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Section 06 Financial Statements
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2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.4 Summary of significant accounting policies (cont’d.)

(f) Financial assets (cont’d.)
(v) Financing and receivables
Financing and receivables consist of Murabahah, Tawarruq, Ijarah, Istisna’, Bai’ Al Dayn and Kafalah. These
contracts are recognised at amortised cost (except for Kafalah contracts), including direct and incremental
transaction costs using the effective profit method. These contracts are stated net of unearned income and any
amounts written off and/or impaired.

Definition of Shariah concept:
(a) Murabahah: Sale of an asset by the Bank to the customer at cost plus a mark-up in which the profit rate has
to be disclosed to the customer. The Sale Price is payable by the customer on deferred terms.
(b) Tawarruq: An arrangement that involves sale of commodity by the Bank to the customer in which the Sale
Price is payable on a deferred basis and subsequent sale of the commodity to a third party on a cash basis
to obtain cash.
(c) Ijarah: A lease contract to transfer the usufruct (benefits) of a particular property of the Bank to the customer
in exchange for a rental payment for a specified period.
(d) Istisna’: An agreement to sell to the customer a non-existent asset that is to be manufactured or built
according to the agreed specifications and delivered on a specified future date at a predetermined
selling price.
(e) Bai’ Al Dayn: Sale of debt in which the customer sells his payable right to the Bank at discount price or at
cost price on the spot payment basis.
(f) Kafalah: Conjoining the guarantor’s liability to the guaranteed party’s liability such that the obligation of the
guaranteed party is established as a joint liability of the guarantor and the guaranteed party.
(vi) Derivative instruments and hedge accounting

(a) Derivative instruments
The Group and the Bank enters into derivative contracts such as interest/profit rate swaps, cross currency
interest/profit rate swaps and forward contracts. Such derivative financial instruments are initially recognised
at fair value on the date on which a derivative contract is entered into and subsequently re-measured at
fair value. Fair values are obtained from quoted market prices in active markets, including recent market
transactions and valuation techniques, as appropriate. All derivatives are carried as assets when fair value is
positive and as liabilities when fair value is negative. Changes in the fair value of any derivatives that do not
qualify for hedge accounting are recognised immediately in the statement of profit and loss.