DMIT_Annual_Report_2018_EN

N OTES TO THE C ONSOLIDATED F INANCIAL S TATEMENTS Dar Al-Maal Al-Islami Trust 38 a value in use of Islamic Investment Company of the Gulf (Bahamas) Limited. Classification of financial assets Refer to “Accounting policies applied starting 1 January 2018” for financial assets in note 2.2. 4. Financial instruments A. Strategy in using financial instruments By its nature, the Group’s activities are principally related to the use of financial instruments. The Group accepts investments from customers at varying rates of return and for various periods and seeks to earn above average profits by investing these funds in high quality assets. The Group seeks to increase these margins by consolidating short term funds and investing for longer periods at higher return potential whilst maintaining sufficient liquidity to meet all claims that might fall due. The Group also seeks to raise its profit margins by obtaining above average margins, net of provisions, through transactions with its commercial and retail customers. Such exposures involve not just on- balance sheet Islamic financings but the Group also enters into Islamically acceptable guarantees and other commitments such as letters of credit and performance and other bonds. The Group also trades in financial instruments where it takes positions in traded and over the counter instruments including derivatives to take advantage of short term market movements in the equity and bond markets and in currency and profit rates. The individual subsidiary’s boards place trading limits on the level of exposure that can be taken in relation to both overnight and intra-day market positions. Foreign exchange and profit rate exposures associated with these derivatives are normally offset by entering into counterbalancing positions, thereby controlling the variability in the net cash amounts required to liquidate market positions. The Group utilises the following derivative instruments for both hedging and non-hedging purposes. (i) Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions; (ii) equity futures are contractual obligations to receive or sell shares on a future date at a specified price established in an organised financial market; and (iii) equity options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of shares at a predetermined price. In consideration for the assumption of the risk, the seller receives a premium from the purchaser. Options may be either exchange- traded or negotiated between the Group and a customer (over the counter). B. Capital management The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of statement of financial positions, are: (i) To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; (ii) To maintain a strong capital base to support the development of its business; and (iii) To comply with the capital requirements set by the regulators of the banking markets where the entities within the Group operate. DMI itself does not engage in banking business and is therefore not required to comply with any minimum capital adequacy requirements. The regulatory capital requirement are applicable to Ithmaar Bank BSC(C) which is 100% owned subsidiary of Ithmaar Holding. Ithmaar Bank has not complied with the requirements of the Central Bank of Bahrain’s Rulebook Volume 2 “Licensing requirements” which states that an Islamic retail bank licensee must maintain a minimum total shareholders’ equity of BHD 100 million. Faysal Bank Limited has complied with its regulatory capital requirement. As at the reporting date other subsidiaries within DMI group do not have any specific regulatory capital requirement. In order to maintain or adjust capital, the Group may adjust the amounts of dividends paid to equity participants, issue new equity or sell assets to reduce cap. The Group monitors capital on the basis of a gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as due to banks and financial institutions less cash and cash equivalents. Total capital is calculated as equity as shown on the face of the consolidated financial statements.