International Investment Bank Annual Report

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                                                 International Investment Bank
                                                 Annual Report 2006
                                                 International Investment Bank (IIB) was incorporated as an
                                                 Islamic investment bank on 6 October 2003, under commercial
                                                 registration number 51867 as a Bahrain Joint Stock Company
                                                 (closed). The Bank commenced its investment activity on 13
International Investment Bank B.S.C.(c)          October 2003, and operates under a Wholesale Banking
37th Floor, Almoayyed Tower, Al Seef District,
P.O. Box 11616, Manama, Kingdom of Bahrain.
                                                 Licence issued by the Central Bank of Bahrain.
Telephone: +973 1756 5000                        IIB has an authorised capital of US$ 200 million and a paid-up
Fax: +973 1756 5050
                                                 capital of US$ 43 million. Subject to regulatory and shareholder
                                                 approval, this is expected in the near future to increase to
                                                 US$ 100 million. The Bank’s shareholders are high net worth
                                                 individuals, business houses and institutions from the GCC
                                                 The core business activities of the Bank include investing on
                                                 its own account; investment, underwriting and placement
                                                 in real estate and private equity; and corporate finance, all
                                                 in conformity with Islamic Shari’ah. It aims to offer its clients
                                                 an internationally diversified range of investments generated
                                                 through its network of strategic partnerships.

                                                 Vision and Mission                                                                                2
                                                 Financial Highlights in 2006                                                                      3
                                                 Principal Investment Offerings 2004 - 2006                                                        4
                                                 Financial Summary                                                                                 5
                                                 Board of Directors’ Report                                                                        6
                                                 Board of Directors                                                                                8
                                                 Corporate Governance                                                                             10
                                                 Chief Executive Officer’s Review of Operations                                                   15
                                                 Financial Review                                                                                 24
                                                 Risk Management                                                                                  26
                                                 Shari’ah Supervisory Board Report                                                                31
                                                 Independent Auditors’ Report to the Shareholders                                                 32
                                                 Statement of Income                                                                              34
                                                 Balance Sheet                                                                                    35
                                                 Statement of Cash Flows                                                                          36
                                                 Statement of Changes in Equity                                                                   37
                                                 Notes to the Financial Statements                                                                38

                                                                                      Annual Report 2006 | International Investment Bank B.S.C.(c) | 
VIsIon and MIssIon

To be a regional leader in private equity investment, real estate investment,
asset management and corporate finance, mainly through the provision
and management of high-quality, globally-diversified investment offerings
in accordance with the principles of Islamic Shari’ah; to maximize
shareholder value; to generate superior risk-adjusted returns for clients; to
provide excellent career opportunities to all employees; and to deal fairly
with all other stakeholders.

To originate, manage and ultimately exit from a well-diversified range of
innovative investment products in association with leading international
strategic partners; to provide high-quality advisory services to clients; to
operate in accordance with the highest standards of corporate governance,
risk management, due diligence and ethical standards; and to attract and
retain the best-qualified employees available.

 | International Investment Bank B.S.C.(c) | Annual Report 2006
FInancIal HIgHlIgHts In 2006

     +92.2%                    Net Income for the year rose by 92.2% over
                               2005 to US$ 13.5 million

     +49.2%                    Total Assets increased by 49.2% over the year
                               2005 to reach US$ 94.5 million

     +54.5%                    Total Assets under Management reached
                               US$ 181.7 million - up by 54.5% over 2005

     +62.2%                    Return on Average Equity increased by
                               62.2% during 2006 to 24.0%

     +93.8%                    Earnings per Share of US$0.31 increased
                               by 93.8% compared to 2005

                                                                               Annual Report 2006 | International Investment Bank B.S.C.(c) | 
     PrIncIPal InVestMent oFFerIngs 2004 - 2006

     Summary of Principal Investment Offerings 2004-2006

                   Year                 Investment                                                   Location                 Private                      Other                Total
                                        Description                                                                           Equity                       Funds          Transaction
                                                                                                                              Raised                          **                 Size
                                                                                                                          US$ Millions             US$ Millions           US$ Millions

     1             2004                 Property fund                                                Bahrain                       18.6                     18.3                    36.9
     2             2004/5               Independent power producer                                   Asia                          23.0                    217.0                   240.0
     3             2005                 Housing development company                                  Bahrain                       22.6                        -                    22.6
     4             2005                 Commercial property *                                        UK                            14.6                    286.1                   300.7
     5             2005                 Commercial tower development *                               Dubai                         16.4                     77.7                    94.1
     6             2005                 Islamic investment bank                                      UK                            19.5                    175.5                   195.0
     7             2005                 Paper manufacturing company                                  Abu Dhabi                     12.0                     35.1                    47.1
     8             2006                 Commercial property portfolio                                France                        44.0                     61.6                   105.6
     9             2006                 Real estate development company                              Saudi Arabia                  20.9                     85.8                   106.7
     10            2006                 Commercial tower development                                 Dubai                         25.0                     64.1                    89.1

                   Totals                                                                                                      216.6                   1,021.2               1,237.8

     * Investment realized and funds distributed to investors in 2006
     ** Comprises partners’ contributions, borrowings and equity from IPO

     Principal Bankers and Professional Advisors
     Principal Bankers                          Ahli United Bank, Bahrain
     External Auditors                          Ernst & Young, Bahrain
     External Legal Counsel                     Hassan Radhi and Associates, Bahrain

                                                                                                   31        31   31
                                         13.5      13.5     13.5                                                                                           61.4    61.4     61.4
                                                                                                                         60   60        60
                                                                                                                                    US$ Millions Millions
                                                                                                                              US$ Millions    US$
12        12         12
          US$ Millions
                US$ Millions Millions
                          US$                                    25      25 Cents CentsUS$ Cents
                                                                          US$ US$                                                              50.8 50.8      50.8
                                                                                                                         50   50
                                                                                                                              43.8      50
                                                                                                                                     43.8        43.8
                                                                 20      20      20
 9         9          9                                                                                                  40   40          40
                          7.0    7.0         7.0                                      16   16           16
                                                                 15      15      15
                                                                                                                         30   30          30
 6         6          6
                                                                 10      10      10                                      20   20          20
 3         3       3
                                                                    5    5       5                                       10   10          10
          0.8  0.8    0.8                                                2    2      2
 0         0       0                                                0    0       0                                        0    0       0
          2004 2004 2005 2005 2006 2006
                      2004      2005                         2006        2004 2004 2005 2005 2006 2006
                                                                                     2004      2005               2006                    2004      2005
                                                                                                                              2004 2004 2005 2005 2006 2006                 2006
                Net Income
          Net Income Net Income                                               Earnings per
                                                                                      Earnings per
                                                                         Earnings per ShareShare Share                             Equity Equity

                                                                          200% 200%   200%
                                                               200      200     200 PercentPercent      Percent
                                         24.0% 24.0%        24.0%
                                                                                                                                                            17.1% 17.1%     17.1%

20        20
          Percent 20
                Percent     Percent                             150     150     150                                   15      15
                                                                                                                               Percent 15
                                                                                                                                     Percent Percent
                                                                                                   134% 134%      134%                      13.0% 13.0%       13.0%
                           14.8% 14.8%         14.8%
      | International Investment Bank B.S.C.(c) | Annual Report 2006
15        15         15                                                               101% 101%         101%
                                                                100     100     100                                      10   10          10

10        10         10
     FInancIal suMMary

     Three-year Financial Summary

                                                                                                                  2006                              2005                          2004
     Earnings (US$ Millions)
     Total income                                                                                                 24.6                               12.4                            4.2
     Operating income                                                                                             23.6                               11.2                            3.5
     Operating expenses                                                                                           10.1                                4.2                            2.7
     Net income                                                                                                   13.5                                7.0                            0.8
     Dividend (%)                                                                                                 10.0                                8.0                              -

     Financial Position (US$ Millions)
     Total assets                                                                                                 94.5                               63.4                          44.4
     Due from Financial Institutions                                                                              53.5                               26.2                          28.0
     Investments                                                                                                  16.4                               13.7                          14.1
     Due to Financial Institutions                                                                                20.0                                  -                             -
     Equity                                                                                                       61.4                               50.8                          43.8

     Return on average equity (%)                                                                                 24.0                               14.8                           1.8
     Return on average assets (%)                                                                                 17.1                               13.0                           1.8
     Earnings per share (cents)                                                                                    31                                 16                              2
                                                                                      31        31     31
     Cost-to-income ratio (%)     13.5    13.5 13.5                                                               45.2                               43.5
                                                                                                                                                     61.4       61.4      61.4     81.5
     Capital US$ Millions Millions                                                                          60        60     US$60    US$
                                                                                                                    US$ Millions Millions Millions
12       12
      US$ Millions12    US$                       25    US$ Cents 25 Cents
                                                         25     US$      US$ Cents                                                      50.8     50.8    50.8
     Capital adequacy (regulatory minimum 12%)                                                              50    134 50
                                                                                                                    43.8          50
                                                                                                                                43.8        43.8      101                          200
                                                  20        20       20
 9         9        9                                                                                       40        40           40
     Equity/total7.0  assets (%)
                              7.0     7.0                                 16     16        16                     65.0                               80.2                          98.5
                                                  15        15       15
     Liquidity and Other                                                                                    30        30           30
 6         6        6
                                                  10        10       10
     Investments/total assets (%)                                                                           2017.4
                                                                                                                 20     20            21.6                                         31.7
 3         3        3
     Liquid assets/total assets (%)                5        5        5                                     10 66.4
                                                                                                                 10     10            43.0                                         63.3
       0.8      0.8      0.8                            2        2       2
 0         0
     Assets under management (US$ Millions) 0
                    0                                     0        0                                        0181.7 0     0           117.6                                         19.6
      2004     2004 2005 2004 2005200620052006 2006     2004             2004 20052006
                                                                 2004 2005           20052006          2006    2004           2004 20052006
                                                                                                                      2004 2005           20052006                         2006
     NumberNetemployees  Net
      Net IncomeIncomeIncome                                   Earnings per
                                                        Earnings per Share Share Share
                                                                      Earnings per                             40
                                                                                                               Equity Equity Equity 20                                              17

                                                        200%     200% 200%
                                                  200   200      200 Percent Percent Percent
                                24.0%   24.0%   24.0%
                                                                                                                                                      17.1%      17.1%     17.1%

20      20      20
      Percent Percent Percent                    150    150      150                                      15         15      15
                                                                                                                    Percent Percent Percent
                                                                                      134%      134%   134%                             13.0%    13.0%     13.0%
                     14.8%   14.8%   14.8%
15      15      15                                                        101%   101%      101%
                                                 100    100      100                                        10       10           10

10      10      10

                                                  50        50       50                                       5        5           5
5        5       5
      1.8%    1.8%      1.8%                                                                                        1.8%         1.8%       1.8%
0        0       0                                 0      0        0                                          0       0           0
      2004    2004 2005           20052006
                      2004 20052006             2006    2004             2004 20052006
                                                                 2004 2005           20052006          2006         2004                2004 20052006
                                                                                                                                2004 2005           20052006               2006
             on Average Equity Equity
                    on Average
      Return Return Return on Average Equity            CapitalCapitalCapital Adequacy Ratio
                                                               Adequacy Ratio Ratio
                                                                      Adequacy                                             on Average Assets Assets
                                                                                                                                  on Average
                                                                                                                    Return Return Return on Average Assets

                                                                                                                           Annual Report 2006 | International Investment Bank B.S.C.(c) | 
Board oF dIrectors’ rePort

                                                                   Dear Shareholders, On behalf                 investments in the UK and Dubai.
                                                                   of the Board of Directors,                   A 67% IRR was generated in only 18
                                                                   it gives me great pleasure                   months on the UK property, and the
                                                                   to report to you on the                      Dubai investment yielded a 25% IRR
                                                                   performance of International                 over a period of 11 months. These exits
                                                                   Investment Bank (‘IIB’) during               represented important milestones in
                                                                   00.                                        IIB’s development, as they are tangible
                                                                                                                evidence of the Bank’s capabilities in
                                                                   Regional economic developments
                                                                                                                delivering exceptional performance. IIB’s
                                                                   As I foresaw in last year’s Directors’       strategy of investing across a diversified
                                                                   Report, there were major corrections         range of countries and industries has
                                                                   in the GCC stock markets during the          also paid dividends over the past year,
                                                                   course of the year, with some indices        as it has helped to cushion investors
                                                                   falling by more than 50% from their all-     against the fall in the US Dollar.
                                                                   time highs only 12-15 months earlier.
                                                                                                                Financial performance
                                                                   Although these falls have inevitably
Saeed Abdul Jalil Al Fahim                                         damaged investor confidence in the           Following the strong contribution
                                                                   short term, they have not had a material     from both the new and the existing
                                                                   impact on the overall economies              investments arranged by the Bank, Total
                                                                   of the region, which continue to be          Income rose by 98.1%, from US$ 12.4
                                                                   bolstered by high oil and gas revenues.      million in 2005 to US$ 24.6 million in
                                                                   Governments have exercised prudence          2006. During the year, IIB continued
                                                                   in their spending, and have brought          to build up its staff and its operating
                                                                   down their debt levels. They have also       infrastructure, as a result of which
                                                                   embraced a variety of economic and           Total Expenses increased by 105.8%.
                                                                   political reforms, which contributed to      Net Income at US$ 13.5 million was
                                                                   a favorable investment climate in IIB’s      92.2% higher than in 2005, representing
                                                                   target countries and sectors in 2006.        a very creditable 31.3% return on
                                                                   However, the geopolitical situation in       paid-up capital. The Cost-to-Income
                                                                   the wider Middle East region is a cause      Ratio increased from 43.5% in 2005
                                                                   for concern, and could seriously dent        to 45.2% in 2006, which still compares
                                                                   investor confidence, not only in the         very favorably with our regional and
                                                                   Arab World but also internationally, if it   international peers.
                                                                   deteriorates further.                        The growth in business volumes was
                                                                   Investment achievements                      also reflected in the total footings
                                                                                                                increasing by 49.2% to US$ 94.5
                                                                   2006 was IIB’s third full year of
                                                                                                                million. The Bank continued to
                                                                   operations. In addition to arranging
                                                                                                                maintain a high degree of liquidity,
                                                                   several new major real estate
                                                                                                                with surplus funds being placed on
                                                                   investments in Dubai, France and
                                                                                                                short term murabaha with selected
                                                                   Saudi Arabia, the Bank made strategic
                                                                                                                investment-grade banks, and its Capital
                                                                   direct investments in Islamic financial
                                                                                                                Adequacy Ratio remained comfortably
                                                                   services institutions in the UK and
                                                                                                                above the regulatory requirement. This
                                                                   Kuwait, which will complement its
                                                                                                                prudent approach to liquidity and
                                                                   existing stake in European Islamic
                                                                                                                solvency is a cornerstone of the risk
                                                                   Investment Bank. IIB’s investors and
                                                                                                                management policy laid down by the
                                                                   shareholders are already reaping the
                                                                                                                Board of Directors, and is designed
                                                                   rewards of the Bank’s highly selective
                                                                                                                to ensure that IIB can withstand any
                                                                   and rigorous investment strategy,
                                                                                                                external financial or economic shocks
                                                                   with two very profitable early exits
                                                                                                                that may arise.
                                                                   being achieved from recent real estate

 | International Investment Bank B.S.C.(c) | Annual Report 2006
Board oF dIrectors’ rePort

Given these excellent results, the           Outlook for 2007                           Appreciations
Board is proposing to distribute a cash
                                             Whilst the business prospects for 2007     On behalf of the Board of Directors,
dividend for 2006 of US$ 4.3 million,
                                             appear bright, with a strong pipeline      I would like to thank the Bahrain
representing 10% of paid-up share
                                             of deals already under review, and the     Government and the Central Bank of
capital, to transfer US$ 1.3 million to
                                             regional economies remaining very          Bahrain for their pro-active support
statutory reserve and to retain US$ 7.8
                                             buoyant, the Bank faces a number of        for the financial services sector, and our
million to further strengthen the Bank’s
                                             challenges. Supported by the massive       shareholders, Shari’ah Board, clients,
capital base. As in the previous two
                                             amount of liquidity and strong demand      business partners and employees, who
years, the Board is also proposing that
                                             for Shari’ah-compliant investments in      have all made invaluable contributions
the shareholders pay their respective
                                             the GCC countries, there is intense        to IIB’s success. We look forward to
Zakat on their equity investment in the
                                             competition from both regional and         continuing our mutually beneficial
                                             international investment banks for new     relationship in the years ahead.
It is proposed that the Board of             business. This is driving down yields,
Directors should receive a total             and putting further upward pressure
remuneration of US$ 330,000 in               on regional and international asset
respect of 2006, in addition to the          prices, to levels which may not prove
usual reimbursement of their travel and      sustainable. There is also a shortage
accommodation expenses incurred in           of qualified investment banking
connection with IIB-related business         professionals, which has pushed up
during the year.                             remuneration levels, and which could
                                             affect IIB’s ambitious growth plans. The   Saeed Abdul Jalil Al Fahim
Capital increase                                                                        Chairman
                                             Bank is therefore introducing a share
As announced at the last Annual              incentive scheme which is designed
General Meeting, it is intended to           to attract and retain key staff, while
significantly increase the Bank’s capital    aligning the interests of shareholders
through a “rights issue” for existing        and employees.
shareholders and an invitation, on a
                                             During 2007 the Bank plans to acquire
selective basis, to certain investors in
                                             a core banking system in order to
our deals to enable them to share in the
                                             enhance and automate a number of its
success of the Bank. An independent
                                             key processes, including accounting,
valuation of the Bank is currently being
                                             financial control, risk management and
undertaken by external consultants.
                                             customer relationship management.
Subject to final shareholder and
                                             Whilst this will represent a major
regulatory approval, the capital increase
                                             investment, it is considered essential
is scheduled to proceed during the
                                             to the Bank’s long-term growth and
first half of 2007, and it will enable the
                                             development. Additional premises
Bank to scale up its activities in terms
                                             have also been leased in order to
of both the number and the size of the
                                             accommodate the Bank’s increased
transactions that it can arrange.
                                             headcount, which is expected to rise
                                             from 40 to 60 during 2007.

                                                                                        Annual Report 2006 | International Investment Bank B.S.C.(c) | 
Board oF dIrectors

                                                  1    Mr. Ahmed Salem                 4   Mr. Abdul Wahab               8   Mr. Fahad Fouad
                                                       Bugshan, Vice Chairman              Mohammed Al Wazzan,               Bubshait, Director
                                                       President, Saudi Industrial         Director                          Chairman & CEO
                                                       Projects Company (SIPCO),           Chairman of Kuwait Real           of Audeo Maxima
                                                       Saudi Arabia; Member of the         Estate Bank; Chairman of          International Ltd., UAE;
                                                       Board, Pepsi Cola, Egypt;           Social Development Office,        Chairman of BubbleDeck
                                                       Chairman, Savoy Hotels,             Kuwait; Vice Chairman             Middle East LLC, UAE;
                                                       Sharm Al-Sheikh.                    of National International         Foreign Investments
                                                                                           Holding Company,                  Advisor of Abdulla
                                                  2    Mr. Aamer Abdul Jalil Al
                                                                                           Kuwait; Former Minister           Fouad Holding Co. Ltd.;
                                                       Fahim, Director
                                                                                           of Commerce & Industry,           Former General Manager
                                                       Managing Director of Al             Kuwait; Former Minister           of Mantech Real Estate
                                                       Fahim Group, UAE; Board             of Social Affairs & Labour,       & Fouad Travel Agency
Mr. Saeed Abdul Jalil Al                               Member of Abu Dhabi                 Kuwait.                           (Abdulla Fouad Holding
Fahim, Chairman                                        Commercial Bank; Board                                                Company Ltd.), Saudi
                                                       Member of Al Wathba             5   Mr. Ali Hashim Sadiq
Chairman of Al Fahim                                                                                                         Arabia.
                                                       Insurance Company;                  Hashim, Director
Group, UAE; President of
                                                       Member of Federal National          President & CEO, Gulf         9   Mr. Sulaiman Haider
Sh. Khalifa Excellence Award
                                                       Council, UAE; Board                 United Investment, Saudi          Sulaiman, Director
(Abu Dhabi Chamber of
Commerce and Industry);                                Member of Abu Dhabi                 Arabia; Chairman, Gulf            Chairman, Sulaiman
Former Deputy President                                Chamber of Commerce and             Packaging Systems, Saudi          & Bros, Qatar; Board
of Abu Dhabi Chamber of                                Industry; Board Member of           Arabia; Member of the             Member, Qatar
Commerce and Industry;                                 Al Qudra Holdings; Board            Board, Middle East Telecom        Chamber of Commerce;
Former Member of Board                                 Member of Al Safwa Islamic          (METCO), Saudi Arabia.            Board Member, Qatar
of National Bank of Abu                                Financial Services; Chairman                                          Navigation; Board
                                                                                       6   Mr. Khalid Othman Abu
Dhabi; Former Member of                                of Aradi Properties P.J.S.C.                                          Member, Qatar German
                                                                                           Hemed, Director
Board of United Arab Bank.                                                                                                   Medical Company; Area
                                                  3    Mr. Ebrahim Eshaq                   President, Owma Trading           Manager, Qatar National
                                                       Abdulrahman, Director               Co. Ltd, Saudi Arabia.            Bank.
                                                       Managing Director,
                                                                                       7   Mr. Abdulla Ahmed
  1         2       3                                  Investment and Trading
                                                                                           Balamsh, Director
                                                       (Gulf ) Enterprises, Bahrain;
                                                       Director, Bahrain Car Park          Proprietor and Chairman of
   4       5        6                                                                      Hosoon Najd Group, Saudi
                                                       Co. B.S.C.; Director, United
                                                       Gulf Industries B.S.C.;             Arabia; Regional Manager
   7        8       9                                  Founder Shareholder and             of Saeed Mohammed Al-
                                                       former Managing Director of         Amoudi Company; Member
                                                       Bank of Bahrain and Kuwait.         of the Board of Emmar
                                                                                           Al Wattan Real Estate

 | International Investment Bank B.S.C.(c) | Annual Report 2006
Board oF dIrectors

                     Annual Report 2006 | International Investment Bank B.S.C.(c) | 
corPorate goVernance

The Board of Directors is responsible
for the overall governance of the
Bank through continuous review                                                                                      Board of Directors                      Audit Committee
and adherence to international best                                    Shari’ah Committee
practice and standards. The Board
determines the Bank’s strategy, provides
direction to the Executive Management,                                 Executive Committee
ensures that the control framework                                                                               Chief Executive Officer                       Internal Audit
is functioning in accordance with                                          Nominations
best practice and monitors Executive                                       Committee
Management’s performance. The
interaction between Directors and                                                         Manager,
                                                                                                                                            Chief Financial Officer
Management through the Board and                                                      HR & Administration
Management Committees is shown on
the organization chart.                                                                      Head,                                                Manager,
                                                                                       Legal & Compliance                                     Risk Management
1. Board of Directors
The Board meets regularly throughout
the year in order to control strategic,                                  Chief Operating                               Management                         Executive Director,
financial, operational, internal control                                     Officer                                      Committee                          Banking Support
and compliance issues. It currently
comprises ten “non-executive directors”,                                                         Executive Director,                 Banking Support
as defined by the “High Level Controls”                                                          Private Equity and
module (HC-1.3.5) of the CBB                                                                     Corporate Finance                   Investor Services
Rulebook Volume II, profiles of whom
are provided at Page 8.                                                                                                             Engineering Services
                                                                                             Executive Director,
Board Committees                                                                               Investment and                            IT Services
The Board has established three                                                             Business Development
sub-committees and a Shari’ah Board                                                                                                    Corporate
comprising expert, independent
scholars to assist it in carrying out its                                                      Executive Director,
                                                                                             Investment Placement
responsibilities. The Nominations
Committee was set up in 2006.
This committee structure ensures
appropriate oversight by the Board of
                                                                    Committee                     Members                           Summary Terms of Reference
Directors while permitting efficient day-
to-day management of the Bank.                                      Executive Committee           Mr. Aamer Abdul Jalil Al Fahim    Assists the Board to review the Bank’s strategy,
                                                                                                  (Chairman)                        annual budget and forecasts, risk policies and
                                                                                                  Mr. Ebrahim Eshaq Abdulrahman     management committees’ activities and
                                                                                                  Mr. Khalid Othman Abu Hemed       actions.

                                                                    Audit Committee               Mr. Abdul Wahab Mohammed          Assists the Board to review the integrity of the
                                                                                                  Al-Wazzan                         financial statements, compliance with legal and
                                                                                                  (Chairman)                        regulatory requirements, the Bank’s internal
                                                                                                  Mr. Sulaiman Haider Sulaiman,     audit function and the independent auditor’s
                                                                                                  Mr. Fahad Fouad Bubshait          qualifications, independence and performance.

                                                                    Nominations Committee         Mr. Ahmed Salem Bugshan           Assists the Board to assess candidates and to
                                                                                                  (Chairman)                        make management appointments.
                                                                                                  Mr. Aamer Abdul Jalil Al Fahim
                                                                                                  Mr. Ali Hashim Sadiq Hashim

                                                                    Shari’ah Supervisory Board    Sheikh Nizam Yaquby               Assists the Board to ensure that the Bank
                                                                                                  (Chairman)                        operates in accordance with Shari’ah rules and
                                                                                                  Sheikh Abdul Sattar Abu Ghuddah   principles through a review of interim and annual
                                                                                                  Sheikh Osama Mohammed             financial statements and a detailed analysis
                                                                                                  Saad Bahar                        of each type of transaction with its relevant
                                                                                                                                    documentation and the procedures adopted by
                                                                                                                                    the Bank.

0 | International Investment Bank B.S.C.(c) | Annual Report 2006
corPorate goVernance

Shari’ah Supervisory Board                 2. Executive Management                              Executive Management Profiles
Being an Islamic Bank, IIB’s Shari’ah      Management Committees                                a). General Management
Supervisory Board regularly reviews
                                           The Board has approved the formation                 Aabed Al-Zeera, Chief Executive
all investment products and business
                                           of an Executive Management                           Officer
activities to ensure compliance with
                                           Committee, which is summarised in the
the Islamic Shari’ah, approves the                                                              Mr. Al-Zeera has over twenty five years
                                           table below.
Bank’s financial statements and also                                                            of international banking experience
participates with management in the        Arising from the rapid growth in                     with major financial institutions in the
development of suitable investment         the Bank during its first three years                Kingdom of Bahrain and the United
products and services.                     of operations, a comprehensive                       Arab Emirates. They include American
                                           review of corporate governance and                   Express Banking Corporation, Arab
IIB’s Shari’ah Supervisory Board
                                           the committee structure has been                     Banking Corporation (ABC), Standard
comprises three prominent GCC
                                           completed. It is anticipated that the                Chartered Bank and First Islamic
Islamic scholars who provide the Bank
                                           Board at its next meeting will approve               Investment Bank (now Arcapita). He
with pragmatic Islamic opinions:
                                           the formation of an Assets and                       was instrumental in setting up ABC’s
Sheikh Nizam Yaquby                        Liabilities Committee, an Investment                 Representative Office in Abu Dhabi in
                                           Committee and a Risk Management                      1996, where he served as Vice President
Sh. Yaquby is a member of the Islamic
                                           Committee, which are planned to                      and Chief Representative.
supervisory board of several Islamic
                                           be fully functional by 30 June 2007.
institutions, including the Arab Islamic                                                        Mr. Al-Zeera was one of the key
                                           These committees will comprise senior
Bank and the Abu Dhabi Islamic Bank.                                                            promoters of IIB who, together with
                                           management and heads of departments
He is also a board member of the Dow                                                            the Al Fahim Group, conceived and
                                           who are best qualified to make decisions
Jones Islamic Index. His work has                                                               successfully set up the Bank. He is a
                                           on such issues as funding, asset
appeared in the following publications:                                                         board member of several companies of
                                           utilization, investment purchase/sale
Risalah Fi al-Tawbah, Qurrat al-Ainayn                                                          IIB and is a Non-Executive Director of
                                           and management of all types of risk,
fi Fada il Birr al-Walidayn, Irshad                                                             European Islamic Investment Bank Plc,
                                           including market, credit, liquidity
al-Uqala’ila Hukum al-Qira’h min al-                                                            London.
                                           and operational risks. In addition, an
Mushaf fi al-Salah, Tahqia al-Amal fi
                                           Information Technology Committee                     Salah Nooruddin, Chief Operating
Ikhraj Zakat al-Fitr bi al-Mal.
                                           will be formed to supervise the selection            Officer
Sheikh Abdul Sattar Abu Ghuddah            and implementation of a core banking                 Mr. Nooruddin holds a Masters Degree
Sh. Abu Ghuddah holds a Ph.D. in           system.                                              in International Banking & Finance and
Islamic law and comparative Fiqh from      A Management Committee will                          has over twenty years of international
Al Azhar University Cairo, Egypt.          approve each committee’s terms of                    banking experience with major financial
He has taught at various institutes,       reference, membership, delegated                     institutions such as Chase Manhattan
including Imam Al Da’awa Institute         authorities and policies. All                        Bank and Arab Banking Corporation.
(Riyadh), Religious Institute (Kuwait)     management committees are expected                   In 1997, he established a financial
and the Shari’ah College of the Law        to meet at least monthly and a quarterly             advisory firm, Trust Securities, which is
Faculty at Kuwait University.              report highlighting the major activities             today known as Gulfinvest Bahrain. He
                                           and decisions will be provided to the                joined IIB when operations commenced
Sheikh Osama Mohammed Saad
                                           Executive Committee for review and                   in 2003 and is a board member of
                                           ratification. This enhanced structure                several companies of IIB and of Islamic
Sh. Al Bahar holds a Bachelor degree in    will ensure that IIB meets or exceeds                Finance Consultants.
Islamic Shari’ah and was an Associate      the best industry standards of
Lecturer at the BIBF, Bahrain. He is a     governance and its activities, strategy,
Member of the Shari’ah Board of the        performance and risks are effectively
National Investor Fund of Abu Dhabi        managed.
and is a Shari’ah Advisor to Khaleej
Finance and Investments. From 1994 to      Committee     Members                    Summary Terms of
2005, he was Manager of the Shari’ah                                                Reference
Department at Shamil Bank, Bahrain.        Management    Mr. Aabed Al-Zeera         Focuses on the
                                           Committee     (Chairman)                 execution of the
Since 2005, Sh. Osama has been                           Mr. Salah Nooruddin        strategic business
Shari’ah Compliance Officer at ABC                       Mr. Frederick Stonehouse   plan via regular review
Islamic Bank, Bahrain and is currently                   Mr. Michael Ross-McCall    and monitoring of the
                                                         Mr. Mohamed Hadi Mejai     tasks and initiatives
Head of Shari’ah Compliance at Al-                                                  undertaken to fulfill the
Salam Bank, Bahrain.                                                                plan’s objectives.

                                                                                               Annual Report 2006 | International Investment Bank B.S.C.(c) | 
corPorate goVernance

Eihab Ahmed, Head, Legal &                                          c). Finance, Administration and Audit      Hakan Gunay, Director
                                                                    Michael Ross-McCall, Chief                 Mr. Gunay holds a B.Sc. in Management
Mr. Ahmed graduated in 1994 with                                    Financial Officer                          from the Middle East Technical
a Law Degree from the University                                                                               University in Turkey and an MBA
                                                                    Mr. Ross-McCall holds a Law Degree
of Khartoum, following which he                                                                                from Cass Business School, London
                                                                    from Edinburgh University and is a
spent 5 years as Legal Consultant at                                                                           City University (UK). Prior to joining
                                                                    member of The Institute of Chartered
the Ministry of Justice of Sudan. He                                                                           IIB, he spent 15 years in the field of
                                                                    Accountants of Scotland. He has
was a Public Prosecutor and for four                                                                           appraisal, development and financing
                                                                    worked in the banking sector for over
years a Legal Advisor at the Bank of                                                                           of infrastructure projects, located in
                                                                    20 years, including positions at Wells
Khartoum. He then worked as Legal                                                                              Turkey, Belgium and Saudi Arabia.
                                                                    Fargo Bank, Bank of Bahrain & Kuwait
Consultant at BDO Jawad Habib,
                                                                    and Bahraini Saudi Bank.                   3. Incentive Structure
Bahrain and most recently as Head of
Legal Department at Khaleej Finance &                               Nader Asad, Director, Finance and          The Bank conducts a formal written
Investment Bank, Bahrain.                                           Administration                             appraisal for management at least
                                                                                                               once per year. Depending on the
b). Banking Support                                                 Mr. Asad holds a B.Sc. in Accounting
                                                                                                               Bank’s performance and individual
                                                                    and an M.B.A. from a UK university.
Frederick Stonehouse, Executive                                                                                goal achievement, management and
                                                                    His professional qualifications include
Director                                                                                                       staff are eligible to receive an annual
                                                                    CPA and CFA. He spent eight years
                                                                                                               discretionary performance bonus
Mr. Stonehouse has more than                                        providing audit and advisory services at
                                                                                                               and/or a salary increment. Management
30 years of international banking                                   PricewaterhouseCoopers and Arthur
                                                                                                               and staff are also eligible to co-invest
experience with major UK, US, Arab                                  Andersen and before joining the Bank
                                                                                                               in the Bank’s investment offerings.
and Spanish institutions in London,                                 in 2005, he was Deputy Financial
                                                                                                               The Board of Directors approves the
Bahrain and Madrid, including                                       Controller at Bahrain Islamic Bank.
                                                                                                               aggregate amount of discretionary
National Westminster Bank, Lloyds
                                                                    Ali Redha, Head, Internal Audit            bonuses, together with the specific
Bank International, Arab Banking
                                                                    Mr. Redha is a member of the               payments made (if any) to the Chief
Corporation, Arab Bank and Banco
                                                                    American Institute of Certified Public     Executive Officer and the Chief
Atlantico. He has been closely involved
                                                                    Accountants (AICPA). He has over           Operating Officer. The Board approves
with Arab institutions since 1978
                                                                    10 years of experience in auditing and     the aggregate amount of planned
and has occupied senior management
                                                                    banking at KPMG , Daar Al-Maal             increments as part of its approval of the
positions for the past 20 years.
                                                                    Al-Islami (DMI Group), Shamil Bank,        annual budget.
Hasan Abu-Hasan, Head,
                                                                    Ithmaar Bank and Bahraini Saudi Bank.      A proposal to implement a stock option
Engineering Services
                                                                    He joined IIB in 2005 and helped co-       scheme available to management and
Mr. Abu-Hassan holds a Master’s                                     ordinate policies and procedures and       selective staff will be presented to an
Degree in Engineering Management                                    the setup of controls and guidelines.      extraordinary general meeting for
from Bahrain University and a Master’s                                                                         approval during the first quarter of
                                                                    d). Investment and Business Development
Certificate in Project Management from                                                                         2007.
The George Washington University                                    Mohamed Hadi Mejai, Executive
School of Business. Prior to joining                                Director
IIB in November 2005, as a Civil                                    Prior to joining IIB in 2005, Mr. Mejai
Engineer and a Government Executive,                                spent several years with the Islamic
he spent more than 20 years working                                 Development Bank Group and affiliated
in developing the electricity and water                             investment companies and funds in the
infrastructures for the Kingdom of                                  Kingdom of Saudi Arabia and UAE.
Bahrain.                                                            He started his banking career in France
                                                                    and the UK. Mr. Mejai’s track record
                                                                    is mainly in aquisition structuring and
                                                                    monitoring of investments. He holds a
                                                                    Masters of Science from the University
                                                                    of London, UK and completed his
                                                                    executive education at the Theseus
                                                                    International Institute, France, and the
                                                                    London Business School, UK.

 | International Investment Bank B.S.C.(c) | Annual Report 2006
corPorate goVernance

4. Communications Strategy                    6. Shareholders and Directors’
A summary of the Bank’s quarterly
and annual financial statements               Shareholders
are published in local and regional
                                              Distribution Schedule of Equity
newspapers. All other published
communications including investment           The ordinary shares in issue at
offerings and exits are handled by            31 December 2006 comprised 43
the Corporate Communications                  million shares of US$ 1 each. The
Department, under the direction of the        concentration of the 45 shareholders is
Executive Director, Banking Support.          as follows:
Enquiries are received via the IIB e-mail
address            Category                            Number of       Number of         Percentage
                                                                                    Shares      Shareholders           Holding
The Bank maintains a website which contains            Less than 1%                         2,550,000               12               5.93
                                              1% up to less than 5%               25,209,649               30              58.62
the latest Annual Report, together            5% up to less than 10%               4,801,754                2              11.17
with summary financial data covering          20% up to less than 25%             10,438,597                1              24.28
the previous two years and interim            Total	                              43,000,000	              45	               100
quarterly financial statements. It also
contains a profile of the Bank, details
of the principal products and services,
profiles of the senior managers and           Shareholding by Directors and their
regular press releases concerning             related parties
investment transactions and other             The number of shares held by Directors
developments.                                 and their related parties at 31 December
5. Additional Governance Controls             2006 aggregated to 49.98% of the issued
                                              share capital.
The Board has approved a number of
policies which are communicated to            7. Management Team
management and all staff. They cover
                                              General Management
subjects including risk management,
                                              Aabed Al-Zeera               Chief Executive Officer
anti-money laundering, ethical                Salah Nooruddin              Chief Operating Officer
behavior, personal conduct, financial         Eihab Ahmed                  Head, Legal & Compliance
control, human resources and business         Banking Support
continuity.                                   Frederick Stonehouse         Executive Director, Banking Support
                                              Murtaza Ghulam               Principal, Banking Support
Corporate governance is also supported        Saba Al-Khalifa              Principal, Investor Services
                                              Mazar Jalal                  Principal, Acting Manager, Risk Management
by the ongoing reviews performed by           Hasan Abu-Hasan              Head, Engineering Services
the Internal Audit Department and the         Finance, Administration and Audit
External Auditors. The reviews confirm        Michael Ross-McCall          Chief Financial Officer
that the policies and internal control        Nader Asad                   Director, Finance and Administration
                                              Ali Redha                    Head, Internal Audit
procedures conform to best practice and
                                              Business Development
are being fully complied with by all staff.   Mohamed Hadi Mejai           Executive Director, Investment & Business Development
                                              Hakan Gunay                  Director
                                              Nader Al-Khilili             Principal
                                              Nasser Bayoun                Principal
                                              Fadi Qassim                  Project Manager
                                              Investment Placement
                                              Alyas Al-Meftah              Principal, KSA, Western Province
                                              Ebrahim Al-Shaibeh           Principal, Kuwait
                                              Fawzan Alnaser               Principal, Bahrain, Qatar and KSA, Eastern Province
                                              Jassim Alshaikh              Principal, KSA, Riyadh
                                              Rayan Kazerooni              Principal, UAE and Oman
                                              Bader Ali                    Associate, KSA Eastern Province
                                              Bashar Ali Al-Shaikh         Associate, KSA Eastern Province
                                              AbdulJabbar Al-Kooheji       Associate, UAE
                                              Saud Al Yahya                Associate, Kuwait

                                                                                                    Annual Report 2006 | International Investment Bank B.S.C.(c) | 
                                                                                                                                                             120   US$ Millions
                                                                                                                         20   US$ Millions
                                                                                                                                                     16.4    100
                                                                                                                         16   14.1
                                                                                                                                             13.7             80
                                                                                                                         8                                    40
                                                                                                                         4                                    20
                                                                                                                         0                                    0
                                                                                                                              2004           2005    2006          2004
                                                                                                                              Investments                          Total Asset

                                                                                                                        100   Percent

                        120      US$ Millions
                                 US$ Millions                                      180
                                                                                   180   US$ Millions
                                                                                         US$ Millions
       16.4             100
                        100                                                        150

                         80                                                        120
                                                                                   120                  117.6
                                                                                                        117.6            50                  43.5%   45.2%
                         60                                                        90
                         40                                                        60
                                                                                   60                                    25

                         20                                                        30
                                                                                   30    19.6
                          0                                                         0
                                                                                    0                                    0
       2006                      2004
                                 2004            2005
                                                 2005           2006
                                                                2006                     2004
                                                                                         2004           2005
                                                                                                        2005    2006
                                                                                                                2006          2004           2005    2006
                                 Total Assets                                            Assets under Management              Cost / Income Ratio


       2006     | International Investment Bank B.S.C.(c) | Annual Report 2005
cHIeF executIVe oFFIcer’s reVIew oF oPeratIons

                                      Bahrain’s	economy	performed	                 During the course of 2006, IIB arranged
                                      well	in	2006	in	conjunction	                 five new investments and successfully
                                      with	the	robust	growth	in	                   exited two transactions. In keeping with
                                      other	GCC	countries.	This	was	               the Bank’s strategy, the new investments
                                      supported	by	record	oil	prices	              were diversified by asset type, by
                                      and	high	production	levels,	                 economic sector and by country. They
                                      strong	corporate	earnings,	                  included a commercial office tower in
                                      particularly	in	the	banking	                 Dubai, a housing development company
                                      sector,	low	inflation	and	                   in Saudi Arabia and a portfolio of
                                      high	levels	of	liquidity.	Most	              commercial properties in France.
                                      regional	economies	posted	                   Another important milestone was
                                      record	budget	and	current	                   reached by the Bank during 2006
                                      account	surpluses.	Despite	                  when we achieved the first exits from
                                      a	number	of	IPOs	that	were	                  investments, being a prime office
                                      oversubscribed,	most	regional	               building in the West End of London
                                      stock	market	indices	posted	                 and a commercial tower development
Aabed Al-Zeera                        declines	in	2006.	                           in Dubai, in both cases delivering
                                      The Central Bank of Bahrain issued           outstanding returns to our investors
                                      banking licenses to several new              several years ahead of schedule. These
                                      institutions during the year, further        two highly successful exits have helped
                                      intensifying the competition for retail      to cement IIB’s reputation both
                                      and commercial customers. New                with investors and with institutional
                                      entrants are attracted by the reputation     partners, and to establish a clear
                                      for transparency, firm Central Bank          track record for the Bank in both the
                                      supervision and strong ties to the           origination, structuring, management
                                      surging economies in the GCC and             and delivery of profitable Shari’ah-
                                      MENA regions.                                compliant investments.
                                      Summary                                      In keeping with best practice, corporate
                                                                                   governance is being further enhanced
                                      2006 represented IIB’s third full year
                                                                                   through changes to the board and
                                      of operations, and the Bank achieved
                                                                                   management committee structure.
                                      further important milestones in its
                                                                                   Details can be found at pages 10-11.
                                      development. These include a very
                                      strong financial performance, several        During the course of the year the
                                      new investment transactions, highly          Internal Auditor undertook several
                                      profitable exits well ahead of plan, the     audits in accordance with the audit
                                      recruitment of additional staff and          programme approved by the Audit
                                      the implementation of policies and           Committee. The Bank also underwent
                                      procedures prepared in association with      a routine examination by the Central
                                      external consultants. I am confident         Bank of Bahrain which revealed no
                                      that solid foundations have now been         material regulatory concerns.
                                      laid for the Bank to move to the next        IIB, through our strong global network
                                      stage of its development, which will         of contacts, continues to gain access to
                                      be given strong impetus by a material        high quality investments. We subject
                                      increase in our paid-up capital during       each project to various stress tests, and
                                      the first half of 2007. This is a tangible   benefit from the input of reputable
                                      demonstration of the excellent support       external advisors to assess their viability.
                                      that the Bank has always enjoyed from
                                      its shareholders, and it will enable IIB
                                      to scale up its operations in a prudent
                                      and sustainable manner.

                                                                                   Annual Report 2006 | International Investment Bank B.S.C.(c) | 
cHIeF executIVe oFFIcer’s reVIew oF oPeratIons

Selecting the right deals and working                               in the proposed state-of-the-art West        Among these are the Saudi Arabian
with world class partners from within                               Bay Tower, which is being developed in       Pension Fund and the Alzahid Group.
the region and internationally to                                   partnership with SNASCO, a GCC-
                                                                                                                 Ewaan will explore a broad range of
maximize value is critical to the ongoing                           based real estate development company,
                                                                                                                 opportunities in the Saudi Arabian real
success of IIB. Real estate continues                               and will form part of the Business Bay
                                                                                                                 estate market, in particular the mid-
to be an attractive asset class and we                              District in Dubai, UAE. The 30-storey
                                                                                                                 market housing segment, where demand
are well placed to offer a broad and                                X-shaped West Bay Tower provides
                                                                                                                 far outstrips supply and into which
well balanced portfolio of properties,                              75,702 sq. metres of floor space and is
                                                                                                                 little investment has been channeled to
both from within this region and other                              due for completion in the fourth quarter
                                                                                                                 date. According to recent projections,
strong performing markets. We seek out                              of 2008. It offers investors the potential
                                                                                                                 it is expected that over the next ten
attractive assets that are diversified by                           early realization of their investment
                                                                                                                 years the gap between housing supply
country, sector and asset type, and we                              through pre-sales of office units during
                                                                                                                 and demand in Saudi Arabia will reach
have thereby been able to provide our                               the construction period of the Tower.
                                                                                                                 some 1 million units. Ewaan believes
investors with a balanced portfolio, as
                                                                    This is IIB’s second investment in           the mid-market segment represents a
well as superior risk-adjusted returns,
                                                                    Dubai’s Business Bay development,            large proportion of this requirement.
during a period when regional stock
                                                                    which is being planned by the Dubai
markets have suffered sharp corrections.                                                                         The IRR for investment in the company
                                                                    Government as the new dynamic
Rigorous due diligence and efficient                                                                             is expected to be in excess of 22% over
                                                                    ‘downtown’ area of Dubai, the pre-
execution provide the solid foundations                                                                          a three to five year horizon. Further,
                                                                    eminent business hub in the UAE
on which all of IIB’s investment                                                                                 there is scope for significantly enhanced
                                                                    and the region. The projected Internal
decisions are based.                                                                                             returns through capital appreciation
                                                                    Rate of Return (IRR) on the West
                                                                                                                 at exit should the company be floated
Investment Transactions                                             Bay Tower project is 21.6% over an
                                                                                                                 through an Initial Public Offering
                                                                    investment horizon of 36 months and
In 2004, its first full year of operation,                                                                       (IPO).
                                                                    was heavily oversubscribed by investors
IIB established a property fund based
                                                                    from across the GCC in June 2006.            IIB France Investment
in Bahrain and purchased an equity
                                                                                                                 Holding B.S.C.
investment in an independent power                                  IIB KSA Investments
                                                                                                                 Total transaction size: US$ 105.6 million
company in Asia. During 2005, the                                   Ewaan
Bank successfully arranged and placed                               Total transaction size: US$ 106.7 million    In December 2006, IIB acquired a
six investments. These comprised                                                                                 high-quality portfolio of commercial
                                                                    In July 2006, IIB and its co-
opportunities across a number of                                                                                 real estate properties in France. IIB
                                                                    investors formed Ewaan, a real estate
asset classes and geographic locations,                                                                          and its investors are taking a 90%
                                                                    development company for investment
including commercial real estate                                                                                 stake in the portfolio, which comprises
                                                                    in the Saudi Arabian real estate market.
investments in the UK and Dubai, a                                                                               six commercial properties that are
                                                                    To be based in Saudi Arabia, and with
strategic direct investment in an Islamic                                                                        strategically located in France’s two
                                                                    an authorized capital of SR 400 million
investment bank in Europe, a housing                                                                             largest cities, Paris and Lyon. There is
                                                                    (US$ 106 million), the company
development company in Bahrain, a                                                                                strong demand for office space in the
                                                                    plans to invest SR2 billion (US$ 533
new paper mill plant in Abu Dhabi                                                                                French commercial property sector and
                                                                    million) in the fast-developing Saudi
and placement of the equity investment                                                                           particularly in these key commercial
                                                                    Arabian property sector over the next
in the independent power company                                                                                 hubs.
                                                                    three years. The strategic partners
in Asia set up in 2004. In 2006, the                                                                             In making the acquisition, IIB has
                                                                    include the Islamic Corporation for
Bank arranged and placed five new                                                                                partnered with a renowned asset
                                                                    Development of the Private Sector
investments and successfully exited                                                                              manager with extensive experience
                                                                    (ICD), a multilateral investment affiliate
from two investments that it arranged                                                                            in the structuring and management
                                                                    of the Islamic Development Bank, and
and placed in 2005. A summary of these                                                                           of Shari’ah-compliant real estate
                                                                    the Saudi Economic and Development
seven transactions is as follows:                                                                                investments in Europe, and who holds
                                                                    Company (SEDCO), a Saudi-based
New Transactions in 2006                                            investment group.                            the remaining 10% share ownership in
                                                                                                                 the portfolio. The investment represents
IIB UAE Investment Limited                                          Included in Ewaan’s strategic
                                                                                                                 IIB’s third European investment and its
West Bay Tower                                                      shareholder base is a well diversified mix
                                                                                                                 second real estate acquisition in Europe.
Total transaction size: US$ 89.1 million                            of highly regarded investors, including
                                                                    high net worth individuals and financial
In April 2006, IIB took a 65% stake
                                                                    institutions, multilateral businesses
                                                                    as well as government organisations.

 | International Investment Bank B.S.C.(c) | Annual Report 2006
cHIeF executIVe oFFIcer’s reVIew oF oPeratIons

                                          (FroM leFt to rIgHt) Mr. MoHaMed HadI MejaI, executIVe dIrector, InVestMent
                                          and BusIness deVeloPMent; Mr. FrederIck stoneHouse, executIVe dIrector,
                                          BankIng suPPort; Mr. aaBed al-Zeera, cHIeF executIVe oFFIcer;
                                          Mr. salaH nooruddIn, cHIeF oPeratIng oFFIcer; Mr MIcHael ross-Mccall,
                                          cHIeF FInancIal oFFIcer

The projected IRR on the investment is    British Islamic Insurance                  Sabaak Leasing and Investment
in the region of 12% over an investment   Holding Limited                            Company
horizon of five years, with cash yields   Total transaction size: US$ 33.0 million   Total transaction size: US$ 51.7 million
ranging from 8.6% to 9.2% per annum.
                                          The company is the first independent       The company is incorporated in Kuwait
                                          UK entity to provide insurance             and provides operating and financial
                                          (“Takaful”) products that are wholly       leases, as well as new and innovative
                                          Shari’ah compliant. IIB took a strategic   products, all under Islamic principles.
                                          investment of US$ 1.9 million to           IIB took a small strategic investment of
                                          increase its presence in the Shari’ah-     US$ 0.4 million to increase its presence
                                          compliant Takaful insurance sector, and
                                          to build a privileged relationship with
                                          the other founders for possible larger
                                          future investments.

                                                                                     Annual Report 2006 | International Investment Bank B.S.C.(c) | 
                                                                    (from Left to right) Nasser eLdiNe
                                                                    BayouN, PriNciPaL, BusiNess
                                                                    hakaN guNay, director, BusiNess
                                                                    deveLoPmeNt; ashwiN kumar,iNvestmeNt
                                                                    associate; atif Naveed, iNvestmeNt
                                                                    associate; Nader aL-khaLiLi,PriNciPaL,
                                                                    BusiNess deveLoPmeNt;

                                                                    saLah NooruddiN, chief oPeratiNg
                                                                    officer; aL imraN khaN, iNvestmeNt
                                                                    associate; mohamed hadi mejai,
                                                                    executive director, iNvestmeNt aNd
                                                                    BusiNess deveLoPmeNt; fadi aL Qassim,
                                                                    Project maNager; Bishayer aL-khaja,
                                                                    iNvestmeNt associate

 | International Investment Bank B.S.C.(c) | Annual Report 2005
(from Left to right) aLi redha, head of
iNterNaL audit; michaeL ross-mccaLL,
chief fiNaNciaL officer;
sushiL jaiN, PriNciPaL-risk maNagemeNt;
Nader asad, director-fiNaNce &
admiNistratioN; haLeema eBrahim,
accouNtaNt; hassaN aBBas, accouNtaNt

         Annual Report 2005 | International Investment Bank B.S.C.(c) | 
cHIeF executIVe oFFIcer’s reVIew oF oPeratIons

in the Sharia’ah compliant financial                                IIB Belgravia Property Company
sector, to deepen its knowledge about                               Limited
the leasing sector and to fortify its                               Total transaction size in 2005:
presence in the corporate sector in                                 US$ 300.7 million
                                                                    In June 2005, IIB acquired a landmark
Exits in 2006
                                                                    commercial property occupying a prime        IIB France Investments
                                                                                                                      Holding B.S.C.(c)
IIB Business Bay Properties                                         site in the prestigious Belgravia area of
Limited                                                             London, in conjunction with SEDCO,
One@Business Bay                                                    a leading private Islamic investment
Total transaction size in 2005:                                     company in Saudi Arabia. The property
US$ 94.1 million                                                    benefited from a long-term lease to the
In November 2005, IIB acquired a                                    UK subsidiary of one of the world’s
50% equity stake in One @ Business                                  leading energy companies. IIB placed
Bay, a 30-storey high-end office tower                              the investment with its investors on the
in the rapidly developing Business Bay                              basis of a five year investment holding
district in Dubai, being developed in                               period, a cash dividend of 7.5% p.a. and
partnership with Dubai-based Omniyat                                an IRR in excess of 10%. The London
Group. The Bank recognized that                                     commercial real estate market then
the spectacular growth in other UAE                                 strengthened and the Bank achieved
sectors would provide an attractive                                 an equity release in November 2006 of
growth potential in the commercial real                             55% of the original investment and an
estate sector because of an imbalance                               increased cash dividend to investors of
in the supply / demand equation for                                 10% p.a. on both the original and the
prime offices in Dubai.The investment                               remaining equity.
was successfully placed with IIB’s                                  The building was sold for US$ 409
investors in early 2006 with a target                               million in December 2006, achieving a
IRR of approximately 23%. Not only                                  total return of 98% in only 17 months,
was it oversubscribed, but during the                               equivalent to an IRR of 67% for our
placement period all 30 office floors in                            investors. We not only far exceeded
the Tower were pre-sold at the target                               initial projections, but also delivered
price.                                                              this exceptional result well in advance of
In December 2006, IIB achieved a                                    the original five year investment holding
profitable early exit for its investors                             period.
from the project, following the sale                                Outlook for 2007
of their 50% equity stake to their
                                                                    The Bank enters 2007 with a strong
joint-venture partners in the project.
                                                                    investment pipeline developed in
The sale achieved a highly attractive
                                                                    conjunction with its broad network
IRR of 25% only 11 months after
                                                                    of high-caliber financial institutions
the original investment was made,
                                                                    and technical partners from around
compared with the planned minimum
                                                                    the world. IIB expects to announce
investment holding period of 18
                                                                    a number of compelling deals across
months. The combination of IIB’s
                                                                    multiple industry sectors and asset
financial, structuring and placement
                                                                    classes internationally in the months
capabilities with Omniyat’s marketing
                                                                    ahead. This will include further
and development expertise proved to be
                                                                    investment opportunities in real estate
an extremely successful formula.
                                                                    and private equity, but we will continue
                                                                    to be highly selective, targeting market
                                                                    segments and countries where there
                                                                    are still good growth prospects. We
                                                                    are confident that we will be able to
                                                                    continue delivering attractive risk-
                                                                    adjusted returns for our investors.

0 | International Investment Bank B.S.C.(c) | Annual Report 2005
cHIeF executIVe oFFIcer’s reVIew oF oPeratIons

Information Technology                      and benefits remained in line with
                                            the market, including a bonus scheme
The Bank continued to invest in
                                            linked to both corporate and individual
information technology systems in
parallel with the growth in business
activity and staff numbers. A committee     Recognising that staff are a key
is being formed to select and implement     asset of the Bank, it continued to
a state-of-the-art core banking system      significantly invest in staff welfare and
with the help of external consultants.      the provision of all necessary training
It is anticipated that the new systems      and development opportunities. Most
will be operational at the end of 2007 or   employees attended courses in Bahrain
early 2008 and will significantly enhance   and elsewhere during the year.
the Bank’s operational efficiency, its
                                            Capital Increase
capacity to process larger transactions,
and its customer relationship               Our current intention is to have a rights
management.                                 issue for existing shareholders and
                                            to invite, on a selective basis, certain
Human Resources
                                            strategic investors who have invested
As the scale of the Bank’s operations       in our deals to enable them to share
has grown, its organization structure       in the success of the Bank. This move        One@Business Bay
has also evolved in order to maintain       is in response to strong demand from
business momentum, and to ensure            both current shareholders and other
sound corporate governance and an           strategic investors who are keen to
effective control environment. The total    acquire an equity stake in IIB. Subject
head count increased from 20 to 40          to regulatory and shareholder approvals,
at the end of 2006 and is expected to       it is planned to increase the paid-up
increase to around 60 by year end 2007      capital from US$ 43 million to US$
in order to handle the planned increase     100 million by mid 2007. With the
in business.                                associated share premium, this will
                                            expand the Bank’s equity base to over       Bahrain Property Fund
Experienced specialist staff have been
                                            US$ 175 million.With increased capital
recruited to key positions, including a
                                            resources at its disposal, IIB will be in
Chief Financial Officer, a Director of
                                            an enhanced position to identify and
Business Development, a Head of Legal
                                            arrange a number of more sizeable
& Compliance, a Head of Investor
                                            transactions across diverse industry
Services, an Engineer as Project
                                            sectors and countries.
Manager and a Head of I.T. During the
first half of 2007 we expect to complete
the senior management team with the
appointment of a Head of Human
Resources, an Executive Director
of Private Equity and Corporate
Finance, and an Executive Director of
Investment Placement.                       Aabed Al-Zeera
                                            Chief Executive Officer
The recruitment process has been
very challenging, as the competition
for qualified staff remains very strong,
both regionally and internationally.
The retention of key staff is therefore
also a major challenge, making it
essential to have attractive remuneration
structures in place. Specific initiatives
were taken to ensure that compensation

                                                                                        Annual Report 2006 | International Investment Bank B.S.C.(c) | 
the comPaNy PLaNs to iNvest                                         Diversified
sr2 BiLLioN (us$ 533 miLLioN)                                       investments
iN the fast-deveLoPiNg
saudi araBiaN ProPerty                                              across many
sector over the Next three                                          different sectors
years                                                               including

IIB KSA Investments                      IIB Power Company
Ewaan                                    Limited

 | International Investment Bank B.S.C.(c) | Annual Report 2006
the BuiLdiNg iN                     Private equity                  IIB acquired
BeLgravia was soLd                                                  a high quality
for us$ 409 miLLioN
                                    finance of West
                                    Bay Tower                       portfolio of
iN decemBer 2006
achieviNg aN irr                    aggregated to                   real estate in
of 67% iN oNLy 17
moNths                              US$ 25 million                  France valued
                                                                    at US$106

IIB Belgravia Property IIB UAE Investment   IIB France Investment
Company Limited        Limited              Holding BSC
                       West Bay Tower

                                                                      Annual Report 2006 | International Investment Bank B.S.C.(c) | 
FInancIal reVIew

During the year ended st                                          Expenses                                     Liabilities and equity
December 00, the Bank                                             Profit on due to financial institutions,     Due to financial institutions at the end
recorded net income of US$                                          representing payments made for funds         of 2006 represented murabaha contracts
. million, compared to US$                                       received on the principles of murabaha       payable (2005: nil). Equity increased
.0 million during 00 - an                                        contracts, totaled US$ 0.3 million           by 20.9% to US$ 61.4 million, mainly
increase of .%. Total assets                                     (2005: nil). Staff compensation and          from the 2006 net income less the 2005
at year-end 00 aggregated to                                      benefits of US$ 7.4 million were             dividend of US$ 3.4 million transferred
US$ . million, up .% or                                       significantly higher than in 2005,           to liabilities following the shareholders’
US$ . million as compared                                        on account of the doubling of the            approval.
to year-end 00. Net cash from                                     headcount from 20 to 40 and the
operating activities was US$                                                                                     Capital adequacy
                                                                    payment of higher bonuses linked to the
0. million (00: negative US$                                    higher total income and achievement of       As compared to the minimum capital
. million) and cash and cash                                      individual performance goals. General        adequacy ratio of 12% prescribed by
equivalents were a healthy US$                                      and administration expenses more             Central Bank of Bahrain (CBB), the
. million at the end of 00.                                    than doubled to US$ 2.1 million,             Bank’s ratio at year-end 2006 was 134%
The key financial ratios were strong                                being mainly travel, legal, professional     (2005: 101%). This ratio, reflecting
and further improved in 2006. Return                                fees, printing and advertising linked        credit and market risk, is based on
on average equity rose from 14.8% in                                to the higher level of business activity.    guidelines issued by CBB which are
2005 to 24.0%, while return on average                              Depreciation increased by US$ 0.2            compatible with those of the Basel
assets increased from 13.0% to 17.1%.                               million from the capital expenditure         Committee on Banking Supervision.
Earnings per share improved from 16                                 in 2005 on fitting out the new offices.      The ratio measures total qualifying
cents to 31 cents.                                                  Directors’ remuneration of US$ 0.15          capital held by an institution in relation
                                                                    million was expensed in 2006 in respect      to its risk- weighted assets.
                                                                    of 2005 services. The cost-to-income         CBB has stated that all banks
The Bank’s total income increased                                   ratio increased in 2006 to 45.2%             incorporated in Bahrain should adopt
by 98.1% during 2006 to US$ 24.6                                    from 43.5% in 2005 but compares              the Basel II rules commencing from
million. This was driven mainly by                                  very favourably with regional and            1 January 2008. Pending clarification
significantly higher investment fees                                international investment banks.              of the rules by CBB, the Bank has not
which increased from US$ 10.9 million                                                                            conducted a detailed impact study
in 2005 to US$ 17.1 million, earned                                                                              under Basel II. However, in the opinion
from the structuring, underwriting and                              Cash & balances with banks and due
                                                                                                                 of management, the adoption of Basel II
placement of new investments. Exit                                  from financial institutions at year-end
                                                                                                                 is expected to leave its ratio well above
income, representing performance fees                               2006 of US$ 9.3 million and US$ 53.5
                                                                                                                 the minimum required.
earned by the Bank for exceeding pre-                               million respectively were in aggregate
determined hurdle rates, aggregated to                              130% higher than a year earlier. The
US$ 4.3 million (2005: nil). This is a                              extra liquidity was provided from
clear validation of the business model                              retained profit, lower net receivables and
that IIB has put in place, which is                                 higher murabaha payables.
founded principally on the generation of                            Investments increased by US$ 2.7
fee income from arranging and placing                               million (20.0%) to US$ 16.4 million,
investments. The net gain on sale of                                represented by the Bank’s retention in
investments in 2006 was US$ 1.0                                     investment deals offered to investors
million (2005: nil). Income on due from                             in 2006, less sales and part disposals
financial institutions, being the profit on                         during the year.
commodity murabaha and income on
investment in mudaraba , was US$ 1.8                                Resulting from the new investment
million versus US$ 1.0 million in 2005.                             offerings in 2006 less the two exits,
                                                                    assets under management increased by
                                                                    54.5% from US$ 117.6 million to US$
                                                                    181.7 million.

 | International Investment Bank B.S.C.(c) | Annual Report 2006
FInancIal reVIew

                                                     Total assets by Maturity Profile
                                                     US$ Millions
                                                          Up to 1 month
                                                          1 to 3 months
                                                          3 months to 1 year

           2.1                                            No fixed maturity



Investment Type
US$ Millions

     Carried at Fair Value through
     Statement of Income
     Available for Sale
     Investment Property


                                                     Total Assets by Region
                                                     US$ Millions

                                                          Europe                                                                                    120      US$ Millions
                                                                                        20   US$ Millions
                                                          GCC                                                              16.4                     100
                                                                                        16   14.1
                                                          Far East                                          13.7                                      80                    63.4
                                                                                        8                                                             40
                                                                                        4                                                             20
                                                                                        0                                                              0
                                                                                             2004           2005            2006                             2004           2005
Total Assets by Industry Sector        24.1                                                  Investments                                                     Total Assets
US$ Millions

     Power Generation                                           67.2
                                                                                       100   Percent
     Real Estate
     Banking & Finance
     Others                                                                             75
                                      2.2                                                    64.3%

                                                                                        50                                 41.5%


                                                                                             2004           2005            2006
                                                                                             Cost / Income Ratio

                                                                                             Annual Report 2006 | International Investment Bank B.S.C.(c) | 
rIsk ManageMent

The Board of Directors has overall                                  1. Market Risk                               1.1 Investment Risk
responsibility for risk management.
                                                                    Market Risk is the risk to earnings          Investment (or Equity Price) Risk is
The Board approves and periodically
                                                                    resulting from adverse movements             the risk of loss arising out of either
reviews the risk policies and strategy
                                                                    in foreign exchange rates, profit            deterioration in the market price of a
of the Bank.
                                                                    rate yield curves, equity prices and         marketable investment or the capital
A Risk Management Committee                                         commodity prices for assets held in          erosion of the Bank’s investment in a
(RMC) is being formed which will                                    its portfolio. The size of Market Risk       business entity where the shares are not
be responsible for submitting policy                                is not considered significant, as the        traded on any exchange.
amendments to the Board and for                                     Bank does not trade in investments or
                                                                                                                 The Bank does not have a trading
ensuring the approved policies are                                  foreign exchange and does not have any
                                                                                                                 portfolio at present and Investment
implemented in accordance with the                                  derivatives.
                                                                                                                 Risk arises from various co-investments
risk management procedures. The Risk
                                                                    To enable effective monitoring and           that IIB makes in the deals offered to
Manager is responsible for identifying,
                                                                    managing of exposures, all Market            investors. These investments are long-
measuring and managing the risks
                                                                    Risks associated with the Bank’s             term and associated with private equity,
relating to the Bank’s activities. Regular
                                                                    investments are properly measured. The       real estate and asset management. The
reports submitted to the Board enables
                                                                    following factors are taken into account     risks are controlled in the following
it to ensure that risk levels are in fact
                                                                    when measuring the Market Risk in the        manner:
within the policy limits set by it.
                                                                    Bank’s investment portfolio:
                                                                                                                 • Business Plan and Risk Strategy:
The efficient and timely management
                                                                    • Volatility: the extent of fluctuation        each line of business will prepare its
of risks involved in the Bank’s business
                                                                      in the value of the investment is an         annual business plan to outline its
is critical to its financial soundness
                                                                      important factor in determining and          risk capital requirements, targeted
and profitability. The Risk Manager
                                                                      measuring the extent of Market Risk          markets and the processes to address
maintains standards to ensure:
                                                                      embedded in it;                              Investment Risk;
• Risks are well defined;
                                                                    • Liquidity: the availability of             • Risk Review of New Deals: The
• Quantitative assessments are widely
                                                                      ready buyers or a market in which            Risk Manager will review and
                                                                      investments may be liquidated is             evaluate risks associated with all new
• Control is active;
                                                                      equally essential to assess the Market       investment deals;
• Measures are accurate; and
                                                                      Risk involved. In the absence of a
• Management of risks is proactive and                                                                           • Diversification of the Investment
                                                                      liquid market, the investments may
  integrated.                                                                                                      Portfolio: to avoid concentration of
                                                                      have to be sold at a ‘distressed price’;
                                                                                                                   investments in one particular country,
The risk framework adopts the best
                                                                    • Concentration: the diversification of        industry or sector, the Bank follows
industry practices in risk management
                                                                      the Bank’s exposure across different         exposure limits set by its Board of
to provide:
                                                                      countries and sectors and in different       Directors, which are within the limits
• A risk focus which will enhance                                     types of investments helps avoid             specified by the Central Bank of
  shareholder value through                                           concentration risk;                          Bahrain;
  maximizing return on risk-adjusted
                                                                    • Independent Source: when valuing           • Investment Retention: only a certain
  capital; and
                                                                      an asset, it is preferred to have an         percentage of the total investment
• A framework that supports the
                                                                      independent specialist source from           portfolio will be retained by the Bank;
  current decision-making process and
                                                                      which prices are obtained to enhance
  culture of strong internal controls in
                                                                      the credibility of the valuation; and
  the Bank.
                                                                    • Independent Valuation: the
The Bank’s risk management process
                                                                      individual or department responsible
encompasses various dimensions of risk,
                                                                      for valuing or marking-to-market the
as follows. In addition, data in respect of
                                                                      investments is independent of the
the principle risks affecting IIB is shown
                                                                      individual or department responsible
at note 3 to the financial statements.
                                                                      for the investment.

 | International Investment Bank B.S.C.(c) | Annual Report 2006
rIsk ManageMent

• Additional Investments: all               The Bank manages Foreign Exchange              2. Credit Risk
  additional investments in transactions    Risk through the following process:
                                                                                               Credit Risk is the risk to earnings or
  will be treated as new deals in the
                                            • Net Open Positions: developing net               capital from the potential that a loss
  Bank’s investment portfolio;
                                              open positions in relation to foreign            will be incurred if a counterparty fails
• Limits and Limit Monitoring:                currency exposures based on the                  to perform on a financial obligation
  allocation of maximum limits                Bank’s risk appetite; and                        as it falls due. It takes into account
  available to each business for                                                               the probability of involuntary
                                            • Limits and Limit Monitoring:
  investment and the continuous                                                                default, where the counterparty does
                                              setting and maintaining limits on
  monitoring of any breaches;                                                                  not possess the financial means to
                                              foreign currency net open positions.
                                                                                               repay and strategic default, where a
• Valuation of Investments: periodic
                                            IIB is pursuing suitable hedging                   counterparty with the ability to repay
  valuation of all investments to current
                                            strategies that are in accordance with             deliberately defaults.
  fair market value by Financial Control
                                            Shari’ah principles.
  Department; and                                                                              The Bank manages Credit Risk
                                            1.3 Profit Rate Risk                               through the following process:
• Governance Over Existing Deals:
  quarterly comparison of existing          Profit Rate Risk is the risk of a decrease         • Credit Risk Scoring and Grading:
  investment deals with pre-acquisition     in the Bank’s net present value in the               development of a counterparty risk
  investment criteria.                      event of a variation in market reference             grading model to assess potential
                                            rates. The net present value of the                  clients prior to undertaking
1.2 Foreign Exchange Risk
                                            Bank is affected by an unfavourable                  exposures.
Foreign Exchange Risk is the risk of        movement of market reference rates
                                                                                               • Developing Counterparty,
loss arising from adverse movements in      when the Bank carries profit-bearing
                                                                                                 Country and Sector Limits:
foreign exchange rates. In the ordinary     assets and liabilities on its balance sheet.
                                                                                                 setting of maximum counterparty
course of business, a foreign exchange
                                            The primary source of Profit Rate Risk               exposure limits based on the
position will arise through investments
                                            for IIB is the ‘mismatch risk’, which                counterparty risk grading.
in foreign countries and nostro balances.
                                            arises on account of differences in
                                                                                               • Monitoring Credit Exposure:
The Bank faces Foreign Exchange Risk        principal amounts, profit rates, maturity
                                                                                                 ongoing review of exposure limits
from the following exposures:               dates or re-pricing dates, in respect to
                                                                                                 assigned to each counterparty and
                                            its profit-bearing assets and liabilities.
• Transaction Exposure: the risk that                                                            continuous monitoring to avoid
  the domestic cost or proceeds of a        The Bank employs the following                       limit breaches.
  transaction may change;                   techniques to manage Profit Rate Risk:
• Translation Exposure: the risk            • Profit Rate Risk Strategy: to forecast
  that the value of foreign-currency-         and assess the risk sources;
  denominated assets is affected by
                                            • Measurement of Profit Rate Risk: to
  exchange rate movements; and
                                              classify the Bank’s profit rate sensitive
• Economic Exposure: the risk that            assets and liabilities into time buckets
  exchange rate movements may affect          to determine the Bank’s risk exposure;
  the present value of future income          and
                                            • Profit Rate Gap Analysis: the
                                              development, implementation and
                                              monitoring of gap limits to manage
                                              the Bank’s exposure against changing
                                              profit rates.

                                                                                           Annual Report 2006 | International Investment Bank B.S.C.(c) | 
rIsk ManageMent

3. Liquidity Risk                                                   4. Operational Risk                        5. Legal Risk
Liquidity Risk is the risk that the Bank                            Operational Risk is the risk of direct     Legal Risk is the risk arising from the
may not be able to meet its obligations                             or indirect loss resulting from breaches   potential that unenforceable contracts,
or commitments with regard to                                       in internal controls, processing errors,   lawsuits, or adverse judgements can
financing or the repayment of maturing                              inadequate information systems, fraud,     disrupt or otherwise negatively affect
debts. IIB has access to geographically                             or external events. Its impact can be      the operations of the Bank. IIB has
diversified funding sources and manages                             in the form of a financial loss, loss      sought to mitigate its exposure to
its assets with liquidity in mind,                                  of reputation or loss of competitive       Legal Risk by establishing a Legal and
including the maintenance of healthy                                position. The Bank minimises its           Compliance Department headed by
balances of cash and cash equivalents.                              exposure by ensuring that appropriate      a qualified and experienced lawyer. In
The Bank groups all assets and liabilities                          infrastructure, controls, systems and      addition, it has relationships with well-
into specific maturity time buckets and                             trained, competent people are in place.    established local and international law
monitors the mismatches between the                                 In particular:                             firms.
inflows and outflows against approved
                                                                    • Internal Audit Department issues
                                                                      regular reports including an annual
The Bank uses a combination of                                        organization-wide risk assessment;
the following techniques to manage
                                                                    • External auditors make
Liquidity Risk:
                                                                      recommendations on internal controls
• Funding Strategy - any projected                                    and processes;
  liquidity shortfalls are highlighted in
                                                                    • Business units are responsible for
  the mismatch report and appropriate
                                                                      managing the operational risks
  remedial action is taken.
                                                                      relevant to their activities; and
• Liquidity Gap Limits - mismatch
                                                                    • A well-established disaster recovery
  limits are regularly reviewed and
                                                                      program exists covering computer
  updated to reflect IIB’s business
                                                                      backup, data recovery and premises
  requirements and risk appetite.
• Liquidity Contingency Plan - the
  Bank’s liquidity profile is evaluated
  under different market conditions
  and any adverse liquidity scenarios are

 | International Investment Bank B.S.C.(c) | Annual Report 2006
Risk Management

                  (from Left to right) saBa aL-khaLifa,
                  PriNciPaL-iNvestor reLatioNs;
                  murtaza ghuLam, PriNciPaL-BaNkiNg
                  suPPort; hassaN aBu hassaN,
                  eNgiNeeriNg services head;

                  frederick stoNehouse, executive
                  director, BaNkiNg suPPort;
                  mazar jaLaL, PriNciPaL-BaNkiNg

                           Annual Report 2006 | International Investment Bank B.S.C.(c) | 
                (from Left to right) iNvestmeNt
                PLacemeNt team memBers: hashim jaNahi,
                fawzaN aL-Naser, aLyas aLmeftah, Bader
                aLi, saudi aL yahya, aBduLjaBBar aL-
                kooheji, rayaN kazerooNi,

                eBrahim aLshaiBeh, Bashar aL-shaikh,
                jassim aL shaikh with saLah NooruddiN,
                chief oPeratiNg officer (ceNtre).

0 | International Investment Bank B.S.C.(c) | Annual Report 2005
sHarI’aH suPerVIsory Board rePort

Shari’ah Supervisory Board          Asslam Alaikum Wa Rahmat Allah               In our opinion:
Report to the Shareholders of       Wa Barakatuh
                                                                                 • The Bank’s contracts, transactions and
International Investment Bank
                                    In compliance with the terms of our            deals for the year ending December
B.S.C. (c)
                                    letter of appointment, we are required         31, 2006 are in compliance with the
                                    to report as follows:                          rules and principles of the Islamic
                                    We have reviewed the principles and
                                    contracts relating to the transactions       • The Bank’s allocation of profit
                                    conducted by International Investment          and charging of losses relating to
                                    Bank B.S.C. (c) (the “Bank”) during            investment accounts are in compliance
                                    the course of the year ended December          with the rules and principles of the
                                    31, 2006. Our review was conducted             Islamic Shari’ah.
                                    in order to judge whether the Bank
                                                                                 • Earnings that have been realized
                                    followed the principles of the Islamic
                                                                                   from sources that are non-Shari’ah
                                    Shari’ah, specific fatwas, and guidelines
                                                                                   compliant were donated to charity.
                                    issued by the Shari’ah Supervisory
                                    Board. The Bank’s management                 • The Bank’s calculation of Zakat is
                                    is responsible for ensuring that its           in compliance with the rules and
                                    operations are carried out in compliance       principles of the Islamic Shari’ah.
                                    with our rulings. It is our responsibility
                                                                                 We beseech the Almighty to grant us
                                    to present an independent view of the
                                                                                 excellence and success.
                                    Bank’s operations and to communicate
                                    it to the shareholders.                      Wassalam Alaikum Wa Rahmat Allah
                                                                                 Wa Barakatuh
                                    Our review included a detailed analysis
                                    of each type of transaction with its
                                    relevant documentation and procedures
                                    adopted by the Bank.
                                    The review was planned and performed
                                    so as to obtain all necessary information
                                    and explanations to provide sufficient
                                    evidence proving that the Bank has not       Sheikh Nizam Yaquby
                                    violated any rules and principles of the     Chairman of the Shari’ah Supervisory
                                    Islamic Shari’ah.                            Board
                                                                                 28 Muharram 1428
                                                                                 15 February 2007

                                                                                 Annual Report 2005 | International Investment Bank B.S.C.(c) | 
IndePendent audItors’ rePort to tHe sHareHolders

                                                                    Auditors’ Responsibility                     the year then ended in accordance
                                                                                                                 with Financial Accounting Standards
                                                                    Our responsibility is to express an
                                                                                                                 issued by the Accounting and Auditing
Independent Auditors’ Report to                                     opinion on these financial statements
                                                                                                                 Organisation for Islamic Financial
the Shareholders of International                                   based on our audit. We conducted
                                                                                                                 Institutions and the Islamic Shari’ah
Investment Bank B.S.C. (c)                                          our audit in accordance with both
                                                                                                                 Rules and Principles as determined by
                                                                    the International Standards on
We have audited the accompanying                                                                                 Shari’ah Supervisory Board of the Bank.
                                                                    Auditing and Auditing Standards for
financial statements of International                               Islamic Financial Institutions. Those        In addition, in our opinion, the financial
Investment Bank B.S.C (c) (the ‘Bank’)                              standards require that we comply             statements present fairly, in all material
which comprise the balance sheet as at                              with the relevant ethical requirements       respects, the financial position of the
31 December 2006 and the statement                                  and plan and perform the audit to            Bank as of 31 December 2006 and of its
of income, statement of cash flows and                              obtain reasonable assurance whether          financial performance and its cash flows
statement of changes in equity for the                              the financial statements are free from       for the year then ended in accordance
year then ended, and a summary of                                   material misstatement.                       with International Financial Reporting
significant accounting policies and other                                                                        Standards.
explanatory notes.                                                  An audit involves performing
                                                                    procedures to obtain audit evidence          Other Regulatory Matters
Board of Directors’ Responsibility for                              about the amounts and disclosures in
the Financial Statements                                                                                         We confirm that, in our opinion,
                                                                    the financial statements. The procedures
                                                                                                                 proper accounting records have been
The Board of Directors is responsible                               selected depend on the auditors’
                                                                                                                 kept by the Bank and the financial
for the preparation and fair presentation                           judgment, including the assessment
                                                                                                                 statements, and the contents of the
of these financial statements in                                    of the risks of material misstatement
                                                                                                                 Report of the Board of Directors
accordance with both the Financial                                  of the financial statements, whether
                                                                                                                 relating to these financial statements,
Accounting Standards issued by the                                  due to fraud or error. In making those
                                                                                                                 are in agreement therewith. We further
Accounting and Auditing Organisation                                risk assessments, the auditor considers
                                                                                                                 report, to the best of our knowledge
for Islamic Financial Institutions                                  internal controls relevant to the entity’s
                                                                                                                 and belief, that no violations of the
to operate in accordance with                                       preparation and fair presentation
                                                                                                                 Bahrain Commercial Companies Law,
Islamic Shari’ah and International                                  of the financial statements in order
                                                                                                                 nor of the Central Bank of Bahrain
Financial Reporting Standards. This                                 to design audit procedures that are
                                                                                                                 and Financial Institutions Law, nor
responsibility includes: designing,                                 appropriate for the circumstances,
                                                                                                                 of the memorandum and articles of
implementing and maintaining internal                               but not for the purpose of expressing
                                                                                                                 association of the Bank have occurred
controls relevant to the preparation                                an opinion on the effectiveness of the
                                                                                                                 during the year ended 31 December
and fair presentation of financial                                  entity’s internal control. An audit also
                                                                                                                 2006 that might have had a material
statements that are free from material                              includes evaluating the appropriateness
                                                                                                                 adverse effect on the business of the
misstatement, whether due to fraud                                  of accounting policies used and the
                                                                                                                 Bank or on its financial position and
or error; selecting and applying                                    reasonableness of accounting estimates
                                                                                                                 that the Bank has complied with the
appropriate accounting policies; and                                made by the Board of Directors, as well
                                                                                                                 terms of its banking licence.
making accounting estimates that                                    as evaluating the overall presentation of
are reasonable in the circumstances.                                the financial statements.
In addition the Board of Directors is                               We believe that the audit evidence
responsible for the Bank’s undertaking                              we have obtained is sufficient and
to operate in accordance with Islamic                               appropriate to provide a basis for our
Shari’ah Rules and Principles.                                      audit opinion.                               15 February 2007
                                                                    Opinion                                      Kingdom of Bahrain
                                                                    In our opinion, the financial statements
                                                                    present fairly, in all material respects,
                                                                    the financial position of the Bank as of
                                                                    31 December 2006 and of its financial
                                                                    performance and its cash flows for

 | International Investment Bank B.S.C.(c) | Annual Report 2005

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