Tirmzi
Samuel Sidiqi
Chief Executive Officer Internal Audit
Anthony Barned
Chairman of Management Board
Record of attendance of Committee meetings Mr Barned assumed the position in April 2016, having worked Head of Internal Audit
(Special) (Special)
Nominating Live Live Live Live Call Live Live
with the Bank in an advisory role and chairing the Audit
Committee for the previous seven years. He brings more than Bishwajit Mazumder
15 Mar ‘19 28 Jun ‘19 29 Jun ‘19 30 Aug ‘19 17 Sep ‘19 15 Nov ‘19 16 Nov’19 Mr Mazumder, is a qualified chartered accountant, certified
40 years of international commercial banking experience, with
Samuel Sidiqi the Barclays group and Bank of Ceylon, and as a consultant internal auditor, and certified information systems auditor. He
Hamidullah A. Mohib with Booz Allen & Hamilton. He is an Associate of the Chartered also holds a law degree from India and is a USA-certified fraud
Hugo Minderhoud Institute of Bankers, London. examiner. He has more than 30 years’ experience in banking
in various institutions in different geographies and cultures,
Lutfullah Rahmat
including more than a decade of heading internal audit.
Mansoor Tirmzi
Ronald Stride

Chief Operating Officer

Remuneration Live Live Live Live Chief Credit Officer
15 Mar ‘19 28 Jun ‘19 30 Aug ‘19 15 Nov ‘19
Asadullah Fayzi
Member of Management Board Curtis Faulkner
Hugo Minderhoud
Mr Fayzi holds the position of COO, having joined AIB at its inception Mr Faulkner retired with 30 years’ experience as a regulator with
Hamidullah A. Mohib in 2004 as head of IT and subsequently CIO. He manages IT,HR, the Tennessee Department of Financial Institutions. He has since
Mansoor Tirmzi General Services and Operations. Previously he had been IT manager worked as consultant on banking projects with the FDIC, IMF,
for Afghanistan Reconstruction Company. He was appointed to ADB, and USAID, including three years as a consultant for Da
Ronald Stride
his current position during 2012. He holds an MSc in Electronics Afghanistan Bank. Since 2015, he has worked for AIB in various
Samuel Sidiqi
telecommunications from Istanbul Technical University, Turkey. consulting roles and was appointed to the Acting CCO position in
August, 2018.
Risk Live Live Live Live

15 Mar ‘19 28 Jun ‘19 30 Aug ‘19 15 Nov ‘19

Chief Financial Officer Head of Strategic Planning
Aditya Srivastava
Hamidullah A. Mohib Lalit Kumar Jha
Mohammad Taofiq Mir
Hugo Minderhoud Member of Management Board
Head of Strategic Planning
Mr Jha holds a bachelor’s degree in commerce and is a qualified
Lutfullah Rahmat Mr Mir began his banking career in 2006 with AIB. He managed
chartered accountant with more than 20 years’ experience,
Ronald Stride electronic banking channels and was head of retail banking
mainly in the banking sector. He has been CFO at AIB since 2010,
before becoming head of strategic planning in 2014.
having previously been senior vice- president at Dresdner Bank,
He also leads the Bank’s programme to enhance financial crime
New Delhi, and head of accounts and taxation at Bank of Tokyo
Planning & Strategy Live Live Live Live Call compliance. Mr Mir holds a BSc in electrical engineering from
Mitsubishi UFJ, New Delhi.
15 Mar ‘19 28 Jun ‘19 30 Aug ‘19 15 Nov ‘19 16 Nov ‘19 Delft University of Technology, Netherlands.
Mansoor Tirmzi
Aditya Srivastava
Lutfullah Rahmat Head of Business Development Chief Risk Officer
Ronald Stride
Jospeh Carasso Zulfiqar Ali Khan
Samuel Sidiqi
Mr Carasso joined AIB in 2019 in September 2019 as Head Dr. Khan has over 12 years of experience as a central and
of Business Development, bringing 25 years of experience commercial banker. He joined AIB in 2014 as Head of Islamic
in the banking sector. Mr Carasso worked for the last 22 Banking and also managed banking for small business, trade
Audit Live Call Call Call Live Call Call Live Live
years in Citibank in many senior positions, including Head of finance, and commercial banking. Dr.Khan is a PhD holder in
28 Feb ‘19 07 Mar ‘19 30 Mar ‘19 12 May ‘19 27 Jun ‘19 03 Aug ‘19 09 Nov ‘19 14 Nov ‘19 16 Nov ‘19
Non Presence Countries, Financial Institutions and Foreign Islamic finance, an MSc in banking & finance and a bachelor’s
Said Arab Khan Correspondent Banking for Africa, CEO for Tanzania, Ghana and degree in economics. Dr.Khan also holds professional certificates
Hamidullah A. Mohib Head of Corporate and Investment Bank for Uganda. Mr. Carasso from reputed international financial institutions, including
Hugo Minderhoud is Brazilian, and holds an undergraduate degree in Business executive education course certified in Achieving Leadership
Administration and an MBA in Finance. Excellence from London School of Economics (LSE).
Afghanistan International Bank Annual Report 2019 History & Performance of AIB 22 Afghanistan International Bank Annual Report 2019 History & Performance of AIB 23

Fifteen years’ history

Organisational Structure Organisational Structure2004 2015
AIB signs a Management Services and Khalilullah Sediq retires as CEO to
  Technical Assistance Agreement with ING become Governor of Da Afghanistan Bank
Institutional and Government Advisory (Afghanistan’s central bank). AIB wins the CFI.

and performance of AIB

Services BV, the independent advisory co ‘Best Corporate Governance, Afghanistan’
unit of Netherlands headquartered ING award and The Banker magazine designates
Wholesale Banking. This agreement expired AIB as ‘Bank of the Year’ in Afghanistan for
in September 2007, ING having fulfilled the fourth year running. Construction of the
its mandate. Asian Development Bank’s Bank’s new Head Office reaches the ninth
Board of Directors approves a $2.6 million floor. The Bank exhibits for the first time at
AIB’s reputation for excellence is founded on consistent equity investment in AIB. ADB enters into
an agreement with three other investors to
SIBOS, the annual conference, exhibition and
networking event organised by SWIFT for the
improvements in performance, a commitment to business form the shareholders group, each owning 25 financial industry.
percent equity.
integrity and strong corporate governance, and independent 2016
recognition of its achievements. 2005
Opening of first branch outside Kabul.
AIB wins the CFI.co ‘Best Corporate
Governance, Afghanistan’ award for the
third consecutive year and The Banker
2006 magazine designates AIB as ‘Bank of the Year’
Khalilullah Sediq joins as Chief Executive in Afghanistan for the fifth year running.
Officer. Construction of the Bank’s new Head Office
completes and fit-out begins. The Bank
2007 exhibits at SIBOS for the second time.
AIB shows annual profit for the first time.
2017
2008 AIB wins the CFI.co ‘Best Corporate
Appointed bankers to the American forces Governance, Afghanistan’ award for the
in Afghanistan. fourth consecutive year and The Banker
magazine designates AIB as ‘Bank of the Year’
2010 in Afghanistan for the sixth year running.
AIB pays first dividend to shareholders, Construction of the Bank’s new Head
with total distribution of $10 million. Office nears completion with occupancy
commencing in the first quarter of 2018.
2011 The Bank exhibits at SIBOS for the third time.
Deposits exceed $500 million. Site of 4,550m²
purchased for development of new head 2018
office, a 12-storey property with total built The Banker magazine has named AIB ‘Bank of
area of roughly 15,500m². the Year, Afghanistan’. The original HQ served
AIB very well but the Bank has now outgrown
2012 the premises. New HQ. AIB moves into its
Deposits exceed $800 million. AIB acquires new headquarters in central Kabul, reflecting
Standard Chartered Bank’s business in the Bank’s prominent position within

33
Afghanistan. The Banker magazine designates Afghanistan’s banking system.
AIB as ‘Bank of the Year’ in Afghanistan.

2013
The Banker magazine again designates AIB

Kabul branches: 20 Balkh branches: 3 Kandahar branches: 2 Herat branches: 2

Branches as ‘Bank of the Year’ in Afghanistan.

Mazar-e-Sharif Main Branch Kandahar Main Branch Herat Main Branch 2014
Shahr-e-Naw Haji Yaqoob Square Branch After being nominated by the World Bank,

122
Shahr-e-Naw Ansari Square Branch Mazar-e-Sharif Kefayat Branch Kandahar Ayno Mina Herat Darb-e-Khosk Branch
Hairatan Branch Kandahar ATM’s: 6 Herat ATM’s: 7 AIB wins ‘Best Corporate Governance,
Microryan Bibi Mahro Branch Afghanistan’ in the 2014 CFI.co awards.
Sarai Shahzada Branch Mazar-e-Sharif ATM’s: 8
The Banker magazine designates AIB as
Mirwais Maidan Branch ‘Bank of the Year’ in Afghanistan for the third
Khair Khana Branch consecutive year. The Bank begins building
Kolola Pushta Branch
Taimani Branch
Kart-e-Naw Branch
ATM’s its 5,500m² 12-storey head office.

Pole Charkhi Branch

6
Jad-e-Maiwand Branch
Pule Bagh-e-Omomi Branch
Dasht-e-Barchi Branch Nangarhar branches: 1 Baghlan branches: 1 Helmand branches: 1 2019
Kart-e-Se Branch Jalalabad Branch
Nangarhar ATM’s: 6
Pol-e-Khumri Branch Lashkargah Branch
Helmand ATM’s: 1
AIB was again awarded Best Corporate Governance in
Wazir Akbar Khan Branch
UNOCA Branch Afghanistan, and named Bank of the Year by the Bankers
AUAF Branch
US Embassy Branch
Cash Deposit Machines Magazine. AIB receives license to issue and acquire Visa
Ahmadshah Baba Mina Branch cards for the first time. AIB joins Citibank’s WorldLink system.
Smart Branch – Gulbahar Business Center
Kabul cash deposit machines: 5 AIB accelerates its deployment of digital services and
ISAF HQ
KAIA
mobile banking.
Kabul ATM’s: 87 Kunduz branches: 1 Nimroz branches: 1 Khost branches: 1
Kunduz Branch Nimroz Branch Khost Branch
Khost ATM’s: 1
Afghanistan International Bank Annual Report 2019 Independent Auditors’ Report 24 Afghanistan International Bank Annual Report 2019 Independent Auditors’ Report 25

Independent Auditors’ Report Independent Auditors’ Report

To the shareholders of Afghanistan International Bank To the shareholders of Afghanistan International Bank

Opinion Other Matter

We have audited the accompanying financial statements of Afghanistan International Bank (“the Bank”), which comprise the statement of financial position as The financial statements of the Bank for the year ended December 31, 2018, were audited by another auditor who expressed an unmodified opinion on those
at December 31, 2019, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and financial statements on March 16, 2019.
notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Bank as at December 31, 2019, and its financial
performance and its cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRSs) issued by the International
Accounting Standards Board (IASB), the Law of Banking in Afghanistan and other laws and regulations issued by Da Afghanistan Bank.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in Grant Thornton Afghanistan
the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical Chartered Accountants
requirements that are relevant to our audit of the financial statements in Afghanistan, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Engagement Partner: Saqib Rehman Qureshi - FCA
Location: Kabul, Afghanistan
Responsibilities of Management and Those Charged with Governance for the Financial Statements Date: 07 March 2020
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs issued by the International
Accounting Standards Board (IASB), the requirements of the Law of Banking in Afghanistan and other laws and regulations issued by Da Afghanistan Bank, and
for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease
operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements
or, if such disclosures are inadequate, modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves fair presentation.

• We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
Afghanistan International Bank Annual Report 2019 Statement of Financial Position 26 Afghanistan International Bank Annual Report 2019 Statement of Comprehensive Income 27

Statement of Financial Position Statement of Comprehensive Income

As at 31 December 2019 For the year ended 31 December 2019

31 December 31 December 31 December 31 December

2019 2018 2019 2018
Note AFN ‘000’ AFN ‘000’ Note AFN ‘000’ AFN ‘000’

Assets
Cash and balances with Da Afghanistan Bank 5 13,859,017 15,965,500 Interest income 22 1,383,239 1,291,598
Balances with other banks 6 7,237,771 10,095,978 Interest expense 23 (36,968)‌‌ (51,141)‌‌
Placements - net 7 15,085,047 19,858,325 Net interest income 1,346,271 1,240,457
Investments - net 8 18,915,749 18,423,705 Fee and commission income 24 1,081,873 917,074
Loan and advances to customers - net 9 3,417,810 2,897,616 Fee and commission expense 25 (15,277)‌‌ (28,764)‌‌
Receivables from financial institutions 10 502,618 360,120 Net fee and commission income 1,066,596 888,310
Operating fixed assets 11 3,450,342 3,059,571 Income from dealing in foreign currencies 236,756 231,055
Intangible assets 12 426,328 394,538 2,649,623 2,359,822
Deferred tax assets 13 – 95,104 Other income 26 46,414 64,750
Other assets 14 837,819 572,867 Gain/ (loss) on sale of securities 105,221 (1,732)‌‌
Total assets 63,732,501 71,723,324 Credit losses reversal / (expense) 27 (120,882)‌‌ 38,114
Finance cost on lease liability (5,351)‌‌ –
Liabilities General and administrative expenses 28 (2,000,947)‌‌ (1,812,483)‌‌
Customers’ deposits 15 58,843,105 67,383,947 Profit before income tax 674,078 648,471
Deposits from bank 16 500,000 – Taxation 29 (65,909)‌‌ (170,306)‌‌
Deferred income 77,312 98,627 Profit for the year 608,169 478,165
Lease liabilities 17 265,040 –
Deferred tax liabilities 13 34,299 – Other comprehensive income
Other liabilities 18 333,581 655,593 Items that may be classified to profit or loss subsequently
Total liabilities 60,053,337 68,138,167 Surplus/ (Deficit) on debt instruments at fair value through other comprehensive income 188,547 (107,431)‌‌
Related deferred tax (37,709)‌‌ 21,486
Equity Other comprehensive income/(loss) - net of tax 150,838 (85,945)‌‌
Share capital 19 1,465,071 1,465,071 Total comprehensive income for the year 21 759,007 392,220
Capital reserves 20 290,813 260,405
Retained earnings 1,859,291 1,946,530 Earnings per share (in AFN) 20.27 15.94
Revaluation surplus/ (loss) on debt instruments at FVOCI   63,989 (86,849)‌‌
The annexed notes 1 to 36 form an integral part of these financial statements.
Total equity 3,679,164 3,585,157
Total liabilities and equity 63,732,501 71,723,324
Contingencies and commitments 21

The annexed notes 1 to 36 form an integral part of these financial statements.

Chairman Chief Executive Officer Chief Financial Officer

Chairman Chief Executive Officer Chief Financial Officer

Afghanistan International Bank Annual Report 2019 Statement of Changes in Equity 28 Afghanistan International Bank Annual Report 2019 Statement of Cashflows 29

Statement of Changes in Equity Statement of Cashflows

For the year ended 31 December 2019 For the year ended 31 December 2019

Revaluation surplus/(loss) 31 December 31 December

on debt instruments at 2019 2018
Share capital Capital reserves Retained earnings FVOCI Total Note AFN ‘000’ AFN ‘000’
AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’
Cash flows from operating activities
Balance as at 01 January 2018 1,465,071 236,497 2,145,383 3,548 3,850,499
Profit Before Income Tax 674,078 648,471
Effect due to adoption of IFRS 9 – – (8,110)‌‌ – (8,110)‌‌
Adjustments for:
Restated opening balance under IFRS 9 1,465,071 236,497 2,137,273 3,548 3,842,389
 Depreciation 11.2 265,633 76,771
Profit for the year   478,165 478,165
 Amortization 12.1 78,119 84,856
Other comprehensive income, net of tax:  
  Finance cost on lease liability 17 5,351 –
Debt instruments at FVOCI  
  Credit losses (reversal) / expense 27 120,882 (38,114)‌‌
  Net change in fair value   (107,431)‌‌ (107,431)‌‌
  Property and equipment written-off 11.2 1,708 –
  Related tax   21,486 21,486
1,145,771 771,984
 Reclassification adjustments relating to available for  
sale investments disposed-off during the year – net (5,565)‌‌ (5,565)‌‌ Changes in operating assets and liabilities

 Related tax on loss on disposal available for sale     Receivable from financial institutions (142,498)‌‌ 227,414
investments during the year 1,113 1,113   Required reserve maintained with DAB 462,748 (824,255)‌‌
Total comprehensive income – – 478,165 (90,397)‌‌ 387,768   Cash margin held with other banks 6,743 19,927
Transferred to capital reserve 23,908 (23,908)‌‌   Loans and advances to customers - net (674,188)‌‌ 338,455
Transactions with owners of the bank   Other assets (248,991)‌‌ (47,272)‌‌
  Dividend paid   (645,000)‌‌ (645,000)‌‌   Deferred income on commercial letter of credit and guarantees (21,315)‌‌ 79,638
Balance as at 31 December 2018 1,465,071 260,405 1,946,530 (86,849)‌‌ 3,585,157   Customers’ deposits (8,540,842)‌‌ 11,122,527
Balance as at 01 January 2019 1,465,071 260,405 1,946,530 (86,849)‌‌ 3,585,157   Deposits from banks 500,000 (500,000)‌‌
Total comprehensive income   Other liabilities (292,874)‌‌ 342,289
Profit for the year   608,169 608,169 (7,805,446)‌‌ 11,530,706
Other comprehensive income, net of tax:   –   Income tax paid (6,258)‌‌ (131,021)‌‌
Debt instruments at FVOCI   – Net cash flow (used in)/ from operating activities (7,811,704)‌‌ 11,399,685
  Net change in fair value   188,547 188,547 Cash flows from investing activities
  Related tax   (37,709)‌‌ (37,709)‌‌   Capital work-in-progress 11.1.1 (429,370)‌‌ (579,423)‌‌
Total comprehensive income – – 608,169 150,838 759,007   Acquisition of operating fixed assets 11.2 (715)‌‌ (9,255)‌‌
  Transferred to capital reserve 30,408 (30,408)‌‌ –   Acquisition of intangible assets 12.1 (9,255)‌‌ (24,700)‌‌
Transactions with owners of the bank   Placements (with maturity more than three months) 3,115,176 1,276,079
  Dividend paid – – (665,000)‌‌ – (665,000)‌‌  Investments (293,373)‌‌ (2,485,619)‌‌
Balance as at 31 December 2019 1,465,071 290,813 1,859,291 63,989 3,679,164 Net cash flow from/ (used in) investing activities 2,382,463 (1,822,918)‌‌

The annexed notes 1 to 36 form an integral part of these financial statements. Cash flows from financing activities
  Lease liability repaid 17 (60,769)‌‌ –
  Finance cost paid 17 (8,223)‌‌ –
  Dividend paid 19.3 (665,000)‌‌ (645,000)‌‌
Net cash used in financing activities (733,992)‌‌ (645,000)‌‌
Net increase in cash and cash equivalents (6,163,233)‌‌ 8,931,767

Chairman Chief Executive Officer Chief Financial Officer Cash and cash equivalents at 1 January 34,537,651 25,605,884
Cash and cash equivalents at 31 December 31 28,374,418 34,537,651

The annexed notes 1 to 36 form an integral part of these financial statements.

Chairman Chief Executive Officer Chief Financial Officer

Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 30 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 31

Notes to the Financial Statements

For the year ended 31 December 2019

1.  Status and nature of business The above standards and interpretations did not have a material impact on Instead of performing an impairment review on the right-of-use assets at of recognizing a right-of-use asset and lease liability, the payments in relation
Afghanistan International Bank (the Bank) was registered with Afghan the financial statements except for the IFRS 16 Leases for which the impact is the date of initial application, the Bank has relied on its historic assessment to these are recognized as an expense in profit or loss on a straight-line basis
Investment Support Agency (AISA) on 27 December 2003 and received discussed as below. as to whether leases were onerous immediately before the date of initial over the lease term.
formal commercial banking license on 22 March 2004 from Da Afghanistan application of IFRS 16. On transition, for leases previously accounted for as
Bank (DAB), the central bank of Afghanistan, to operate nationwide. The Bank 2.2. Standards, interpretations and amendments to published approved operating leases with a remaining lease term of less than 12 months and for On the statement of financial position, right-of-use assets have been included
obtained Islamic banking license from DAB via letter no. 1863/1890 dated accounting standards that are not yet effective leases of low-value assets the Bank has applied the optional exemptions to in property and equipment within operating fixed assets and lease liabilities
21 July 2014. The following standards, amendments and interpretations with respect not recognize right-of-use assets but to account for the lease expense on a have been disclosed on the face of the statement of financial position.
to the approved accounting standards would be effective from the dates straight-line basis over the remaining lease term. The Bank did not had any
The Bank initially was incorporated as a limited liability company and mentioned there against: finance lease. On transition to IFRS 16 the weighted average incremental Extension options for leases
domiciled in Afghanistan, however, on the basis that the bank capital is borrowing rate applied to lease liabilities recognized under IFRS 16 was 1.9% When the Bank has the option to extend a lease, management uses its
divided into shares the status of the bank is changed from limited liability to Effective date (annual per annum. The Bank has benefited from the use of hindsight for determining judgement to determine whether or not an option would be reasonably
Corporation under the Corporations and Limited Liability Companies Law, this Standard or Interpretation periods beginning)
the lease term when considering options to extend and terminate leases. certain to be exercised. Management considers all facts and circumstances
status is effective from 04 May 2016. The principal business place of the Bank IFRS 10 - Consolidated Financial Statements and IAS 28 including their past practice and any cost that will be incurred to change the
is at AIB Head Office, Airport Road, Kabul, Afghanistan. Investment in Associates and Joint Ventures - Sale or Following accounting policy change has been adopted by the Bank pursuant asset if an option to extend is not taken, to help them determine the lease
Contribution of Assets between an Investor and its Associate to IFRS 16: term.
The Bank has been operating as one of the leading commercial banking or Joint Venture (Amendment) Not yet finalized
service provider in Afghanistan. The Bank has 35 branches and 2 cash outlets IFRS 17 – Insurance Contracts 1 January 2022 3.1.2.  Leased assets 3.2.  Cash and cash equivalents
(2018: 37 branches and 2 cash outlets) in operation. The Bank as a Lessee For the purpose of the statement of cash flows, cash and cash equivalents
IAS 1/ IAS 8 - Definition of Material (Amendments) 1 January 2020
For any new contracts entered into on or after 1 January 2019, the Bank comprise balances with less than three months maturity including cash in
2.  Basis of preparation and measurement Definition of business - Amendment to IFRS 3 1 January 2020 considers whether a contract is, or contains a lease. A lease is defined as ‘a hand and at ATM, unrestricted balances with the DAB, balances with banks
These financial statements have been prepared in accordance with The Conceptual Framework of Financial Reporting 1 January 2020 contract, or part of a contract, that conveys the right to use an asset (the and placements.
International Financial Reporting Standards (IFRS) issued by the International underlying asset) for a period of time in exchange for consideration’. To
Accounting Standard Board, the Law of Banking in Afghanistan and other laws apply this definition the Bank assesses whether the contract meets three key 3.3.  Financial instruments
The above standards, amendments and interpretations are not expected to
and regulations issued by Da Afghanistan Bank. Whenever the requirement of evaluations which are whether: 3.3.1.  Financial instruments – initial recognition
have any material impact on the Bank’s financial statements in the period of
the Law of Banking in Afghanistan differs with the requirements of the IFRS, 3.3.1.1.  Date of recognition
initial application.
the requirement of the Law of Banking in Afghanistan and other laws and a) The contract contains an identified asset, which is either explicitly Financial assets and liabilities, except for loans and advances to customers
regulations issued by Da Afghanistan Bank takes precedence. 3.  Summary of significant accounting policies identified in the contract or implicitly specified by being identified at the and balances due to customers, are initially recognized on the trade date,
The accounting policies adopted in preparation of this financial statements time the asset is made available to the Bank; i.e., the date that the Bank becomes a party to the contractual provisions
These financial statements have been prepared under the historical cost are consistent with those followed in the preparation of the annual financial of the instrument. This includes regular way trades: purchases or sales of
convention except that certain investments, derivative financial instruments statements of the Bank for the year ended 31 December 2018 other than as b) The Bank has the right to obtain substantially all of the economic benefits financial assets that require delivery of assets within the time frame generally
and forward foreign exchange contracts are stated at fair value. disclosed in note 3.1 below: from use of the identified asset throughout the period of use, considering established by regulation or convention in the marketplace. Loans and
its rights within the defined scope of the contract; and advances to customers are recognized when funds are transferred to the
These financial statements comprise statement of financial position, 3.1.  Adoption of IFRS 16 Leases customers’ accounts. The Bank recognize balances due to customers when
statement of comprehensive income as a single statement, statement of In these financial statements, the Bank has applied IFRS 16, effective for c) The Bank has the right to direct the use of the identified asset throughout funds are transferred to the Bank.
changes in equity, statement of cash flows and the accompanying notes. annual periods beginning on or after 1 January 2019, for the first time. the period of use. The Ban assess whether it has the right to direct ‘how
and for what purpose’ the asset is used throughout the period of use. 3.3.1.2.  Initial measurement of financial instruments
The preparation of financial statements in conformity with IFRS requires the 3.1.1.  IFRS 16 Leases The classification of financial instruments at initial recognition depends
use of certain critical accounting estimates. It also requires management IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations Measurement and recognition of leases as a lessee on their contractual terms and the business model for managing the
to exercise its judgment in the process of applying the Bank’s accounting (IFRIC 4 ‘Determining whether an Arrangement contains a Lease’, SIC 15 At lease commencement date, the Bank recognizes a right-of-use asset and a instruments.
policies. The areas involving a higher degree of judgment or complexity, ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the Substance of lease liability on the balance sheet. The right-of-use asset is measured at cost,
or areas where assumptions and estimates are significant to the financial Transactions Involving the Legal Form of a Lease’). The adoption of this which is made up of the initial measurement of the lease liability, any initial Financial instruments are initially measured at their fair value, except in the
statements are disclosed in note 4. new Standard has resulted in recognition of a right-of-use asset and related direct costs incurred by the Bank, an estimate of any costs to dismantle and case of financial assets and financial liabilities recorded at FVPL, transaction
lease liability in connection with all former operating leases except for those remove the asset at the end of the lease, and any lease payments made in costs are added to, or subtracted from, this amount. Trade receivables
2.1. The Bank has adopted the following accounting standards and the advance of the lease commencement date (net of any incentives received). are measured at the transaction price. When the fair value of financial
identified as low-value or having a remaining lease term of less than 12
amendments and interpretation of IFRSs which became effective for the instruments at initial recognition differs from the transaction price, the Bank
months from the date of initial application.
current year: The Bank depreciates the right-of-use assets on a straight-line basis from accounts for the Day 1 profit or loss, as described below.
The new Standard has been applied using the modified retrospective the lease commencement date to the earlier of the end of the useful life of
Standard or Interpretation the right-of-use asset or the end of the lease term. The Bank also assesses 3.3.1.3.  Day 1 profit or loss
approach. There has been no impact on the opening equity upon adoption
• IFRS 16, “Leases” the right-of-use asset for impairment when such indicators exist. At the When the transaction price of the instrument differs from the fair value at
of IFRS 16. The comparative information for 2018 is reported under IAS 17
• IFRIC Interpretation 23 Uncertainty over Income Tax Treatment and is not comparable to the information presented for 2019. Right-of-use commencement date, the Bank measures the lease liability at the present origination and the fair value is based on a valuation technique using only
asset amounting to AFN 329,926 thousand has been recognized along with value of the lease payments unpaid at that date, discounted using the inputs observable in market transactions, the Bank recognizes the difference
• Investments in Associates and Joint Ventures - Long-term Interests in
lease liability of AFN 317,856 thousand with remaining impact recognized in interest rate implicit in the lease if that rate is readily available or the Bank’s between the transaction price and fair value in net trading income. In those
Associates and Joint Ventures (amendments to IAS 28)
reversal of prepaid rent expense as of the date of adoption. incremental borrowing rate. cases where fair value is based on models for which some of the inputs are
• Amendments to IFRS 9: Prepayment Features with Negative not observable, the difference between the transaction price and the fair
Compensation Lease payments included in the measurement of the lease liability are made value is deferred and is only recognized in profit or loss when the inputs
For contracts in place at the date of initial application, the Bank has elected
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied up of fixed payments (including in substance fixed), variable payments become observable, or when the instrument is derecognized.
IFRS 16 to arrangements that were previously not identified as lease under based on an index or rate, amounts expected to be payable under a residual
Annual Improvements to IFRS Standards 2015-2017 Cycle IAS 17 and IFRIC 4. The Bank has elected not to include initial direct costs in value guarantee and payments arising from options reasonably certain to be 3.3.1.4.  Measurement categories of financial assets and liabilities
• IFRS 3 Business combination - previously held interest in a joint operation the measurement of the right-of-use asset for operating leases in existence exercised. The Bank classifies all of its financial assets based on the business model for
• IFRS 11 Joint Agreements- previously held interest in a joint operation at the date of initial application of IFRS 16, being 1 January 2019. At this date, managing the assets and the asset’s contractual terms, measured at either:
Subsequent to initial measurement, the liability will be reduced for payments
• IAS 12 Income Taxes- Income tax consequences on payments on financial the Bank has also elected to measure the right-of-use assets at an amount
made and increased for interest. It is remeasured to reflect any reassessment • Amortized cost, as explained in note 3.3.2.1
instruments classified as equity equal to the lease liability adjusted for prepaid/ accrued lease payments that
or modification, or if there are changes in in-substance fixed payments. • FVOCI, as explained in notes 3.3.2.3 and 3.3.2.4
existed at the date of transition.
• IAS 23 Borrowing cost - Borrowing cost eligible for capitalization When the lease liability is remeasured, the corresponding adjustment is
• FVPL
reflected in the right-of-use asset, or profit and loss if the right-of-use asset
is already reduced to zero. The Bank has elected to account for short-term
leases and leases of low-value assets using the practical expedients. Instead
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 32 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 33

Notes to the Financial Statements continued

For the year ended 31 December 2019

The Bank classifies and measures its trading portfolio at FVPL as explained In contrast, contractual terms that introduce a more than minimum exposure 3.3.2.6. Financial assets and financial liabilities at fair value through Based on the above process, the Bank groups its loans into Stage 1, Stage 2,
in Notes 3.3.2.2. The Bank may designate financial instruments at FVPL, if to risks or volatility in the contractual cash flows that are unrelated to a basic profit or loss Stage 3 and POCI, as described below:
so doing eliminates or significantly reduces measurement or recognition lending arrangement do not give rise to contractual cash flows that are solely Financial assets and financial liabilities in this category are those that are
inconsistencies, as explained in Note 3.3.2.6. payments of principal and interest on the amount outstanding. In such cases, not held for trading and have been either designated by management upon Stage 1 When loans are first recognized, the Bank recognizes an
the financial asset is required to be measured at FVPL. initial recognition or are mandatorily required to be measured at fair value allowance based on 12mECLs.Stage 1 loans also include facilities
Financial liabilities, other than loan commitments and financial guarantees, under IFRS 9. Management only designates an instrument at FVPL upon initial where the credit risk has improved, and the loan has been
are measured at amortized cost or at FVPL when they are held for trading and 3.3.2.2.  Financial assets or financial liabilities held for trading recognition when one of the following criteria are met. Such designation is reclassified from Stage 2.
derivative instruments or the fair value designation is applied, as explained in The Bank classifies financial assets or financial liabilities as held for trading determined on an instrument-by-instrument basis: Stage 2 When a loan has shown a significant increase in credit risk since
Note 3.3.2.6. when they have been purchased or issued primarily for short-term profit origination, the Bank records an allowance for the LTECLs. Stage 2
making through trading activities or form part of a portfolio of financial • The designation eliminates, or significantly reduces, the inconsistent loans also include facilities, where the credit risk has improved,
3.3.2.  Financial assets and liabilities instruments that are managed together, for which there is evidence of treatment that would otherwise arise from measuring the assets or and the loan has been reclassified from Stage 3.
3.3.2.1. Due from banks, Loans and advances to Customers, Financial a recent pattern of short-term profit taking. Held-for-trading assets and liabilities or recognizing gains or losses on them on a different basis; Or Stage 3 Loans considered credit–impaired (as noted below). The bank
investments at amortized cost liabilities are recorded and measured in the statement of financial position records an allowance for the LTECLs.
• The liabilities are part of a group of financial liabilities, which are managed
The Bank measures Due from banks, Loans and advances to customers at fair value. Changes in fair value are recognized in net trading income. and their performance evaluated on a fair value basis, in accordance with POCI Purchased or originated credit impaired (POCI) assets are financial
and other financial investments at amortized cost if both of the following Interest and dividend income or expense is recorded in net trading income a documented risk management or investment strategy; Or assets that are credit impaired on initial recognition. POCI assets
conditions are met: according to the terms of the contract, or when the right to payment has are recorded at fair value at original recognition and interest
• The liabilities containing one or more embedded derivatives, unless income is subsequently recognized based on a credit adjusted EIR.
been established.
• The financial asset is held within a business model with the objective to they do not significantly modify the cash flows that would otherwise be ECLs are only recognized or released to the extent that there is a
hold financial assets in order to collect contractual cash flows. Included in this classification are debt securities, equities, short positions and required by the contract, or it is clear with little or no analysis when a subsequent change in the expected credit losses.
customer loans that have been acquired principally for the purpose of selling similar instrument is first considered that separation of the embedded
• The contractual terms of the financial asset give rise on specified dates to
or repurchasing in the near term. derivative(s) is prohibited For financial assets for which the Bank has no reasonable expectations of
cash flows that are solely payments of principal and interest (SPPI) on the
recovering either the entire outstanding amount, or a proportion thereof, the
principal amount outstanding.
3.3.2.3.  Debt instruments at FVOCI Financial assets and financial liabilities at FVPL are recorded in the statement gross carrying amount of the financial asset is reduced. This is considered a
The Bank classifies debt instruments measured at FVOCI when both of the of financial position at fair value. Changes in fair value are recorded in (partial) de recognition of the financial asset.
The details of these conditions are outlined below:
following conditions are met: profit and loss with the exception of movements in fair value of liabilities
Business model assessment designated at FVPL due to changes in the Bank’s own credit risk. Such changes 3.3.4.2.  The calculation of ECLs
The Bank determines its business model at the level that best reflects how it • The instrument is held within a business model, the objective of which is in fair value are recorded in the Own credit reserve through OCI and do not The Bank calculates ECLs based on three probability-weighted scenarios to
manages groups of financial assets to achieve its business objective. achieved by both collecting contractual cash flows and selling financial get recycled to the profit or loss. Interest earned or incurred on instruments measure the expected cash shortfalls, discounted at an approximation to the
assets designated at FVPL is accrued in interest income or interest expense, EIR. A cash shortfall is the difference between the cash flows that are due to
The Bank’s business model is not assessed on an instrument-by-instrument respectively, using the EIR, taking into account any discount/ premium and an entity in accordance with the contract and the cash flows that the entity
• The contractual terms of the financial asset meet the SPPI test
basis, but at a higher level of aggregated portfolios and is based on qualifying transaction costs being an integral part of instrument. Interest expects to receive.
observable factors such as: FVOCI debt instruments are subsequently measured at fair value with gains earned on assets mandatorily required to be measured at FVPL is recorded
using contractual interest rate. Dividend income from equity instruments The mechanics of the ECL calculations are outlined below and the key
and losses arising due to changes in fair value recognized in OCI. Interest
• How the performance of the business model and the financial assets held measured at FVPL is recorded in profit or loss as other operating income when elements are, as follows:
income and foreign exchange gains and losses are recognized in profit or loss
within that business model are evaluated and reported to the entity’s key in the same manner as for financial assets measured at amortized cost as the right to the payment has been established.
management personnel. explained in note 3.3.2.1. The ECL calculation for Debt instruments at FVOCI PD The Probability of Default is an estimate of the likelihood of
3.3.3.  Reclassification of financial assets and liabilities default over a given time horizon. A default may only happen
• The risks that affect the performance of the business model (and the is explained in Note 33.2.2. Where the Bank holds more than one investment
The Bank does not reclassify its financial assets subsequent to their initial at a certain time over the assessed period, if the facility has not
financial assets held within that business model) and, in particular, the in the same security, they are deemed to be disposed of on a first–in first–out been previously de de–recognized and is still in the portfolio. The
recognition, apart from the exceptional circumstances in which the Bank
way those risks are managed. basis. On de recognition, cumulative gains or losses previously recognized in concept of PDs is further explained in note 33.2.2.
acquires, disposes of, or terminates a business line. Financial liabilities are
• How managers of the business are compensated (for example, whether OCI are reclassified from OCI to profit or loss.
never reclassified. The Bank did not reclassify any of its financial assets or EAD The Exposure at Default is an estimate of the exposure at a
the compensation is based on the fair value of the assets managed or on liabilities in 2019. future default date, taking into account expected changes in
3.3.2.4.  Equity instruments at FVOCI the exposure after the reporting date, including repayments
the contractual cash flows collected).
Upon initial recognition, the Bank occasionally elects to classify irrevocably of principal and interest, whether scheduled by contract or
• The expected frequency, value and timing of sales are also important 3.3.4.  Impairment of financial assets
some of its equity investments as equity instruments at FVOCI when they otherwise, expected drawdowns on committed facilities, and
aspects of the Bank’s assessment. 3.3.4.1.  Overview of the ECL principles accrued interest from missed payments. The EAD is further
meet the definition of definition of Equity under IAS 32 Financial Instruments:
The ECL allowance is based on the credit losses expected to arise over the explained in note 33.2.2.
Presentation and are not held for trading. Such classification is determined on
The business model assessment is based on reasonably expected scenarios life of the asset (the lifetime expected credit loss or LTECL), unless there has
an instrument-by- instrument basis. LGD The Loss Given Default is an estimate of the loss arising in the
without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash been no significant increase in credit risk since origination, in which case, case where a default occurs at a given time. It is based on the
flows after initial recognition are realized in a way that is different from the Gains and losses on these equity instruments are never recycled to profit. the allowance is based on the 12 months’ expected credit loss (12mECL) as difference between the contractual cash flows due and those that
Bank’s original expectations, the Bank does not change the classification of Dividends are recognized in profit or loss as other operating income when the outlined in Note 3.3.4.2). The Bank’s policies for determining if there has been the lender would expect to receive, including from the realization
the remaining financial assets held in that business model, but incorporates a significant increase in credit risk are set out in Note 3.3.5. of any collateral. It is usually expressed as a percentage of the
right of the payment has been established, except when the Bank benefits EAD. The LGD is further explained in note 33.2.2.
such information when assessing newly originated or newly purchased from such proceeds as a recovery of part of the cost of the instrument, in
financial assets going forward. The 12mECL is the portion of LTECLs that represent the ECLs that result
which case, such gains are recorded in OCI. Equity instruments at FVOCI are When estimating the ECLs, the Bank considers three scenarios (a base case,
from default events on a financial instrument that are possible within the
not subject to an impairment assessment. an upside, downside (‘average base’)). When relevant, the assessment of
The SPPI test 12 months after the reporting date.
Second step of its classification process the Bank assesses the contractual multiple scenarios also incorporates how defaulted loans are expected to be
3.3.2.5.  Debt issued and other borrowed funds recovered, including the probability that the loans will cure and the value of
terms of financial to identify whether they meet the SPPI test. Both LTECLs and 12mECLs are calculated on either an individual basis or
After initial measurement, debt issued and other borrowed funds are collateral or the amount that might be received for selling the asset.
a collective basis depending on the nature of the underlying portfolio of
subsequently measured at amortized cost. Amortized cost is calculated by
‘Principal’ for the purpose of this test is defined as the fair value of the financial instruments.
taking into account any discount or premium on issue funds, and costs that With the exception of credit cards and other revolving facilities, for which
financial asset at initial recognition and may change over the life of
are an integral part of the effective interest rate (EIR). A compound financial the treatment is separately set out in Note 2.6.5, the maximum period for
the financial asset (for example, if there are repayments of principal or The Bank has established a policy to perform an assessment at the end of
instrument which contains both a liability and an equity component is which the credit losses are determined is the contractual life of a financial
amortization of the premium/discount). each reporting period of whether a financial instrument’s credit risk has
separated at the issue date. instrument unless the Bank has the legal right to call it earlier.
increased significantly since initial recognition, by considering the change
The most significant elements of interest within a lending arrangement are in the risk of default occurring over the remaining life of the financial
typically the consideration for the time value of money and credit risk. To instrument. This is further explained in note 33.2.2
make the SPPI assessment, the Bank applies judgment and considers relevant
factors such as the currency in which the financial asset is denominated, and
the period for which the interest rate is set.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 34 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 35

Notes to the Financial Statements continued

For the year ended 31 December 2019

The mechanics of the ECL method are summarized below: The ongoing assessment of whether a significant increase in credit risk has iv) Doubtful: These are loans and advances which display all the weaknesses 3.5.  Fair value measurement
occurred for revolving facilities is similar to other lending products. This inherent in loans and advances classified as Substandard but with the Fair value is the price that would be received to sell an asset or paid to
Stage 1 The 12mECL is calculated as the portion of LTECLs that represent is based on shifts in the customer’s internal credit grade, as explained in added characteristics that they are not well secured and the weaknesses transfer a liability in an orderly transaction between market participants
the ECLs that result from default events on a financial instrument Note 33.2.2 but greater emphasis is also given to qualitative factors such as make collection or liquidation in full, on the basis of currently available at the measurement date in the principal or, in its absence, the most
that are possible within the 12 months after the reporting changes in usage. information, highly questionable and improbable. The possibility of loss advantageous market to which the Bank has access at the date. The fair value
date. The Bank calculates the 12mECL allowance based on the is extremely high, but because of certain mitigating circumstances, of a liability reflects its non-performance risk.
expectation of a default occurring in the 12 months following the The interest rate used to discount the ECLs for credit cards is based on which may work to the advantage and strengthening of the facility, its
reporting date.
the average effective interest rate that is expected to be charged over classification as an estimated loss is postponed until its more defined When available, the Bank measures the fair value of an instrument using the
These expected 12–month default probabilities are applied to a the expected period of exposure to the facilities. This estimation takes status is ascertained. Further all loans and advances which are past due quoted price in an active market for that instrument. A market is regarded
forecast EAD and multiplied by the expected LGD and discounted into account that many facilities are repaid in full each month and are by 121 to 480 days for principal or interest payments are also classified as as active if transactions for the asset or liability take place with sufficient
by an approximation to the original EIR. This calculation is made consequently charged no interest. frequency and volume to provide pricing information on an ongoing basis.
for each of the three scenarios, as explained above. Doubtful. A provision is maintained in the books of account not less than
50% of value of such loans and advances.
Stage 2 When a loan has shown a significant increase in credit risk since The calculation of ECLs, including the estimation of the expected period of If there is no quoted price in an active market, then the Bank uses valuation
origination, the Bank records an allowance for the LTECLs. The exposure and discount rate is made, on an individual basis for corporate and v) Loss: These are loans and advances which are considered uncollectible techniques that maximizes the use of relevant observable inputs and
mechanics are similar to those explained above, including the on a collective basis for retail products. The collective assessments are made minimize the use of unobservable all of the factors that market participants
use of multiple scenarios, but PDs and LGDs are estimated over
and of such little value that their continuation as recoverable facilities
the lifetime of the instrument. The expected cash shortfalls are
separately for portfolios of facilities with similar credit risk characteristics. is not defensible. This classification does not imply that the facility has would take into account in pricing a transaction.
discounted by an approximation to the original EIR. absolutely no recoverable value, but rather it is not practical or desirable
3.3.4.5.  Forward looking information to defer making full provisions for the facility even though partial recover The best evidence of the fair value of a financial instrument at initial
Stage 3 For loans considered credit–impaired (as defined in note 33.2.2), In its ECL models, the Bank relies on a broad range of forward looking recognition is normally the transaction price - i.e. the fair value of the
the Bank recognizes the lifetime expected credit losses for these in future may not be entirely ruled out. Loans and advances classified
information as economic inputs, such as: as Loss include those to bankrupt companies and insolvent firms with consideration given or received. If the Bank determines that the fair value
loans. The method is similar to that for Stage 2 assets, with the PD
set at 100%. negative working capital and cash flow or those to judgment debtors with at initial recognition differs from the transaction price and the fair value
• GDP growth is evidenced neither by a quoted price in an active market for an identical
POCI POCI assets are financial assets that are credit impaired on initial no means or foreclosable collateral to settle the debts. Further, all loans
• Unemployment rates and advances which are past due over 481 days for principal and interest asset or liability nor based on a valuation technique that uses only data from
recognition. The Bank only recognizes the cumulative changes
payments are classified as Loss. This category of loans shall be retained in observable markets, the financial instrument is initially measured at fair value,
in lifetime ECLs since initial recognition, based on a probability– • Consumer price indices
weighting of the three scenarios, discounted by the credit– bank balance sheet for the period of 6 month for recovery purposes and adjusted to defer the difference between the fair value at initial recognition
adjusted EIR. 3.3.5.  Impairment provision under local regulations 100% loan loss provisioning should be made. After 6 months, they shall be and the transaction price. Subsequently, that difference is recognized in
Loans and advances to customers immediately written off with the provisioning made. profit and loss in an appropriate basis over the life of the instrument but no
Loan commitments and letters of credit The outstanding principal of the advances are classified in accordance with later than when valuation is wholly supported by observable market data or
When estimating LTECLs for undrawn loan commitments, the Bank estimates the Asset Classification and Provisioning Regulation issued by DAB as follows: The bank has also determined provision for expected credit losses under transaction is closed out.
the expected portion of the loan commitment that will be drawn down over IFRS 9 which results higher than provision under Asset Classification
its expected life. The ECL is then based on the present value of the expected i) Standard: These are loans and advances, which are paying in a current Provisioning Regulation, accordingly higher provisions were in cooperated If an asset or a liability measured at fair value has a bid price and an ask price,
shortfalls in cash flows if the loan is drawn down, based on a probability- manner or at most past due for the period of 1-30 days, fully secured and in the financial statements as disclosed in note 9.4 to the financial then the Bank measures assets and long positions at a bid price and liabilities
weighting of the three scenarios. The expected cash shortfalls are discounted is supported by sound net worth, profitability, liquidity and cash flow of statements. and short position at an ask price.
at an approximation to the expected EIR on the loan. For credit cards and the obligor. Standard assets are sufficiently secured with respect to the
revolving facilities that include both a loan and an undrawn commitment, Investments, placements and other assets Portfolio of financial assets and financial liabilities that are exposed to market
repayment of both the principal amount and interest. An overdraft would
ECLs are calculated and presented together with the loan. For loan The bank has policy of maintaining general provision on placements and risk and credit risk that are managed by the Bank on the basis of the net
be regarded as Standard if monthly interest payments and other charges
commitments and letters of credit, the ECL is recognized within provisions, as investments based on the credit rating, falling in category A (0%), B (0.50%) exposure to either market risk or credit risk or measured on the basis of a
are past due for 1-30 days, and there was regular activity on the account
disclosed in note 18.2 to the financial statements. and C (1%), entity also determine provision for expected credit losses under price that would be received to sell a net long position (or paid to transfer
with no sign of a hard core of debt developing. A standard provision is
IFRS 9, the financial statements are in cooperated with higher provision a net short position) for a particular risk exposure. Those portfolio-level
maintained in the books of account @1% (31 December 2018: 1%) of value
Financial guarantee contracts impact resulting from the mentioned methods, as disclosed in notes 7.2.2 & adjustments are allocated to the individual assets and liabilities on the basis
of such loans and advances.
The Bank estimates ECLs based on the present value of the expected 8.5.2 to the financial statements. of the relative risk adjustment of each of the individual instruments in the
payments to reimburse the holder for a credit loss that it incurs. The shortfalls ii) Watch: These are loans and advances which are adequately protected portfolio.
are discounted by the risk-adjusted interest rate relevant to the exposure. but are potentially weak. Such an asset constitutes an unwarranted credit Off-balance sheet item
The calculation is made using a probability-weighting of the three scenarios. General provision of 1% is maintained on bank guarantees and letter of credits The Bank recognizes transfer between levels of the fair value hierarchy as of
risk, but not to the point of requiring a classification of Substandard. The
The ECLs related to financial guarantee contracts are recognized within on unsecured portion by cash margin as required in Asset Classification the end of the reporting period during which the change has occurred.
credit risk may be minor, and most instances, bank management can
provisions, as disclosed in note 18.2 to the financial statements. correct the noted deficiencies with increased attention. Further, all loans and Provisioning Regulation issued by DAB, however, entity also determine
3.6.  Operating fixed assets
and advances which are past due by 31 to 60 days for principal or interest provision for expected credit losses on off-balance sheet items under IFRS
3.3.4.3.  Debt instruments measured at fair value through OCI These are stated at historical cost less accumulated depreciation and
payments are classified as Watch. A provision is maintained in the books of 9, the financial statements are in cooperated with higher provision impact
The ECLs for debt instruments measured at FVOCI do not reduce the carrying impairment, if any, except for land and capital work in progress which is
account not less than 5% of value of such loans and advances. resulting from the mentioned methods, as disclosed in note 18.2 to the
amount of these financial assets in the statement of financial position, which stated at cost less impairment, if any. Historical cost includes expenditure
financial statements.
remains at fair value. Instead, an amount equal to the allowance that would that is directly attributable to the acquisition of the asset.
iii) Substandard: These are loans and advances which show clear
arise if the assets were measured at amortized cost is recognized in OCI as an manifestations of credit weaknesses that jeopardize the liquidation of the 3.4.  Financial liabilities
accumulated impairment amount, with a corresponding charge to profit or Subsequent costs are included in the asset’s carrying amount or recognized
debt. Substandard loans and advances include loans to borrowers whose The Bank classifies its financial liabilities in following categories.
loss. The accumulated loss recognized in OCI is recycled to the profit and loss as a separate asset, as appropriate, only when it is probable that future
cash flows are not sufficient to meet currently maturing debts, loans to
upon de recognition of the assets. a) Financial liabilities at fair value through profit or loss economic benefits associated with the item will flow to the Bank and the cost
borrowers which are significantly undercapitalized, and loans to borrowers
Financial liabilities at fair value through profit or loss are financial liabilities of the item can be measured reliably. The carrying amount of the replaced
lacking sufficient working capital to meet their operating needs.
3.3.4.4.  Credit cards and other revolving facilities held for trading. A financial liability is classified in this category if incurred part is derecognized. All other repairs and maintenance are recognized in
The Bank’s product offering includes a variety of corporate and retail principally for the purpose of trading or payment in the short term. statement of comprehensive income during the financial period in which they
Further, all loans and advances which are past due by 61 to 120 days
overdraft and credit cards facilities, in which the Bank has the right to Derivatives (if any) are also categorized as held for trading unless they are are incurred.
for principal or interest payments are also classified as Substandard. A
cancel and/or reduce the facilities with one day’s notice. The Bank does provision is maintained in the books of account not less than 25% of value designated as hedges
not limit its exposure to credit losses to the contractual notice period, but, of such loans and advances.
instead calculates ECL over a period that reflects the Bank’s expectations b) Other financial liabilities measured at amortized cost
of the customer behavior, its likelihood of default and the Bank’s future These are non-derivatives financial liabilities with fixed or determinable
risk mitigation procedures, which could include reducing or cancelling the payments that are not quoted in an active market. These are
facilities. Based on past experience and the Bank’s expectations, the period recognized initially at fair value, net of transaction costs incurred and
over which the Bank calculates ECLs for these products, is one year for are subsequently stated at amortized cost; any differences between
corporate and 3 years for retail products. the proceeds (net of transaction costs) and the redemption value is
recognized in the income statement.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 36 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 37

Notes to the Financial Statements continued

For the year ended 31 December 2019

Depreciation is calculated using the straight-line method to allocate the 3.9.  Taxation 3.12.  Transactions and balances a) Impairment losses on financial assets
depreciable amount of the assets over their estimated useful life as follows: Current Foreign currency transactions are translated into functional currency using The banks accounting framework considers both the provision prescribed
The current income tax charge is calculated in accordance with Income Tax the exchange rate prevailing at the date of the transaction. Foreign currency under local regulations in Afghanistan and IFRS 9. Therefore, the Bank’s level
Building 20 years Law, 2009. Management periodically evaluates positions taken in tax returns assets and liabilities are translated using the exchange rate at the balance of provision for impairment against financial asset considers the requirements
Leasehold improvements 3 to 10 years with respect to situations in which applicable tax regulation is subject to sheet date. Foreign exchange gains and losses resulting from the settlement of both regimes.
Computers 3 to 5 years interpretation and establishes provisions where appropriate on the basis of of such transactions and from the translation at period-end exchange rates
Office equipment 3 to 5 years amounts expected to be paid to the tax authorities. of assets and liabilities denominated in foreign currencies are recognized in The measurement of impairment losses under IFRS 9across all categories
Furniture and fittings 3 to 10 years income currently. of financial assets requires judgment, in particular, the estimation of
ATMs 5 years Deferred the amount and timing of future cash flows and collateral values when
Vehicles 5 years Deferred tax is recognized on temporary differences between the The exchange rate for following major currencies against AFN were: determining impairment losses and the assessment of a significant increase
carrying amounts of assets and liabilities in the financial statements and in credit risk. These estimates are driven by a number of factors, changes in
Depreciation is charged on additions during the year from the month they the corresponding tax bases used in the computation of taxable profit. 1 USD 1 Euro which can result in different levels of allowances.
become available for their intended use while no depreciation is charged Deferred tax liabilities are generally recognized for all taxable temporary As at 31 December 2019 77.46 86.18
in the month of disposal of assets. The residual values, useful lives and differences. Deferred tax assets are generally recognized for all deductible The Bank’s ECL calculations are outputs of complex models with a number
depreciation method are reviewed and adjusted, if appropriate, at each temporary differences to the extent that it is probable that taxable profits As at 31 December 2018 75.31 86.01 of underlying assumptions regarding the choice of variable inputs and
statement of financial position date. will be available against which those deductible temporary differences can their interdependencies. Elements of the ECL models that are considered
be utilized. Such deferred tax assets and liabilities are not recognized if the 3.13.  Provisions accounting judgments and estimates include:
Gains and losses on disposal of property and equipment are determined by temporary difference arises from goodwill or from the initial recognition Provisions are recognized when there are present, legal or constructive
comparing proceeds with the carrying amount. These are included in other (other than in a business combination) of other assets and liabilities in a obligations as a result of past events; it is probable that an out flow of • The Bank’s criteria for assessing if there has been a significant increase in
income in the statement of comprehensive income. transaction that affects neither the taxable profit nor the accounting profit. resources embodying economic benefits will be required to settle the credit risk and so allowances for financial assets should be measured on a
obligation; and a reliable estimate of the amounts can be made. Provision for LTECL basis and the qualitative assessment;
3.7.  Intangible assets 3.10.  Revenue recognition guarantee claims and other off-balance sheet obligations is recognized when • The Bank’s internal credit grading model
Intangible assets are capitalized only to the extent that the future economic a) Interest income and expenses for all interest-bearing financial intimated and reasonable certainty exists to settle the obligations.
benefits can be derived by the Bank having useful life of more than one • The segmentation of financial assets when their ECL is assessed on a
instruments, except for those classified as held for trading or designated
year. Intangible assets are stated at cost less accumulated amortization. 3.14.  Offsetting of financial instruments collective basis
at fair value through profit or loss, are recognized within `interest income’
Amortization is charged to income applying the straight-line method. and `interest expense’ in the statement of comprehensive income using Financial assets and financial liabilities are offset and the net amount is • Development of ECL models, including the various formulas and the
the effective interest rate method. reported in the financial statements when there is a legally enforceable right choice of inputs to such models.
i) Core Deposits to offset the recognized amounts and the Bank intends to settle either on a • Determination of associations between macroeconomic scenarios and,
The Core Deposits is capitalized resulting from the acquisition of deposit The effective interest method is a method of calculating the amortized net basis or realize the assets and settle the liabilities simultaneously. economic inputs, such as GDP growth
base of Standard Chartered Bank (SCB) Afghanistan operations during cost of a financial asset or a financial liability and of allocating the interest
2012 which is amortized over the useful life of 15 years. 3.15.  Dividend Distribution • Selection of forward-looking macroeconomic scenarios and their
income or interest expense over the relevant period. The effective interest
Final dividend distributions to the bank’s shareholders are recognized as a probability weightings, to derive the economic inputs into the ECL models
rate is the rate that exactly discounts estimated future cash payments or
ii) Computer software liability in the financial statements in the period in which the dividends are
receipts through the expected life of the financial instrument or, when It has been the Bank’s policy to regularly review its models in the context of
Acquired computer software is capitalized on the basis of the costs approved by the Bank’s shareholders at the Annual General Meeting while
appropriate, a shorter period to the net carrying amount of the financial actual loss experience and adjust when necessary.
incurred to acquire and bring to use the specific software. These costs are interim dividend are recognized in the period in which the dividends are
asset or financial liability. When calculating the effective interest rate,
amortized over their estimated useful life of 3 to 10 years. declared by the Board of Supervisors.
the Bank estimates cash flows considering all contractual terms of the The Bank reviews loans to customer balances quarterly for possible
iii) License fee financial instrument but does not consider future credit losses. impairment and records the provision for possible loan losses as per the Bank’s
3.16.  Earnings per share
Acquired trademarks and licenses are initially recognized at historical The Bank presents basic and diluted earnings per share (EPS) data for its policy and in accordance with DAB regulations.
b) Due but unpaid interest income is accrued on overdue advances for
cost and subsequently recognized at cost less accumulated amortization. ordinary shares. Basic EPS is calculated by dividing the profit or loss that is
periods up to 90 days in compliance with the Banking regulations issued b) Provision of income taxes
Amortization is calculated using the straight-line method to allocate the attributable to shareholders of the Bank by the weighted-average number of
by DAB. After 90 days, overdue advances are classified as non-performing The Bank recognizes tax liability in accordance with the provisions of Income
cost of the licenses over their estimated useful life. shares outstanding during the year.
and further accrual of unpaid interest income ceases. Tax Law 2009. The final tax liability is dependent on assessment by Ministry of
The useful lives of intangibles are reviewed and adjusted, if appropriate, at 3.17.  Employee benefits Finance, Government of Islamic Republic of Afghanistan.
c) Gains and losses on disposal of property and equipment are recognized in
each statement of financial position date. Defined contribution plan
the period in which disposal is made. c) Useful life of property and equipment and intangible assets
Obligations for contributions to defined contribution plans are expensed as
3.8.  Impairment of non-financial assets The Bank reviews the useful life, depreciation method and residual value of
d) Fees and commission income and expense are recognized on an accrual the related service is provided and recognized as personnel expenses (salaries
Non-financial assets that have an indefinite useful life are not subject property and equipment and intangible assets at each statement of financial
basis when the service has been provided/received. and benefits) in profit or loss. Prepaid contributions are recognized as an
to amortization and are tested annually for impairment. Non-financial position date. Any change in estimates may affect the carrying amounts of
asset to the extent that a cash refund or a reduction in future payments is
assets that are subject to depreciation/ amortization are reviewed for the respective items of property and equipment and intangible assets with a
e) Fee and commission income that are integral part to the effective interest available.
impairment whenever events or changes in circumstances indicate that the corresponding effect on the depreciation / amortization charge.
rate on financial assets and liability are included in the measurement of
carrying amount may not be recoverable. An impairment loss or reversal of effective interest rate. Other fee and commission expenses related mainly Short-term benefits
impairment loss is recognized in the statement of comprehensive income. to the transactions are services fee, which are expensed as the services are Short-term employee benefit obligations are measured on an undiscounted
An impairment loss is recognized for the amount by which the asset’s received. basis and are expensed as the related service is provided.
carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs to sell and value in use. For the 3.11.  Foreign currency transactions and translation 4.  Use of critical accounting estimates and judgments
purposes of assessing impairment, assets are grouped at the lowest levels for a) Functional and presentation currency The Bank makes estimates and assumptions that affect the reported
which there are separately identifiable cash flows (cash-generating units). Items included in the financial statements of the Bank are measured using the amounts of assets and liabilities within the next financial year. Estimates
currency of the primary economic environment in which the entity operates and judgments are continually evaluated based on historical experience and
Non-financial assets other than goodwill that suffered impairment are (the functional currency), which is Afghani (AFN). All amounts have been other factors, including expectations of future events that are believed to
reviewed for possible reversal of the impairment at each reporting date. rounded to the nearest thousands, except when otherwise indicated be reasonable under the circumstances. The resulting accounting estimates
Reversal of the impairment losses is restricted to the original cost of the and judgments will, by definition, rarely equal the related actual results. The
assets. material estimates, assumptions and judgments used to measure and classify
the carrying amounts of assets and liabilities are outlined below:
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 38 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 39

Notes to the Financial Statements continued

For the year ended 31 December 2019

5.  Cash and balances with Da Afghanistan Bank 7.  Placements – net
31 December 31 December 31 December 31 December
2019 2018 2019 2018
Note AFN ‘000’ AFN ‘000’ Note AFN ‘000’ AFN ‘000’

Cash in hand 2,432,604 1,791,885 Placements with banks 7.1 15,106,058 19,889,268
Cash in hand – Islamic banking division 180,747 115,728 Impairment allowances for losses 7.2 (21,011) (30,943)
Cash at Automated Teller Machines (ATMs) 648,553 725,223 15,085,047 19,858,325
3,261,904 2,632,836
Balances with Da Afghanistan Bank: 7.1. These represent USD and Euro denominated fixed term placements with financial institutions outside Afghanistan up to a maximum period of one year
Local currency: (2018: one year) and carry interest at rates ranging from 1.40% to 3.50% (31 December 2018: 1.15% to 3.25%) per annum.
  – Deposit facility accounts 5.1 1,107,189 2,821,706 7.2. Impairment allowance for placements
  – Required reserve accounts 5.2 588,501 620,660 7.2.1.  The table below shows the credit quality and the maximum exposure to credit risk for categories based on the Bank’s credit rating grades and year-end
stage classification as at 31 December 2019 and 2018, respectively. The amounts presented are gross of impairment allowances. Details of the Bank’s rating
  – Current accounts 496,894 1,221,241
grades are explained in note 32.2.2.
2,192,584 4,663,607
Foreign currency: 31 December 2019 31 December 2018
Stage 1 Stage 2 Stage 3
  – Required reserve accounts 5.2 5,337,790 5,768,379 Collective Collective Collective Total
AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’
  – Current accounts 3,066,739 2,900,678
Rating Performing
13,859,017 15,965,500
Investment Grade 13,809,990 774,600 – 14,584,590 19,889,268
Non-Investment Grade – 521,468 – 521,468 –
5.1. This represents interest bearing account carrying interest @ 0.10% (31 December 2018: 0.10%) per annum.
Total 13,809,990 1,296,068 – 15,106,058 19,889,268
5.2. Required reserves are maintained with DAB, denominated in respective currencies, to meet minimum reserve requirement in accordance with Article 3 Provision for expected credit losses (234) (821) – (1,055) (2,714)
“Required Reserves Regulation” of the Banking Regulations issued by DAB. Theses balances are interest free.
Provision for impairment losses as per ACPR - (note 7.2.2) – – – (19,956) (28,229)
6.  Balances with other banks Total (234) (821) – (21,011) (30,943)
31 December 31 December
2019 2018 Net balance 13,809,756 1,295,247 – 15,085,047 19,858,325
Note AFN ‘000’ AFN ‘000’

Outside Afghanistan:
7.2.2.  The provision for expected credit losses on placements as per IFRS 9 amounted to AFN 1,055 thousand (31 December 2018: AFN 2,714 thousand) which is
  With Standard Chartered Bank 6.1 – 4,216,826 lower from the one resulting from Assets Classification and Provisioning Regulation requirements (ACPR). Accordingly, the Bank has maintained higher provision
With Commerzbank, Germany: as required under ACPR.
  – in nostro accounts 6.2 77,070 149,930 8.  Investments – net
  – as cash margins held 6.3 18,590 18,074 31 December 2019 31 December 2018
Note AFN ‘000 AFN ‘000
95,660 168,004
Investment bonds 8.1 7,837,520 3,588,690
With Crown Agents Bank:
Debt instruments at amortised cost:
  – in nostro accounts 6.4 2,893,292 1,615,896
Capital notes with DAB 8.2 742,372 1,144,940
  – as cash margins held – 7,259
Treasury bills 8.3 934,684 2,685,978
2,893,292 1,623,155
Investment bonds 8.4 9,415,638 11,028,686
With other banks 6.5 4,248,819 4,087,993
11,092,694 14,859,604
7,237,771 10,095,978
18,930,214 18,448,294
Allowance for ECL / impairment losses 8.5 (14,465) (24,589)
6.1.  These represented balances with Standard Chartered Bank in Singapore, New York, Frankfurt, London and Dubai, in USD, EURO, GBP and AED currencies,
18,915,749 18,423,705
which carried interest rates ranging from 0.05% to 0.80% p.a. These balances are available on demand basis.

6.2. These represent non-interesting bearing balances available on demand basis.

8.1. These represent investments in sovereign bonds having maturity ranging from January 2020 to April 2026 (31 December 2018: April 2019 to April 2025)
6.3. This represents the amounts held against the counter guarantees issued by Commerzbank, Germany. and carrying interest rates ranging from 2.38% to 8.75% (31 December 2018: 2.38 % to 8.75%) per annum. These investments are managed by Julius Baer and
Emirates NBD on behalf of the Bank.
6.4. These represent interesting bearing balances (2018: non-interest bearing) which carry interest of 1.50% p.a.
8.2. These represent investments in Capital notes issued by DAB having maturity ranging from February to November 2020 (31 December 2018: three to six
6.5. These represent non-interest bearing balances available with different banks for which details are included in note 33.2.5. months) carrying yield ranging from 0.93% to 2.20% (31 December 2018: 0.50% to 0.91%) per annum receivable on maturity of respective notes.

8.3. This represents investment in United States of America - Treasury bills having maturing in January 2020 (31 December 2018: one month to three months),
carrying yield of 1.53% (31 December 2018: 2.29% to 2.39%) per annum receivable on maturity.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 40 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 41

Notes to the Financial Statements continued

For the year ended 31 December 2019

8.4. These represent investments in sovereign bonds carrying interest rates ranging from 1.25% to 7.75% (31 December 2018: 1.25% to 7.75%) per annum. 9.3. These include payroll loans provided to individual payroll account holders and employees of corporate customers having payroll account with the Bank
These investments have maturity ranging from January 2020 to August 2025 (31 December 2018: January 2019 to August 2025). These investments are carrying interest rate of18% (31 December 2018: 18%) p.a., loans provided to university and school teachers carrying interest rate of 15% (31 December 2018:
managed by Julius Baer, Credit Suisse and Emirates NBD on behalf of the Bank. 15%) and credit card loans carrying interest of 36% (31 December 2018: 36%) on annual basis on outstanding balances.

8.5. Impairment allowance for investments 9.4. This represent additional general provision maintained by the bank which is duly approved by DAB.
8.5.1.  The table below shows the credit quality and the maximum exposure to credit risk for categories based on the Bank’s credit rating grades and year-end
stage classification as at 31 December 2019 and 2018, respectively. The amounts presented are gross of impairment allowances. Details of the Bank’s rating 9.5. Allowance for ECL / Impairment allowance for loans and advances to customers
grades are explained in note 32.2.2. 9.5.1.  The table below shows the credit quality and the maximum exposure to credit risk for categories based on the Bank’s credit rating grades and year-end
stage classification as at 31 December 2019 and 2018, respectively. The amounts presented are gross of impairment allowances. Details of the Bank’s rating
31 December 2019 31 December 2018 grades are explained in note 32.2.2.
Stage 1 Stage 2 Stage 3
Collective Collective Collective Total 31 December 2019 31 December 2018
AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’
Stage 1 Stage 2 Stage 3 Total
Rating Performing AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’

Investment Grade 12,739,685 5,282,575 – 18,022,260 16,177,079 Gross loan portfolio

Non-Investment Grade – 817,373 – 817,373 2,163,782 Internal Rating Grade Performing

Total 12,739,685 6,099,948 – 18,839,633 18,340,861 High Grade 583,822 56,571 – 640,393 868,331

Provision for expected credit losses – (9,813) – (9,813) (19,064) Standard Grade 1,614,068 1,194,418 – 2,808,486 2,193,506

Provision for Impairment losses as per ACPR - (note 8.5.2) – – – (4,652) (5,524) Sub Standard Grade 3,920 10,819 – 14,739 44,379

Total – (9,813) – (14,465) (24,588) Non-performing – – 327,714 327,714 10,928

Mark to market adjustment on debt instruments at fair Total 2,201,810 1,261,808 327,714 3,791,332 3,117,144
value through OCI – – – 90,581 107,432
Allowance for ECL / impairment losses 93,739
Net balance 12,739,685 6,090,135 – 18,915,749 18,423,705
Opening balance 26,011 33,945 8,952 68,908
Allowances for impairment made during the year (15,175) (5,200) 166,799 146,424 (5,293)
8.5.2.  The provision for expected credit losses on investments as per IFRS 9 amount to AFN 9,813 thousand (31 December 2018: AFN 24,588 thousand) which Amounts written off during the year - note 9.5.2 – – (12,374) (12,374) (15,490)
is lower from Assets Classification and Provisioning Regulation requirements (ACPR). Accordingly, the Bank has maintained higher provision as required under
Exchange rate differences and other adjustments 15,644 15,644 (4,048)
ACPR.
Provision held for expected credit losses - note 9.5.3 10,836 28,745 179,021 218,602 68,908
9.  Loan and advances to customers – net
Net balance 2,190,974 1,233,063 148,693 3,572,730 3,048,236
31 December 2019 31 December 2018
Note AFN ‘000 AFN ‘000

Overdrafts 9.1 3,208,365 2,433,694 9.5.2.  The Bank has filed suits for the recovery of loans and advances (principal due) against the defaulted borrowers amounting to AFN 1,029,119 thousand
Term loans 9.2 531,421 633,716 (31 December 2018: AFN 754,965 thousand) as at the year end. These suits are pending decisions at various courts. The Bank’s management is of the view that
the aforementioned suits will be decided in its favor due to sound legal footings.
Consumer loans 9.3 51,546 49,734
3,791,332 3,117,144 9.5.3.  IFRS 9 expected credit loss amounts to AFN 218,601 thousand as at 31 December 2019. The provision of AFN 212,927 thousand (General provision: AFN
21,061 thousand and Specific provision: AFN 191,866 thousand) (31 December 2018: provision of AFN 63,867 comprising of General provision of AFN 28,668
General provision 9.4 (154,920) (150,620)
thousand and Specific provision of AFN 35,199 thousand) made under Assets Classification and Provisioning Regulation is lower than IFRS 9 ECL, therefore, the
Allowance for ECL / impairment losses 9.5 (218,602) (68,908) Bank has maintained the higher provision under the requirements of IFRS 9.
3,417,810 2,897,616
10. Receivable from financial institutions
Particulars of loans and advances - (gross) 3,318,947 2,222,954 This represents non-interest bearing net receivable balance due from CSC Bank SAL (CSC). The Bank under the agreement with CSC provides the enablement
Short term (for up to one year) 472,500 894,190 platform for credit/ debit card transactions, under fee sharing arrangement, and transfers the cash in ATMs to CSC. Usage charges are payable by the Bank to
CSC.
Non-current (for over one year) 3,791,447 3,117,144

9.1. These represent balances due from customers at various interest rates ranging from 7% to 14.5% (31 December 2018: 7% to 15%) per annum and are
secured against mortgage of properties, personal guarantees and pledge of stocks. These include loans and advances to Small Medium Size Enterprises (SMEs)
amounting to AFN 71,884 thousand (31 December 2018: AFN 138,845 thousand) which are also partially backed by Afghanistan Credit Guarantee Foundation
(ACGF) guarantees to the extent defined in agreement with ACGF.

9.2. Term loans carry interest at various rates ranging from 5.5% to 21% p.a. (31 December 2018: 11% to 18% p.a.) and are secured against mortgage of
properties, personal guarantees, lien on equipment, pledge of stocks and/or assignment of receivables of the borrowers. These include loans and advances
to SMEs amounting to AFN 228,333 thousand (31 December 2018: AFN 587,070 thousand) which are also partially backed by Afghanistan Credit Guarantee
Foundation (ACGF) guarantees to the extent defined in agreement with ACGF.

9.2.1.  Term loans included Small Business loans amounted to AFN 32,819 thousand as of 31 December 2018 with interest rate ranging from 13% to 18% p.a.
These loans were secured against deposit of original title deed, corporate guarantee by a registered company and hypothecation of movable fixed assets as
collateral after registration from DAB.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 42 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 43

Notes to the Financial Statements continued

For the year ended 31 December 2019

11.  Operating fixed assets 12.  Intangible assets

31 December 2019 31 December 2018 31 December 31 December
Note AFN ‘000 AFN ‘000 2019 2018
Note AFN ‘000’ AFN ‘000’
Capital work–in–progress 11.1 339,623 79,949
Computer software, licenses and core deposits 12.1 426,328 394,538
Property and equipment 11.2 3,110,719 2,979,622
3,450,342 3,059,571
12.1. Computer software, licenses and core deposits
Computer software License fee Core deposits Total
11.1.  Capital work–in–progress AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000

Advances to suppliers and contractors 85,570 79,949 Cost

Advances to related party 254,053 – Balance at 01 January 2018 326,086 72,520 542,677 941,283

11.1.1 339,623 79,949 Transfers from CWIP 8,776 – – 8,776

Additions 23,989 711 – 24,700
11.1.1.  Movement in capital work in progress
Balance at 31 December 2018 358,851 73,231 542,677 974,759
Opening 79,949 2,264,025
Balance at 01 January 2019 358,851 73,231 542,677 974,759
Additions during the year 429,370 579,423
Transfers from CWIP 100,654 – – 100,654
Transferred to operating fixed assets (69,042) (2,754,723)
Additions 9,255 – – 9,255
Transferred to intangible assets (100,654) (8,776)
Balance at 31 December 2019 468,760 73,231 542,677 1,084,668
Closing 339,623 79,949

Amortization
11.2.  Property and equipment
Balance at 01 January 2018 245,602 56,708 193,055 495,365
Leased
buildings - Charge for the year 39,403 7,722 37,731 84,856
Right of Use Leasehold Office Furniture &
Land Building Assets improvements Computers equipment fittings ATMs Vehicles Total Balance at 31 December 2018 285,005 64,430 230,786 580,221

Cost Balance at 01 January 2019 285,005 64,430 230,786 580,221

Balance at 1 January 2018 177,568 – – 81,810 115,751 175,100 19,204 136,935 97,651 804,019 Charge for the year 36,128 7,336 34,655 78,119

Transfers from CWIP – 2,568,578 – 15,882 45,823 13,462 49,692 61,286 – 2,754,723 Balance at 31 December 2019 321,133 71,766 265,441 658,340

Additions – – – 658 11,610 4,349 98 2,694 82 19,491

Balance at 31 December 2018 177,568 2,568,578 – 98,350 173,184 192,911 68,994 200,915 97,733 3,578,233 Carrying amounts

Balance at 1 January 2019 177,568 2,568,578 – 98,350 173,184 192,911 68,994 200,915 97,733 3,578,233 Balance at 01 January 2018 113,249 16,523 349,622 479,394

Adjustment on transition to Balance at 31 December 2018 73,846 8,801 311,891 394,538

IFRS 16 329,926 329,926
Balance at 31 December 2019 147,627 1,465 277,236 426,328
Transfers from CWIP – 1,416 – 8,122 31,408 17,945 1,466 8,685 – 69,042
Useful life 3 to 10 years 3 to 10 years 15 years
Additions – – – – – – – – 715 715
Adjustments/ written–off – (1,245) (9,972) – – – – – (11,217)
Balance at 31 December 2019 177,568 2,569,994 328,681 96,500 204,592 210,856 70,460 209,600 98,448 3,966,699
Depreciation
Balance at 1 January 2018 – – – 75,447 87,093 165,010 17,055 93,539 83,695 521,839
Charge for the year – 10,908 – 7,186 11,144 22,563 1,637 16,613 6,721 76,772
Balance at 31 December 2018 – 10,908 – 82,633 98,237 187,573 18,692 110,152 90,416 598,611
Balance at 1 January 2019 – 10,908 – 82,633 98,237 187,573 18,692 110,152 90,416 598,611
Charge for the year – 128,580 63,916 6,698 35,476 7,151 2,702 17,088 4,022 265,633
Adjustments/ written–off – – – (8,264) – – – – – (8,264)
Balance at 31 December 2019 – 139,488 63,916 81,067 133,713 194,724 21,394 127,240 94,438 855,980
Carrying amounts
Balance at 1 January 2018 177,568 – – 6,363 28,658 10,090 2,149 43,396 13,956 282,180
Balance at 31 December 2018 177,568 2,557,670 – 15,717 74,947 5,338 50,302 90,763 7,317 2,979,622
Balance at 31 December 2019 177,568 2,430,506 264,765 15,433 70,879 16,132 49,066 82,360 4,010 3,110,719
1 to 3 to 3 to 3 to 3 to
Useful life 20 years 8 years 10 years 5 years 5 years 10 years 5 years 5 years
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 44 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 45

Notes to the Financial Statements continued

For the year ended 31 December 2019

13.  Deferred tax 14.1. Receivable from DoJ

31 December 31 December This represents receivables from the United States Government department, Department of Justice (the “DoJ”). The DoJ seized an amount of AFN 565.701
2019 2018 million (equivalent to USD 10.1 million) from the Bank’s account with Standard Chartered’s branch in New York. Pursuant to Title 18, U.S. Code Section 981(k),
Note AFN ‘000’ AFN ‘000’
the United States sought to reach the customer’s Afghan-based accounts by seizing funds from the Bank’s correspondent account in the United States. The
Deferred tax assets / (liabilities) arising in respect of: United States has not alleged any wrongdoing against the Bank. In September 2013, the United States returned to the Bank approximately USD 5.7 million,
Provision on investments, placements, loans and advances and other assets 7,096 40,756 plus accrued interest, of the seized funds. The United States then moved to strike AIB’s claim as to the remaining monies. In September 2015, that motion was
denied as to all but USD 147,939, leaving approximately USD 4.1 million at issue. AIB is in settlement discussion with the U.S. Government. However, on prudent
Provision on guarantees and commercial letter of credits 14,376 15,048 basis, the Bank has made provision of AFN 250,605 thousand in its books of account.
Surplus on revaluation of investments (17,110) 20,599
14.2. This represents provision maintained on advances to staff as per Asset Classification and Provisioning Regulation issued by DAB (31 December 2018:
Carry forward taxable losses 189,383 139,597
provision for expected credit losses on advances to staff).
Accelerated tax depreciation and amortization (228,044) (120,896)
15.  Customers’ deposits
13.1 (34,299) 95,104
31 December 2019 31 December 2019
Note AFN ‘000’ AFN ‘000’

13.1.  Movement in temporary differences during the year Current deposits 56,415,963 62,250,562
Balance at Recognized in Recognized in Balance at Recognized in Recognized in Balance at Saving deposits 15.1 244,037 224,981
01 January 2018 profit or loss equity 31 December 2018 profit or loss equity 31 December 2019
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 Term deposits 15.2 – 3,012,400
Deferred tax assets arising in respect of: Islamic deposits 15.3 1,335,000 881,714
Provision on investments placements and Cash margin held against bank guarantees and letters of credit 848,105 1,014,290
other assets 48,720 (7,963) – 40,757 (33,661) – 7,096
58,843,105 67,383,947
Provision on guarantees and commercial letter
of credits 13,648 1,399 – 15,047 (671) – 14,376 15.1. Saving deposits carry interest @ 3% p.a. (31 December 2018: 3% p.a.)
Carry forward taxable losses – 139,597 – 139,597 49,786 – 189,383
15.2. Term deposits carried interest rates ranging from 0.75% to 1.40% per annum.
62,368 133,033 – 195,401 15,454 – 210,855
Deferred tax liabilities arising in respect of: 15.3. Islamic deposits can be further analyzed as follows:
Revaluation reserve on investments (887) 21,486 20,599 (37,709) (17,110)
Current deposits 144,910 121,803
Accelerated tax depreciation and amortization 12,124 (133,020) – (120,896) (107,148) – (228,044)
Saving deposits 1,146,235 733,067
11,237 (133,020) 21,486 (100,297) (107,148) (37,709) (245,154)
Term deposits 43,855 26,845
73,605 13 21,486 95,104 (91,694) (37,709) (34,299)
1,335,000 881,715

14.  Other assets

16. Deposits from bank
31 December 31 December
2019 2018 Represents term deposit of AFN 500,000 thousand (31 December 2018: Nil) from Pashtany Bank that carries interest of 1.87% per annum and maturing on 8
Note AFN ‘000’ AFN ‘000’ June 2020.
Advances to employees 49,561 37,851
17.  Lease liabilities
Security deposits 8,821 8,805 31 December 2019 31 December 2019
Note AFN ‘000’ AFN ‘000’
Prepayments 206,222 153,237
Interest receivable 346,562 328,021 Adjustment on transition to IFRS 16 – opening balance as of 1 January 2019 317,856 –

Advance income tax – net 30,050 23,792 Additions during the year – –

Other receivable and advances 196,609 30,870 Derecognized during the year (1,113) –

Receivable from DoJ 14.1 250,605 250,605 Principal repayment (60,769) –

Less: Balance written off (250,605) (250,605) Finance cost accrued 5,351 –

– – Finance cost paid (8,223) –

837,825 582,576 Adjustments for the movement in lease liability 11,938 –

Allowance for ECL / impairment losses 14.2 (6) (9,709) 17.1 265,040 –

837,819 572,867
17.1. Lease liabilities represent the amounts payable relating to the right-of-use assets recognized on account of branches under operating leases. The maturity
analysis of lease liabilities is presented in note 33.3.2.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 46 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 47

Notes to the Financial Statements continued

For the year ended 31 December 2019

18.  Other liabilities 22.  Interest income

31 December 2019 31 December 2019 31 December 2019 31 December 2019
Note AFN ‘000’ AFN ‘000’ Note AFN ‘000’ AFN ‘000’

Accruals and other payables 12,148 37,426 Interest income on:

Amounts pending transfers to customers’ accounts 18.1 46,222 337,651 Balances with DAB and other banks 25,801 17,919
Retention money payable 14,927 15,341 Placements 494,077 417,418
Payable from sale of collateral against loans and advances written off 64,924 34,098 Debt instruments at FVOCI 200,179 140,186
Others 123,479 155,843 Debt instruments at amortized cost 283,565 276,172
Provision on: Loans and advances to customers 379,617 439,902
  Financial guarantees 18.2 71,582 75,234 1,383,239 1,291,598
  Commercial letter of credits 18.2 299 –
71,881 75,234 23.  Interest expense
333,581 655,593 31 December 2019 31 December 2018
Note AFN ‘000 AFN ‘000

Interest expense on:

18.1. This represents amounts received on behalf of the customers, however, not credited in the respective customer accounts due to incomplete
Customers’ deposits 33,261 41,575
identification data.
Deposits from bank 3,707 9,566
18.2. This represents 1% provision on unsecured portion of bank guarantees, not backed by cash margin, as required in Asset Classification and Provisioning 36,968 51,141
Regulation issued by DAB, however, IFRS 9 provision for expected credit loss computed on unfunded financing facilities amounts to AFN 47,074 thousands
(31 December 2018: AFN 23,363 thousands). The provision under regulations issued by DAB is higher than IFRS 9 ECL therefore, the Bank has maintained the
regulatory provision. 24.  Fee and commission income
19.  Share capital Fee and commission income on:
31 December 2019 31 December 2019 Loans and advances to customers 41,398 23,275
Authorized 30,000,000 (2018: 30,000,000) ordinary shares of USD 1 each USD ‘000’ 30,000 30,000 Trade finance products 51,254 52,599
AFN ‘000’ 1,465,071 1,465,071 Cash withdrawals / Cash transfers 512,184 469,339
Issued, subscribed and paid–up – 30,000,000 (31 December 2018: 30,000,000) ordinary shares of USD 1 Customers’ account service charges 131,403 107,645
each fully paid in cash AFN 1,465,071 1,465,071
Income from ATMs 97,798 91,301
Income from guarantee arrangements 138,154 70,163
19.1. Pursuant to letter no.918/703 dated 17 May 2010 issued by Da Afghanistan Bank (DAB), the Bank complies with the minimum paid-up capital requirement
Payroll services 75,509 53,717
for commercial banks in Afghanistan amounting to AFN 1 billion or US $ 20 million.
Others 34,173 49,035
19.2. Horizon Associates LLC and Wilton Holding Limited each hold 46.25% of issued, subscribed and paid up capital while remaining 7.5% is held by 1,081,873 917,074
International Finance Corporation which is same as per previous year.

19.3. During the year, the Bank has paid cash dividend of AFN 22.17 per share (31 December 2018: AFN 21.5 per share) amounting to AFN 665 million 25.  Fee and commission expense
(31 December 2018: AFN 645 million).
Guarantee / letter of credit commission 13,078 22,390
20. Capital reserves Bank charges 2,199 6,374
Article 93 “Reserve Capital” of Corporations and Limited Liability Companies Law of Afghanistan, requires that Bank should transfer 5% of its profit to Capital
15,277 28,764
Reserve to compensate for future possible losses to the extent such capital reserves reach up to 25% of the Bank’s capital. The Bank’s capital reserves as at 31
December 2019 stood at AFN 290,813 thousand (31 December 2018: AFN 260,405 thousand).

21.  Contingencies and commitments 26.  Other income

31 December 2019 31 December 2019 Loans and advances recovered previously written off 46,414 64,750
Note AFN ‘000’ AFN ‘000’

21.1. Contingencies
Financial guarantees 21.1.1 7,946,230 8,258,845

21.2. Commitments
(a) Undrawn loan and overdraft facilities 524,394 1,217,553
(b) Commercial letters of credit 48,537 25,333
572,931 1,242,886

21.1.1.  These represent bid bonds and performance-based guarantees issued by the Bank. These are 100% secured against the cash margin and counter
guarantees.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 48 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 49

Notes to the Financial Statements continued

For the year ended 31 December 2019

27. Credit losses (reversal) / expense 29. Taxation

The table below shows the ECL charges on financial instruments for the year recorded in the income statement: 31 December 2019 31 December 2018
Note AFN ‘000 AFN ‘000
31 December 2019 Current:
Stage 1 Stage 2 Stage 3
Collective Collective Collective Regulatory Total 31 December 2018 For the year 29.1 – –
Note AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’ AFN ‘000’
Prior periods (25,785) 170,420
Placements 7.2 (733) (926) – (8,273) (9,932) (81,322)
Deferred:
Investments 8.5 (9,251) – (873) (10,124) (100,997)
For the year 91,694 (115)
Loans and advances 9.5 (15,175) (5,200) 170,069 – 149,694 (5,293)
65,909 170,305
General provision 9.4 – – – 4,300 4,300 138,540
Other assets 14.2 – (9,703) – – (9,703) 3,962
29.1. Owing to carry forward tax losses, no provision for taxation has been made during the year.
Financial guarantees 18.2 – – – (3,652) (3,652) 9,924
Letter of credit 18.2 – – – 299 299 (2,928) 29.2. Relationship between tax expense and accounting profit

Total (reversal)/ impairment loss Accounting profit for the year 674,078 648,471
for the year (15,908) (25,080) 170,069 (8,199) 120,882 (38,114) Tax at the applicable rate of 20% 134,816 129,694
  Deductible expenses (135,648) (331,280)
28.  General and administrative expenses   Non-deductible expenses 832 61,989
31 December 2019 31 December 2018   Effect of temporary differences 21,354 (115)
Note AFN ‘000 AFN ‘000
  Effect of carry forward taxable losses 70,340 139,597
Salaries and benefits 613,301 574,445
  Adjustment in respect of income tax of prior years (25,785) 170,420
Rental, rates and taxes 28.1 34,540 105,917
65,909 170,305
Electricity, generator and fuel 89,743 57,794
Repairs and maintenance 20,766 25,516
Information technology cost 94,374 85,733
Security cost 122,368 112,260
Depreciation 11.2 265,633 76,771
Amortization 12.1 78,119 84,856
Directors fee and their meeting expenses 39,588 34,349
Travelling and accommodation 61,105 64,146
Communication, swift and internet 56,241 53,125
Stationery and printing 53,768 55,580
Legal and professional charges 94,971 155,188
Asset management fee to investment advisors 54,662 41,942
Auditors’ remuneration 10,093 8,370
Marketing and promotion 28,305 34,837
Money service providers charges 4,174 8,747
Insurance 155,302 144,496
Subscriptions and memberships 9,126 10,674
Other charges 82,401 52,540
Taxes and penalties 4,028 1,750
Corporate social responsibility 7,148 3,403
Others 21,191 20,044
2,000,947 1,812,483

28.1. This includes AFN 19,541 thousand on account of short-term lease (less than 12 months) which have not been accounted for in the lease model of IFRS 16
and recognized in expense on straight line basis.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 50 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 51

Notes to the Financial Statements continued

For the year ended 31 December 2019

30. Related party transactions 30.1. This represents the payments made to Mohib Advance Design Construction Company (MADCC) and Marco Polo Gulf Trading FZE against certain
The Bank has a related party relationship with its shareholders, their related entities, directors and key management personnel. The Bank had transactions with construction and other works remaining after completion of head office.
following related parties at mutually agreed terms during the year:
2019 2018
Directors and other key management personnel Shareholders and its AFN ‘000 AFN ‘000
(and close family members) associated companies
(d) Key Management compensation
2019 2018 2019 2018
Nature of transactions AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 Salaries and other short-term benefits 56,412 55,100

(a) Loans and advances to related parties 56,412 55,100

Loans outstanding at the beginning of the year – – 174,011 155,515

Key Management personnel of the Bank include the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer.
Loans issued during the year 1,908 – 169,316 171,995
31  Cash and cash equivalents
Loans repayments during the year – – (168,354) (153,306)
31 December 2019 31 December 2018
Exchange gain – – (193) (193) AFN ‘000 AFN ‘000

Loans outstanding at the end of the year 1,908 – 174,781 174,011 Cash in hand and at ATM 3,261,904 2,632,836
Interest income earned 57 – 11,544 14,812 Balances with DAB (other than minimum reserve requirement) 4,670,822 6,943,625
Balances with other banks 7,219,181 10,070,645
During the year, an amount of AFN 254,053 thousand (31 December 2018: AFN 446,356 thousand) was paid to MADCC (related party) for the construction of
head office building. Placements (with maturity less than three months) 13,222,511 14,890,545
28,374,418 34,537,651
Provision for expected credit losses on outstanding balances of loans and advances to related parties amounts to AFN 1,748 thousand (31 December 2018: AFN
1,364 thousand). 32 Earnings per share - Basic and diluted
31 December 2019 31 December 2018
The facilities provided to related parties carry mark-up of 7% p.a. (31 December 2018: 7% p.a.) payable on monthly basis and are secured against mortgage of
residential property and personal guarantees of directors and representative of shareholders of the Bank. Profit after taxation (AFN ‘000) 608,169 478,165
Weighted average number of ordinary shares - (number in thousand) 30,000 30,000
Directors and other key management personnel Shareholders and its
(and close family members) associated companies Earnings per share - Basic and diluted (AFN) 20.27 15.94
2019 2018 2019 2018
Nature of transactions AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000

(b) Deposits from related parties

32.1. There is no dilutive effect on basic earnings per share of the Bank.

Deposits at the beginning of the year 19,061 49,267 53,472 104,110 33. Financial risk management
Deposits received during the year 440,748 464,349 4,203,122 2,679,656 33.1. Financial Assets and Liabilities
Financial assets (other
Deposits repaid during the year (402,726) (498,441) (4,190,581) (2,751,110) than investments)– At Debt investments at Debt investments at fair Financial liabilities at
amortized cost amortized cost value through OCI amortized cost Total
Exchange rate difference 226 3,886 1,401 20,815 31 December 2019 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Deposits at the end of the year 57,309 19,061 67,414 53,472 Financial assets
Interest expense on deposits – – – – Cash and balances with Da Afghanistan Bank 13,859,017 – – – 13,859,017

These represent current account of related parties, which carry Nil interest rate (31 December 2018: Nil). Balances with other banks 7,237,771 – – – 7,237,771
Placements - net – 15,085,047 – – 15,085,047
Directors and other key management personnel Shareholders and its
(and close family members) associated companies Investments - net – 11,078,229 7,837,520 – 18,915,749
2019 2018 2019 2018 Loans and advances to customers - net 3,417,810 – – – 3,417,810
Nature of transactions AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Receivables from financial institutions 502,618 – – – 502,618
(c) Other related party transactions
Other assets – 551,986 – 551,986
Fee and commission income – – 6,017 13,203
25,017,216 26,715,262 7,837,520 – 59,569,998
Directors’ fee 30,038 22,264 – –
Fee and commission expense – – – –
Financial liabilities
Rental expenses – – 54,301 52,989
Customers’ deposits – – – 58,843,105 58,843,105
Travelling expense 9,550 10,851 – –
Deposit from banks – – – 500,000 500,000
Capital work-in-progress – – 254,053 417,497
Lease liabilities – – – 265,040 265,040
Guarantees issued by the Bank – – – 333
Other liabilities – – – 261,700 261,700
– – – 59,869,845 59,869,845
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 52 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 53

Notes to the Financial Statements continued

For the year ended 31 December 2019

Financial assets (other determined using migration of rating grades from one period to other within the PD observation period. Consumer lending comprises unsecured personal
than investments)- At Debt investments at Debt investments at fair Financial liabilities at loans, credit cards and overdrafts. PDs models of these products are primarily driven by days past due.
amortized cost amortized cost value through OCI amortized cost Total
31 December 2018 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Estimated historical realized default rates are adjusted for IFRS 9 ECL calculations to incorporate forward looking information and the IFRS 9 Stage classification
Financial assets of the exposure. This is repeated for each economic scenario as appropriate. For debt securities in the Treasury portfolio, external rating agency credit grades
Cash and balances with Da Afghanistan Bank 15,965,500 – – – 15,965,500 are used. The PDs associated with each grade are determined based on realized default rates as published by the rating agency.
Balances with other banks 10,095,978 – – – 10,095,978 Exposure at default
Placements - net 19,858,325 – – 19,858,325 The exposure at default (EAD) represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the
client’s ability to increase its exposure while approaching default and potential early repayments too.
Investments - net – 14,835,015 3,588,690 – 18,423,705
Loans and advances to customers - net 2,897,616 – – – 2,897,616 The EADs are determined based on the expected payment profile, which varies by product type. For amortizing products and bullet repayment loans, this is
Receivables from financial institutions 360,120 – – – 360,120 based on the contractual repayments owed by the borrower over the 12 months and lifetime basis. This is also adjusted for any overpayments made by the
borrower. For revolving products, the EAD is predicted by taking current drawn balance and adding a credit conversion factor which allows for the expected
Other assets – 357,987 – – 357,987 drawdown of the remaining limit by the time of default.
29,319,214 35,051,327 3,588,690 – 67,959,231
To calculate the EAD for a Stage 1 loan, the Bank assesses the possible default events within 12 months for the calculation of the 12mECL. For Stage 2, Stage 3
and POCI financial assets, the exposure at default is considered for events over the lifetime of the instruments.
Financial liabilities
Loss given default
Customers’ deposits – – – 67,383,947 67,383,947
Bank calculates LGD rates and these LGD rates take into account the EAD for historical pool of non-performing loans in comparison to the amount recovered
Deposit from banks – – – – – or realized against such loans. In determining LGDs, the Bank considers all eligible collateral provided the collateral can be legally enforced. Due to the
Other liabilities – – – 580,359 580,359 complexities involved in the Afghanistan regarding collateral realization and lack of historical experience to demonstrate recoveries through realization of
collaterals, the Bank restricts the expected recoveries (to be considered in LGD computations) based on its historical recovery experiences.
– – – 67,964,306 67,964,306
Significant increase in credit risk
The Bank continuously monitors all assets subject to ECLs. In order to determine whether an instrument or a portfolio of instruments is subject to 12mECL or
33.2.  Financial risk factors LTECL, the Bank assesses whether there has been a significant increase in credit risk since initial recognition. The Bank has established a policy to perform an
The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition. Significant
of risk or combination of risks. Taking risk is core to the financial business and the operational risks are an inevitable consequence of being in business. The increase in credit risk is measured by comparing the risk of default estimated at origination with the risk of default at reporting date. The Bank also applies a
Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Bank’s financial performance. secondary qualitative method for triggering a significant increase in credit risk for an asset, such as moving a customer/facility to the watch list, or the account
becoming forborne. Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have
The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and
increased significantly since initial recognition.
adherence to limits by means of reliable and up to date information systems. The Bank regularly reviews its risk management policies and systems to reflect
changes in markets, products and emerging best practice. Measuring expected credit losses - ECL
PD, EAD and LGD are multiplied together and adjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in earlier year) on annual
Risk management is carried out by a Risk Management Department (RMD) under policies approved by the Management Board. RMD identifies, evaluates and
basis. This effectively calculates an ECL for each future year, which is then discounted back to the reporting date and summed. The discount rate used in ECL
manages financial risks in close co-operation with the Bank’s operating units. The Management Board provides written principles for overall risk management,
computation is the original effective interest rate or an approximation thereof.
as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and use of non-derivative financial instruments.
The internal audit is responsible for the independent review of risk management and control environment. The most important types of risk are credit risk, Forward looking economic information is also included in determining the 12 month and lifetime ECL. The bank has performed historical analysis and identified
liquidity risk, market risk and other operational risk. Market risk includes currency risk, interest rate and other price risk. key economic variables impacting credit risk and ECL for each portfolio. These economic variables and their associated impact on PD, EAD and LGD vary by
financial instrument. Expert judgment has also been applied in this process. Forecast of these economic variables (the “base economic scenario”) are obtained
33.2.1.  Credit Risk
from external sources on a quarterly basis.
The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the Bank by failing to discharge an obligation. Credit
risk is the most important risk for the Bank’s business; management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in In addition to the base economic scenario, the management also estimate other possible scenarios along with scenarios weighting. The scenario weighting are
lending activities that lead to loans and advances, balances with banks and receivable from financial institution and placements with other banks. Credit risk determined by an expert credit judgment. As with any economic forecasts, the projections and likelihoods of the occurrence are subject to a high degree of
also arises in off-balance sheet financial instruments, such as Bank’s contingencies and commitments. The credit risk management and control are centralized inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The bank considers these estimates of the possible
in credit risk management team of Bank and reported to the management team and head of each business unit regularly. Balances with DAB are not exposed outcomes. The bank has used base, upside and downside scenarios for its ECL estimation.
to credit risk.
Impairment under local regulations
33.2.2.  Credit risk measurement (i) 
Overdue balances on loans to customers are segmented into four categories as described in note 3.3.5. The percentage of provision created on such
Impairment assessment under IFRS 9 overdue balances are as per guidelines issued by DAB and reflects the range of default probabilities defined for each category. This means that, in
Definition of default and cure principle, exposures migrate between classes as the assessment of their probability of default changes.
The Bank considers a financial instrument defaulted and therefore Stage 3 (credit-impaired) for ECL calculations in all cases when the borrower becomes
90 days past due on its contractual payments. As a part of a qualitative assessment of whether a customer is in default, the Bank also considers a variety of (ii) 
E xposure at default is based on the amounts, the Bank expects to be owed at the time of default. For example, for a loan this is the face value. For a
instances that may indicate unlikeliness to pay. When such events occur, the Bank carefully considers whether the event should result in treating the customer commitment, the Bank includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur.
as defaulted and therefore assessed as Stage 3 for ECL calculations or whether Stage 2 is appropriate.
(iii) 
Loss given default or loss severity represents the Bank’s expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss
It is the Bank’s policy to consider a financial instrument as ‘cured’ and therefore re-classified out of Stage 3 when none of the default criteria have been present per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation.
for at least 3 consecutive months. The decision whether to classify an asset as Stage 2 or Stage 1 once cured depends on the updated credit grade, at the time
of the cure, and whether this indicates there has been a significant increase in credit risk compared to initial recognition. The bank is observing a probationary (a) Other than loans and advances
period of a minimum of 3 instalments (for repayments which are on a quarterly basis or shorter) and 12 months (in cases where instalments are on a longer Other than loans and advances includes balances with other banks and financial institutions and placements with other banks, investments in bonds and held
frequency than quarterly) after the restructuring, before upgrading from Stage 3 to 2. with DAB and other assets. Judgments and instructions from the Bank’s treasury are being used by the Bank’s management in placing funds with other banks
and are viewed as a way to gain better credit quality mapping and maintain a readily available source to meet the funding requirements at the same time
Credit ratings and PD estimation process when required.
The Bank’s Credit Risk Department operates its internal rating models. The models incorporate both qualitative and quantitative information and, in addition
to information specific to the borrower, utilize supplemental external information that could affect the borrower’s behavior. PDs for rated portfolios are Further, the Bank has banking relationships with financial institutions which have good international reputation and strong financial standing and therefore,
probability of default by such financial institutions is low.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 54 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 55

Notes to the Financial Statements continued

For the year ended 31 December 2019

33.2.3.  Risk limit control and mitigation policies 33.2.4.  Analysis of maximum exposure to credit risk and collateral and other credit enhancements
The Bank manages, limits and controls concentrations of credit risk wherever they are identified – in particular, to individual counterparties and groups, Maximum exposure
industries and countries. 2019 2018
AFN ‘000 AFN ‘000
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers,
Credit risk exposures relating to on-balance sheet items are as follows:
and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered
necessary. Limits on the level of credit risk by product and industry sector are approved quarterly by the Management Board. Balances with other banks 7,237,771 10,095,978
Placements - net 15,085,047 19,858,324
The exposure to any one borrower is further restricted by sub-limits covering on- and off-balance sheet exposures. Actual exposures against limits are
monitored daily. Investments - net (excluding capital notes with DAB) 18,173,377 17,278,765
Loans and advances to customers - net 3,417,810 2,897,617
Exposure to credit risk is also managed through analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations
at the time of loan appraisal for initial and subsequent loans. Receivable from other financial institutions 502,618 360,120
Other assets 551,986 357,987
Some other specific control and mitigation measures are outlined below.
44,968,610 50,848,792
(a) Collateral
The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is
Credit risk exposures relating to off-balance sheet items are as follows: 7,946,230 8,258,845
common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for
loans and advances are: Guarantees 524,394 1,217,553
Undrawn loan and overdraft facilities 48,537 25,333
• Mortgages over residential and commercial properties
Commercial letters of credit 8,519,161 9,501,731
• Charges over business assets such as premises, inventory and accounts receivable
The above table represents credit risk exposure to the Bank at 31 December 2019 and 31 December 2018, taking account of any collateral held or other
In addition, in order to minimize the credit loss, the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for
enhancements attached. For on-balance-sheet assets the exposure set out above is based on net carrying amounts as reported in the statement of financial
the relevant individual loans and advances.
position.
(b) Credit-related commitments
The percentage of the maximum credit exposure in balances with other banks, placements, investments and loans and advances are as follows (in percentage
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the
of the total credit exposure):
same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorizing a
third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralized by the underlying shipments of goods
31 December 2019 31 December 2018
to which they relate and therefore carry less risk than a direct loan.
Balances with other banks 16.10% 19.85%
Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect Placements - net 33.55% 39.05%
to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the
likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific Investments - net (excluding capital notes with DAB) 40.41% 33.98%
credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit Loans and advances to customers - net 7.60% 5.70%
risk than shorter-term commitments.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 56 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 57

Notes to the Financial Statements continued

For the year ended 31 December 2019

33.2.5. Credit quality of financial assets 31 December 2019 31 December 2018

The credit qualities of Bank’s financial assets have been assessed below by the reference to external credit ratings of counter parties determined by various AFN ‘000 AFN ‘000
international credit rating agencies. The counterparties for which external credit ratings were not available and have been assessed by reference to internal Investments – net 17,162,576 18,448,294
credit ratings determined based on their historical information for any defaults in meeting obligations.
Investments held carries various credit rating including AAA, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2 and B3. These investments are
31 December 2019 31 December 2018 managed by the bank through Emirates NBD, Julius Baer and Credit Suisse under investment criteria defined by the Bank. The credit quality and the maximum
Balances with other banks/FIs Credit rating Credit rating agency AFN ‘000 AFN ‘000
exposure to credit risk for under expected credit losses model is based on the Bank’s credit rating grades and year-end stage classification as at 31 December
Counter parties with external credit ratings: 2019 and 2018 as disclosed in note 8.5.1 to the financial statements.
Standard Chartered Bank A1 Moody’s – 4,216,826
Loans and advances to customers- net 3,417,810 2,897,616
Commerzbank Germany A1 Moody’s 95,660 168,004
Crown Agents BBB Fitch 2,893,291 1,623,154 The credit quality and the maximum exposure to credit risk for IFRS 9 stage categories based on the Bank’s credit rating grades and year-end stage
Emirates NBD A3 Moody’s 628,562 313,816 classification as at 31 December 2019 and 2018 are disclosed in note 9.5.1 to the financial statements.

AkBank, Turkey B3 Moody’s 89,998 62,206

Receivables from financial institutions
State commercial bank of Turkmenistan Baa1 Moody’s 961,094 626,023
Counter parties 502,618 360,120
Julius Baer International Aa2 Moody’s 56,308 311,033
Asaka Bank B3 Moody’s 746,858 1,234,334
Other assets
Credit Suisse Singapore A1 Moody’s 41,294 5,432
Counter parties 551,986 357,987
Bank Centre Credit Caa1 Moody’s 793,486 1,377,708
Yes Bank, India B2 Moody’s 6,555 1,506
33.2.6.  Loans and advances – net
Transkapitalbank B3 Moody’s 910,801 –
31 December 2019 31 December 2018
Others 13,863 14,043 Note AFN ‘000 AFN ‘000

Loans and advances are summarized as follows:

31 December 2019 31 December 2018 Neither past due nor impaired 2,110,969 2,869,987
Placements Credit rating Credit rating agency AFN ‘000 AFN ‘000
Past due but not impaired 1,352,649 236,229
Bank of Baroda Dubai A1 Moody’s 774,600 –
Non–performing– Stage 3 327,714 10,928
Commercial Bank International A1 Moody’s 795,019 1,506,200
Gross outstanding 3,791,332 3,117,144
Commercial Bank of Dubai PSC BBB Fitch – 755,953
Less: Allowance for impairment
Dubai Islamic Bank A3 Moody’s – 759,259
General provision 9.4 (154,920) (150,620)
CSC Bank SAL B3 Moody’s 521,468 438,163
Provision held for expected credit losses – note 9.5.1 (218,602) (68,908)
Emirates NBD Baa1 Moody’s 2,868,279 5,071,978
(373,522) (219,528)
National Bank of Fujairah Aa2 Moody’s – 753,100
3,417,810 2,897,616
Julius Baer B3 Moody’s 1,962,449 3,370,951
United Arab Bank A1 Moody’s 795,019 1,506,200 (a) Loans and advances neither past due nor impaired
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the IFRS 9.
Crown Agents Bank Caa1 Moody’s 794,650 1,903,032
Citibank B2 Moody’s 3,993,303 3,824,432 Commercial loans SME loans Consumer loans
Noor Bank B3 Moody’s 1,031,651 – Overdraft Term loans Term loans Term loans Total
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Ajman Bank BBB+ Fitch 795,020 –
31 December 2019
National Bank of Ras Al Khaimah A3 Moody’s 774,600 –
Regular loans 1,712,815 52,449 295,480 50,225 2,110,969
31 December 2018
Regular loans 2,336,317 280,196 199,235 54,239 2,869,987
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 58 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 59

Notes to the Financial Statements continued

For the year ended 31 December 2019

(b) Loans and advances past due but not impaired 33.2.7.  Concentration of risk of financial assets with credit risk exposure
Commercial loans SME loans Consumer loans (a) Geographical sectors
The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by geographical region as of 31 December 2018. For
Overdraft Term loans Term loans Term loans Total
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 this table, the Bank has allocated exposures to regions based on the country of domicile of our counterparties.
31 December 2019 2019
Past due up to 30 days 1,351,691 – – 958 1,352,649 On balance sheet: Off balance sheet:

Fair value of collateral 1,161,868 – – – 1,161,868 Investments

(excluding capital
Balances with other Placements notes) Note Loans and advances Receivable from Contingencies and
banks (Note 7.1) 8.1,8.3,8.4 to customers – net financial institutions Other assets commitments Total
31 December 2018 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000

Past due up to 30 days 93,030 143,199 – – 236,229 Afghanistan – – – 3,417,810 – 551,986 8,519,161 12,488,957
Fair value of collateral 140,023 240,234 – – 380,257 Lebanon – 521,468 – – 502,618 – – 1,024,086
Singapore 41,294 – – – – – – 41,294
Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In
subsequent periods, the fair value is updated by reference to market price or indexes of similar assets. Germany 95,660 – – – – – – 95,660
UAE 628,562 7,059,588 1,037,444 – – – – 8,725,594
(c) Loans and advances individually impaired
The individually impaired loans and advances to customers before taking into consideration the cash flows from collateral held is AFN 327,829 thousand USA – 3,993,303 1,312,652 – – – – 5,305,955
(31 December 2018: AFN 10,839 thousand). UK 2,893,291 794,650 – – – – – 3,687,941
Switzerland 56,308 1,962,449 – – – – – 2,018,757
Commercial loans SME loans Consumer loans
Overdraft Term loans Term loans Term loans Turkey 89,998 – 243,222 – – – – 333,220
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 Total
Russia 910,800 – 83,426 – – – – 994,226
31 December 2019
Uzbekistan 746,858 – – – – – – 746,858
Non-performing - Stage 3 143,859 102,596 80,896 363 327,714
Kazakhstan 793,486 – 91,626 – – – – 885,112
Fair value of collateral 623,837 212,952 1,090,329
Turkmenistan 974,954 – – – – – – 974,954
India 6,560 774,600 – – – – – 781,160
31 December 2018
Korea – – 1,693,386 – – – – 1,693,386
Non-performing - Stage 3 4,348 6,580 – – 10,928
Italy – – 1,460,681 – – – – 1,460,681
Fair value of collateral 40,000 54,533 – – 94,533
Mexico – – 1,343,334 – – – – 1,343,334

(d) Loans and advances restructured / rescheduled Portugal – – 1,297,855 – – – – 1,297,855

Restructuring activities include extended payment arrangements and deferral of payments. Restructuring policies and practices are based on indicators Poland – – 1,292,634 – – – – 1,292,634
or criteria which, in the judgment of management, indicate that payment will most likely continue. These policies are kept under continuous review.
Hungary – – 1,223,285 – – – – 1,223,285
Renegotiated loans that would otherwise be past due or impaired at 31 December 2019 were AFN 219,880 thousand (31 December 2018: AFN 105,541
thousand). Slovak Republic – – 844,261 – – – – 844,261
Malaysia – – 661,167 – – – – 661,167
31 December 2019 31 December 2019
Belgium – – 625,174 – – – – 625,174
Loan amount at the time Loan amount at the time
of rescheduling At year–end of rescheduling At year–end Oman – – 595,919 – – – – 595,919
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Saudi Arabia – – 524,998 – – – – 524,998
Commercial loans and advances:
Qatar – – 522,083 – – – – 522,083
Term loans – 219,880 – 105,541
Sweden – – 393,768 – – – – 393,768
Overdraft 247,310 – 280,697 –
Slovenia – – 348,972 – – – – 348,972
Total 247,310 219,880 280,697 105,541
Indonesia – – 344,520 – – – – 344,520
Namibia – – 277,520 – – – – 277,520
South Africa – – 275,883 – – – – 275,883
Others (note below – – 1,694,032 – – – – 1,694,032
amount in millions)
7,237,771 15,106,058 18,187,842 3,417,810 502,618 551,986 8,519,161 53,523,246

Others include investments in sovereign bonds issued by Bermuda (AFN 162.951m), Croatia (AFN 86.078m), Brazil (AFN 90.046m), Panama (AFN 33.209m),
Romania (AFN 148.906m), Trinidad and Tobago (AFN 57.733m), Colombia (AFN 118.526m), Kenya (AFN 33.197m), Ecuador (AFN 22.151m), Zambia
(AFN 29.165m), Nigeria (AFN 78.306m), Guatemala (AFN 22.752m), Ghana (AFN 42.619m), Morocco (AFN 69,590m), Costa Rica (AFN 50.767m), Senegal
(AFN 42.074m), Sri Lanka (AFN 39.309m), Vietnam (AFN 83.963m), Argentina (AFN 16.886m), Armenia (AFN 15.861m), Serbia (AFN 16.886m), Paraguay
(AFN 32.815m), Egypt (AFN 31.340m), Iceland (AFN 144.083m), Lithuania (AFN 147.838m) and Latvia (AFN 77.461m).
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 60 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 61

Notes to the Financial Statements continued

For the year ended 31 December 2019

2018 (b) Industry sectors

On balance sheet: Off balance sheet: 2019
Investments – net On balance sheet: On balance sheet:
Balances with other (excluding capital Loans and advances Receivable from Contingencies and
Investments
banks Placements – net notes) to customers – net financial institutions Other assets commitments Total
(excluding capital
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Balances with other Placements notes) Note Loans and advances Receivable from Contingencies and
Afghanistan – – – 2,897,616 – 357,987 9,501,731 12,757,334 banks (Note 7.1) 8.1,8.3,8.4 to customers - net financial institutions Other assets commitments Total
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Lebanon – 438,172 – – 360,120 – – 798,292
Government / Public
Singapore 2,374,813 – – – – – – 2,374,813 sector – – 18,187,842 – – – 18,187,842

Germany 747,485 – – – – – – 747,485 Manufacturing – – – 1,046,298 – 17,918 1,064,216

UAE 397,696 10,353,077 1,258,107 – – – – 12,008,880 Agriculture – – – – – 2,058 2,058

USA 1,146,068 3,824,573 302,206 – – – – 5,272,847 Construction – – – 192,829 – 3,618,853 3,811,682

UK 1,661,171 1,903,103 – – – – – 3,564,274 Power – – – 3,127,718 3,127,718

Switzerland 451,870 1,864,820 – – – – – 2,316,690 Telecommunication – – – – – 5,151 5,151

Turkey 76,244 – 237,564 – – – – 313,808 Banks and financial

institutions 7,237,771 15,106,058 – – 502,618 – – 22,846,447
Russia – – – – – – – –
Traders – – – 926,987 – 72,661 999,648
Uzbekistan – – – – – – – –
Fuel suppliers – – – 909,203 – 658,423 1,567,626
Kazakhstan – – – – – – – –
Others – – – 340,286 551,986 1,016,379 2,800,923
Turkmenistan – – – – – – – –
7,237,771 15,106,058 18,187,842 3,417,810 502,618 551,986 8,519,161 53,523,246
India 2,566 753,128 – – – – – 755,694
Korea – – 1,411,045 – – – – 1,411,045 2018
On balance sheet: On balance sheet:
Italy – – – – – – – –
Investments - net
Mexico – – 915,272 – – – – 915,272 Balances with other (excluding capital Loans and advances Receivable from Contingencies and
banks Placements – net notes) to customers – net financial institutions Other assets commitments Total
Portugal – – – – – – – – AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Poland – – – – – – – – Government / Public
Hungary – – – – – – – – sector – – 17,278,763 – – – – 17,278,763

Slovak Republic – – – – – – – – Manufacturing – – – 473,007 – – 323,438 796,445

Malaysia – – – – – – – – Agriculture – – – 5,676 – – – 5,676

Belgium – – – – – – – – Construction – – – 94,103 – – 6,828,235 6,922,338

Oman – – 1,160,831 – – – – 1,160,831 Power – – – – – – – –

Saudi Arabia – – – – – – – – Telecommunication – – – – – – 480,612 480,612

Qatar – – – – – – – – Banks and financial

institutions 10,095,978 19,858,325 – – 360,120 – – 30,314,423
Sweden – – – – – – – –
Traders – – – 682,938 – – 280,714 963,652
Slovenia – – 347,104 – – – – 347,104
Fuel suppliers – – – 960,909 – – 323,556 1,284,465
Indonesia – – – – – – – –
Others – – – 680,983 – 357,987 1,265,176 2,304,146
Namibia – – – – – – – –
10,095,978 19,858,325 17,278,763 2,897,616 360,120 357,987 9,501,731 60,350,520
South Africa – – – – – – – –
Others 3,238,065 721,452 11,646,634 – – – – 15,606,151
10,095,978 19,858,325 17,278,763 2,897,616 360,120 357,987 9,501,731 60,350,520
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 62 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 63

Notes to the Financial Statements continued

For the year ended 31 December 2019

33.3  Market risk 33.3.2.  Interest rate risk

The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value
in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the
movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads and foreign exchange. effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such
changes but may reduce losses in the event that unexpected movements arise. Bank’s investments, loans and advances carry fixed coupon/ interest rates.
33.3.1.  Foreign exchange risk
The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The The table below summarizes the Bank’s exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amount, categorized by the
Management committee sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored earlier of contractual reprising or maturity dates.
daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at 31 December 2019 and 31 December 2018. Included in the
table are the Bank’s financial instruments at carrying amounts, categorized by currency. Total interest Non– interest
Interest bearing bearing bearing Total

AED USD EUR GBP INR Total Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Converted to AFN ‘000 AFN ‘000 AFN ‘000
As at 31 December 2019
As at 31 December 2019
Assets
Assets
Cash and balances with Da
Cash and balances with Da Afghanistan Afghanistan Bank 1,107,189 – – – – 1,107,189 12,751,828 13,859,017
Bank – 10,041,139 461,568 – – 3,356,310 13,859,017
Balances with other banks – – – – – – 7,237,771 7,237,771
Balances with other banks 46,114 6,876,624 193,875 120,795 363 – 7,237,771
Placements 7,300,160 5,922,187 1,883,711 – – 15,106,058 – 15,106,058
Placements – 14,584,590 521,468 – – – 15,106,058
Investments 2,137,423 467,131 904,249 15,193,189 228,222 18,930,214 – 18,930,214
Investments – 18,187,842 – – – 742,372 18,930,214
Loans and advances to customers 3,740,315 1,149 23,638 26,230 – 3,791,332 – 3,791,332
Loans and advances to customers – 1,292,269 – – – 2,499,063 3,791,332
Receivables from financial
Receivables from financial institutions – 502,618 – – – – 502,618 institutions – – – – – – 502,618 502,618
Other assets – 540,328 – – – 11,658 502,618 Other assets – – – – – – 261,700 261,700
Total financial assets 46,114 52,025,410 1,176,911 120,795 363 6,609,403 59,929,629 Total financial assets 14,285,087 6,390,467 2,811,598 15,219,419 228,222 38,934,793 20,753,917 59,688,710
Liabilities Liabilities
Customers’ deposits – 51,053,453 1,203,399 138,833 – 6,447,420 58,843,105 Customers’ deposits 1,390,272 – 43,855 – – 1,434,127 57,408,978 58,843,105
Deposits from bank – – – – – 500,000 500,000 Deposits from bank – – 500,000 – – 500,000 – 500,000
Lease liabilities – 255,262 – – – 9,778 265,040 Lease liabilities 7,160 2,389 36,644 213,452 5,395 265,040 – 265,040
Other liabilities – 28,374 – – – 233,326 261,700 Other liabilities – – – – – – 261,700 261,700
Total financial liabilities – 51,337,089 1,203,399 138,833 – 7,190,524 59,869,845 Total financial liabilities 1,397,432 2,389 580,499 213,452 5,395 2,199,167 57,670,678 59,869,845
On-balance sheet financial position Total interest reprising gap 12,887,655 6,388,078 2,231,099 15,005,967 222,827 36,735,626 (36,916,760) (181,135)
– net 46,114 688,321 (26,488) (18,038) 363 (581,121) 59,784
As at 31 December 2018
As at 31 December 2018
Total financial assets 56,668 58,373,974 1,447,918 189,508 1,059 8,932,667 69,001,794
Total financial assets 16,914,163 7,159,747 13,442,962 11,849,513 1,034,259 50,400,644 17,870,702 68,271,346
Total financial liabilities – 58,093,622 1,483,601 – – 8,253,193 67,830,416
Total financial liabilities 2,467,671 37,353 642,402 2,257,875 – 5,405,301 63,481,051 68,886,352
On-balance sheet financial position - net 56,668 280,352 (35,683) 189,508 1,059 679,474 1,171,378
Total interest reprising gap 14,446,492 7,122,394 12,800,560 9,591,638 1,034,259 44,995,343 (45,610,349) (615,006)
Sensitivity analysis:
If the interest increase / (decrease) by 100 bps, the profit or loss for the year would have been AFN 369,168 thousand (31 December 2018: AFN 456,103
If the functional currency, at the yearend date, strengthens/weakens by 5% against the other currencies, as disclosed above, with all other variables held
thousand) higher/ lower respectively.
constant, the impact on profit or loss for the period would be as given below mainly as a result of exchange gains/losses on translation of foreign exchange
denominated receivables and payables. 33.4  Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds
AED USD EUR GBP INR
when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend.
2019
33.4.1.  Liquidity risk management process
5% increase (AFN’000) - profit/ (loss) (2,306) (34,416) 1,324 902 (18)
The Bank’s liquidity management process, includes:
5% decrease (AFN’000) - profit/ (loss) 2,306 34,416 (1,324) (902) 18
• Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they
mature or are borrowed by customers;
2018
• Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;
5% increase (AFN’000) - profit/ (loss) (2,833) (14,018) 1,784 (9,475) (53)
• Monitoring balance sheet liquidity ratios against internal and regulatory requirements; and
5% decrease (AFN’000) - profit/ (loss) 2,833 14,018 (1,784) 9,475 53 • Managing the concentration and profile of debt maturities.

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month respectively, as these are key periods for
liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection
date of the financial assets.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 64 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 65

Notes to the Financial Statements continued

For the year ended 31 December 2019

Bank Treasury also monitors unmatched medium-term assets, the level and type of undrawn lending commitments, the usage of overdraft facilities and the 33.4.4.  Off-balance sheet items
impact of contingent liabilities such as standby letters of credit and guarantees. The dates of the contractual amounts of the Bank’s off-balance sheet financial instruments that commit it to extend credit to customers and other facilities are
summarized in the table below:
33.4.2.  Funding approach
Sources of liquidity are regularly reviewed by the Asset Liability Committee (ALCO) to maintain a wide diversification by currency, geography, provider, product Not later than 1 year 1 to 5 years Over 5 years Total
and term. AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000

As at 31 December 2019
Liquidity ratios
Advances to deposit ratios Guarantees 4,830,444 3,115,786 – 7,946,230
Undrawn loans and overdraft facilities 203,420 320,974 – 524,394
2019 2018
Commercial letters of credit 48,537 – – 48,537
Year-end
Total 5,082,401 3,436,760 – 8,519,161
Maximum 5.81% 4.27%
Minimum 6.57% 5.60%
As at 31 December 2018
Average 5.62% 4.27%
Guarantees 2,304,121 5,954,724 – 8,258,845
6.07% 6.31%
Undrawn loans and overdraft facilities 850,618 366,935 – 1,217,553
Commercial letters of credit 25,333 – – 25,333
33.4.3.  Non-derivative financial liabilities and assets held for managing liquidity risk Total 3,180,072 6,321,658 – 9,501,731
The table below presents the cash flows payable by the Bank under non-derivative financial liabilities and assets held to manage liquidity risk by remaining
contractual maturities at the date of the statement of financial position. The amounts disclosed in the table are the contractual undiscounted cash flows,
whereas the Bank manages the inherent liquidity risk based on expected undiscounted cash inflows. 33.5  Fair value of financial assets and financial liabilities
Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds
Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfill commitments to lend.
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000

As at 31 December 2019 (a) Financial instruments measured at fair value using a valuation technique
Liabilities The table below analyses financial instruments carried at fair value, by valuation method. The various fair value levels have been defined as follows:

Customers’ deposits 58,799,250 – 43,855 – – 58,843,105

Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Deposits from bank – – 500,000 – – 500,000
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly
Lease liabilities 7,160 2,389 36,644 213,452 5,395 265,040 Level 2 (i.e., derived from prices).
Other liabilities 261,700 – – – – 261,700 Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Total financial liabilities (contractual maturity dates) 59,068,110 2,389 580,499 213,452 5,395 59,869,845
Level 1 Level 2 Level 3
Total financial assets (contractual maturity dates) 35,039,004 6,390,467 2,811,598 15,219,419 228,222 59,688,710
AFN ‘000 AFN ‘000 AFN ‘000

Investments in bonds - Fair value through OCI:

As at 31 December 2018
As at 31 December 2019 – 7,837,520 –
Liabilities
As at 31 December 2018 – 3,588,690 –
Customers’ deposits 62,597,346 – 4,786,601 – – 67,383,947
Valuation technique and key inputs used for investments in bonds were quoted market bid price in active market. There were no transfers made among various
Other liabilities 580,359 – – – – 580,359
levels of fair value hierarchy during the year.
Total financial liabilities (contractual maturity dates) 63,177,705 – 4,786,601 – – 67,964,306
Total financial assets (contractual maturity dates) 32,804,554 2,796,316 6,904,321 14,514,727 730,460 57,750,378

Assets available to meet all of the liabilities and to cover outstanding loans commitment include cash and balances with Da Afghanistan Bank, balances with
other banks and receivable from financial institutions, placements, loans and advances to customers and security deposits and other receivables.
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 66 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 67

Notes to the Financial Statements continued

For the year ended 31 December 2019

(b)  Financial instruments not measured at fair value The table below summarizes the composition of the regulatory capital and ratio of the Bank:
The table below summarizes the carrying amounts and fair values of those financial assets and liabilities which are presented on the Bank’s statement of
financial position at value other than fair value. 31 December 2019 31 December 2018
AFN ‘000 AFN ‘000

Carrying Value Fair Value Tier 1 (Core) Capital:

31 December 2019 31 December 2018 31 December 2019 31 December 2018
Total equity capital 3,679,164 3,585,157
AFN ‘000 AFN ‘000 AFN ‘000 AFN ‘000
Less:
Financial assets
Intangible assets (426,328) (394,538)
Cash and balances with Da Afghanistan Bank 13,859,017 15,965,500 13,859,017 15,965,500
Net deferred tax assets – (95,104)
Balances with other banks 7,237,771 10,095,978 7,237,771 10,095,978
Revaluation reserve on debt instruments at OCI (63,989) 86,849
Placements - net 15,085,047 19,858,325 15,085,047 19,858,325
Profit for the year (608,169) (478,165)
Investments - net 11,078,229 10,586,185 11,078,229 10,586,185
2,580,678 2,704,199
Loans and advances to customers - net 3,417,810 2,897,616 3,417,810 2,897,616
Receivables from financial institutions 502,618 360,120 502,618 360,120
Tier 2 (Supplementary) Capital:
Security deposits and other receivables - net 261,700 357,987 261,700 357,987
General reserves as per DAB’s regulation, but restricted to 1.25% of total risk-weighted exposure 176,030 191,237
Profit for the year 608,169 478,165
Financial liabilities
Revaluation reserve on bonds (45%) 28,795 –
Customers’ deposits 58,843,105 67,383,947 58,843,105 67,383,947
812,994 669,402
Deposits from bank 500,000 – 500,000 500,000
Tier 2 (Supplementary) Capital (restricted 100% of Tier 1 (Core) Capital) 812,994 669,402
Other liabilities 261,700 580,359 261,700 580,359
Regulatory Capital = Tier 1 + Tier 2 3,393,672 3,373,601
Off-balance sheet financial instruments
Bank’s guarantees 7,946,230 8,258,845 7,946,230 8,258,845
Risk-weight categories
Bank’s commitments 572,931 1,242,886 572,931 1,242,886
0% risk weight:
The carrying values of these financial assets and liabilities approximates their fair values as at the date of statement of financial position.
Cash in Afghani and fully convertible foreign currencies 3,261,904 2,632,836

(i) Investments: Direct claims on DAB 11,339,485 14,477,604

These include investment bonds classified as held-to-maturity which are measured at amortized cost. The fair value of these investments is equal to the Direct claims on other Governments –
carrying amount.
Others 5,331,137 5,409,346
(ii)  Loans and advances, other assets and other financial liabilities Total 19,932,526 22,519,786
Fair value of loans and advances, security deposits and other receivables and all the financial liabilities cannot be calculated with sufficient reliability due to
0% risk-weight total (above total x 0%) – –
absence of current and active market for such assets and reliable data regarding market rates for similar instruments, so its carrying amount is its fair value. The
provision for loans and advances has been calculated in accordance with the Bank’s policy and regulations issued by DAB.
20% risk weight:
(iii)  Off-balance sheet financial instruments
The fair value of the off-balance sheet financial instruments is equal to the carrying amounts. Balances with other banks 22,846,448 30,314,423
Others 2,641,431 1,152,710
33.6. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of balance sheets, are:
20% risk-weight total (above total x 20%) 5,097,576 6,293,427
(i) to comply with the capital requirements set by the DAB;

(ii) to safeguard the Bank’s ability to continue as a going concern so that it can continue to be self-sustainable; and 50% risk weight:
Others 2,780,447 –
(iii) to maintain a strong capital base to support the development of its business.
50% risk-weight total (above total x 50%) 1,390,223 –
Capital adequacy and the use of regulatory capital are monitored regularly by the Bank’s management. DAB requires each bank to maintain its Tier 1 Capital
ratio and Regulatory Capital ratio to be at least 6 % and 12 % respectively. The Bank is maintaining this ratio well above the required level.
100% risk weight:
All other assets 15,743,163 17,927,643
Less: intangible assets (426,328) (394,538)
Less: Deferred tax assets – (95,104)
All other assets - net 15,316,835 17,438,001
100% risk-weight total (above total x 100%) 15,316,835 17,438,001
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 68 Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 69

Notes to the Financial Statements continued

For the year ended 31 December 2019

Credit conversion factor Mudarabah Term Investment Deposit

0% risk weight: These funds are accepted with different investment periods. The Bank manages and invests the funds aiming at realizing the best profit for the mutual interest
of the parties.
Undrawn loan and overdraft facilities 524,394 1,217,553
Guarantees 617,410 968,176 Below are the figures relating to Islamic banking as at 31 December 2019:
0% credit conversion factor total (risk-weighted total x 0%) – –
31 December 2019 31 December 2018
0% risk-weight total (above total x 0%) – – AFN ‘000 AFN ‘000

Assets

20% risk weight: Cash and balances with Da Afghanistan Bank 750,697 546,245

Commercial letters of credit 48,537 25,333 Investments in sukuk securities 542,220 301,240

Guarantees 7,324,947 7,815,895 Loans and advances to customers 43,134 37,673

20% credit conversion factor total (risk-weighted total x 20%) 9,707 5,067 Operating fixed assets 1,283 2,345

20% credit conversion factor total (risk-weighted total x 20%) 1,466,930 1,438,192 Other assets 6,581 5,687
Total assets 1,343,915 893,190

100% risk weight:

Guarantees 3,873 104,773 Liabilities

100% credit conversion factor total (risk-weighted total x 100%) 3,873 104,773 Deposit - current 144,910 121,803

100% risk-weight total (above total x 100%) 3,873 104,773 Deposit - saving 1,146,234 733,067

Total risk-weighted assets 23,275,437 25,274,393 Deposit - term deposit 43,855 26,845
Other liabilities 16,870 20,964

Tier 1 Capital Ratio 1,351,869 902,679

(Tier 1 capital as % of total risk-weighted assets) 11.09% 10.70%

Equity

Regulatory Capital Ratio Share Capital 5,809 5,809

(Regulatory capital as % of total risk-weighted assets) 14.58% 13.35% Accumulated losses reserve (13,764) (15,298)
Total equity (7,955) (9,489 )
Total liabilities and equity 1,343,914 893,190
32.  Islamic Banking
The Bank started Islamic banking operations in November 2015 with the following Islamic deposit products.
Total profit income 20,802 23,063
Qardul Hasana Current Account
This account is profit-free account specifically designed to meet the requirements of the Bank’s customers. Account holders will have easy access to their Total profit expense (8,476) (9,063)
account at any time to meet their personal or business expenses. Net Profit Income 12,327 14,000

Mudarabah Savings Account Other non-profit income 3,242 970

This account is designed specifically to meet the requirements of customers who authorize the Bank to invest their cash deposits. Customers can deposit or Other non-profit expense (14,750) (12,885)
withdraw money at any time they wish, and can earn profits on their savings.
Net non-profit expense (11,507) (11,915)

Income from dealing in foreign currencies (757) (1,186)

Total Income 63 899
Net provision for expected credit losses 1,472 (1,130)
Net Income/ (Loss) For The Year 1,535 (231)
Afghanistan International Bank Annual Report 2019 Notes to the Financial Statements 70 Afghanistan International Bank Annual Report 2019 Shariah Board’s Statement 71

Notes to the Financial Statements continued

For the year ended 31 December 2019

35. General
35.1. Corresponding figures have been reclassified / re-arranged wherever necessary to facilitate comparison in the presentation in the current year. However,
there are no material reclassification / re-arrangement to report.

35.2. The figures in these financial statements have been rounded off to the nearest in thousands in AFN.

36.  Date of authorization for issue

These financial statements were authorized for issue by the Board of Supervisors of the Bank on 7th March 2020.

Chairman Chief Executive Officer Chief Financial Officer

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