Albaraka Islamic Bank

Annual Report 2006
The Natural Leader in

Islamic Banking
VISION
STRATEGY
STRENGTH
Contents
1 Mission and Strategic Objectives
2 Financial Highlights
4 The Albaraka Banking Group (ABG)
6 Board of Directors and Shari’a Supervisory Board
8 Directors’ Report
12 Executive & Senior Management
14 President & Chief Executive’s Report
28 Unified Shari’a Supervisory Board Report
29 Auditors’ Report
30 Consolidated Balance Sheet
31 Consolidated Statement of Income
32 Consolidated Statement of Cash Flows
33 Consolidated Statement of Changes in Equity
34 Consolidated Statement of Changes in Restricted Investment Accounts
35 Consolidated Statement of Sources and Uses of Charity Fund
36 Consolidated Statement of Sources and Uses of Good Faith Qard Fund
37 Notes to the Consolidated Financial Statements
63 ABG Contact Directory

Mission
Our mission is to be the leading Islamic
banking group with a worldwide
presence, offering retail, commercial,
investment banking and treasury services
strictly in accordance with the principles
of the Shari’a.
Mission and Strategic Objectives

Strategic Objectives To enhance shareholder value whilst pursing a strategy of
business growth and geographical expansion.
To provide innovative and high quality research and

development into Islamic financial products which comply fully
with the principles of Shari’a Law and Islamic values, for the
benefit of our customers.
To utilize the Group’s geographical presence to distribute its

products and services and promote cross border services.
To maintain the highest international standards of corporate

governance and regulatory compliance.
1
Year to Year to
31 December 2006 31 December 2005
Earnings (US$ millions)

Operating Income 339.6 297.8
Operating Expenses 166.9 151.3
Net Income Attributable to Equity Shareholders of the Parent 80.2 79.4
Earnings per Share (US cents) 15 16
Financial Position (US$ millions)

Total Assets 7,625.8 6,307.1
Total Shareholders’ Equity 978.6 566.3
Total Liabilities 1,717.3 1,506.8
Customer current and other accounts 1,334.0 1,185.6
Unrestricted Investment Accounts 4,697.4 4,033.1
Ratios (%)
Profitability
Return on Average Shareholders’ Equity 10.39% 16.06%
Return on Average Paid-In Capital 15.77% 22.25%
Return on Average Assets 1.15% 1.40%
Capital
Shareholders’ Equity as % of Total Assets 12.83% 8.98%
Financial Highlights Total Financing and Investments as a multiple of Equity (times) 5.57 7.38
Asset Quality
Net Asset Value per Share (US$) 1.6 1.5
Other
Number of Employees 5,435 4,846
Net Income attributable to Equity Total number of branches 215 185
Shareholders of the Parent (US$ 000)
80,252
CAPITALISATION ( US$ Thousands)
Authorised 1,500,000 1,500,000
Subscribed and fully paid up 630,000 387,998
Total Assets (US$ 000)
7,625,827
Total Shareholders Equity (US$ 000)
978,597
Registered Address
P.O. Box 1882, Manama, Kingdom of Bahrain
Albaraka Banking Group Annual Report 2006

2
All figures in US$ Millions as applicable
Total Assets Total Shareholders’ Equity
4,116.5 5,056.7 6,307.1 7,625.8 373.3 422.0 566.3 978.6

2003 2004 2005 2006 2003 2004 2005 2006
Customer Current & Other Accounts Unrestricted Investment Accounts
736.5 910.6 1,185.6 1,334.0 2,680.9 3,333.1 4,033.1 4,697.4

2003 2004 2005 2006 2003 2004 2005 2006
Net Income attributable to equity shareholders of the Parent
27.3 36.8 79.4 80.2

2003 2004 2005 2006
Operating Income Operating Expenses
97.7 106.5 151.3 166.9

182.0 191.8 297.8 339.6
2003 2004 2005 2006
2003 2004 2005 2006
Return on Average Shareholders’ Equity Return on Average Paid in Capital
7.31% 9.27% 16.06% 10.39% 8.39% 11.33% 22.25% 15.77%

2003 2004 2005 2006 2003 2004 2005 2006
Number of Employees Total Number of Branches
3,233 3,844 4,846 5,435 133 150 185 215

2003 2004 2005 2006 2003 2004 2005 2006

3
Albaraka Banking Group (ABG)
AL BARAKA
TURK
JORDAN PARTICIPATION
ISLAMIC BANK BANK EGYPTIAN
55.5% 67.8% SAUDI FINANCE
BANK
73.7%
BANQUE AL
BARAKA
D’ALGERIE
55.9%
AL BARAKA
ISLAMIC BANK
PAKISTAN-
Branches
AL BARAKA
ISLAMIC BANK
BAHRAIN
78.3%
ABG GROUP
HEADQUARTERS
AL AMIN
BANK E.C.
BAHRAIN
100%
BANK ET-
TAMWEEL AL-
TUNISI, AL-SAUDI
78.4%
AL BARAKA
BANK LTD.
SOUTH AFRICA
AL BARAKA AL BARAKA 51.7%
BANK SUDAN BANK
86.2%
LEBANON
96.3%

4
INDIA
CHINA
EUROPE
LONG
TERM AFRICA
STRATEGY
NORTH
&
EXPANSION SOUTH
STRATEGY AMERICA
MEDIUM
TERM GCC
STRATEGY
MALAYSIA
&
THE FAR EAST
SYRIA
In-principle approval
obtained from local
authorities

5
Board of Directors Shari’a Supervisory Board
Shaikh Saleh Abdullah Kamel Shaikh Dr. Abdul Sattar Abu Ghuddah
Chairman Chairman
Mr. Abdulla A. Saudi Shaikh Abdullah Mannea

Board of Directors Vice Chairman Member
and Shari’a Shaikh Dr. Abdulatif Al Mahmood Al Mahmood
Mr. Abdullah Saleh Kamel
Supervisory Board Board Member Member
Mr. Saleh Mohamed Al-Yousef Shaikh Dr. Abdulaziz Alfawzan

Board Member Member
Mr. Adnan Ahmed Yousif Dr. Ahmed Mohyedeen Ahmed

Board Member Member
Dr. Anwar Ibrahim

Board Member
Mr. Abdul Elah A. Sabbahi

Board Member
Mr. Ibrahim Fayez Al Shamsi

Board Member
Mr. Ghanim Saad M. Al Saad

Board Member
Mr. Jamal S.J. Bin Galaita

Board Member
Mr. Ghassan Abdul Kareem A. Sulaiham

Board Member
Mr. Salah Othman Abuzaid

Secretary to the Board

6
Board Committees
EXECUTIVE COMMITTEE BOARD AFFAIRS AND REMUNERATION COMMITTEE
Mr. Abdullah Saleh Kamel Mr. Ibrahim Fayez Al Shamsi

Committee Chairman Committee Chairman
Mr. Abdul Elah A. Sabbahi Mr. Jamal S.J. Bin Galaita

Member Member
Mr. Ghanim Saad M. Al Saad Mr. Ghanim Saad M. Al Saad

Member Member
Mr. Adnan Ahmed Yousif Mr. Adnan Ahmed Yousif

Member Member
AUDIT COMMITTEE RISK COMMITTEE
Mr. Saleh Mohamed Al-Yousef Mr. Abdul Elah A. Sabbahi

Committee Chairman Committee Chairman
Dr. Anwar Ibrahim Mr. Jamal S.J. Bin Galaita

Member Member
Mr. Ibrahim Fayez Al Shamsi Mr. Ghassan Abdul Kareem A. Sulaiham

Member Member
Mr. Adnan Ahmed Yousif

Member

7
Global and Regional Economies 2006 Review
Despite high prevailing oil and commodity Beyond a doubt the year was marked by the
prices, global GDP growth strengthened in success of Albaraka Banking Group’s which
2006, reflecting both the rapid expansion in was crystallized by the increase of the paid up
the economies of the undeveloped countries, capital through the offering of the new share
which grew by an estimated 7.0%, and issue by means of an Initial Public Offering
moderate growth in the developed world. (IPO), which resulted in an increase in the
The largest contributors were once again paid up capital from $510 million to $630
China and India, whose economies are million and in the shareholders’ equity from
estimated to have grown by 10.4% and $0.6 billion to about $1.0 billion. The IPO was
8.7% respectively, but all regions experienced successfully concluded in July 2006 with the
some growth. Among the developed dual listing of ABG’s shares on the Bahrain
Sheikh Saleh Abdullah Kamel countries the United States economy, which and Dubai International Financial Exchange.
Chairman began the new year strongly but moderated The issue attracted a wide range of investors
later on in response to higher short-term from outside the Arab world as well as from
interest rates and a weakening housing GCC and other Arab countries. Accordingly,
market, recorded an estimated 3.2% average the number of ABG’s shareholders has
rate of growth. Growth also accelerated in increased substantially to more than 1,700.
Europe, driven by robust consumer demand
and expanding exports, with an estimated The expanded economic activity across most
2.5% overall increase. Japan’s recovery, of the Group’s operating areas was reflected,
begun in 2005, maintained its momentum as in every case save Lebanon, in a surge in its
its GDP expanded by an estimated 2.9%, led operating revenues from jointly financed
by an 11% expansion in exports. contracts with unrestricted investment
accounts, as current accounts rose in the
High energy prices continued to be the key majority of cases and investment accounts
Directors’ Report drivers for the economies of the Arab oil and grew significantly at all units.
(All figures in US Dollars unless otherwise stated) gas producers, while oil importers in the Arab
world benefited from strong investment and After distribution to its investors of their share
remittance flows from both the high-income of income, the Group’s share as mudarib and
oil exporters and the euro zone, with on its own account rose by 29% to $170
increased agricultural output in the Maghreb million. Including the income from
and higher tourism earnings throughout the self-financed contracts and investments,
“The Group now has in place Middle East and North Africa region being mudarib share for managing restricted
growth strategies which are additional contributing factors. Strong investment accounts, fees, commissions and
based on its intimate knowledge liquidity fed through to greater consumer other operating income, the Group reported
demand and appreciating regional stock and a 14% increase in total operating income to
of the markets in which it is
housing markets. Growing demand-led $340 million and, after operating expenses, a
represented and its expertise in inflation, meanwhile, was met by rising net operating income 18% higher than the
the wide range of Islamic retail, interest rates and the gradual removal of the previous year at $173 million. After deduction
commercial and investment monetary policy stimulus that has of provisions and taxation, the net income
banking services in which it is characterised the past several years. was $124 million compared with 2005’s $103
million, an increase of 20%.
engaged.”
As for the countries where Albaraka Banking
Group is mainly represented, 9 out of 10 of In light of the Group’s performance in 2006,
them had a good year, with GDP growth at or the Board of Directors has recommended a
exceeding 6% in the majority of cases. dividend distribution to the shareholders of
Turkey’s economy managed slightly less with 5.2% of the paid up capital, comprising cash
a 5.2% growth rate, while South Africa’s dividends amounting to $12 million, and
recorded 4.9% and Algeria’s 4.8%. The bonus shares amounting to $21 million. The
exception, of course, was Lebanon, where Board has also recommended a remuneration
the war and continuing political uncertainty distribution of $430,000, a transfer of $8
weighed heavily on economic activity in the million to legal reserves, with $39 million
first three quarters and, although being allocated to retained earnings.
reconstruction efforts undoubtedly contributed
to growth in the latter part of the year, overall
GDP is expected to have contracted by about
3.2% in 2006.

8
Enhancement
of shareholder
value is our
prime business
driver.
The existence of Albaraka Banking Group commencement of geographical expansion,
today, and indeed its continuing success, the Group has formulated its strategies for
owes much to the perception that there is a the next phase of its development. These
genuine need for a global Islamic banking strategies are founded on four aims:
network offering a full range of retail, increasing profitability, product innovation,
commercial, investment banking and treasury technology enhancement and improved
services. ABG was therefore formed to bring customer service. The Group aims to
together, under single ownership, ten achieve these objectives through
separate banks and financial services rationalising and strengthening its internal
companies in the Middle East, Pakistan, North business processes and support
Africa, Turkey, and South Africa, in order to methodologies, enhancing its image and
create a financially strong platform from diversifying its product and business base to
which to expand worldwide. increase its competitiveness and market
share in its targeted operational areas.
From its beginnings in 2002 with an initial
core management team, ABG’s first task was Much has been achieved in ABG in its first
to achieve full consolidation under AAOIFI year of public ownership, with the
and IFRS Islamic and International Reporting implementation of effective corporate
Standards. It then proceeded to establish a governance and control systems, policies
corporate governance infrastructure consistent and processes, ground-breaking public
with modern international banking standards, disclosure and transparency in a highly
including Board level committees, with successful IPO and installation of advanced
responsibility for audit, Board member and reporting IT systems. In a highly competitive
executive remuneration and risk management, market, the Group has shown a creditable
and Management committees, to address performance in 2006.
Asset/Liability management, Credit,
Directors’ Report continued Information Technology and Basel II All this has been achieved through the
(All figures in US Dollars unless otherwise stated) compliance amongst others. continuing hard work, dedication and
application of the management team and all
The success of ABG’s share issue now makes the operating unit heads and staff, and I
it possible for the Group to begin should like to take this opportunity on behalf
The Way Ahead implementing the next phase of its long-term of the Board to extend our gratitude to
strategy, which is to expand its operations in everyone involved.
“The Group has formulated its regional, Arab and international markets,
strategies for the next phase of both through expansion of the existing units’ We would also like to thank our Shari’a
its development, founded on branch networks and by expansion into new Supervisory Board, and the many regulatory
markets. The issued share capital of several of authorities with which the Group deals, for
four aims: increasing profitability,
the unit banks have therefore been increased their assistance and advice over the past year,
product innovation, technology to better fit them for the tasks ahead. Steps particularly the Ministry of Commerce and
enhancement and improved have also been taken to apply for a banking Industry, the Central Bank of Bahrain, the
customer service.” licence to establish a unit in Syria, while other central banks responsible for the
studies are in various stages of advancement regulation of the units located outside
with a view to establishing operations in Bahrain, the Bahrain Stock Exchange and the
selected countries in the Far East and the Dubai Financial Services Authority, all of
GCC. At the same time, at Group whom have contributed so greatly to the
headquarters the core management team is success of our enterprise to date.
being expanded to ensure senior
management control of, and ongoing For and on behalf of the Board of Directors
development in, areas such as commercial Saleh Abdullah Kamel
banking, global treasury, risk management Chairman
and credit policy, legal services, IT, operations
and administration.
Moving now beyond its initial strategic

objectives of consolidation, conversion from a
closed company to a public joint stock
company, the raising of fresh capital and the

10
Our Strategy is to
increase profitability,
innovate products,
enhance technology
and further improve
customer service.
Adnan Ahmed Yousif
President & Chief Executive
Othman Ahmed Suliman

Deputy Chief Executive
Sayed Majeed Hussain Alawi

Senior Vice President - Head of Internal Audit
K. Krishnamoorthy
Senior Vice President - Head of Strategic Planning
Abdulrahman Shehab
Senior Vice President - Head of Operations & Administration
Executive & Senior
Hamad Abdulla Ali Eqab
Management First Vice President - Head of Financial Control
Jozsef Peter Szalay

First Vice President - Head of Credit & Risk Management
Abdul Rauf Sivany

First Vice President - Head of Treasury & Investments
Dr. Ahmed Mohyedeen

Head of Research & Development

12
ABG Management

13
Introduction advantages of our combined strength and
2006 was once again a year of solid progress will to pursue our Mission – to be the leading
for the Group, as it expanded both its Islamic banking group, worldwide.
funding sources and its earning assets out of
nearly all its operating units. Increases of over Review of Units
12% in the Group’s total customer accounts I am pleased once again to provide a brief
and 16% in its unrestricted investment review of the work of each of our constituent
accounts were mainly responsible for the banks. All figures are stated in the US Dollar
16% rise in total liabilities. The restricted equivalents of the audited local currency-
investment accounts, too, showed a healthy based balance sheets and profit & loss
rise, growing by 32% over the course of the accounts, prepared in accordance with the
year. Total equity, of course, also grew Islamic Accounting Standards issued by the
significantly, as a direct result of ABG’s Initial Accounting and Auditing Organisation for
Mr. Adnan Ahmed Yousif Public Offering concluded in July and the Islamic Financial Institutions, and without
President and Chief Executive
addition of its net income for the year. Total adjustment for consolidation purposes.
assets in turn increased by 21%, largely due
to growth in the operating units’ aggregate Each unit is managed by its respective Board
murabaha portfolios and investments and of Directors, whose reporting lines are
their Ijarah Muntahia Bittamleek portfolios. ultimately to the Parent, ABG, but whose
decision-making is decentralised within an
Although the influx of new capital emanating overall strategic direction.
from ABG’s highly successful IPO did not
impact on the Group’s financial resources Jordan Islamic Bank (Jordan) (“JIB”)
until well into the second half of the year, Jordan Islamic Bank was established in 1978
ABG nevertheless made good use of the time as Jordan’s first Islamic bank. Listed on the
available to it in the second half to enlarge Amman Stock Exchange, it is the oldest unit
the capital of those banking units most able in the Group. JIB currently maintains a
President & Chief to make use of it. During the year, ABG network of 64 branch together with a service
Executive’s Report increased its participation in the share capital

of five of the ten units as part of the Group’s
office at its bonded warehouse. Its 59-strong
ATM network is linked to JONET, the Jordan
(All figures in US Dollars unless otherwise stated)
strategy to prepare them for expansion in national payment network, as well as the Visa
their respective territories. The results of these International network. One of only two
initiatives can be seen by the 20% increase in Islamic banks in Jordan, JIB is its 3rd largest
the Group’s bottom line net income. bank by total assets and total deposits held,
despite the fact that it cannot extend to its
“ABG exhibited good progress in
In addition, progress was made in our customers the full range of facilities permitted
2006 as the Group’s operating application for a licence to operate in Syria - by the banking regulations, as many of these
units took full advantage of where we expect to be opening for business fail to conform to the principles of the
increased sources of funding and this year. In the meantime, as the Chairman Shari’a. JIB’s extensive product range includes
has pointed out in the Directors’ Report, we murabaha, diminishing musharaka, Ijara
investment accounts to maximise
are actively engaged in considering a number Muntahia Bittamleek, as well as investments
its turnover, particularly in of Far Eastern and Gulf locations for in Islamic sukuks and property development
murabaha and investment expansion in the medium term. for on-sale or lease to its customers. It
opportunities.” maintains real-time electronic linkage
ABG expects to commence its own between all its branches and head office, and
commercial banking operations, as forecast in offers a full range of retail services including
my report last year, probably at the same time personal finance products, rent finance to
as Albaraka Islamic Bank and Al Amin Bank enable customers to acquire their own houses,
are merged into a single solely Bahrain-based credit/charge card issuance, e-banking, speed
entity later in 2007. cash and MoneyGram transfer services.
Now, as we look forward to what we In 2006 JIB transferred the growing business
confidently anticipate will be a further year of of its financial brokerage office, based at the
performance delivery, we will also be Amman Stock Exchange, to a separate
continuing the work begun with ABG’s brokerage company established for the
formation, as we gradually weld together a purpose. It also obtained the coveted ISO
powerful banking group that will increasingly 9001:2000 in management systems,
benefit from the synergies available from reflecting its strong performance in
cross-border business interaction between production and management-related issues
our different units, while accessing the and its push towards achieving its objectives

14
With a banking presence
in ten geographically
diverse regions and an
asset base in excess of
US$ 7 billion, Albaraka
Banking Group has the
financial strength to take
advantage of the
growing opportunities
in the marketplace.
in terms of improving, updating and In 2006 Jordan’s GDP grew by an estimated In 2007 JIB intends to maintain its current
developing its services. With an enviable and 6.0%, which, although below the 7.2% level of growth, in particular expanding its
consistent track record since its inception, the growth seen in 2005 and 7.7% in 2004, investment and securities portfolios, and to
bank is proud that over the past 10 years it nevertheless evidenced a respectable trend, increase its commission and fee earnings and
has paid out to its shareholders cash dividends particularly in the circumstances of the breadth of services provided. It also plans to
alone equal to more than a third of its capital, continuing instability in nearby countries. The issue its own Islamic sukuk. Meanwhile, it will
in addition to dividends in the form of bonus country’s balance of trade improved as make increasing investment in information
shares equivalent to more than 100% of its exports soared by 18% while its imports technology.
capital. increased by only 10%, feeding through into
a fall in the unemployment rate and net debt Albaraka Türk Participation Bank
and an increase in the Central Bank’s foreign (Turkey) (“ABTPB”)
exchange reserves to over $6 billion, ABTPB was incorporated in 1984 and granted
representing six months’ imports. Export its Special Finance House licence by the
growth was driven chiefly by the clothing, Central Bank in January 1985, permitting it to
machinery and transport, chemicals and collect and utilise funds on an interest-free
tobacco industries while the reduced growth basis. Although it is the smallest of the four
rate of imports reflected the lower growth of Turkish participation banks, it is the most
the economy as a whole, as did the fall in the efficient by conventional criteria, maintaining
number of traded shares on the Amman the highest ratio of assets and funds collected
Stock Exchange and the share index. As part both per branch office and employee. This
of its policy of maintaining the Jordanian was so in 2006 even following a ferocious
Dinar/US dollar peg and to combat the rising pace of expansion, as it added 20 new
rate of inflation, which reached 6% branches to its network to finish the year with
compared with 3.5% in 2005, the Central 63 in total, each with its own ATM.
Bank again increased interest rates over the
course of the year. Turkey continued to maintain its three-year
IMF economic stability programme in 2006,
President & Chief Despite the reduction in the economic growth although a weakening of the Lira in the
rate, JIB was able to increase both its second quarter and an increase in the rate of
Executive’s Report customer accounts and its unrestricted inflation led to a sharp tightening of monetary
continued
investment accounts, which rose by 7% and policy and a slowdown in economic growth.
10% respectively, utilising these resources to The pace of growth weakened as GDP,
expand its overall asset base by 9%, in estimated to be up 5.2% in 2006, fell below
particular its murabaha sales receivables, 2005’s 5.8% growth rate. Industrial output
which rose by $142 million or 23%, growth nevertheless accelerated towards the
“For 2007, JIB intends to investment properties ($28 million or 83%) end of the year, hitting a five-month high in
maintain its current level of and Ijarah Muntahia Bittamleek ($17 million November.
growth, expanding its or 122%) portfolios.
In 2006, partly as a result of the greatly
investment and securities
The expanded business activity yielded a 15% expanded branch network, ABTPB achieved a
portfolio and to increase increase in income to $86.3 million from 10% increase in its total customer accounts
commissions and fee earnings.” jointly financed sales and investments which, and a 19% increase in its unrestricted
after accounting for the bank’s share as investment accounts. This growth in turn
Mudarib, produced a 16% higher return of helped to fund the growth in its murabaha
$37.6 million to the unrestricted investment sales receivable portfolio, which expanded by
account holders. JIB’s total share of income 27% to $1.288 billion, as well as the 9%
from this source was $48.7 million, 15% increase in its Ijarah Muntahia Bittamleek
higher than that for 2005. After including portfolio, which topped $103 million. This
income from its own investments, its Mudarib was consequently reflected in a 21% increase
share from managing restricted investment in total income from jointly financed sales and
accounts and revenues from banking services, investments to $149.8 million. With an
fees and commissions, its total operating increased share allocated to the unrestricted
income was 10% higher at $6.1 million. investment account holders, who received
Despite a 16% rise in operating expenses to $107.1 million or 34% more than in 2005,
$28.2 million, partly on account of a rise in after taking into consideration the bank’s
staff expenses and partly due to ongoing share as Mudarib as well as for its own
investment in information technology, the account, ABTPB’s net share of income from
operating profit was 6% higher at $41.6 these investment accounts was, at $42.7
million which, after taxation, returned a net million, only slightly (3%) less than the
profit of $21.8 million, 18% up on the year previous year. However, significantly higher
before. revenues from its own sales and investments

16
– up 147% at $30.9 million - and from The Egyptian Saudi Finance Bank (Egypt) million. ESFB distributed all of this income to
banking services, fees and commissions led to (“ESFB”) the unrestricted investment account holders,
a 28% increase in operating income to The Egyptian Saudi Finance Bank was retaining only its share as Mudarib of $13.9
$117.1 million. Lower depreciation and incorporated in March 1980 and is listed on million. After adding increased revenues from
amortisation and other charges once again the Cairo Stock Exchange. It is one of 30 banking services, fees and commissions, it
more than compensated for increased staff banks in Egypt, of which only two are Islamic recorded a 12% increase in total operating
costs so that the net operating income at banks. As at the end of 2006 ESFB had a income, to $22.2 million. As operating
$61.3 million was 89% higher than the network of 15 branches, in addition to several expenses rose by 20% to $11.0 million the
equivalent for 2005. Following a much money changing bureaux in hotels and other bank therefore reported a net income of $4.7
reduced taxation credit compared with 2005’s strategically located sites. The bank is one of million, a 38% improvement over 2005.
$7 million, and the absence of any monetary Egypt’s smallest, with 1.2% of non-
loss for hyperinflation compared with that governmental deposits and 0.9% of total As part of its efforts to ensure a well-
year’s $5 million adjustment, the bank private sector credit. It currently employs 662 diversified portfolio, during 2006 the bank
reported a 58% higher net profit for 2006, of staff and its network includes the only entered into a number of large syndicated
$50.7 million. women’s branch in Egypt, in addition to a unit transactions in consort with other Egyptian
dedicated to customers with special needs. banks and international banks, covering a
ABTPB will maintain the momentum on wide spread of industrial projects. It also
branch expansion during 2007 and also Egypt’s GDP grew by 6.8% in the fiscal year to extended its direct financings to large
intends to develop and market new products, June 2006, as industrial production rose by governmental and semi-governmental
placing the emphasis for customer base almost 9%, tourism revenues increased by companies in different sectors and made a
expansion on small and medium-sized 13% and Suez Canal revenues recorded their number of investments in new companies
enterprises and consumer customers. In doing highest levels ever. Its traditionally large engaged in a variety of activities, including
so it will intensify the marketing of its structural trade deficit stood at $11.1 billion leasing, commercial centres and real estate
business credit card and alternative in 2005 as exports, of which nearly half are development. On the liabilities front, the year
distribution channels such as Internet and call petroleum and its derivatives, rose strongly by saw the successful launch of the bank’s new
centre banking. While it moves towards Basel over 30% to $16.1 billion while imports rose 3-year Euro deposit certificate with prizes and
II capital allocation methodology and anti- by 26% to $27.2 billion. However, this trade profit paid out quarterly, and its US$ deposit
money laundering compliance, it will also be deficit was offset in part by strong services certificate with prizes and profit paid in
preparing for its own Initial Public Offering of and transfers balances including overseas advance. The bank also launched its first
its shares in due course. workers’ remittances, so that a current Islamic investment fund, in an amount of $50
account surplus of $2.2 billion was recorded. million, the success of which was evidenced
Estimates are for a similar trade deficit and by its 50% oversubscription. In 2006 ESFB
current account surplus for fiscal 2006. The also commenced drawdown of the second
government’s programme of economic tranche of funds made available by the Social
reform, begun in 2004, continued in 2006 as Development Fund for the funding of small
“ABTPB will maintain the banks that were unable to increase their businesses and projects under a special
momentum on branch expansion capital to the required level were forced to scheme introduced in 2004, having fully
during 2007 and develop and merge with their better capitalised utilised the first trance by 2005. It meanwhile
competitors. However the rate of inflation, progressed with the implementation of its
market new products.”
which had averaged 5% over 2001-5, picked plan to be Basel II-compliant within five years,
up in 2006, peaking at an annualised 9% in reviewing its credit policy and credit rating
September and forcing the Central Bank to system and processes, establishing
push up interest rates. management committees and appointing
staff with specific responsibilities for the
Despite the negative impact of higher interest changes necessary.
rates on ESFB as a non-interest paying Islamic
bank, it was able to increase its customer In 2007 ESFB intends to expand its ATM
current accounts, by 24% to $80 million, and system and to open three new branches, to
its unrestricted investment accounts, by 28% bring its network up to 18, in addition to two
to $1.040 billion, which additional funds were new exchange bureaus located in tourism
employed in a general expansion of its asset centres. It will prepare for the launch of its
base which grew to $1.281 billion. second investment fund which it hopes will be
Consequently, its murabaha sales receivables as successful as the first. It will also embark on
increased over the year by 23% to $540 a comprehensive plan to upgrade its
million, while its mudaraba financing portfolio computer network and systems, aiming to
more than doubled to $45 million and its non- link all branches on-line with the central
trading investments rose by 35% to $512 system and to introduce modern on-line
million. This business expansion led in turn to services including Internet, telephone and
a 20% increase in income from jointly SMS banking, as well as to establish a backup
financed sales and investments to $80.4 centre to ensure continuity of service.

17
Banque Albaraka D’Algerie S.P.A. economy grew strongly for the fourth year Bahrain Monetary Agency. AIB currently has
(Algeria) (“BABD”) running, enjoying an estimated 4.8% GDP eleven branches in Pakistan, located in the
Banque Albaraka D’Algerie was formed in growth rate, mainly driven by the oil and gas major centres of Lahore (3), Karachi (4),
1991 and is the only one of Algeria’s 18 banks sector which contributed 98% of all exports Islamabad, Faisalabad and Rawalpindi (2), and
operating according to the principles of the but with important activity also noted in the three in Bahrain. In view of the present
Shari’a. Having opened 5 new branches in construction, public works, agriculture and importance of the Pakistan unit - whose
2006 it now has a network of 16 operating service industries. At the same time, inflation activities constitute more than a third of the
throughout Algeria, maintained by 565 staff. was kept under control, declining to about bank’s total operations – and of the Pakistan
Despite its size, and thanks to its strong 2%, while the official unemployment rate economy to the bank, the following economic
foreign trade financing tradition, it holds an maintained its steady decline, falling to review focuses on Pakistan, while a review of
important position in the market, ranking 12.3% by the year end. Foreign reserves the Bahrain economy may be found in the
second among the private banks and soared by $20 billion to reach $75 billion, section dealing with Al Amin Bank below.
maintaining a 5.6% total market share. representing 3.5 years’ imports, and foreign
debt was reduced to $4.7 billion or 4% of Driven by increased private consumption and
In 2006 the Algerian government maintained GDP. investment, Pakistan’s economy grew by an
its economic policies as it sought to reduce estimated 6.2% in fiscal 2005/6, lower than
unemployment and stimulate investment-led Over the course of the year BABD’s total 2005’s 7.3% but altogether a strong
growth through massive expenditure on assets rose by 18% to $626 million, funded performance in light of prevailing high
labour-intensive housing, road and water mostly by an increased issued share capital international oil prices and the impact of the
projects and encouragement of foreign and by increases in its customer accounts and catastrophic damage of the October 2005
investment by gradual liberalisation of unrestricted investment accounts. Other than earthquake. Its merchandise trade deficit,
selected sectors of the economy. In an liquid assets the additional funds were exacerbated by the increased cost of fuel as
environment of high energy prices the employed in extending the bank’s murabaha well as of imported capital equipment, was
portfolio, as sales receivables increased by mainly responsible for the growing current
19% to $369 million, and its Ijarah Muntahia account deficit, which is estimated to have
Bittamleek portfolio which grew by 20% to reached 4.4% of GDP compared with 3.1%
nearly $23 million. As a result, the total in 2005. Inflation, however, subsided to an
President & Chief income from jointly financed sales and estimated 7.9% from 9.1% the year before
investments grew by 32% to $27.7 million so and the determination of the State Bank to
Executive’s Report that, after accounting for a 13% increase in reduce inflation through tighter monetary
continued
the share due to the unrestricted investment policies whilst maintaining economic growth
account holders, the bank’s share including its appears to be having the desired effect, with
share as Mudarib was up 43% at $19.1 forecasts for a gradual reduction over the 5-
million. Including revenues from banking year period to 2011. As usual, agricultural
services, fees and commissions and other output and higher textile production were the
“Over the next two years BABD operating income, BABD’s total operating main drivers of the economy, but the
plans to expand its branch income was 63% higher at $41.0 million. manufacturing and service sectors were also
network and develop its retail After operating expenses, at $21.4 million important contributors.
27% above 2005’s on account of increased
banking services by broadening its
staff costs, depreciation and amortisation due Notwithstanding the high levels of
product range.” in part to the network expansion, net income competition prevailing in the two
was 51% higher, at $14.1 million. marketplaces of Pakistan and Bahrain, from
which it derives more than half of its business,
Over the next two years BABD plans to open AIB’s unrestricted investment accounts grew
a further 14 branches, as well as to install an in 2006 by 16% to $436 million,
ATM network and replace its IT systems. It will compensating for an 8% fall in customer
also be developing its retail banking services accounts and a 22% reduction in deposits
by broadening its product range. from banks and financial institutions. In
addition to a 10% increase in liquid assets,
Albaraka Islamic Bank B.S.C. (E.C.) the additional resources were utilised to
(Bahrain) (“AIB”) increase the murabaha, musharaka and Ijarah
Albaraka Islamic Bank began as an offshore Muntahia Bittamleek portfolios, as well as the
investment bank in 1984 under the name of bank’s non-trading investments, although the
Albaraka Islamic Investment Bank B.S.C. mudaraba portfolio was somewhat reduced.
(E.C.). In 1991 it spread its operations to This overall expansion helped to produce a
Pakistan when it was granted a licence to 48% increase in income from jointly financed
operate there by the State Bank of Pakistan. It sales and investments to $30.8 million. After
changed its name to the present form after distributing the unrestricted investment
being granted an additional commercial holders’ share amounting to $24.6 million - a
banking licence in December 1998 by the 65% increase over 2005 - AIB earned

18
(including its share as Mudarib) a net $6.2 implementation by 2007 are meanwhile also largely by a 68% increase in its unrestricted
million from these accounts. Although most progressing well. investment accounts, up from $160 million to
categories of other income also experienced $270 million. As a consequence of the jump
growth, its income from its own investments Al Amin Bank (E.C.) (Bahrain) (“AAB”) in business turnover, total income from jointly
fell from $7.7 million to $1.5 million and this AAB commenced business in 1987 as Al- financed sales and investments increased by
was the main reason for a 22% fall in total Amin Company for Securities & Investment 44% over 2005 to US$14.8 million. After
operating income to $13.7 million. After Funds (E.C.), but has operated since May accounting to the unrestricted investment
accounting for a 23% increase in operating 2001 as Al Amin Bank under an Islamic account holders for their share – which (net
expenses to $13.0 million, largely due to investment banking licence granted at that of the bank’s share as Mudarib) rose by 54%
increased staff costs and other expenses, and time by the Bahrain Monetary Agency. to $10.0 million – AAB’s share of income from
a small taxation charge, the bank made a net Focused exclusively on the development and this source rose by 27% to $4.8 million.
loss of $3.5 million, compared with a net delivery of Shari’a-compliant short-term However, it suffered a loss of $0.8 million
profit in 2005 of $2.7 million. investment vehicles, it enjoys a commendable from its own investments, including income
reputation as the leading short-term liquidity from investments in associated companies,
AIB will be merged with Al Amin Bank during manager for institutional investors. It compared with 2005’s substantial income of
the course of 2007 with a view to pioneered the issue of short term Asset $40.0 million, so that its operating income
consolidating and stregthening the Group’s Backed Securities in Bahrain, offering a choice was much reduced at $5.0 million compared
presence in Bahrain, while at the same time of fixed and variable income forms. To date it with 2005’s $43.9 million. After expenses of
giving the merged entity diversity in its has managed more than $3.9 billion in funds $4.7 million its net operating income (and net
product offering. Significant synergies are on behalf of leading financial institutions and profit) fell to $0.3 million from $40.4 million
expected to be generated in the process. In high net-worth customers seeking in 2005.
light of the small size of the Bahrain market unmatched short-term investment solutions.
and the high level of competition among the Although small (its assets represent only AAB and Albaraka Islamic Bank are scheduled
28 Islamic financial institutions (6 of which 3.9% of total Islamic bank assets in Bahrain) to be merged during 2007, from which time
are commercial banks) based there, AIB’s its unique products have enabled it to carve its own goals of expanding its franchise and
medium term strategy aims at growing its its own niche in the market. upgrading its technology infrastructure will
assets by some 20% over the next three years be shared with those of AIB.
by investing in or financing new projects in In 2006 Bahrain’s real GDP expanded by
other Arab world countries offering better slightly more than 6% as it moderated from Albaraka Bank Sudan (Sudan) (“ABBS”)
opportunities, in addition to building its 2005’s 7.8% growth rate. Inflation was Albaraka Bank Sudan, established in 1984,
customer base at home through developing manageable at an estimated 2.7%. One of currently maintains a network of 23
and offering new products to its medium- the fasting growing economies in the Arab branches. At the end of 2005 it was ranked
sized enterprise clients. Its plans for Basel II world, Bahrain’s economy is driven by oil - 11th out of the 26 Sudanese commercial
which still accounts for some 30% of GDP - banks in total assets, but 10th in terms of net
retail and wholesale trade, monetary projects, profit.
“Significant business and
mining and real estate and services. A rise in
operational synergies are property development and construction in Sudan has turned around a struggling
expected to be generated by recent years has been a particularly economy since 1997 with sound economic
the merger of AIB and Al Amin noteworthy contributor, while the country’s policies and infrastructure investments,
aluminium industry has been increasingly supported by development of its oil reserves,
Bank.”
expanding into downstream activities and the but much still needs to be done to lift its
tourism sector has also gained in importance. people out of poverty and very high
unemployment. Sudan’s GDP grew by an
The year 2005 was an exceptional one for estimated 12% in 2006 to an estimated
AAB, as it managed 72 issues with an $37.6 billion. The economy is mainly reliant
aggregate value of $470 million and on agriculture, which contributes around
furthermore was successful in joining in 45% of local production, industrial
partnership with major banks in Bahrain and production, accounting for 28%, and the
Syria in the structuring and financing of a service sector, 27%. The current rate of
number of major syndicated transactions. output of oil is about 500,000 barrels/day of
Such opportunities were not, however, which 80% is exported, generating 58% of
available in such volumes in 2006, although it the country’s external revenues. Although
did expand its murabaha portfolio exports continued to rise in 2006, higher
considerably (with end of the year sales imports pointed to an estimated current
receivables standing at $239 million or more account deficit of about $2.2 billion. Inflation
than 500% up on the year before) as well as, averaged above 7%.
to a lesser extent, its Ijara portfolio. Its non-
trading investments also increased. As a result 2006 saw moderate but continuing growth at
it recorded a 31% increase in total assets, to ABBS. As its customer current and other
$431 million. This expansion was funded accounts rose by 20% and its unrestricted

19
investment accounts by 14% it was able to ABBS’ aims for 2007 are to increase market investment accounts, which reached $123
expand its murabaha, Istisna’a and non- share, mainly through the provision of an million by year end. Murabaha sales
trading investment portfolios, more than improving and superior standard of service receivables rose to $183 million from $133
compensating for a reduced musharaka and operations. The recent introduction of a million in 2005. As a result, the total income
financing portfolio. Its total assets rose by comprehensive electronic banking network from jointly financed sales and investments
13% to $234 million as a result. Total income and modern IT systems has enabled it to grew by 42% to $11.2 million and, after
from jointly financed sales and investments centralise most processing tasks at the head distribution to unrestricted investment
consequently rose by 49% to $14.7 million so office, shortening the handling processes account holders of their net share after the
that, after accounting to the unrestricted while providing customers with the capability bank’s share as Mudarib – which increased by
account holders for their share (which itself of accessing their accounts from any branch, 34% to $3.9 million - the bank’s own share
grew by 127% to a net $2.5 million after the the first Sudanese bank to do so. It will rose by 47% to $7.3 million. Income from its
bank’s share as Mudarib), left the bank with continue to be at the forefront of modern own investments, its Mudarib share from
its own share of $12.3 million or 39% up on banking practices in the years to come. restricted investment accounts, commissions
2005. Increased banking revenues and other and fees and other income also all grew, so
operating income then led to a 35% higher Bank Et-Tamweel Al-Tunisi Al-Saudi that total operating income surged by 113%
total operating income of $21.2 million. (Tunisia) (“B.E.S.T.”) to $18.4 million. However, operating
However, although staff and other operating B.E.S.T. was incorporated in Tunisia in 1983 as expenses also increased to $6.5 million.
expenses grew by a smaller margin than a joint stock company with an offshore banking Nevertheless, B.E.S.T. closed the year with a
income, provisions rose by 843% to $3.1 licence. Amending legislation has however net profit of $8.0 million, twice 2005’s $4.0
million and ABBS therefore reported a permitted offshore banks since 1985 to million.
virtually unchanged net profit for the year of conduct onshore banking business in local
$4.2 million. currency with Tunisian residents up to a ceiling The bank’s ongoing strategy is to expand its
of 1% of the total deposits of all the branch network, increase its deposit base and
commercial banks. Within Tunisia, as the only focus on selective financing projects with less
Islamic bank operating in the country, B.E.S.T. risk. It has created new internal units
provides Shari’a-compliant finance in the addressing risk control, marketing and
economic areas permitted to it, which includes organisation, and implemented a
President & Chief the agricultural, industrial, tourism, and export comprehensive new credit policy. It is in the
Executive’s Report industries. The bank currently maintains a

network of 7 branches.
process of upgrading its IT systems to
international standards and expanding its
continued
Internet facilities to enable its customers to
Despite the continuing high energy prices in access its full service range.
2006, the Tunisian economy managed to
record a 5.8% GDP growth rate, somewhat Albaraka Bank Limited (South Africa)
higher than 2005’s 4.2%, partly due to (“ABBL-S”)
“B.E.S.T.’s strategy is to expand its
increased inward investment. Services (of Albaraka Bank Limited was established in
branch network, upgrade its IT which tourism is the most important 1989 as South Africa’s first Islamic bank and
systems and expand its Internet contributor) form the main component of even today remains the only bank in the
facilities to enable its customers to GDP, with a 55% share, followed by industry country to conduct all of its business
with 31.8% and agriculture with 13.2%. according to the Shari’a. Its activities - chiefly
access its full product range.”
Tunisia is committed to a free trade regime equipment and residential and commercial
and export-led growth, focused mainly on the property finance through murabaha and
European Union, with which it has signed an musharaka financing - are directed mainly at
Association Agreement to gradually eliminate the 1.5-2% of Muslims in the population and
trade and tariffs barriers to non-agricultural have provided the impetus to the Muslim
goods, services and investments, community to move gradually away from the
commencing in 2008. Ongoing economic riba system to Shari’a-compliant banking.
reforms include the privatisation of certain Apart from its Durban head office the bank
sectors including telecommunications and maintains five branches, in Durban,
banking. Tunisia enjoys an investment-grade Fordsburg, Pretoria, Lanasia and Cape Town.
credit rating from international rating
agencies and encourages foreign direct The South African economy grew by 4.9% in
investment through taxation and 2006, above the 4.3% average for the five
employment-encouraging incentives. year period 2002/6, aided by credit-driven
consumerism and increased household debt.
B.E.S.T. enjoyed a relatively good year in Global demand for its primary exports -
2006, expanding its total assets by 25% to platinum, gold, diamonds and coal - helped
$254 million, largely through increases in its to boost merchandise exports, but imports
murabaha and mudaraba portfolios, funded also rose, widening the trade deficit and
by a 48% increase in its unrestricted resulting in a current account deficit of about

20
5% of GDP despite an increasing invisibles to $8.8 million or 25% above that for 2005. Despite the deleterious effect of the war on
flow from the expanding tourism industry. After deduction of operating expenses which the whole economy, ABBL’s customer
Meanwhile the inflation rate, at 4.6%, was was 22% higher at $6.8 million, provisions accounts rose by 37% to $26 million during
less than expected despite – or perhaps and taxation, ABBL-S returned a net profit of 2006, while its unrestricted investment
because of - the Central Bank’s monetary $1.6 million, compared with 2005’s $1.2 accounts also grew, by some 4% to $81
policy tightening through four consecutive million. million. This growth helped to fund an
interest rate rises and was well within the 3- increase in total assets to $128 million from
6% target. During the year ABBL-S continued to focus on 2005’s $122 million, all of which was placed
meeting the South African Reserve Bank’s in liquid funds for the time being.
Over the course of 2006 ABBL-S increased its timetable for all South African banks to be Notwithstanding a reduced level of murabaha
unrestricted investment accounts by 13% to Basel II-compliant by January 2008 and as a sales receivables at the end of the year,
$173 million, enabling it to expand its total consequence was well placed by the end of however, the total income from jointly
assets by 12% to $209 million, the majority 2006 for meeting all deadlines for field financed sales and investments was virtually
of which was via a 17% increase in its testing and parallel running during 2007. It unchanged at $2.8 million so that, after
murabaha sales receivables, which reached also completed the integration of a number distributing the unrestricted investment
$136 million, and an 11% increase in its of front-end systems into its present system account holders’ share and accounting for a
musharaka financing portfolio, now architecture. Following a review of the small loss on its own share, and after
amounting to $47 million. The increase in present system’s capabilities compared with including revenues from banking services,
business activity was reflected in a the bank’s future business and regulatory fees and commissions and other operating
commensurate 12% uplift in the income needs, it has endorsed the acquisition of an income totalling $3.6 million, total operating
from jointly financed sales and investments, interim solution with Islamic capabilities income rose by 34% to $3.1 million.
which reached $16.7 million. As the entire pending a comprehensive assessment of Nevertheless, with increased operating
portfolio was managed on behalf of system needs and availability for long-term expenses across the board, aggregating $6
customers with no participation from ABBL-S, implementation. million, and a significantly higher financing
after accounting for the bank’s share as loss provision, ABBL’s net loss for the year rose
Mudarib, amounting to $7.4 million or 23% Albaraka Bank Lebanon S.A.L. (Lebanon) to $7.3 million from a $3.2 million loss in
above the previous year’s figure, the total (“ABBL”) 2005.
paid out to investors was $9.3 million. To the ABBL was established in 1992 as Lebanon’s
bank’s share from this source was added first Islamic bank and even today there For 2007, ABBL aims to expand its
revenues from fees, commissions and other remains only 4 Islamic banks out of the relationships with corporate and private
income, taking its total operating income up country’s total of 97. The absence prior to companies, particularly those engaged in
2004 of appropriate laws and regulations to export and import operations, offering
govern the practice of Islamic banking in Shari’a-compliant trade finance and working
Lebanon meant that for many years it had to capital facilities. It also intends to develop and
conduct Islamic banking activities whilst market new Islamic investment funds and
“ABBL-S has made significant
being regulated in a conventional manner. improve its retail banking operations to meet
progress towards Basel II ABBL therefore concentrated largely on the the demands of its customer base, while
compliance and is in the process management of unrestricted investment focusing on reducing its problem loans
of upgrading its IT systems.” accounts and the provision of retail banking through greater debt collection efforts and
services to small businesses and the general collateral realisation.
public. ABBL maintains 5 branches in
Lebanon and is the smallest of the Group’s
units. Its products include finance for
housing, vehicles, household goods,
construction and medical equipment and
working capital.
The July 2006 war deeply and negatively

impacted the overall economic situation in
Lebanon, reversing much of the
improvements of recent years and causing an
estimated $3.6 billion in infrastructure
damage. The economy suffered badly, with
GDP estimated to have fallen by 3.2% to
$22.3 billion. The current account deficit of
$2.8 billion or 12.8% of GDP was not,
however, substantially worse than usual as
Lebanon has traditionally run a current
account deficit.

21
Corporate Governance below) to the extent of the percentage of development) and the performance of
Ordinary Shares cast in appointing Appointed executive management. The Board and its
The Board of Directors Directors. If a Shareholder holds a percentage Committees are supplied with full and timely
The Board of Directors is responsible for the of shares that is insufficient to appoint information to enable them to discharge their
Group’s overall management. In particular, another Appointed Director, that Shareholder responsibilities. All Directors have access to
the Board is responsible for approving the may use the percentage that is held to vote the advice and services of the Secretary who
Group’s overall business strategy, monitoring with other Shareholders to elect Elected is responsible for ensuring that the Board
its operations and taking critical business Directors. procedures and applicable rules and
decisions. In line with international best regulations are observed.
practice, the Board has instituted corporate The Ordinary General Meeting shall elect the
governance measures to ensure that the remainder of the Board (“Elected Directors”). The Board of Directors has overall
interests of the shareholders are protected, Elected Directors shall be selected from a list responsibility for the Group’s system of
including the appointment to the Board of of qualified nominees presented to the internal control and its effectiveness. There
two independent non-executive directors. Chairman of the Board of Directors before the are established and ongoing procedures in
date of the Ordinary General Meeting at place for identifying, evaluating and
ABG is administered by a Board of Directors which elections are scheduled to take place managing significant risks faced by the
consisting of not less than five and not more and after obtaining the approval of the Group, which are regularly reviewed by the
than eleven members, appointed and/or Central Bank of Bahrain in respect of such Board. The Group’s system of internal control
elected in accordance with its Articles of nominations. provides for a documented and auditable trail
Association. However, subject to the of accountability and applies across its
provisions of the law, the shareholders at an Members of the Board of Directors hold office operations, is designed to ensure effective
Ordinary General Meeting may determine for a three-year renewable term. There is no and efficient operation and compliance with
that the number of directors shall exceed age limit for retirement of the Directors. A all applicable laws and regulations, and seeks
eleven in order to permit additional expert or corporate person that has appointed one or to manage risk with a view to avoiding
non-executive directors to be appointed as more Appointed Directors may replace them material errors, losses and fraud.
Appointed Directors (see below). by others at any time. An Elected Director may
be re-elected upon the expiry of his term of Board Committees
Shareholders are entitled to appoint one office, and this shall be considered to be a The Board has put in place a number of Board
Director for each 10% of the total of all new nomination which requires satisfaction of committees, to which it has delegated
Ordinary Shares issued owned by them the conditions required to be satisfied by specific responsibilities. The principal Board
(“Appointed Directors”). Shareholders forfeit nominees mentioned above. The term of committees are:
their right to vote for Elected Directors (see office of Directors may be extended by
resolution of the Bahrain Minister of Industry Board Executive Committee
& Commerce for a period not exceeding six The Board Executive Committee is chaired
“ABG has in place the latest months at the request of the Board. by Mr. Abdullah Saleh Kamel, a Director of
corporate governance practices ABG. The other members are Mr. Adnan
with independent directors, and There are currently eleven Directors on the Ahmed Yousif, President & Chief Executive
board and management Board, who have varied backgrounds and and a Director of ABG, Mr. Abdul Elah A.
experience and who individually and Sabbahi, a Director of ABG and Mr. Ghanim
committees to manage the
collectively exercise independent and Bin Saad M. Al Saad, a Director of ABG. The
group effectively.” objective judgement. Other than the Board has delegated certain of its day-to-
President & Chief Executive all Directors are day functions to the Board Executive
non-executive. The posts of Chairman and Committee, including certain financial,
President & Chief Executive are held by administrative and credit matters.
different Directors and each has separate,
clearly defined responsibilities. Board Affairs and Remuneration
Committee
The Board of Directors meets regularly (usually The Board Affairs and Remuneration
four times a year) and has a formal schedule Committee meets at least once a year and
of matters reserved to it, considering key considers all material elements of
aspects of the Group’s affairs referred to it for remuneration policy and the remuneration
decision. The Board reviews the Group’s and incentivisation of the Board, the Executive
strategy and financial plans, all proposed Management Team and all other ABG
material changes to the Group’s policies, employees, and makes recommendations to
structure and organisation, reports provided the Board on the framework for executive
to it on the operations of the Group (with remuneration and its costs. The Board Affairs
emphasis on organisational development, risk and Remuneration Committee is chaired by
management and information technology Mr. Ibrahim Fayez Al Shamsi, a Director of

22
ABG and its other members are Mr. Jamal S.J. Committee meets formally at least four times President & Chief Executive and senior credit
Bin Ghalaita, a Director of ABG, Mr. Ghanim a year and can call for the attendance of the officers appointed from among the Executive
Bin Saad M. Al Saad, a Director of ABG and Head of Credit & Risk Management and other Management, one of whom is the Head of
Mr. Adnan Ahmed Yousif, President & Chief Senior Executives of the Group. Credit & Risk Management.
Executive and a Director of ABG.
The risk appetite of the Group is determined Basel II Steering Committee
Audit Committee by the Board, as recommended by the Board The Basel Committee on Banking Supervision
The Audit Committee is chaired by Mr. Saleh Risk Committee, which is responsible for has introduced the new Capital Accord (Basel
Mohamed Al-Yousef, a Director of ABG. setting acceptable levels of risks to which the II) to replace the 1988 Capital Accord
Other members are Dr. Anwar Ibrahim, a Group may be exposed. Management has the establishing guidelines as to the minimum
Director of ABG and Mr. Ibrahim Fayez Al prime responsibility for identifying and capital that banks should maintain in relation
Shamsi, a Director of ABG. The Audit evaluating significant risks to the business of to their risk-weighted assets. Implementation
Committee meets formally at least four times the Group and for the design and operation of the new Capital Accord is due to take place
a year and external auditors attend at least of appropriate internal controls. These risks between 2007 and 2008.
one meeting annually. are assessed on a continuous basis.
The mandate of ABG’s Basel II Steering
The external auditors have unrestricted access Executive and Senior Management Committee is to review the Group’s state of
to the Audit Committee and its Chairman. The In effecting full control over the Group, ABG’s readiness for compliance with Basel II, both at
Audit Committee considers all matters relating Executive and Senior Management Team has the Head Office level and across the countries in
to financial control and reporting, internal and developed a system for filtering down to which the Group is represented, and develop a
external audits, the scope and results of the Group units the centralised strategic decisions concerted strategy towards Basel II Compliance
audits, regulatory compliance and risk taken at the parent level, thus ensuring the to achieve Groupwide risk and capital adequacy
management. The Audit Committee also implementation of Groupwide policies and measurement. The Committee is co-chaired by
considers the annual audit plans, monitors the common operational processes and the Heads of Credit & Risk Management and
independence of the external auditors and their procedures across the Group. Financial Control and membership includes
remuneration and makes recommendations to senior nominees drawn from the Head Office
the Board regarding the appointment and As at the end of 2006, the team consisted of and most of the Group units.
retirement of the external auditors. the President & Chief Executive, the Deputy
Chief Executive and the Heads of Internal Head Office IT Steering Committee
The various internal and financial controls and Audit, Strategic Planning, Operations and The Committee’s role is to draw up the
processes are subject to independent review Administration, Financial Control, Credit & Group’s short and long term IT strategy and
by the Group’s Internal Audit Department and Risk Management and Treasury & Investment. oversee and monitor its implementation
external auditors and regulators as The Heads of Legal Affairs and Commercial throughout the Group with a view to
appropriate. The reports of all of these review Banking are expected to join the team in due effecting standardisation in information and
bodies are forwarded to the Audit course. In addition, the following Senior operation management. The Group has also
Committee, who, acting on behalf of the Management Committees have been set up, developed a Business Intelligence Roadmap
Board, ensures that appropriate corrective with specific responsibilities: for a web-based financial consolidation
action is taken where required. The Audit application and a Corporate Performance
Committee is informed directly by Internal Asset Liability Committee Measurement (CPM) methodology using Key
Audit’s reports submitted to it, and by its The Asset Liability Committee’s mandate is to Performance Indicators (KPI) to set
discussions with external auditors, of the monitor the liquidity and capital adequacy of performance benchmarks for each unit and to
work undertaken by them and the the Group and review the Group’s long term monitor them on a continuous basis. The
conclusions they have reached, respectively. equity investments, and the Group’s Roadmap will be further enhanced to include
penetration into the different markets. The elements of exposure management across the
The Committee reviews the Group’s annual Committee is chaired by the President & Chief Group, including elements of risk
and interim financial statements, the Executive and its members are Deputy Chief management reporting, thus setting the stage
adequacy of loss provisions and reports by Executivie and the Heads of Treasury & for Basel II compliance.
external consultants on specific investigative Investment, Credit & Risk Management,
or advisory engagements. Strategic Planning, Operations & Administration The Committee is chaired by the Deputy Chief
and a senior member from the Bahrain, Executive with membership comprising the
Board Risk Committee Financial Control unit, Al Amin Bank. Heads of Financial Control, Strategic
The Board Risk Committee is chaired by Mr. Planning, Operations & Administration
Abdul Elah Sabbahi, Director of ABG. Other Head Office Credit Committee together with senior support nominees from
members are Mr. Jamal S.J. Bin Ghalaita, The Head Office Credit Committee is the ABG and Al Baraka Islamic Bank, Bahrain.
Director of ABG, Mr. Ghassan Abdul Kareem authority that considers issues of Group credit
A. Sulaihim, Director of ABG and Mr. Adnan policy and Group credit exposures, problem
Ahmed Yousif, President & Chief Executive credits and provisioning levels. The Head
and a Director of ABG. The Board Risk Office Credit Committee is chaired by the

23
produced. Additionally, units submit a monthly
Other committees The CBB currently requires each Bahrain-based return to Group headquarters providing details
The Management forms ad-hoc committees bank or banking group to maintain a minimum of their financial performance, measured
as and when required to address specific ratio of total capital to on and off-balance sheet against approved budgets.
initiatives that the Group engages in from risk-weighted assets of 12%, which
time to time. requirement exceeds the 8% minimum ratio The Group has also implemented a Corporate
guideline of the Basel Committee on Banking Performance Management (CPM) system,
Supervision under its 1988 Capital Accord. whereby financial and operational data are
Compliance, Policies and Procedures However, the new Capital Accord (Basel II) collected from Group units through a web-
announced by the Basel Committee to replace based mechanism, pursuant to which Key
Regulation the 1988 Accord is designed to achieve a more Performance Indicators (KPI) are extracted and
The Group complies with all the regulatory sophisticated degree of risk differentiation in measured against performance targets agreed
requirements governing Islamic Banks issued establishing the amount of capital that banks with the units as part of their approved
by the Central Bank of Bahrain (CBB), which should allocate to different categories of their budgets. Under the system each member of
include, inter alia, regulations governing the credit risk exposure, in addition to including a the Executive Management Team at Group
Group’s capital adequacy, asset quality and capital charge for operational risk and level will be provided with key macro
risk management, liquidity and fund incorporating an earlier guideline in relation to statistics, financial and operational, relevant
management. capital charges for market risk. Regulators will to that member’s areas of responsibility, with
have wider discretion to increase or decrease middle management having access to the
The CBB as the home supervisor sets and capital requirements for banks according to information relevant to their responsibilities,
monitors ABG’s capital requirements on both their individual circumstances. The new rules for on-line analysis and ad hoc enquiry.
a consolidated and an unconsolidated basis, will also require greater transparency of Further enhancements will lead to Group
while the Group’s individual banking units are published information relating to bank risk exposure monitoring and centralised risk
directly regulated by their local banking management. The Group aims to achieve, in management reporting for Basel II and
supervisors, who set and monitor their capital time, the required degree of sophistication in regulatory compliance purposes.
adequacy requirements. risk assessment which will enable it to comply
with the requirements of Basel II as stipulated by Risk Management
the CBB. The Group is committed to complying with
internationally established principles and
Anti-Money Laundering policies in relation to risk management. In
The Group is implementing the CBB’s anti- particular the Group fully subscribes to the
money laundering regulations, including the guiding principles of risk management for
appointment of a Group Money Laundering Islamic financial services institutions set down
“The Group’s management has Reporting Officer (MLRO) - which position is by the Islamic Financial Services Board and the
held by the Head of Operations & need for a comprehensive risk management
in place various measures that Administration - as well as overseeing and reporting process. In this respect ABG’s
help monitor and control individual MLROs in each of the constituent Head of Credit & Risk Management is
activities of the Group banks. The intention is to implement a responsible for formulating and monitoring the
Groupwide overall policy for anti-money Group’s policies relating to all aspects of risk,
worldwide.”
laundering at the Head Office level, taking developing the framework for risk
into account the practice existing at the measurement and coordinating the
various Group units and complying with the implementation of Basel II. He is also in charge
CBB’s anti-money laundering regulations. of introducing risk measurement software,
monitoring the Group’s compliance with risk
Financial Performance Monitoring measurement standards and providing Group
The Group’s management has in place various management with reports on the Group’s risk
measures that help monitor and control the adjusted return on capital.
activities of the Group worldwide. A
comprehensive financial consolidation The Board of Directors defines and sets the
procedure exists and is working effectively, Group’s overall levels of risk appetite, risk
whereunder all units submit their financial data diversification and asset allocation strategies
in a format that is compatible with Islamic applicable to each Islamic financing instrument,
Accounting Standards issued by the economic activity, geographical spread,
Accounting and Auditing Organization for currency and tenor. Each of the Group’s units is
Islamic Financial Institutions (AAOIFI) and managed by its respective Board of Directors.
International Financial Reporting Standards Group units follow documented credit policies
(IFRS). These are consolidated quarterly and a and procedures which are in the process of
consolidated set of financial results is being updated to reflect the new Groupwide

24
policies and thus ensure that sound risk its valuation methodologies are appropriate and
management is in place in all units of the consistent, and assesses the potential impact of “The Group is committed to
Group, whose reporting lines are ultimately to its methods on profit calculations and
complying with internationally
ABG but whose decision-making is allocations mutually agreed between that unit
decentralised within the overall strategic and its partners. Each unit further has defined established principles and
direction established by ABG’s Board of and established appropriate exit strategies, risk policies in relation to risk
Directors. management and reporting processes in management .”
respect of each of their equity investment
The major risks to which the Group is exposed activities.
are Credit, Liquidity, Market (including Equity,
Rate of Return and Foreign Exchange risk), Liquidity Risk
Operational and Shari’a Compliance risks. Liquidity risk is the risk of loss to the Group
arising from its inability either to meet its
Credit Risk obligations or to fund increases in assets as
Credit risk is the risk of loss from the failure of they fall due without incurring unacceptable
a customer or counterparty to meet its costs or losses.
obligations in accordance with agreed terms.
It applies to the Group in its management of Each of ABG’s units maintains liquid assets at
the financing exposures arising out of prudential levels to ensure that cash can
receivables and leases (for example, quickly be made available to honour its
murabaha and Ijarah) and working capital obligations. Liquidity management also
financing transactions (Salam, Istisna’a or recognises the impact of potential cash
mudaraba). outflows arising from irrevocable
commitments to fund new assets.
Each unit has in place a framework for credit
risk management that includes identification, Profit Rate Risk or Rate of Return Risk
measurement, monitoring, reporting and The Group is exposed to rate of return risk in
control of credit risks. Each unit controls credit that an increase in general benchmark rates Management of legal risk is through effective
risk through the process of initial approval and may lead to investment account holders having consultation with internal and external legal
granting of credit, subsequent monitoring of expectations of a higher rate of return, thus counsel. Management of other operational
counterparty creditworthiness and the active putting units under market pressure to pay a risk is achieved by ensuring that trained and
management of credit exposures. Authority to rate of return that exceeds the rate that has competent people and appropriate
approve credits is delegated by the unit’s been earned on assets financed by the infrastructure, controls and systems are in
Board of Directors to committees entrusted investment account holders, by waiving all or place to ensure the identification, assessment
with the task of credit assessment and part of their share of profits and/or fee as and management of all substantial risks.
evaluation, under specific credit policies and Mudarib. However, the Group is not liable to
operational procedures in place in that unit. pay any predetermined returns to investment Apart from operations risks, which are
account holders. controlled through regular daily functions and
Each unit maintains an internal audit managed through internal procedures and
department responsible for carrying out Currency Risk monitoring mechanisms, and business/event
reviews of credit exposures to counterparties Currency or foreign exchange rate risk is the risks, which include underlying, structural and
and assessing their quality and adherence to risk of an adverse impact on the Group’s external risks that can have a material impact
laid down approval procedures. earnings or shareholders’ equity due to on the Group such as changes in taxation,
currency rate movements. The Group is accounting and financial management, legal
Equity Investment Risk exposed to foreign exchange rate risk in that and regulatory requirements, the Group is
Equity investment risk can be defined as the the value of a financial instrument, or its net also exposed to risks relating to Shari’a
risk of financial loss to the Group arising from investment in its foreign units, may fluctuate compliance and its fiduciary responsibilities
any of its units entering into a partnership for due to changes in foreign exchange rates. The towards fund providers.
the purpose of undertaking or participating in Group’s significant net foreign currency
a particular financing or general business exposures are detailed in Note 28 to the Fiduciary risk arises from the failure to
activity, in which the provider of finance Financial Statements. perform in accordance with explicit and
shares in the business risk. implicit standards applicable to an Islamic
Operational Risk bank’s fiduciary responsibilities, leading to
Each unit has in place appropriate strategies, Operational risk, which includes legal risk, is losses in investments or failure to safeguard
risk management and reporting processes in the risk of financial loss or damage resulting the interests of the investment account
respect of the risk characteristics of equity from inadequate or failed internal processes, holders. Group units have in place
investments, including mudaraba, musharaka people and systems or from external events. appropriate mechanisms to safeguard the
and other investments. Each unit ensures that

25
interests of all fund providers. Where
investment account holders’ funds are
commingled with a Group unit’s own funds,
the respective Group unit ensures that the
bases for asset, revenue, expense and profit
allocations are established, applied and
reported in a manner consistent with the
Group’s fiduciary responsibilities.
Group policy dictates that the operational

functions of booking, recording and
monitoring of transactions are carried out by
staff independent of the staff initiating the
transactions. Group units have primary
responsibility for identifying and managing
their own operational risks. Each unit is guided
by policies, procedures, and controls that are
relevant for each function. Internal control
policies and procedures dictate the segregation
of duties, delegation of authorities, exceptions
reporting, exposures management and
reporting, and reconciliations and are based on
the submission of timely and reliable
management reporting.
The Group is taking steps to commission an

outside consultancy to design Groupwide
policies for disaster recovery and business
continuity planning.
Separate Internal Control units carry out

ongoing monitoring of day-to-day procedures
and ensure adherence to key control functions.
With the improvement in the Group’s
technology base, controls are frequently
integrated into processing systems.
Shari’a Compliance Risk

Shari’a compliance risk arises from the failure
to comply with the rules and principles of
Shari’a and is therefore akin to reputation risk.
Group units have in place systems and
controls, including their respective Shari’a
Supervisory Boards, to ensure compliance
with all Shari’a rules and principles.

26
Contents
28 Unified Shari’a Supervisory Board Report
29 Auditors’ Report
30 Consolidated Balance Sheet
31 Consolidated Statement of Income
32 Consolidated Statement of Cash Flows
33 Consolidated Statement of Changes in Equity
34 Consolidated Statement of Changes in Restricted Investment Accounts
35 Consolidated Statement of Sources and Uses of Charity Fund
36 Consolidated Statement of Sources and Uses of Good Faith Qard Fund
37 Notes to the Consolidated Financial Statements
63 ABG Contact Directory

27
Unified Shari’a Supervisory Board Report
Albaraka Banking Group B.S.C.
Year Ended 31 December 2006
In the name of Allah, The Beneficent, The Merciful, Praise be to Allah and peace be upon our
Prophet Mohamed, His Apostles:
To: Albaraka Banking Group Shareholders The Unit’s Shari’a Supervisory Boards and
Shari’a advisors have supervised the Units’
Greetings,
business activities including examining on test
In accordance with Article (58) of the Articles basis documentations and procedures applied
of Association of AlBaraka Banking Group, by the Group and its Units.
(The Group) we are required to submit the
The Units’ Shari’a Supervisory Boards and
following report:
Shari’a advisors, as is clear from their reports,
We have reviewed the policies and planned and performed reviews so as to
procedures applied by the Group and obtain all the information and explanations
reviewed the 2006 Shari’a reports issued by they considered necessary in order to provide
the following Group Units’ Shari’a Supervisory them with sufficient evidence to provide
Boards or Shari’a Advisors: reasonable assurance that the Group and its
Units have not violated Shari’a Rules and
Principles.
1 AlBaraka Islamic Bank (Bahrain).
2 Al-Amin Bank
In our opinion:
3 Jordan Islamic Bank
1 The Contracts, transactions and dealings
4 Bank Et-Tamweel Al-Tunisi Al-Saudi
entered into by the Group and its Units
5 Banque Albaraka D’Algerie during the year ended 31st December
2006 are made in compliance with
6 AlBaraka Bank Ltd (South Africa)
Shari’a Rules and Principles.
7 AlBaraka Bank Lebanon
2 The allocation of profit and charging of
8 AlBaraka Turk Participation Bank losses relating to investment accounts
9 The Egyptian Saudi Finance Bank conform to the basis that have been
approved in accordance with Shari’a
10 AlBaraka Bank Sudan Issued on 14 Safar 1428H, corresponding to
Rules and Principles.
4 March 2007 AD.
3 All earnings realized from sources or by
Executive Committee of the Unified Shari’a
We have also reviewed the financial means prohibited by Islamic Shari’a Rules
and Principles have been disposed of to Supervisory Board
statements of the above entities when
needed. Charitable Causes.
In addition, we examined the Group’s Balance 4 The Group and its units are not required
Sheet for the year ending 31/12/2006 and to pay Zakah. This should be paid by
Statement of Income and their notes and shareholders on their shareholdings.
obtained the necessary explanations and Subject to the Islamic Jurisprudence
clarifications on the relevant technical issues. Board’s resolution, a shareholder who President Shari’a Supervisory Board
invests for the purpose of trading
The Group and Units managements are Dr. Abdul Sattar Abu Ghudah
should pay Zakah on the market price of
responsible for ensuring that these operate his shares while a shareholder who
and conduct their business in accordance invests for the purpose of getting profits
with Islamic Shari’a Principles. Our should pay Zakah on the profits paid out
responsibility is to express an independent in addition to his share in the bank’s
opinion based on our review of the Shari’a assests on which Zakah should be paid.
reports and financial statements of the Group Shari’a Supervisory Board’s Member
and its Units. Praise be to God
Dr. Ahmed Mohyedeen

28
Auditors’ Report to the Shareholders of
Albaraka Banking Group B.S.C.
We have audited the accompanying We confirm that, in our opinion, proper

consolidated balance sheet of Albaraka accounting records have been kept by the
Banking Group B.S.C. [the “Bank”] and its Bank and the consolidated financial
subsidiaries [the “Group”] as of 31 December statements, and the contents of the Report of
2006, and the related consolidated the Board of Directors relating to these
statements of income, cash flows, changes in consolidated financial statements, are in
equity, restricted investment accounts, agreement therewith. We further report, to
sources and uses of charity fund and sources the best of our knowledge and belief, that no
and uses of good faith qard fund for the year violations of the Bahrain Commercial
then ended. These consolidated financial Companies Law, nor of the Central Bank of
statements and the Bank’s undertaking to Bahrain and Financial Institutions Law, nor of
operate in accordance with Islamic Shari’a the memorandum and articles of association
rules and principles are the responsibility of of the Bank, have occurred during the year
the Bank’s Board of Directors. Our ended 31 December 2006 that might have
responsibility is to express an opinion on these had a material adverse effect on the business
consolidated financial statements based on of the Bank or on its consolidated financial
our audit. position and that the Bank has complied with
the terms of its banking licence. We obtained
We conducted our audit in accordance with all the information and explanations which
both the International Standards on Auditing we required for the purpose of our audit.
and Auditing Standards for Islamic Financial
Institutions. Those Standards require that we
plan and perform the audit to obtain
reasonable assurance about whether the
consolidated financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence
supporting the amounts and disclosures in the
consolidated financial statements. An audit
also includes assessing the accounting 11 March 2007
principles used and significant estimates Manama, Kingdom of Bahrain
made by management, as well as evaluating
the overall consolidated financial statements
presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial

statements present fairly, in all material
respects, the financial position of the Group
as of 31 December 2006, the results of its
operations, its cash flows, sources and uses of
charity fund and sources and uses of good
faith qard fund for the year then ended in
accordance with the Financial Accounting
Standards issued by the Accounting and
Auditing Organization for Islamic Financial
Institutions and the Shari’a rules and
principles as determined by the Shari’a
Supervisory Board of the Group.

29
Consolidated Balance Sheet
31 December 2006
2006 2005
Notes US$ 000 US$ 000
ASSETS
Cash and balances with banks 3 1,837,178 1,844,633
Sales receivables 4 4,053,726 2,986,194
Mudaraba financing 5 134,671 167,235
Musharaka financing 6 84,444 73,692
Investment properties 7 68,184 44,010
Ijarah Muntahia Bittamleek 8 211,325 170,467
Investment in associates 9 17,876 125,208
Investments 10 841,843 585,014
Ijarah receivables 11 21,096 20,279
Property and equipment 12 130,951 115,355
Other assets 13 224,533 174,987
Total assets 7,625,827 6,307,074
LIABILITIES, UNRESTRICTED INVESTMENT ACCOUNTS AND EQUITY

Liabilities
Customer current and other accounts 1,333,954 1,185,592
Due to banks 115,276 111,432
Other liabilities 14 268,107 209,792
1,717,337 1,506,816
Unrestricted Investment Accounts 15 4,697,366 4,033,125
Equity 16
Share capital 630,000 387,998
Share premium 238,890 -
Reserves 33,605 49,810
Retained earnings 43,102 111,526
Proposed dividends 33,000 17,000
Equity attributable to the shareholders of the parent 978,597 566,334
Minority interest 232,527 200,799
Total equity 1,211,124 767,133
Total liabilities, unrestricted investment accounts and equity 7,625,827 6,307,074
Saleh Abdullah Kamel Adnan Ahmed Yousif

Chairman Member of the Board and
President & Chief Executive
The attached notes 1 to 32 form part of these consolidated financial statements

30
Consolidated Statement of Income
2006 2005
INCOME
Joint income from sales receivable 329,903 254,987
Net income from jointly financed contracts and investments 113,016 89,611
17 442,919 344,598
Gross return to unrestricted investment accounts 18 (373,850) (305,964)

Group’s share as a Mudarib 18 100,464 92,783
Return on unrestricted investment accounts (273,386) (213,181)
Group's share of income from jointly financing and investment accounts 169,533 131,417
Mudarib share for managing restricted investment accounts 6,628 5,970

Net income from self financed contracts and investments 17 46,283 65,864
Other fees and commission income 19 87,796 71,553
Other operating income 20 29,327 22,946
Total Operating Income 339,567 297,750
Staff expenses 91,330 74,364

Depreciation and amortisation 21 13,160 14,835
Other operating expenses 22 62,413 62,068
Total Operating Expenses 166,903 151,267
Net Income for the Year Before Monetary Loss, Provisions and Taxation 172,664 146,483
Monetary loss on a subsidiary - (4,987)

Provisions 23 (33,015) (32,230)
Net Income Before Taxation 139,649 109,266
Taxation (15,933) (6,380)

Net Income for the Year 123,716 102,886
Attributable to:
Equity shareholders of the parent 80,252 79,372
Minority interest 43,464 23,514
123,716 102,886
Basic and diluted earnings per share - US cents (Note 24) 15 16

31
Consolidated Statement of Cash Flows
2006 2005
OPERATING ACTIVITIES
Net income for the year before taxation 139,649 109,266
Adjustments for non-cash items:
Depreciation and amortisation 21 13,160 14,835
Gain on sale of property and equipment 20 (347) (4,266)
Provisions 23 33,015 32,230
Income from investment in associates 17 (226) (45,778)
(Gain)/loss on sale of investment in associates 17 (4,835) 2,289
Operating profit before changes in operating assets and liabilities 180,416 108,576
Net changes in operating assets and liabilities:

Reserves with central banks (93,969) (70,636)
Sales receivables (1,118,466) (769,180)
Mudaraba financing 32,564 (10,589)
Musharaka financing (10,753) 2,867
Investment properties 7 (4,375) 6,383
Ijarah Muntahia Bittamleek (41,859) 1,692
Ijarah receivable (4,764) (5,599)
Other assets (40,559) (8,481)
Customer current and other accounts 148,362 207,811
Due to banks and financial institutions 3,844 73,402
Other liabilities 39,053 (17,467)
Taxation paid (16,642) (6,797)
Net cash used in operating activities (927,148) (488,018)
INVESTING ACTIVITIES
Acquisition of a subsidiary, net of cash acquired 29 - 36,343
Net purchase of investments (178,079) (162,320)
Net (purchase) disposal of property and equipment (27,127) 269
Dividend received from associates 6,180 21,911
Disposal of investment in associates 16,859 11,750
Net cash used in investing activities (182,167) (92,047)
FINANCING ACTIVITIES
Proceeds from share capital issued 369,604 41,347
Equity transaction cost (10,714) -
Dividends paid (17,000) -
Increase in unrestricted investment accounts 682,197 652,286
Net changes in minority interest (8,716) 32,857
Net cash from financing activities 1,015,371 726,490
Foreign currency translation adjustments (7,480) 1,060
(Decrease) Increase in Cash and Cash Equivalents (101,424) 147,485

Cash and cash equivalents at 1 January 1,490,568 1,343,083
Cash and Cash Equivalents at 31 December 25 1,389,144 1,490,568

32
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Parent

Cumulative Investment
changes in Foreign Properties
Share Share Statutory fair value currency fair value Other Retained Proposed Minority Total
capital premium reserve reserve reserve reserve reserves earnings dividends Total interest equity
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Balance at 1 January 2006 387,998 - 14,351 9,368 23,518 - 2,573 111,526 17,000 566,334 200,799 767,133
Capitalisation (note 1) 122,002 - (14,351) - - - - (107,651) - - - -
Share capital issued for cash 120,000 249,604 - - - - - - - 369,604 - 369,604
Equity transaction
cost (note 16 a) - (10,714) - - - - - - - (10,714) - (10,714)
Net movement in cumulative
change in fair value - - - (3,517) - - - - - (3,517) 1,295 (2,222)
Net movement
in other reserves - - - - - - (1,787) - - (1,787) (1,410) (3,197)
Foreign currency translation - - - - (4,575) - - - - (4,575) (2,905) (7,480)
Net income for the year - - - - - - - 80,252 - 80,252 43,464 123,716
Transfer to statutory reserve - - 8,025 - - - - (8,025) - - - -
Dividends paid - - - - - - - - (17,000) (17,000) - (17,000)
Proposed dividends - - - - - - - (33,000) 33,000 - - -
Dividends of subsidiaries - - - - - - - - - - (2,678) (2,678)
Net movement in
minority interest - - - - - - - - - - (6,038) (6,038)
Balance at
31 December 2006 630,000 238,890 8,025 5,851 18,943 - 786 43,102 33,000 978,597 232,527 1,211,124
Balance at 1 January 2005 325,307 - 6,414 7,946 21,020 107 4,148 57,091 - 422,033 143,895 565,928
Share capital issued for cash 41,347 - - - - - - - - 41,347 - 41,347
Share capital issued in kind 21,344 - - - - - - - - 21,344 - 21,344
Acquisition of a
subsidiary (note 29) - - - - - - - - - - 2,815 2,815
Net movement in cumulative
change in fair value - - - 1,422 - (107) - - - 1,315 (738) 577
Net movement in other reserves - - - - - - (1,575) - - (1,575) (106) (1,681)
Foreign currency translation - - - - 2,498 - - - - 2,498 (1,438) 1,060
Net income for the year - - - - - - - 79,372 - 79,372 23,514 102,886
Transfer to statutory reserve - - 7,937 - - - - (7,937) - - - -
Proposed dividends - - - - - - - (17,000) 17,000 - - -
Dividends of subsidiaries - - - - - - - - - - (4,757) (4,757)
Net movement in minority interest - - - - - - - - - - 37,614 37,614
Balance at
31 December 2005 387,998 - 14,351 9,368 23,518 - 2,573 111,526 17,000 566,334 200,799 767,133
Note: Net movement in minority interest includes the effect of changes in capital of subsidiaries.

33
Consolidated Statement of Changes in Restricted Investment Accounts
Sales Mudaraba Musharaka Investment

receivable financing financing Properties Others Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Balance at 1 January 2005 198,879 5,554 20,961 20,305 68,388 314,087
Deposits 287,304 - 2,732 3,234 250,992 544,262
Withdrawals (259,023) (4,145) (20,961) (14,932) (193,110) (492,171)
Income net of expenses 23,661 104 - 4,012 18,606 46,383

Mudarib’s share (1,975) (13) - (326) (3,656) (5,970)
Balance at 31December 2005 248,846 1,500 2,732 12,293 141,220 406,591
Deposits 301,363 132,358 - 9,122 60,175 503,018
Withdrawals (227,688) (51,895) (1,592) (11,385) (100,467) (393,027)
Income net of expenses 18,976 1,961 15 6,212 616 27,780

Mudarib’s share (4,246) (287) (15) (1,864) (216) (6,628)
Balance at 31December 2006 337,251 83,637 1,140 14,378 101,328 537,734
Restricted Investment Accounts

Restricted investment accounts represent funds received by the Group from third parties for investment in specified products as directed by the
investment account holders. These assets are managed in a fiduciary capacity and the Group has no entitlement to these assets. Clients bear all of
the risks and earn all of the rewards on these investments. Restricted investments are not included in the consolidated balance sheet since the Group
does not have the right to use or dispose these investments except within the conditions of the contract between the Group and holders of restricted
investment accounts.

34
Consolidated Statement of Sources and Uses of Charity Fund
2006 2005
Note US$ 000 US$ 000
SOURCES OF CHARITY FUND:

Contribution by the Group 479 -
Non-Islamic income * 8,776 2,603
Others 136 415
Total sources 9,391 3,018
USES OF CHARITY FUND

Charitable contributions * 6,350 1,352
Others 625 881
Total uses 6,975 2,233
Net increase of sources over uses 2,416 785

Balance of charity fund at beginning of the year 2,553 1,768
Balance of charity fund at end of the year 14 4,969 2,553
* Non-Islamic income includes US$ 6.5 million representing interest earned by Albaraka Turk Participation Bank during the year on the mandatory
reserve placed with their local Central Bank. An amount of US$ 4.7 million out of this interest has been used in various charitable contributions and
the remaining balance has been carried forward to be used as charitable contributions in the coming years.

35
Consolidated Statement of Sources and Uses of Good Faith Qard Fund
2006 2005
SOURCES OF QARD FUND

Contribution by the Group 10,794 13,389
Others 831 587
Total Sources 11,625 13,976
USES OF QARD FUND
Marriage 1,078 739

Medical treatment 894 482
Education 1,124 2,108
Advances to staff 1,977 1,390
Settlement of current accounts 3,354 5,637
Others 3,198 3,620
Total uses 11,625 13,976
Balance of Good Faith Qard fund at beginning of the year 8,622 6,725
Advances granted during the year 11,625 13,976
Advances settled during the year (10,609) (12,079)
Balance of Good Faith Qard fund at end of the year 13 9,638 8,622

36
Notes to the Consolidated Financial Statements
31 December 2006
1 ACTIVITIES
Albaraka Banking Group B.S.C. (the "Bank") is a joint stock company incorporated in the Kingdom of Bahrain on 27 June 2002, under Commercial
Registration (CR) number 48915. The Bank is engaged in banking activities in the Middle East, Europe and North African and South African region.
The address of the Bank's registered office is P.O. Box 1882, Diplomatic Area, Manama, Kingdom of Bahrain. The Bank is listed on Bahrain Stock
Exchange and Dubai International Financial Exchange.
During the year 2006, the Bank has filed an application with Central Bank of Bahrain to obtain wholesale banking license. This regulatory approval
is still awaited.
The principal activities of the Bank and its subsidiaries (the "Group") comprise of international and commercial banking, financing, treasury and
investment activities. The Bank is supervised and regulated by the Central Bank of Bahrain. As of 31 December 2006, the total number of employees
employed by the Group was 5,435 (2005: 4,846).
The extra-ordinary meeting No. (5) dated 20 March 2006 approved the capitalization of US$ 14.4 million of the statutory reserve and an amount of
US$ 107.7 million of the retained earnings. As a result, the share capital increased to US$ 510 million. In the same extra-ordinary meeting, the Group
was converted from a closed joint stock company to a public joint stock company. In addition, the Bank issued 120 million new shares through an
initial public offering of US$ 3.08 per share including a premium of US$ 2.08 per share. This resulted in an increase in share capital to US$ 630 million.
2 SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below:
a. Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for investment properties, trading and available-
for-sale investments that have been measured at fair value. The consolidated financial statements are presented in United States Dollars, and
all values are rounded to the nearest U.S Dollar thousands.
b. Statement of Compliance
The consolidated financial statements are prepared in accordance with the Financial Accounting Standards issued by the Accounting and
Islamic Financial Institutions (the "AAOIFI"), the Shari’a Rules and Principles as determined by the Shari’a Supervisory Board of the Group and
the Bahrain Commercial Companies Law. For matters which are not covered by AAOIFI standards, the Group uses the International Financial
Reporting Standards (the "IFRSs").
c. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at and for the year ended 31
December each year. The financial statements of the subsidiaries are prepared for the same reporting year as the Bank, using consistent
accounting policies.
All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be
consolidated until the date that control ceases. Control is achieved where the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
Minority share in a subsidiary’s net assets is reported as a separate item in the Group’s entity. In the consolidated income statement, minority
share is included in net profit.
Minority interests consist of the amount of those interests at the date of the original business combination and the minorities share of changes
in equity since the date of combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are
allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional
investment to cover the losses.
Transactions with minority interests are handled in the same way as transactions with external parties. Sale of participations to minority interests
results in a gain or loss that is recognised in the consolidated income statement. Acquisition of minority shares can result in goodwill if the cost
exceeds the carrying amount of the acquired net assets.

37
31 December 2006
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED

c. Basis of consolidation continued
The following are the principal subsidiaries of the Bank, which are consolidated in these financial statements:
Ownership Ownership Year of Country of

Bank for 2006 for 2005 incorporation incorporation
Held directly by the Bank

Banque Albaraka D’Algerie 55.9% 50.0% 1991 Algeria
Albaraka Islamic Bank 78.3% 78.3% 1984 Bahrain
Bank Et-Tamweel Al-Tunisi Al-Saudi 78.4% 78.4% 1983 Tunisia
Egyptian Saudi Finance Bank 73.7% 46.6% 1980 Egypt
Albaraka Bank Lebanon 96.3% 81.8% 1991 Lebanon
Jordan Islamic Bank 55.5% 53.7% 1978 Jordan
Al Amin Bank 100.0% 100.0% 1987 Bahrain
Albaraka Turk Participation Bank 67.8% 67.7% 1985 Turkey
Albaraka Bank Limited 51.7% 22.5% 1989 South Africa
Albaraka Bank Sudan 86.2% 87.8% 1984 Sudan
Effective Effective
Ownership Ownership Year of Country of
Company for 2006 for 2005 incorporation incorporation
Held through subsidiaries

Al- Rizq Trading Company ** 50.0% 48.3% 1994 Jordan
Al-Omariya School Company** 52.4% 50.6% 1987 Jordan
Al-Samaha Real Estate Company** 52.7% 51.0% 1998 Jordan
Future Applied Computer
Technology Company** 55.4% 53.6% 1998 Jordan
Dar AlBaraka 55.9% 50.0% 2003 Algeria
AlBaraka Properties (Pty) Ltd. 51.7% 22.5% 1991 South Africa
** Owned indirectly through Jordan Islamic Bank.
Dar AlBaraka and AlBaraka Properties (Pty) Ltd. are indirectly owned through Banque Albaraka D’Algerie and AlBaraka Bank
d. Cash and cash equivalents

Cash and cash equivalents as referred to in the consolidated statement of cash flows comprise cash on hand, balance with central bank and
amounts due from banks on demand or with an original maturity of three months or less.
e. Sales receivables
Sales receivables consist mainly of sales transaction agreements, murabaha and international commodities stated net of deferred profits and
provisions for impairment.
f. Mudaraba financing
Mudaraba financing is stated at cost less provision for impairment.
g. Musharaka financing
Musharaka financing (in which the partner’s share in capital remains constant) is accounted for at cost less provision for impairment.
h. Investment properties
All properties held for rental or for capital appreciation purposes, or both, are classified as investment properties. These are initially recognised
at cost and subsequently re-measured at fair value with the resulting unrealised gains being recognised in the consolidated statement of
changes in equity under investment properties fair value reserves. Unrealised losses are recognised in equity to the extent of the available
balance, taking into consideration the portion related to owners' equity and equity of unrestricted investment account holders. In case
cumulative losses exceed the available balance under equity, the excess is recognised in the consolidated statement of income under unrealised
re-measurement losses on investments.

38
31 December 2006

i. Ijara Muntahia Bittamleek
Ijarah Muntahia Bittamleek are accounted for at cost and are depreciated according to the Group’s depreciation policy for property and
equipment or lease term, whichever is lower.
j. Investment in Associates
The Group’s investment in its associates is accounted for under the equity method of accounting. An associate is an entity in which the Group
has significant influences and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is
carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an
associate is included in the carrying amount of the investment and is not amortised. The consolidated income statement reflects the Group’s
share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group
recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised profits and
losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.
The reporting dates of the associates and the Group are identical and the associates accounting policies conform to those used by the Group
for like transactions and events in similar circumstances.
k. Investments
Trading securities
These are initially recognised at cost and subsequently re-measured at fair value. All related realised and unrealised gains or losses are included
in the consolidated income statement.
Non-trading investments
Theses are classified as follows:
- Available-for-sale
- Held-to-maturity
All investments are initially recognised at cost, being the fair value of the consideration given including acquisition costs.
Available-for-sale
Subsequent to acquisition, available for sale investments are re-measured at fair value. The cumulative gain on fair values (net of any losses) is
reflected proportionately in owners' equity and unrestricted investment accounts. Cumulative losses are reflected in the consolidated statement
of income.
In case there are unrealised losses that have been recognised in the consolidated statement of income in a previous financial period, the
unrealised gains related to the current period are recognised to the extent of previous losses recognised in the consolidated statement of
income. Any excess of such gains over such prior period losses is added to the cumulative changes in fair value in the consolidated statement
of changes in equity.
On disposal, the cumulative gains previously recognised in equity is recognised in the consolidated statement of income.
Held -to-maturity
Investments which have fixed or determinable payments, and where the Group has both the intent and ability to hold to maturity are classified
as held to-maturity. Such investments are carried at amortised cost, less provision for impairment in value. Amortised cost is calculated by
taking into account any premium or discount on acquisition. Any gain or loss on such investment is recognised in the consolidated income
statement, when the investment is de-recognised or impaired.
l. Property and equipment

Property and equipment are initially recognised at cost. The cost of additions and major improvements are capitalised; maintenance and repairs
are charged to the consolidated income statement as incurred. Gains or losses on disposal are reflected in other operating income. Depreciation
is provided on the straight-line basis over the estimated useful lives of the assets other than freehold land, which is deemed to have an indefinite
life.

39
31 December 2006

l. Property and equipment continued
The calculation of depreciation is on the following basis:
Buildings 30 years
Office furniture and equipment 4 - 10 years
Vehicles 3 years
Leased buildings 4 - 10 years
Others 4 - 5 years
m. Unrestricted Investment Accounts

All unrestricted investment accounts are carried at cost plus accrued profit and related reserves. Profit equalisation reserves and investment risk
reserves are made at the Bank or subsidiary level. Profit equalisation reserves are amounts appropriated out of the Mudaraba income, before
llocating the mudarib share, in order to maintain a certain level of return on investments for investment account holders. Investment risk
reserves are amounts appropriated out of the income of investment account holders, after allocating the mudarib share, in order to cater
against future losses for investment account holders and is included under unrestricted investment account holders.
n. Taxation
There is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign operations is provided in accordance with the fiscal
regulations of the respective countries in which the subsidiaries operate. The Group accounts for its share of associates profit after accounting
for corporate taxation. Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between
the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
o. Fair values
For investments actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices.
For investment where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to the current market
value of another instrument, which is substantially the same or is based on the assessment of future cash flows. The cash equivalent values are
determined by the Group at current profit rates for contracts with similar term and risk characteristics.
For sales receivables the fair value is determined at Bank or subsidiary level at the end of the financial period at their cash equivalent value.
p. Shari’a Supervisory Board

The Group's business activities are subject to the supervision of a Shari'a supervisory board consisting of five members appointed by the general
assembly.
q. Zakah
The responsibility of payment of zakah is on individual shareholders of the Group, its unrestricted investment account holders and other account
holders except for few subsidiaries where the responsibility of payment of zakah is on the individual subsidiary as a single entity.
r. Earnings prohibited by Shari’a

The Group is committed to avoid recognising any income generated from non-Islamic source. Accordingly, all non-Islamic income is credited to
a charity account where the Group uses these funds for various social welfare activities. The movements in these funds is shown in statement
of sources and uses of charity fund.
s. Revenue recognition
Sales receivables
Profit from sales receivables is recognised when the income is both contractually determinable and quantifiable at the commencement of the
transaction. Such income is recognised on time-apportioned basis over the period of the transaction. Where the income from a contract is not
contractually determinable or quantifiable, it is recognised when the realisation is reasonably certain or when actually realised. Income that is
overdue on non-performing accounts is excluded from income.
Mudaraba financing
Income is recognised when it is quantifiable or on distribution by the mudarib, whereas any losses are charged to income on their declaration
by the mudarib.

40
31 December 2006

s. Revenue recognition continued
Musharaka financing
Income is recognised on the due dates of the installments or when received in case of sale musharaka. Income that is overdue on non-
performing accounts is excluded from income.
Fee income
Fee and commission income is recognised when earned.
Ijarah Muntahia Bittamleek

Ijarah income and income from Ijarah Muntahia Bittamleek are recognised on a time-apportioned basis over the Ijara term.
Other income
Other income on investments is recognised when the right to receive payment is established.
Group’s share as a Mudarib

The Group’s share of profit as a Mudarib for managing unrestricted investment accounts is based on the terms and conditions of related
mudarib agreements.
Mudarib’s share of restricted investment

The Group shares profit for managing restricted investment accounts based on the terms and conditions of related contracts.
t. Return on Unrestricted Investment Accounts

Unrestricted investment accounts holders’ share of income is calculated based on the applicable local laws and based on the underlining
individual mudaraba contract. It represents the income generated from joint investment accounts and after deducting other expenses. Other
expenses include all expenses incurred by the Group including specific provisions. The Group's share is deducted before distributing such income.
The Group deducts an amount in excess of the profit to be distributed to unrestricted investment accounts after taking into consideration the
mudarib share of income.
u. Joint and Self Financed

Investments, financing and receivables that are jointly owned by the Group and the unrestricted investment accounts holders are classified
under the caption "jointly financed" in the consolidated financial statements. Investments, financing and receivables that are financed solely
by the Group are classified under "self financed".
v. Impairment of Financial Assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset or a group
of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment
loss, based on the assessment by the Group of the estimated cash equivalent value, is recognised in the consolidated income statement. Specific
provisions are created to reduce all impaired financial contracts to their realisable cash equivalent value. Financial assets are written off only in
circumstances where effectively all possible means of recovery have been exhausted.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment value was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognised in the consolidated income statement.
In addition the Group maintains a general provision to reflect a potential loss that may occur as a result of currently unidentifiable risks in
relation to receivables, financings or investment assets. The amount reflects estimated losses affecting these assets attributable to events that
have already occurred at the date of the financial statements, and not estimated losses attributable to future events.
w. Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the consolidated balance sheet when there is a legally
enforceable right to set off the recognised amounts and the Group intends to either settle on a net basis, or to realise the asset and settle the
liability simultaneously.

41
31 December 2006

x. Employees’ End of Service Benefits
The Group provides for end of service benefits to its employees. Entitlement to these benefits is based upon the employees' length of service and
the completion of a minimum service period. The expected costs of these benefits are accrued for over the period of employment.
y. Provisions
Provisions are recognised when there is a present obligation (legal or constructive) arising from a past event and the costs to settle the obligation
are both probable and able to be reliably measured.
z. Foreign Currencies
Foreign currency transactions at the entry level
Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. The monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to income
statement at the entity level.
Foreign currency transactions

As at the reporting date, the assets and liabilities of foreign currencies are translated into the presentation currency of the Group (US$) at the
rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the
year. The exchange differences arising on the translation are taken directly to a separate component of equity.
On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign entity is recognised in
the consolidated income statement.
aa. Monetary Loss

This represented the purchasing power loss from the application of hyperinflationary accounting standard by a subsidiary (Albaraka Türk
Participation Bank ) for differences between monetary assets and monetary liabilities. IAS 29 requires that financial statements prepared in the
currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date. From 2006 Turkey is no
longer considered a hyperinflationary economy.
bb. Judgments
In the process of applying the Group's accounting policies, management has made the following judgments, apart from those involving
estimations, which effects the amounts recognised in the financial statements:
Classification of investments
Management decides on acquisition of an investment whether it should be classified as trading, held to maturity or available for sale.
cc. Use of Estimates in Preparation of the Consolidated Financial Statements

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of financial assets and liabilities at the date of the consolidated financial statements. The use of estimates is used primarily to the
determination of provisions for sales receivable, mudaraba financing, musharaka financing, non-trading investments, ijarah receivable and other
assets.
dd. Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group's
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost
less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the cash-generating
units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable
amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

42
31 December 2006

ee. Collateral Pending Sale
Collateral acquired in settlement of certain financing facilities is stated at the lower of the net realisable value of the related financing facilities
and the current fair value of such assets. Gains or losses on disposal, and revaluation losses, are recognised in the consolidated income statement.
ff. Derecognition
A financial asset (or, where applicable a part of a financial asset or part of a Group of similar financial assets) is derecognised when:
(i) the right to receive cash flows from the asset have expired;
(ii) the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay
to a third party under a 'pass through' arrangement; or
(iii) The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and
rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control
of the asset.
A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired.
gg. Intangible Assets

Intangible assets comprise principally the value of computer software. Intangible assets acquired are measured on initial recognition at cost.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
hh. Dividends
Dividends to shareholders are recognised as liabilities in the period in which they are declared.
3 CASH AND BALANCES WITH BANKS
2006 2005
US$ 000 US$ 000
Balances with central banks* 1,188,785 1,156,742

Balances with other banks 507,423 587,048
Cash and cash in transit 140,970 100,843
1,837,178 1,844,633
* Balance with the central banks include mandatory reserve and are not available for use in the Group’s day-to-day operations for US$ 448 million
(2005: US$ 354 million).
4 SALES RECEIVABLES
2006 2005
Self Jointly Self Jointly
financed financed Total financed financed Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
International commodities murabahas 119,582 587,443 707,025 - 278,650 278,650

Other murabahas 326,360 3,345,202 3,671,562 122,554 2,867,814 2,990,368
Gross sales receivables 445,942 3,932,645 4,378,587 122,554 3,146,464 3,269,018

Provisions (note 23) (7,050) (146,730) (153,780) (1,872) (143,615) (145,487)
438,892 3,785,915 4,224,807 120,682 3,002,849 3,123,531
Deferred profits (2,383) (168,698) (171,081) (624) (136,713) (137,337)
Net sales receivables 436,509 3,617,217 4,053,726 120,058 2,866,136 2,986,194
Sales receivables, which are non-performing as of 31 December 2006, amounted to US$ 357.1million (2005: US$ 312.4 million).
The Group considers the promise made in the murabaha (sales receivable) to the purchase order as obligatory.

43
31 December 2006
5 MUDARABA FINANCING
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Gross amount 6,420 128,812 135,232 9,693 158,185 167,878

Provisions (note 23) - (561) (561) - (643) (643)
6,420 128,251 134,671 9,693 157,542 167,235
Mudaraba financing, which are non-performing as of 31 December 2006, amounted to US$ 0.6 million (2005: 0.6 million).
6 MUSHARAKA FINANCING
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Gross amount 4,480 81,224 85,704 3,706 71,088 74,794

Provisions (note 23) (115) (1,145) (1,260) (115) (987) (1,102)
4,365 80,079 84,444 3,591 70,101 73,692
Musharaka financing, which are non performing as of 31 December 2006, amounted to US$ 2.2 million (2005: US$ 0.9 million).
7 INVESTMENT PROPERTIES
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Cost 1,382 42,752 44,134 1,383 38,376 39,759

Accumulated fair value adjustments - 24,050 24,050 - 4,251 4,251
1,382 66,802 68,184 1,383 42,627 44,010
The movement is as follows:
2006 2005
US$ 000 US$ 000
At 1 January 44,010 46,279

Change in fair values attributable to unrestricted investment accounts 19,799 4,114
Acquisition net of disposal 4,375 (6,383)
68,184 44,010

44
31 December 2006
7 INVESTMENT PROPERTIES CONTINUED
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Land - 32,920 32,920 305 12,277 12,582

Buildings 1,382 33,882 35,264 1,078 30,350 31,428
1,382 66,802 68,184 1,383 42,627 44,010
8 IJARAH MUNTAHIA BITTAMLEEK
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Cost:
1 January 17,114 255,629 272,743 7,412 224,439 231,851
Additions 14,819 148,652 163,471 10,235 99,720 109,955
Disposals (3,761) (108,878) (112,639) (533) (68,530) (69,063)
31 December 28,172 295,403 323,575 17,114 255,629 272,743
Accumulated depreciation:
1 January 8,721 93,555 102,276 4,007 55,685 59,692
Additions 5,053 100,815 105,868 4,714 90,742 95,456
Disposals (3,607) (92,287) (95,894) - (52,872) (52,872)
31 December 10,167 102,083 112,250 8,721 93,555 102,276
Net book value:

At 31 December 18,005 193,320 211,325 8,393 162,074 170,467
Properties Equipment Others 2006

US$ 000 US$ 000 US$ 000 US$ 000
Cost:
At 1 January 72,343 186,157 14,243 272,743
Additions 36,615 102,009 24,847 163,471
Disposals (31,898) (66,571) (14,170) (112,639)
At 31 December 77,060 221,595 24,920 323,575
Depreciation:
At 1 January 25,581 73,294 3,401 102,276
Provided during the year 21,575 81,451 2,842 105,868
Disposals (27,328) (67,149) (1,417) (95,894)
At 31 December 19,828 87,596 4,826 112,250
Net book value:

At 31 December 2006 57,232 133,999 20,094 211,325
Net book value:

At 31 December 2005 46,762 112,863 10,842 170,467

45
31 December 2006
9 INVESTMENT IN ASSOCIATES
Investments in associates comprise the following:
2006
Ownership Country of Self Jointly Market
% incorporation financed financed Total Value
2006 US$ 000 US$ 000 US$ 000 US$ 000
Quoted
Investment Banking
AlAmin Investment Company 32.2 Jordan - 6,727 6,727 5,890
Insurance
Islamic Insurance Company 35.3 Jordan - 5,177 5,177 6,130
Others
Jordan Centre for International Trade Company 40.8 Jordan - 2,447 2,447 2,348
- 14,351 14,351 14,368
Unquoted
Real Estate
Baraka Development Immobile 20.0 Algeria 924 - 924
Egyptian Saudi Finance Real Estate 40.0 Egypt - 396 396
Leasing
BEST Lease 34.8 Tunis 1,380 - 1,380
Insurance
Aman Takaful Insurance (note 9.1) 38.7 Lebanon 825 - 825
3,129 396 3,525
3,129 14,747 17,876

46
31 December 2006
9 INVESTMENT IN ASSOCIATES CONTINUED
2005
Ownership Country of Self Jointly Market
% incorporation financed financed Total Value
2005 US$ 000 US$ 000 US$ 000 US$ 000
Quoted
Real Estate
Real Estate Investment Company (note 9.3) 25.0 Jordan - 3,007 3,007 4,972
Investment Banking
AlAmin Investment Company 32.2 Jordan - 6,493 6,493 16,824
Insurance
Islamic Insurance Company 35.3 Jordan - 2,291 2,291 5,713
Others
Jordan Centre for International Trade Company 40.8 Jordan - 2,361 2,361 3,013
- 14,152 14,152 30,522
Unquoted
Real Estate
Baraka Development Immobile 20.0 Algeria 924 - 924
Egyptian Saudi Finance Real Estate 40.0 Egypt - 435 435
Leasing
BEST Lease 34.8 Tunis 2,130 - 2,130
Investment Banking
Al Tawfeek Company for Cayman
Investment Funds Limited (note 9.2) 13.6 Islands 92,520 - 92,520
Insurance
BEST Reinsurance (note 9.3) 21.8 Tunis 15,047 - 15,047
110,621 435 111,056
110,621 14,587 125,208
9.1 Aman Takaful Insurance

During the year Albaraka Bank Lebanon's share in Aman Takaful Insurance has been diluted from 70% to 38.7% due to injection of additional
capital by other shareholders. Accordingly the carrying amount of the investment in Aman Takaful Insurance at the date the Bank ceases to
have control has been accounted for as an investment in associate in accordance with the requirements of International Accounting Standard 28.
9.2 Al Tawfeeq Company for Investment Funds Limited

During the year the Group lost significant influence over the operations of Al Tawfeek Company for Investment Funds Limited and has
discontinued the use of equity method from the date that it ceased to have significant influence The carrying amount of the investment at the
date it ceased to be an associate is regarded as its cost on initial measurement as a financial assets in accordance with Financial Accounting
Standard 17 ‘Investments’ and is now disclosed under nontrading investments (note 10).
An amount of US$ 72.2 million of Al Tawfeeq Company for Investment Funds Limited included under non-trading investments (note 10).
9.3 Real Estate Investment Company and B.E.S.T. Reinsurance

These were sold during the year and a gain of US$ 4.8 million recognised in consolidated statement of income ( note 17).

47
31 December 2006
10 INVESTMENTS
i) Trading securities
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Quoted equities 1,666 2,133 3,799 1,606 1,065 2,671
Non-Trading Investments
ii) Available for sale investments
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Quoted investments
Managed funds 4,128 37,101 41,229 2,766 19,157 21,923
Equities 3,339 41,313 44,652 4,459 49,558 54,017
7,467 78,414 85,881 7,225 68,715 75,940
Unquoted investments at cost

Managed funds 802 18,637 19,439 - 15,447 15,447
Equities 95,040 12,080 107,120 31,049 27,102 58,151
95,842 30,717 126,559 31,049 42,549 73,598
Provisions (note 23) (4,305) (284) (4,589) (4,846) (1,089) (5,935)

99,004 108,847 207,851 33,428 110,175 143,603
iii) Held to maturity investments
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Unquoted Investments at cost

Sukook and similar items 7,160 623,033 630,193 11,193 427,547 438,740
107,830 734,013 841,843 46,227 538,787 585,014
11 IJARAH RECEIVABLES
2006 2005
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Gross amount 3,708 20,716 24,424 5,498 15,865 21,363

Provisions (note 23) (2,983) (345) (3,328) (1,043) (41) (1,084)
725 20,371 21,096 4,455 15,824 20,279
Ijarah receivables, which are non-performing as of 31 December 2006, amounted to US$ 2.8 million (2005: nil).

48
31 December 2006
12 PROPERTY AND EQUIPMENT
Land and Office furniture

buildings and equipment Vehicles Others Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Cost:
At 1 January 2006 116,789 73,125 6,717 7,347 203,978
Additions 9,516 11,936 2,312 3,019 26,783
Disposals (435) (885) (647) (116) (2,083)
Transfers/others (4,569) 3,960 1,068 (510) (51)
At 31 December 2006 121,301 88,136 9,450 9,740 228,627
Depreciation:
At 1 January 2006 28,457 52,050 4,216 3,900 88,623
Provided during the year 3,041 6,714 1,257 866 11,878
Disposals (9) (784) (612) (2) (1,407)
Transfers/others (3,157) 1,726 526 (513) (1,418)
At 31 December 2006 28,332 59,706 5,387 4,251 97,676
Net book values:

At 31 December 2006 92,969 28,430 4,063 5,489 130,951
At 31 December 2005 88,332 21,075 2,501 3,447 115,355
13 OTHER ASSETS
2006 2005
US$ 000 US$ 000
Goodwill 13(a) 47,227 40,000

Receivables 92,541 56,101
Collateral pending sale 25,859 26,098
Deferred taxation 11,501 10,792
Good Faith Qard Fund 9,638 8,622
Istisna financing 12,013 6,585
Intangible assets 4,199 4,420
Others 30,601 25,434
Total 233,579 178,052

Provisions (note 23) (9,046) (3,065)
224,533 174,987
13(a) Goodwill
2006 2005
US$ 000 US$ 000
Cost:
At 1 January 40,000 40,000
Additions 7,227 -
At 31 December 47,227 40,000

49
31 December 2006
13 OTHER ASSETS CONTINUED

13(a) Goodwill continued
Goodwill acquired through business combinations with indefinite lives have been allocated to three individual cash-generating units. The carrying
amount of goodwill allocated to each of the cash-generating units is as follows:
2006 2005
US$ 000 US$ 000
Albaraka Turk Participation Bank 40,000 40,000

Egyptian Saudi Finance Bank 5,044 -
Jordan Islamic Bank 2,183 -
47,227 40,000
14 OTHER LIABILITIES
2006 2005
US$ 000 US$ 000
Cash margins 59,819 45,425

Payables 120,858 98,486
Other provisions (note 23) 10,600 6,473
Current taxation* 12,474 9,598
Deffered taxation* 9,880 5,910
Accrued expenses 14,258 15,044
Charity fund 4,969 2,553
Others 35,249 26,303
268,107 209,792
*In view of the operations of the Group being subject to various tax jurisdiction and regulations, it is not practical to provide a reconciliation between
the accounting and taxable profits together with the details of effective tax rates.
15 UNRESTRICTED INVESTMENT ACCOUNT
2006 2005
US$ 000 US$ 000
Unrestricted investment accounts 4,629,422 3,986,725

Profit equalisation and investment risk reserve (note 15.1) 43,660 39,025
Cumulative changes in fair value attributable to unrestricted investment accounts 24,284 7,375
4,697,366 4,033,125
15.1 Movement in profit equalization and investment risk reserve
2006 2005
US$ 000 US$ 000
Balance at 1 January 39,025 27,591

Amount appropriated from provision (Note 23) 4,363 10,333
Amount apportioned from income allocable to unrestricted investment account holders 272 1,101
Balance at 31 December 43,660 39,025

50
31 December 2006
16 EQUITY
2006 2005
US$ 000 US$ 000
Share capital
Authorised 1,500,000,000 ordinary shares of US$ 1 each 1,500,000 1,500,000
2006 2005
US$ 000 US$ 000
Issued and fully paid up

At beginning of the year
387,998,025 (2005: 325,307,211) ordinary shares of US$1 each 387,998 325,307
Issued during the period
120,000,000 (2005: 41,346,610) ordinary shares of US$1 each, issued in cash 120,000 41,347
(2005: 21,344,204) ordinary shares of US$1 each, issued in kind - 21,344
Capitalization of retained earnings & statutory reserve
122,001,975 (2005: nil) ordinary shares of US$1 each 122,002 -
At end of the period
630,000,000 (2005: 387,998,025) ordinary shares of US$1 each 630,000 387,998
Additional information on shareholding pattern:

i) Names and nationalities of the major shareholders and the number of shares in which they have an interest of 5% or more of outstanding shares:
Names Nationality shares % holding
Saleh Abdulla Kamel Saudi 189,695,984 30.11%

Dallah AlBaraka Holding Company E.C. Bahraini 155,206,214 24.64%
Altawfeek Company For Investment Funds Cayman Island 131,052,187 20.80%
Abdulla AbdulAziz AlRajihi Saudi 42,894,396 6.81%
ii) The Bank has only one class of shares and the holders of these shares have equal voting rights.
iii) Distribution schedule of shares, setting out the number of holders and percentage in the following categories:
% of total
No. of No. of outstanding
Categories: shares shareholders shares
Less than 1% 31,540,559 1,586 5.00%

1% up to less than 5% 79,610,660 9 12.64%
5% up to less than 10% 42,894,396 1 6.81%
20% up to less than 50% 475,954,385 3 75.55%
630,000,000 1,599 100.00%

51
31 December 2006
16 EQUITY CONTINUED
Share premium
Amounts collected in excess of the par value of the issued share capital during any new issue of shares, net of issue costs, are treated as share
premium. This amount is not available for distribution, but can be utilised as stipulated in the Bahrain Commercial Companies Law. Share premium
from issue of shares during the year amounted to US$249.6 million (2005: Nil).
Statutory reserve
In accordance with the Bahrain Commercial Companies Law and the Bank’s articles of association, 10% of the net income for the year is transferred
to the statutory reserve until such time as the reserve reaches 50% of the Bank’s paid-up share capital.
Cumulative changes in fair values

This represents the net unrealised gains on available-for-sale investments.
Foreign currency reserve

The foreign currency reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
Investment properties fair value reserves

This represents the net unrealised gain on revaluation of investment properties. This reserve is transferred to the consolidated statement of income
upon sale of the investment properties.
Other reserves
Other reserves mainly consist of general banking risk reserves maintained by the subsidiaries in accordance with local regulations.
16 (a) Equity transaction cost

Equity transaction cost, represent costs incurred by the Bank that are directly related to raising capital and have been taken to the consolidated
statement of equity and have been incurred in cash.
17 NET INCOME FROM JOINTLY AND SELF FINANCED CONTRACTS AND INVESTMENTS
2006 2005
US$ 000 US$ 000
Income from sales contracts 365,505 268,942

Ijarah Muntahia Bittamleek (note 17.1) 18,808 13,639
Income from non-trading investments 60,964 54,031
Income from associates 226 45,778
Gain/(loss) from sale of associates 4,835 (2,289)
Mudaraba financing 15,953 11,020
Income from Musharaka 6,739 5,849
Income from investment properties 2,330 1,544
Trading securities (225) 1,031
Others 14,067 10,917
489,202 410,462
Net income from jointly financed contracts and investments 442,919 344,598
Net income from self financed contracts and investments 46,283 65,864
489,202 410,462

52
31 December 2006
17 NET INCOME FROM JOINTLY AND SELF FINANCED CONTRACTS AND INVESTMENTS CONTINUED
17.1 Ijara Muntahia Bittamleek
2006 2005
US$ 000 US$ 000
Income from Ijara Muntahia Bittamleek 124,676 109,095

Less: Depreciation on Ijara Muntahia Bittamleek (note 8) (105,868) (95,456)
18,808 13,639
18 RETURN ON UNRESTRICTED INVESTMENT ACCOUNTS

Group’s share as a Mudarib is determined at the level of each subsidiary and is based on the terms and conditions of the related agreements.
19 OTHER FEES AND COMMISSION INCOME
2006 2005
US$ 000 US$ 000
Fees and commissions 57,229 51,261

Letters of credit 21,750 14,443
Guarantees 7,471 4,129
Acceptances 1,346 1,720
87,796 71,553
20 OTHER OPERATING INCOME
2006 2005
US$ 000 US$ 000
Foreign exchange gain 7,616 5,420

Gain on sale of property and equipment 347 4,266
Others 21,364 13,260
29,327 22,946
21 DEPRECIATION AND AMORTISATION
2006 2005
US$ 000 US$ 000
Property and equipment (note 12) 11,878 13,798

Amortisation of intangible assets 1,282 1,037
13,160 14,835

53
31 December 2006
22 OPERATING EXPENSES
2006 2005
US$ 000 US$ 000
General and administration 46,075 46,046

Business 10,959 11,668
Premises 5,379 4,354
62,413 62,068
23 PROVISIONS
Sales Mudaraba Musharaka Ijarah Other Other

receivables financing financing Investments receivables assets provisions Total
2006 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Provisions at 1 January 145,487 643 1,102 5,935 1,084 3,065 6,473 163,789
Charged during the year 38,509 - 163 216 1,366 2,973 9,041 52,268
Written back during the year (18,306) - (162) (367) (418) - - (19,253)
20,203 - 1 (151) 948 2,973 9,041 33,015

165,690 643 1,103 5,784 2,032 6,038 15,514 196,804
Written off during the year (12,397) (82) (15) (1,113) - (1,123) (551) (15,281)
Amount appropriated to profit
equalisation and investment risk
reserve (Note 15.1) - - - - - - (4,363) (4,363)
Other adjustments 487 - 172 (82) 1,296 4,131 - 6,004
Provisions at 31 December 153,780 561 1,260 4,589 3,328 9,046 10,600 183,164
Notes 4 5 6 10 11 13 14
2005
Provisions at 1 January 128,138 891 940 6,317 1,181 3,578 14,115 155,160
Acquisition through subsidiary (note 29) 1,447 - 442 - - 253 - 2,142
Charged during the year 42,453 - 21 268 609 2,577 6,601 52,529
Written back during the year (13,039) (248) (495) (21) (705) (4,627) (1,164) (20,299)
29,414 (248) (474) 247 (96) (2,050) 5,437 32,230

158,999 643 908 6,564 1,085 1,781 19,552 189,532
Written off during the year (5,292) - - (629) - - (10,966) (16,887)

Amount appropriated to profit
equalisation and investment risk
reserve (Note 15.1) (8,220) - - - - - (2,113) (10,333)
Other adjustments - - 194 - (1) 1,284 - 1,477
Provisions at 31 December 145,487 643 1,102 5,935 1,084 3,065 6,473 163,789
Notes 4 5 6 10 11 13 14

54
31 December 2006
24 BASIC AND DILUTED EARNINGS PER SHARE

Basic and diluted earnings per share amounts are calculated by dividing net profit for the year attributable to equity holders of the parent by the
weighted average number of shares outstanding during the year as follows:
2006 2005
Net income attributable to the ordinary equity shareholders of the parent for the year - US$ '000 80,252 79,372
Weighted average number of shares outstanding during the year (in thousands) 550,000 481,707
Earnings per share - US cents 15 16
The weighted average number of shares of the previous year has been adjusted for the capitalisation of retained earnings and statutory reserve made
in 2006.
25 CASH AND CASH EQUIVALENTS
2006 2005
US$ 000 US$ 000
Balances with central banks excluding mandatory reserve 740,751 802,677

Balances with other banks 507,423 587,048
Cash and cash in transit 140,970 100,843
1,389,144 1,490,568
26 RELATED PARTY TRANSACTIONS

Related parties comprise major shareholders, directors of the Group, entities owned or controlled, jointly controlled or significantly influenced by
them and companies affiliated by virtue of shareholding in common with that of the Group.
The income and expenses in respect of related parties are as follows:
2006 2005
US$ 000 US$ 000
Net income from joint sales receivable and jointly financed contracts and investments 4,131 8,798
Net (loss) / income from self financed financing and investments (805) 39,474
Return on unrestricted investment - 335

55
31 December 2006
26 RELATED PARTY TRANSACTIONS CONTINUED

The significant balances with related parties at 31 December were as follows:
2006 2005
US$ 000 US$ 000
Assets:
Sales receivables 7,575 10,273
Mudaraba financing 34,624 128,261
Musharaka financing 4,369 -
Ijarah Muntahia Bittamleek 10,471 11,629
*Investment in associates - 96,767
*Investments 90,696 1,250
Other assets 8,160 -
*Refer note 9.2
Liabilities:
Customer current and other accounts 7,222 7,087
Unrestricted investment accounts 6,339 24,196

Restricted investment accounts 13,704 914
All related party exposures are performing and are free of any provision for possible credit losses.
Details of Directors’ interests in the Bank’s shares as at the end of the year were:
No. of No. of
shares directors
Categories:
Less than 1% 367,339 3
20% up to less than 50% 189,695,984 1
190,063,323 4
27 COMMITMENTS
2006 2005
US$ 000 US$ 000
Letters of credit 350,304 255,414

Guarantees 549,451 232,116
Acceptances 43,282 38,372
Others 39,655 31,890
982,692 557,792

56
31 December 2006
28 RISK MANAGEMENT
Risk management is an integral part of the Group’s decision-making process. The management committee and executive committees, guide and
assist with overall management of the Group’s balance sheet risks. The Group manages exposures by setting limits approved by the Board of
Directors.
a) Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances.
To limit this risk, management has arranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on regular basis.
The table below summarises the maturity profile of the Group’s assets and liabilities based on contractual repayment arrangements. The
contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the
contractual maturity date and do not take account of the effective maturities as indicated by the Group’s retention history of its investment
account holders and the availability of bank lines.
The maturity profile at 31 December 2006 was as follows:
Up to 1 to 3 3 to 6 6 months 1 to 3 Over
1 month months months to 1 year years 3 years Undated Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Assets
Cash and balances with banks 1,179,830 89,179 58,417 7,000 - 54,718 448,034 1,837,178
Sales receivables 820,436 717,402 662,226 585,283 735,128 533,251 - 4,053,726
Mudaraba financing 17,847 36,138 13,653 2,811 19,143 45,079 - 134,671
Musharaka financing 6,187 10,985 9,432 16,710 18,227 22,903 - 84,444
Investment properties - - - - - - 68,184 68,184
Ijarah Muntahia Bittamleek 7,892 15,637 19,133 32,025 115,177 21,461 - 211,325
Investment in associates - - - - - - 17,876 17,876
Investments 193,686 182,701 127,273 149,767 74,250 114,166 - 841,843
Ijarah receivables 3,264 8,720 1,054 2,327 5,454 277 - 21,096
Property and equipment - - - - - - 130,951 130,951
Other assets 83,718 29,408 15,473 8,421 21,111 19,175 47,227 224,533
Total Assets 2,312,860 1,090,170 906,661 804,344 988,490 811,030 712,272 7,625,827
Liabilities
Customer current and other accounts 831,555 134,553 84,610 283,236 - - - 1,333,954
Due to banks 32,460 40,627 41,388 801 - - 115,276
Other liabilities 144,449 25,428 18,903 18,996 59,189 1,142 - 268,107
Total liabilities 1,008,464 200,608 144,901 303,033 59,189 1,142 - 1,717,337
Unrestricted investment accounts 2,118,856 846,814 462,864 661,202 357,397 250,233 - 4,697,366
Total equity - - - - - - 1,211,124 1,211,124
Total liabilities, unrestricted

investment accounts and equity 3,127,320 1,047,422 607,765 964,235 416,586 251,375 1,211,124 7,625,827
Net liquidity gap (814,460) 42,748 298,896 (159,891) 571,904 559,655 (498,852) -

57
31 December 2006
28 RISK MANAGEMENT CONTINUED

a) Liquidity risk continued
The maturity profile at 31 December 2005 was as follows:
Up to 1 to 3 3 to 6 6 months 1 to 3 Over
1 month months months to 1 year years 3 years Undated Total
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Assets
Cash and balances with banks 1,315,381 54,317 62,173 25,094 103 33,500 354,065 1,844,633
Sales receivables 471,451 524,763 474,536 494,682 683,463 337,299 - 2,986,194
Mudaraba financing 4,781 56,039 23,409 29,362 30,658 22,986 - 167,235
Musharaka financing 6,027 7,604 9,944 9,822 22,864 17,431 - 73,692
Investment properties - - - - - - 44,010 44,010
Ijarah Muntahia Bittamleek 6,860 13,559 16,056 32,562 82,177 19,253 - 170,467
Investment in associates - - - - - - 125,208 125,208
Investments 136,588 161,353 60,217 108,567 90,050 28,239 - 585,014
Ijarah receivables 5,855 3,897 685 4,201 3,876 1,765 - 20,279
Property and equipment - - - - - - 115,355 115,355
Other assets 85,287 11,333 3,278 4,432 24,479 6,178 40,000 174,987
Total Assets 2,032,230 832,865 650,298 708,722 937,670 466,651 678,638 6,307,074
Liabilities
Customer current and other accounts 924,020 100,903 152,076 8,593 - - - 1,185,592
Due to banks 85,705 14,765 10,959 - - 3 - 111,432
Other liabilities 84,247 12,459 37,136 19,904 50,689 5,357 - 209,792
Total liabilities 1,093,972 128,127 200,171 28,497 50,689 5,360 - 1,506,816
Unrestricted investment accounts 2,036,265 657,780 534,576 312,103 365,669 126,732 - 4,033,125
Total equity - - - - - - 767,133 767,133
Total liabilities, unrestricted

investment accounts and Equity 3,130,237 785,907 734,747 340,600 416,358 132,092 767,133 6,307,074
Net liquidity gap (1,098,007) 46,958 (84,449) 368,122 521,312 334,559 (88,495) -
b) Credit risk
Credit risk is the risk that one party to a financial contract will fail to discharge an obligation and causes the other party to incur a financial loss.
The Group controls credit risk by monitoring credit exposures, and continually assessing the creditworthiness of counterparties. Financing
contracts are mostly secured by the personal guarantees of the counterparty, by collateral in form of mortgage of the objects financed or other
tangible security.
Type of credit risk

Financing contracts mainly comprise sales receivables, mudaraba financing and musharaka financing.
Sales receivables
The Group finances these transactions through buying a commodity which represents the object of the murabaha and then resells this commodity
to the murabeh (beneficiary) at a profit. The sale price (cost plus the profit margin) is repaid in installments by the murabeh over the agreed
period. The transactions are secured at times by the object of the murabaha (in case of real estate finance) and other times by a total collateral
package securing the facilities given to the client.
Mudaraba financing
The Group enters into mudaraba contracts by investing in funds operated primarily by other banks and financial institutions for a definite period
of time.

58
31 December 2006

b) Credit risk continued
Musharaka financing
An agreement between the Group and a customer to contribute to a certain investment enterprise, whether existing or new, or the ownership
of a certain property either permanently or according to a diminishing arrangement ending up with the acquisition by the customer of the full
ownership. The profit is shared as per the agreement set between both parties while the loss is shared in proportion to their shares of capital
or the enterprise.
c) Concentration risk
Concentrations arise when a number of counter parties are engaged in similar business activities, or activities in the same geographic region,
or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic,
political or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular
geographic location.
The distribution of assets, liabilities and unrestricted investment account items by geographic region was as follows:
2006 2005
Unrestricted Unrestricted
investment investment
Assets Liabilities accounts Assets Liabilities accounts
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Geographic region:
Domestic (Bahrain) 509,899 28,345 108,003 301,566 10,361 89,694
Other Middle East 3,803,788 831,380 2,680,689 3,166,217 777,474 2,305,765
Europe 1,883,831 342,257 1,191,356 1,628,020 288,155 1,032,261
Asia 326,819 50,443 228,419 263,836 54,894 164,095
Africa 1,049,614 460,447 478,311 897,085 373,486 441,251
Others 51,876 4,465 10,588 50,350 2,446 59
7,625,827 1,717,337 4,697,366 6,307,074 1,506,816 4,033,125
Segment information relating to distribution of operating income, net operating income and net income attributable to the shareholders of
the parent by geographic region was as follows:
2006 2005
Net income Net income
attributable attributable
Total Net to the share Total Net to the share
operating operating holders of operating operating holders of
income income the parent income income the parent
US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000
Geographic region:
Domestic (Bahrain) 21,882 (6,264) (7,806) 12,386 (8,761) (9,931)
Other Middle East 121,739 68,943 29,490 128,209 75,942 46,181
Europe 119,979 65,377 37,318 91,194 42,190 23,523
Asia 2,164 3,320 2,674 6,205 6,197 4,822
Africa 71,397 38,882 16,170 59,590 30,731 14,611
Others 2,406 2,406 2,406 166 184 166
339,567 172,664 80,252 297,750 146,483 79,372
d) Market risk
Market risk arises from fluctuations in profit rates, equity prices and foreign exchange rates. The management of the Group have set limits on
the level of risk that may be accepted. This is monitored by the local management at the subsidiary level.

59
31 December 2006

d) Market risk continued
Profit rate risk
The Group has risk to changes in profit rate arising from the possibility that changes in profit rate will affect the fair value, of the financial
instruments or will affect future cash flows.
Equity price risk

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices and the value of
individual stocks. The equity price risk exposure arises from the investment portfolio. The Group manages this risk through diversification of
investments in terms of geographical distribution and industry concentration.
Foreign exchange risk

Foreign exchange risk arise from the movement of the rate of exchange over a period of time. Positions are monitored on a regular basis to
ensure positions are maintained within established approved limits.
The Group had the following significant net exposures denominated in foreign currencies as of 31 December:
2006 2005
US$ 000 US$ 000
equivalent equivalent
long (short) long (short)
Jordanian Dinar 226,443 136,815

Turkish Lira 209,471 53,287
Egyptian Pound 92,699 33,001
Sudanese Dinar 36,003 20,520
Bahraini Dinar 21,786 19,423
Algerian Dinar 69,327 18,417
Lebanese Pound 13,927 15,919
Saudi Riyal 578 4,071
Pound Sterling 930 715
Tunisia Dinar 212 138
Euro (5,231) (1,016)
Others 24,688 3,119

60
31 December 2006
29 BUSINESS COMBINATION
Acquisition of Albaraka Bank-Sudan
On 1 January 2005, the Bank acquired 86.2 % of the voting shares of Albaraka Bank-Sudan (from a related party at the fair value of net assets), an
unlisted company based in Khartoum specialising in providing islamic products.
The fair value of the identifiable assets and liabilities of Albaraka Bank-Sudan as at the date of acquisition were:
Recognised
on acquisition
US$ 000
Assets
Cash and balances with Central Bank and other banks 36,343
Sales receivable 26,762
Investments 20,300
Property and equipment 13,283
Other assets 13,206
Musharaka financing 5,700
115,594
Liabilities
Customers' current and other accounts 67,223
Other liabilities 21,700
Unrestricted investment accounts 5,774
Due to banks and financial institutions 500
95,197
Fair value of net assets for 100% shares 20,397
The Group's share for 86.20% 17,584
Cash inflow on acquisition:

Net cash acquired with the subsidiary 36,343
Cash paid -
Net cash inflow 36,343
The total cost of the combination was US$ 17,583,786 for 86.2% of the voting and comprised an issue of equity instruments. The Bank issued
17,583,786 ordinary shares with par value of US$ 1 each.
US$ 000
Cost:
Shares issued, at fair value 17,584

61
31 December 2006
30 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length
transaction. Consequently, differences can arise between carrying values and fair value estimates.
Included under non trading investments are unquoted available for sale investments amount to US$ 126.6 million (2005: US$ 73.6 million) which
are carried at cost due to lack of other reliable methods for arriving at a reliable fair value for these investments.
The fair values of other on-balance sheet financial instruments are not significantly different from the carrying values included in the financial statement.
31 SOCIAL RESPONSIBILITY
The Group discharges its social responsibilities through donations to charitable causes and organisations.
32 COMPARATIVE FIGURES
Certain of the prior year’s figures have been reclassified to conform to the presentation adopted in the current year. Such reclassification did not
affect previously reported net income or equity.

62
ABG Contact Directory

63
ABG Contact Directory
Head Office Subsidiaries

Albaraka Banking Group Jordan Islamic Bank AlBaraka Bank Sudan
Jordan Islamic Bank was the first Islamic bank to be AlBaraka Bank Sudan was established in 1984 and its
Adnan A. Yousif established in Jordan, in 1978. Its activities comprise retail, activities comprise retail, commercial and investment
President & Chief Executive commercial and investment banking. Jordan Islamic Bank banking. The bank operates 23 branches. The contact
has a total of 64 branches. The contact details of the details of the bank are:
Tel: +973 17533051 / +973 17541122
bank are:
Fax: +973 17530147 Mr. Abdulla Khairy Hamid
adnanyousif@barakaonline.com Mr. Musa A. Shihadeh General Manager
Vice Chairman & General Manager AlBaraka Bank Sudan
Jordan Islamic Bank AlBaraka Tower
Othman A. Sulieman
P.O. Box 926225, Amman, Jordan P.O. Box 3583, Khartoum, Sudan
Deputy Chief Executive
Tel: +9626 567 7377 Tel: +249183 780 688
Tel: +973 17520720 / +973 17541122 Fax: +9626 566 6326 Fax: +249183 788 585
othman@barakaonline.com Website: www.islamicbank.com.jo Website: www.albarakasudan.com
Al Amin Bank E.C. AlBaraka Bank Ltd

Sayed Majeed Hussain Alawi Al Amin Bank was incorporated in 1987 AlBaraka Bank Ltd was established in 1989
Senior Vice President - Head of Internal Audit and functions under an Islamic investment banking and operates as a commercial Islamic bank. The bank
licence issued by the Bahrain Monetary Agency. The has 5 branches. The contact details of the bank are:
Tel: +973 17520707 / +973 17541122
majeed@barakaonline.com Bank’s activities comprise of Islamic investment banking
and fund management. The contact details Mr. Shabir Chohan
of the bank are: Chief Executive Officer
AlBaraka Bank Ltd.
K.Krishnamoorthy Mr. Mohamed Isa Mutaweh 1st Floor, 134, Commercial Road,
Senior Vice President - Head of Strategic Planning General Manager and Board Member Durban 4001, South Africa
Tel: +973 17520700 / +973 17541122 Al Amin Bank E.C. Tel: +2731 366 2800
kkrishnamoorthy@barakaonline.com AlBaraka Tower, P.O. Box 3190 Fax: +2731 305 2631
Manama, Kingdom of Bahrain Website: www.albaraka.co.za
Tel: +973 17 540 000
Abdulrahman Shehab Fax: +973 17 537 551 AlBaraka Bank Lebanon
Senior Vice President - Website: www.alaminbank.com AlBaraka bank Lebanon was established in 1992 and
Head of Operation & Administration operates under a commercial banking licence. Its
Tel: +973 17540384 / +973 17541122 AlBaraka Islamic Bank activities comprise retail and commercial banking. The
arshehab@barakaonline.com AlBaraka Islamic Bank was incorporated in Bahrain in bank operates 5 branches. The contact details of the
February 1984 and operates as an off-shore and bank are:
commercial Islamic bank. It obtained a commercial
Hamad Abdulla Ali Eqab banking licence in Pakistan in 1991. The activities of the Mr. Mutasim Mahmassani
First Vice President - Head of Financial Control bank are retail, commercial and investment banking. The General Manager
Tel: +973 17525610 / +973 17541122 bank operates 14 branches in Bahrain and Pakistan. The AlBaraka Bank Lebanon
heqab@barakaonline.com contact details of the bank are: Rashid Karameh Street, Verdun 2000 Centre,
Beirut, Lebanon
Mr. Salah Ahmed Zainalabedin Tel: +9611 808008
J.P. Szalay General Manager Fax: +9611 806499
First Vice President - AlBaraka Islamic Bank Website: www.al-baraka.com
Head of Credit Risk & Management AlBaraka Tower, P.O. Box 1882
Tel: +973 17541122 / +973 17520702 Manama, Kingdom of Bahrain Bank Et-Tamweel Al-Tunisi Al-Saudi
pszalay@barakaonline.com Tel: +973 17 535 300 Bank Et-Tamweel Al-Tunisi Al-Saudi was established in
Fax: +973 17 530 695 1983. The bank has both off-shore and local retail
Website: www.barakaonline.com activities The bank operates 7 branches. The contact
Abdul Rauf Sivany details of the bank are:
First Vice President - Mr. Shafqaat Ahmed
Head of Treasury & Investments Regional General Manager & Country Head Mr. Essa Al-Haidosi
Al Baraka Islamic Bank, Pakistan Vice Chairman & General Manager
Tel: +973 17541122 / +973 17540381 Bank Et-Tamweel Al-Tunisi Al-Saudi
PICIC House, 14, Shahrah’e Aiwan’e Tajarati
r.sivany@alaminbank.com P.O. Box 1686, Lahore 54000, Pakistan 88, Avenue Hedi Chaker 1002, Tunis, Tunisia
Tel: +92-42-6309961 Tel: +21671 790000
Fax: +92-42-6309965 Fax: +21671 780235
Dr. Ahmad Mohyedeen
Head of Research and Development Banque AlBaraka D’Algerie The Egyptian Saudi Finance bank
Tel: +9662 6710000 Ext 3382 Banque AlBaraka D’ Algerie was incorporated in May The Egyptian Saudi Finance bank was incorporated in
1991 as an Islamic Bank and operates under a 1980 and its activities consist
Fax: +9662 6171016 commercial banking licence issued by the Bank of of retail and commercial banking. The bank operates 7
f.ali@albaraka.com Algeria. The main activities of the bank are retail and branches and several offices. The contact details of the
commercial banking. The Bank operates 16 branches. bank are:
The contact details of the bank are:
Ahmed M. AbdulGhaffar Mr. Ashraf Al Ghamrawi
Assistant Vice President - Investors’ Relations Mr. Mohammed Seddik Hafid Managing Director
Tel: +973 17520701 / +973 17541122 Board Member & General Manager The Egyptian Saudi Finance Bank
Banque AlBaraka D’Algerie 60, Mohie Elddin Abu ElEzz Street
aghaffar@barakaonline.com
32, rue des Freres Djillali, Birkhadem, P.O. Box 455 Dokki, Cairo, Egypt
Algiers, Algeria Tel: +202 748 1222
Tel: +21321 916 450-5 Fax: +202 761 1436/7
Fax: +21321 916 457 / 8 Website: www.esf-bank.com
Website: www.albaraka-bank.com
AlBaraka Turk Participation Bank
AlBaraka Turk Participation Bank was established in
1984. The bank’s activities consist of retail and
Head Office commercial banking. The bank operates 63 branches.
AlBaraka Banking Group
The contact details of the bank are:
AlBaraka Tower, Diplomatic Area, Mr. Adnan Buyukdeniz
P.O. Box 3190 Manama General Manager and Board Member
Kingdom of Bahrain
AlBaraka Turk Participation Bank
Tel: +973 17 541 122
Buyukdere Cad No.78
Fax: +973 17 536 533
80290 Mecidiyekoy, Istanbul, Turkey
Tel: +90 212 274 9900
www.abg.bh
Fax: +90 212 272 4470
Website: www.albarakaturk.com.tr

64

Albaraka Islamic Bank

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Annual Report 2006

The Natural Leader in

1 Mission and Strategic Objectives

4 The Albaraka Banking Group (ABG)

6 Board of Directors and Shari’a Supervisory Board

12 Executive & Senior Management

14 President & Chief Executive’s Report

28 Unified Shari’a Supervisory Board Report

30 Consolidated Balance Sheet

31 Consolidated Statement of Income

32 Consolidated Statement of Cash Flows

33 Consolidated Statement of Changes in Equity

34 Consolidated Statement of Changes in Restricted Investment Accounts

35 Consolidated Statement of Sources and Uses of Charity Fund

36 Consolidated Statement of Sources and Uses of Good Faith Qard Fund

37 Notes to the Consolidated Financial Statements

63 ABG Contact Directory

Mission and Strategic Objectives

To provide innovative and high quality research and

To utilize the Group’s geographical presence to distribute its

To maintain the highest international standards of corporate

Earnings (US$ millions)

Earnings per Share (US cents) 15 16

Financial Position (US$ millions)

Total Assets (US$ 000)

Albaraka Banking Group Annual Report 2006

Total Assets Total Shareholders’ Equity

4,116.5 5,056.7 6,307.1 7,625.8 373.3 422.0 566.3 978.6

Customer Current & Other Accounts Unrestricted Investment Accounts

736.5 910.6 1,185.6 1,334.0 2,680.9 3,333.1 4,033.1 4,697.4

Net Income attributable to equity shareholders of the Parent

27.3 36.8 79.4 80.2

Operating Income Operating Expenses

97.7 106.5 151.3 166.9

Return on Average Shareholders’ Equity Return on Average Paid in Capital

7.31% 9.27% 16.06% 10.39% 8.39% 11.33% 22.25% 15.77%

Number of Employees Total Number of Branches

3,233 3,844 4,846 5,435 133 150 185 215

Albaraka Banking Group Annual Report 2006

Albaraka Banking Group Annual Report 2006

Albaraka Banking Group Annual Report 2006

Mr. Abdulla A. Saudi Shaikh Abdullah Mannea

Mr. Saleh Mohamed Al-Yousef Shaikh Dr. Abdulaziz Alfawzan

Mr. Adnan Ahmed Yousif Dr. Ahmed Mohyedeen Ahmed

Dr. Anwar Ibrahim

Mr. Abdul Elah A. Sabbahi

Mr. Ibrahim Fayez Al Shamsi

Mr. Ghanim Saad M. Al Saad

Mr. Jamal S.J. Bin Galaita

Mr. Ghassan Abdul Kareem A. Sulaiham

Mr. Salah Othman Abuzaid

Albaraka Banking Group Annual Report 2006

EXECUTIVE COMMITTEE BOARD AFFAIRS AND REMUNERATION COMMITTEE

Mr. Abdullah Saleh Kamel Mr. Ibrahim Fayez Al Shamsi

Mr. Abdul Elah A. Sabbahi Mr. Jamal S.J. Bin Galaita

Mr. Ghanim Saad M. Al Saad Mr. Ghanim Saad M. Al Saad

Mr. Adnan Ahmed Yousif Mr. Adnan Ahmed Yousif

AUDIT COMMITTEE RISK COMMITTEE

Mr. Saleh Mohamed Al-Yousef Mr. Abdul Elah A. Sabbahi