Consolidated Financial Statements...Commercial Bank PJSC, Abu Dhabi (the “Bank”) which comprise the consolidated statement of financial position as at 31 December 2016, and the

Consolidated FinancialStatements

117

INDEPENDENT AUDITOR’S REPORT 119

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 122

CONSOLIDATED INCOME STATEMENT 123

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 124

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 125

CONSOLIDATED STATEMENT OF CASH FLOWS 126

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 127

1. Activitiesandareasofoperations 127

2. ApplicationofnewandrevisedInternationalFinancialReportingStandards(IFRSs) 127

3. Summaryofsignificantaccountingpolicies 130

3.1 Basisofpreparation 130

3.2 Measurement 130

3.3 Functionalandpresentationcurrency 130

3.4 Useofestimatesandjudgements 130

3.5 Basisofconsolidation 130

3.6 Foreigncurrencies 131

3.7 Financialinstruments 132

3.8 Saleandrepurchaseagreements 135

3.9 Securitiesborrowingandlending 135

3.10 Cashandcashequivalents 135

3.11 Amortisedcostmeasurement 135

3.12 Fairvaluemeasurement 135

3.13 Derivatives 136

3.14 Hedgeaccounting 136

3.15 Treasurysharesandcontractsonownshares 137

3.16 Financialguarantees 137

3.17 Acceptances 137

3.18 Collateralrepossessed 137

3.19 Leasing 137

3.20 Investmentproperties 137

3.21 Propertyandequipment 138

3.22 Capitalworkinprogress 138

3.23 Intangibleassets 138

3.24 Borrowingcosts 138

3.25 Businesscombinationsandgoodwill 138

3.26 Impairmentofnon-financialassets 139

3.27 Employeebenefits 139

3.28 Provisionsandcontingentliabilities 140

3.29 Segmentreporting 140

3.30 Taxation 140

3.31 Revenueandexpenserecognition 140

3.32 Islamicfinancing 141

4. Significantaccountingjudgements,estimatesandassumptions 141

5. Cashandbalanceswithcentralbanks 142

6. Depositsandbalancesduefrombanks,net 143

7. Reverse-repoplacements 143

8. Tradingsecurities 144

9. Derivativefinancialinstruments 144

10. Investmentsecurities 146

11. Loansandadvancestocustomers,net 147

12. Investmentinassociate 148

13. Investmentproperties 148

14. Otherassets 148

15. Propertyandequipment,net 149

16. Intangibleassets 150

17. Duetobanks 151

18. Depositsfromcustomers 151

19. Eurocommercialpaper 151

20. Borrowings 152

21. Otherliabilities 155

22. Sharecapital 155

23. Otherreserves 156

24. Islamicfinancing 158

25. Employees’incentiveplanshares,net 158

26. Capitalnotes 159

27. Interestincome 159

28. Interestexpense 159

29. Netfeesandcommissionincome 159

30. Nettradingincome 159

31. Otheroperatingincome 160

32. Operatingexpenses 160

33. Impairmentallowances 160

34. Earningspershare 160

35. Operatinglease 161

36. Cashandcashequivalents 161

37. Relatedpartytransactions 161

38. Commitmentsandcontingentliabilities 163

39. Operatingsegments 163

40. Financialinstruments 166

41. Fairvaluehierarchy 167

42. Riskmanagement 169

43. Creditriskmanagement 170

43.1Analysisofmaximumexposuretocreditrisk 171

43.2Concentrationofcreditrisk 172

43.3Creditriskmanagementoverview 174

43.4Creditriskmeasurementandmitigationpolicies 174

43.5Portfoliomonitoringandidentifyingcreditrisk 174

43.6Identificationofimpairment 176

43.7Renegotiatedloans 178

44. Interestrateriskframework,measurementandmonitoring 178

45. Liquidityriskframework,measurementandmonitoring 181

46. Foreignexchangeriskframework,measurementandmonitoring 185

47. Marketriskframework,measurementandmanagement 186

48. Operationalriskmanagement 188

49. Foreigncurrencybalances 188

50. Trustactivities 188

51. Subsidiaries 189

52. Capitaladequacyandcapitalmanagement 190

53. Socialcontributions 192

54. Legalproceedings 192

TABLEOFCONTENTS

118

TheShareholders

Abu DhabiCommercialBankPJSC

Reportontheauditoftheconsolidatedfinancialstatements

Opinion

WehaveauditedtheconsolidatedfinancialstatementsofAbu Dhabi

CommercialBankPJSC,Abu Dhabi(the“Bank”)whichcomprisethe

consolidatedstatementoffinancialpositionasat31 December2016,

and the consolidated income statement, consolidated statement

of comprehensive income, consolidated statementof changes in

equityandconsolidatedstatementofcashflowsfortheyearthen

ended,andnotestotheconsolidatedfinancialstatements,including

asummaryofsignificantaccountingpolicies.

Inouropinion,theaccompanyingconsolidatedfinancialstatements

present fairly, in allmaterial respects, the consolidated financial

positionoftheBankasat31 December2016,anditsconsolidated

financialperformanceanditsconsolidatedcashflowsfortheyear

then ended in accordancewith International Financial Reporting

Standards.

Basis for Opinion

WeconductedourauditinaccordancewithInternationalStandards

onAuditing (ISAs).Our responsibilities under those standards are

further described in theAuditor’s responsibilities for the audit of

the consolidated financial statementssectionofourreport.Weare

independentoftheBankinaccordancewiththeInternationalEthics

StandardsBoard forAccountants’Code of Ethics for Professional

Accountants (IESBACode) togetherwith theotherethical require-

mentsthatarerelevanttoourauditoftheBank’sconsolidatedfinancial

statementsintheUnitedArabEmirates,andwehavefulfilledourother

ethicalresponsibilitiesinaccordancewiththeserequirementsandthe

IESBACode.Webelievethattheauditevidencewehaveobtainedis

sufficientandappropriatetoprovideabasisforouropinion.

Key audit matters

Keyauditmattersarethosemattersthat,inourprofessionaljudge-

ment,wereofmost significance inour audit of theconsolidated

financial statements of the current period. Thesematters were

addressedinthecontextofourauditoftheconsolidatedfinancial

statementsasawhole,andinformingouropinionthereon,andwe

donotprovideaseparateopiniononthesematters.

Keyauditmatter Howthematterwasaddressedinouraudit

Impairmentofloansandadvancestocustomers

TheassessmentoftheGroup’sdeterminationofimpairmentallow-ancesforloansandadvancestocustomerrequiresmanagementtomakesignificant judgementsoverbothtimingof recognitionandquantumofsuchimpairment.Theauditwasfocusedonthismatterdue to themateriality of thebalances (representing61%of totalassets)andthesubjectivenatureofthecalculations.

Inwholesaleloansandadvances,thematerialportionofimpairmentisindividuallycalculated.Thereisariskthatmanagementdoesnotcapture all informationnecessary and available todetermine thebestestimateoffuturecashflowsandincurredlossatthereportingdate.Thisisspecificallyrelevantasaresultofthelimitedamountofdataavailableoverfuturecashflowsandthehighvolatilityofunder-lyingcollateralvalues.Thereisalsotheriskthatmanagementdoesnot identify impairmenttriggers inatimelymatter forperformingloansandmayallowbiastoinfluencetheimpairmentallowance.

Forretailandperformingwholesaleloansandadvances,themate-rial portionof impairment is calculatedon amodelled basis forportfolios.Theinputstothesemodelsaresubjecttomanagementjudgementsandmodeloverlaysare requiredwhenmanagementbelievestheparametersandcalculationsarenotsufficienttocoverspecificrisks.Theseoverlaysrequiresignificantjudgement.Wealsoidentifiedasignificantriskovertheimpairmentallowanceresultingfromexternalfactors,mainlythemacro-economicandcreditsitua-tioninthecountry,showing,amongothers,aprolongedperiodoflowoilprices.Inlightoftheeconomicbackground,thereistheriskthattheimpairmentmodelfailstohaveanappropriaterationaletocalculateportfolioprovisions.

Our audit procedures included the assessmentof controls overthe approval, recording andmonitoringof loans, and evaluatingthemethodologies, inputs andassumptionsusedby theBank incalculating collectively assessed impairments and assessing theadequacyofimpairmentallowancesforindividuallyassessedloans.

Wetestedthedesignandoperatingeffectivenessofrelevantcon-trolstodeterminewhichloansareimpairedandallowancesagainstthoseassets.Theseincludedtesting:

System-basedandmanualcontrolsoverthetimelyrecognitionofimpairedloans;

Controlsovertheimpairmentcalculationmodels;and

Governancecontrols,includingreviewingkeymeetingsthatformpartoftheapprovalprocessforloanimpairmentallowances.

Wetestedasampleofloanstoassesswhetherimpairmenteventshadbeenidentifiedinatimelymanner.

Inaddition,wealsofocusedon individuallysignificantexposures.Wetestedtheassumptionsunderlyingtheimpairmentidentificationandquantification,valuationofunderlyingcollateralandestimatesofrecoveryondefault.

Wepaidparticularattentiontocollective impairmentmethodolo-gies,focusingspecificallyonmortgages,thecommercialbankingportfolios,andpersonalandbusinessloans,eitherduetotheirrela-tivesizeorthepotentialimpactofchanginginputsandassumptions.Wealsofocusedonportfoliosthatwerepotentiallymoresensitivetoemergingeconomictrends.

INDEPENDENT AUDITOR’S REPORT

119

Keyauditmatter Howthematterwasaddressedinouraudit

Valuationofinvestmentsecuritiesandderivatives

ThevaluationoftheBank’sfinancial instrumentsmeasuredatfairvaluewasakeyareaofaudit focusduetotheirsignificance (14%oftotalassets).Inaddition,thevaluationofcertaininstrumentslikederivativesremainsacomplexarea,inparticularwhenthefairvalueisestablishedusingavaluationtechniqueduetotheinstrument’scomplexityorduetothelackofavailabilityofmarket-baseddata.Thosevaluationsinvolvesignificantjudgementsovertheselectionof an appropriate valuationmethodology and inputs used in themodels.Ourauditfocusedontestingthevaluationmethodologyofderivativefinancialinstruments.

Our audit procedures included testing thedesign andoperatingeffectivenessofrelevantcontrolsintheBank’sfinancialinstrumentsvaluationprocess.

Wealso involvedour valuation specialists to assess the valuationofderivativesandtoreviewtheaccountingforqualifyinghedgingrelationshipsincludinghedgedesignationandeffectivenessassess-ment.Formodel-basedvaluations,wehavecomparedobservableinputsagainstindependentsourcesandexternallyavailablemarketdatatoevaluatecompliancewithIFRS13.

We have also assessed the adequacy of the Bank’s disclosuresincludingtheaccuracyofthecategorisationintothefairvaluemea-surementhierarchyandadequacyofthedisclosureofthevaluationtechniques, significant unobservable inputs, changes in estimateoccurringduringtheperiodandthesensitivitytokeyassumptions.

ITsystemsandcontrolsoverfinancialreporting

WeidentifiedITsystemsandcontrolsoverfinancialreportingasanareaoffocusbecausetheBank’sfinancialaccountingandreportingsystemsarevitallydependentoncomplextechnologyduetotheextensivevolumeandvarietyoftransactionswhichareprocesseddailyandthereisariskthatautomatedaccountingproceduresandrelated internal controls arenot accurately designed andoperat-ingeffectively.Aparticularareaof focusrelatedto logicalaccessmanagementandsegregationofduties.Theunderlyingprinciplesare important because they ensure that changes to applicationsanddataareappropriate,authorisedandmonitored. Inparticular,theincorporatedkeycontrolsareessentialtolimitthepotentialforfraudanderrorasaresultofchangetoanapplicationorunderlyingdata.OurauditapproachreliesonautomatedcontrolsandthereforeproceduresaredesignedtotestaccessandcontroloverITsystems.

Ourauditproceduresincluded:

Reviewing major IT systems and applications including swiftmessaging;

ReviewinggeneralcomputercontrolsforkeyITsystems;

AssessingITsecurityenvironmentusingourcertifiedITauditors;

FocusedonkeycontrolstestingonsignificantITsystemsrelevanttobusinessprocesses;and

PerformedjournalentrytestingasstipulatedbytheInternationalStandardonAuditing.

Other information

TheBoardofDirectors andmanagement are responsible for the

other information. The other information comprises the annual

reportoftheBankbutdoesnotincludetheconsolidatedfinancial

statements andour auditor’s report thereon.Theannual report is

expectedtobemadeavailabletousafterthedateofthisauditor’s

report.Ouropinionontheconsolidatedfinancialstatementsdoes

notcovertheotherinformationandwedonotandwillnotexpress

anyformofassuranceconclusionthereon.

In connectionwithour audit of the consolidated financial state-

ments,ourresponsibilityistoreadtheotherinformationidentified

aboveand, indoingso,considerwhethertheother information is

materially inconsistentwith the consolidated financial statements

orourknowledgeobtainedintheaudit,orotherwiseappearstobe

materiallymisstated.

Whenweread theannual reportof theBank, ifweconcludethat

thereisamaterialmisstatementtherein,wearerequiredtocommu-

nicatethemattertothosechargedwithgovernance.

Responsibilities of management and those charged with

governance for the consolidated financial statements

Management is responsible for thepreparation and fair presenta-

tionof the consolidated financial statements in accordancewith

International Financial Reporting Standards and their preparation

in compliancewith the applicable provisionsof theUAE Federal

LawNo.(2)of2015,andforsuchinternalcontrolasmanagement

determines isnecessarytoenablethepreparationofconsolidated

financial statements that are free from material misstatement,

whetherduetofraudorerror.

Inpreparingtheconsolidatedfinancialstatements,managementis

responsible forassessing theBank’sability tocontinueasagoing

concern,disclosing,asapplicable,mattersrelatedtogoingconcern

andusing thegoingconcernbasisofaccountingunlessmanage-

menteitherintendstoliquidatetheBankortoceaseoperations,or

hasnorealisticalternativebuttodoso.

TheBoardofDirectorsandBoardAudit&ComplianceCommittee

areresponsibleforoverseeingtheBank’sfinancialreportingprocess.

Auditor’s responsibilities for the audit of the consolidated

financial statements

Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthe

consolidatedfinancialstatementsasawholearefreefrommaterial

misstatement,whetherduetofraudorerror,andtoissueanauditor’s

report that includesouropinion. Reasonable assurance is a high

levelofassurance,but isnotaguaranteethatanauditconducted

inaccordancewithISAswillalwaysdetectamaterialmisstatement

INDEPENDENT AUDITOR’S REPORT

120

whenitexists.Misstatementscanarisefromfraudorerrorandare

consideredmaterial if, individuallyor in the aggregate, theycould

reasonablybeexpectedtoinfluencetheeconomicdecisionsofusers

takenonthebasisoftheseconsolidatedfinancialstatements.

AspartofanauditinaccordancewithISAs,weexerciseprofessional

judgmentandmaintainprofessionalscepticismthroughouttheaudit.

Wealso:

Identifyandassesstherisksofmaterialmisstatementoftheconsol-

idatedfinancialstatements,whetherduetofraudorerror,design

andperformauditproceduresresponsivetothoserisks,andobtain

auditevidencethatissufficientandappropriatetoprovideabasis

forouropinion.Theriskofnotdetectingamaterialmisstatement

resultingfromfraudishigherthanforoneresultingfromerror,as

fraudmayinvolvecollusion,forgery,intentionalomissions,misrep-

resentations,ortheoverrideofinternalcontrol.

Obtainanunderstandingof internalcontrol relevant to theaudit

in order to design audit procedures that are appropriate in the

circumstances,butnotforthepurposeofexpressinganopinionon

theeffectivenessoftheBank’sinternalcontrol.

Evaluatetheappropriatenessofaccountingpoliciesusedandthe

reasonablenessof accounting estimates and relateddisclosures

madebymanagement.

Concludeon the appropriatenessofmanagement’s useof the

going concern basis of accounting and, based on the audit

evidenceobtained,whether amaterial uncertainty exists related

to events or conditions thatmay cast significant doubt on the

Bank’sabilitytocontinueasagoingconcern.Ifweconcludethata

materialuncertaintyexists,wearerequiredtodrawattentioninour

auditor’sreporttotherelateddisclosuresintheconsolidatedfinan-

cial statementsor, if suchdisclosures are inadequate, tomodify

our opinion.Our conclusions are basedon the audit evidence

obtainedup to thedateofour auditor’s report.However, future

eventsorconditionsmaycausetheBanktoceasetocontinueasa

goingconcern.

Evaluate the overall presentation, structure and content of the

consolidated financial statements, including thedisclosures, and

whether the consolidated financial statements represent the

underlyingtransactionsandeventsinamannerthatachievesfair

presentation.

Obtainsufficientappropriateauditevidenceregardingthefinancial

informationof the entities or business activities of theBank to

expressanopinionontheconsolidatedfinancialstatements.We

areresponsibleforthedirection,supervisionandperformanceof

thegroupaudit.Weremainsolelyresponsibleforourauditopinion.

Wecommunicatewith thosechargedwithgovernance regarding,

amongothermatters, theplanned scope and timingof the audit

andsignificantauditfindings,includinganysignificantdeficienciesin

internalcontrolthatweidentifyduringouraudit.

Wealsoprovide thosechargedwithgovernancewithastatement

thatwehavecompliedwithrelevantethicalrequirementsregarding

independence, and to communicatewith them all relationships

andothermattersthatmayreasonablybethoughttobearonour

independence,andwhereapplicable,relatedsafeguards.

From thematters communicatedwith the Bank’s Board Audit &

ComplianceCommittee,wedeterminethosemattersthatwereof

most significance in the audit of theconsolidated financial state-

mentsofthecurrentperiodandarethereforethekeyauditmatters.

We describe thesematters in our auditor’s report unless law or

regulationprecludespublicdisclosureaboutthematterorwhen,in

extremelyrarecircumstances,wedeterminethatamattershouldnot

becommunicatedinourreportbecausetheadverseconsequences

ofdoingsowouldreasonablybeexpectedtooutweighthepublic

interestbenefitsofsuchcommunication.

Reportonotherlegalandregulatoryrequirements

AsrequiredbytheUAEFederalLawNo.(2)of2015,wereportthat:

wehaveobtainedalltheinformationweconsiderednecessaryfor

thepurposesofouraudit;

the consolidated financial statements of the Bank have been

preparedandcomply,inallmaterialrespects,withtheapplicable

provisionsoftheUAEFederalLawNo.(2)of2015;

theBankhasmaintainedproperbooksofaccount;

thefinancialinformationincludedintheDirectors’reportisconsist-

entwiththeBank’sbooksofaccount;

note41totheconsolidatedfinancialstatementsoftheBankdis-

closespurchasedorinvestmentinsharesduringthefinancialyear

ended31 December2016;

note 37 to the consolidated financial statements of the Bank

discloses material related party transactions, the terms under

whichtheywereconductedandprinciplesofmanagingconflictof

interests;

based on the information that has beenmade available to us

nothing has come toour attentionwhich causes us to believe

that theBank has contravenedduring the financial year ended

31 December 2016 anyof the applicable provisionsof theUAE

FederalLawNo.(2)of2015orofitsArticlesofAssociationwhich

wouldmaterially affect its activitiesor its financial positionas at

31 December2016;and

note53totheconsolidatedfinancialstatementsoftheBankdis-

closessocialcontributionsmadeduringthefinancialyearended

31 December2016.

Further, as required by the UAEUnion LawNo (10) of 1980, as

amended,wereportthatwehaveobtainedalltheinformationand

explanationsweconsiderednecessaryforthepurposeofouraudit.

Deloitte&Touche(M.E.)

Signedby:

MohammadKhameesAlTah

RegistrationNo.717

31January2017

Abu Dhabi

UnitedArabEmirates

121

Notes2016

AED’0002015

AED’0002016

USD’000

Assets

Cashandbalanceswithcentralbanks 5 19,261,902 20,180,277 5,244,188

Depositsandbalancesduefrombanks,net 6 24,663,615 22,381,921 6,714,842

Reverse-repoplacements 7 1,524,806 4,256,277 415,139

Tradingsecurities 8 418,758 62,261 114,010

Derivativefinancialinstruments 9 3,971,789 4,001,908 1,081,347

Investmentsecurities 10 33,059,466 20,863,607 9,000,671

Loansandadvancestocustomers,net 11 158,457,695 146,250,462 43,141,218

Investmentinassociate 12 204,977 197,156 55,806

Investmentproperties 13 659,776 647,647 179,629

Otherassets 14 15,120,988 8,571,640 4,116,796

Propertyandequipment,net 15 926,685 835,145 252,296

Intangibleassets 16 18,800 18,800 5,119

Totalassets 258,289,257 228,267,101 70,321,061

Liabilities

Duetobanks 17 3,842,714 1,691,793 1,046,206

Derivativefinancialinstruments 9 4,792,529 4,741,180 1,304,800

Depositsfromcustomers 18 155,442,207 143,526,296 42,320,231

Eurocommercialpaper 19 8,728,533 5,700,064 2,376,404

Borrowings 20 38,015,030 33,471,731 10,349,858

Otherliabilities 21 17,117,359 10,403,234 4,660,321

Totalliabilities 227,938,372 199,534,298 62,057,820

Equity

Sharecapital 22 5,198,231 5,595,597 1,415,255

Sharepremium 2,419,999 3,848,286 658,862

Otherreserves 23 7,437,283 5,656,564 2,024,852

Retainedearnings 11,295,372 9,627,315 3,075,244

Capitalnotes 26 4,000,000 4,000,000 1,089,028

EquityattributabletoequityholdersoftheBank 30,350,885 28,727,762 8,263,241

Non-controllinginterests – 5,041 –

Totalequity 30,350,885 28,732,803 8,263,241

Totalliabilitiesandequity 258,289,257 228,267,101 70,321,061

TheseconsolidatedfinancialstatementswereapprovedbytheBoardofDirectorsandauthorisedforissueon31January2017andsigned

onitsbehalfby:

EissaAlSuwaidi Ala’aEraiqat DeepakKhullar

Chairman Group Chief Executive Officer Group Chief Financial Officer

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2016

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

122

Notes2016

AED’0002015

AED’0002016

USD’000

Interestincome 27 7,907,603 7,119,968 2,152,900

Interestexpense 28 (2,411,589) (1,481,601) (656,572)

Netinterestincome 5,496,014 5,638,367 1,496,328

IncomefromIslamicfinancing 24 843,678 677,144 229,697

Islamicprofitdistribution 24 (138,519) (109,712) (37,713)

NetincomefromIslamicfinancing 705,159 567,432 191,984

TotalnetinterestandIslamicfinancingincome 6,201,173 6,205,799 1,688,312

Netfeesandcommissionincome 29 1,472,303 1,437,577 400,845

Nettradingincome 30 521,853 352,012 142,078

Netgainsfrominvestmentproperties 13 15,582 192 4,242

Otheroperatingincome 31 284,536 264,906 77,468

Operatingincome 8,495,447 8,260,486 2,312,945

Operatingexpenses 32 (2,795,862) (2,826,938) (761,192)

Operatingprofitbeforeimpairmentallowances 5,699,585 5,433,548 1,551,753

Impairmentallowances 33 (1,520,518) (501,548) (413,972)

Shareinprofitofassociate 12 7,821 1,302 2,129

Profitbeforetaxation 4,186,888 4,933,302 1,139,910

Overseasincometaxexpense (29,820) (6,233) (8,119)

Netprofitfortheyear 4,157,068 4,927,069 1,131,791

Attributedto:

EquityholdersoftheBank 4,148,651 4,924,244 1,129,499

Non-controllinginterests 8,417 2,825 2,292


Basicearningspershare(AED/USD) 34 0.77 0.93 0.21

Dilutedearningspershare(AED/USD) 34 0.77 0.92 0.21

CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2016


123

2016AED’000

2015 AED’000

2016USD’000


Itemsthatmaybere-classifiedsubsequentlytotheconsolidatedincomestatement

Exchangedifferencearisingontranslationofforeignoperations(Note23) (5,481) (9,875) (1,492)

Netmovementincashflowhedgereserve(Note23) (146,550) 14,340 (39,899)

Netmovementinfairvalueofavailable-for-saleinvestments(Note23) 114,197 (351,911) 31,091

(37,834) (347,446) (10,300)

Itemsthatmaynotbere-classifiedsubsequentlytotheconsolidatedincomestatement

Actuarialgains/(losses)ondefinedbenefitobligation(Note21) 1,573 (10,141) 428

Totalcomprehensiveincomefortheyear 4,120,807 4,569,482 1,121,919

Attributedto:

EquityholdersoftheBank 4,112,390 4,566,657 1,119,627

Non-controllinginterests 8,417 2,825 2,292

Totalcomprehensiveincomefortheyear 4,120,807 4,569,482 1,121,919

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 2016


124

Sharecapital

AED’000

SharepremiumAED’000

OtherreservesAED’000

RetainedearningsAED’000

Capitalnotes

AED’000

Equityattributable

toequityholdersoftheBankAED’000

Non-controlling

interestsAED’000

Totalequity

AED’000

Balanceat1 January2016 5,595,597 3,848,286 5,656,564 9,627,315 4,000,000 28,727,762 5,041 28,732,803

Netprofitfortheyear – – – 4,148,651 – 4,148,651 8,417 4,157,068

Othercomprehensive(loss)/incomefortheyear – – (37,834) 1,573 – (36,261) – (36,261)

Othermovements(Note23) – – (7,100) (4,950) – (12,050) – (12,050)

DividendspaidtoequityholdersoftheBank – – – (2,339,204) – (2,339,204) – (2,339,204)

Dividendspaidtonon-controllinginterests – – – – – – (13,458) (13,458)

Capitalnotescouponpaid(Note34) – – – (138,013) – (138,013) – (138,013)

Cancellationoftreasuryshares(Note23) (397,366) (1,428,287) 1,825,653 – – – – –

Balanceat31 December2016 5,198,231 2,419,999 7,437,283 11,295,372 4,000,000 30,350,885 – 30,350,885

Balanceat1 January2015 5,595,597 3,848,286 5,791,798 7,172,755 4,000,000 26,408,436 10,397 26,418,833

Netprofitfortheyear – – – 4,924,244 – 4,924,244 2,825 4,927,069

Othercomprehensivelossfortheyear – – (347,446) (10,141) – (357,587) – (357,587)

Othermovements(Note 23) – – 212,212 (251,391) – (39,179) – (39,179)

DividendspaidtoequityholdersoftheBank – – – (2,079,292) – (2,079,292) – (2,079,292)

Dividendspaidtonon-controllinginterests – – – – – – (8,181) (8,181)

Capitalnotescouponpaid(Note 34) – – – (128,860) – (128,860) – (128,860)

Balanceat31 December2015 5,595,597 3,848,286 5,656,564 9,627,315 4,000,000 28,727,762 5,041 28,732,803

Fortheyearended31 December2016,theBoardofDirectorshasproposedtopaycashdividendrepresenting40%ofthepaid-upcapital

(Note 22).

CONSOLIDATED STATEMENT OF CHANGES IN EQUIT YFor the year ended 31 December 2016


125

2016AED’000

2015AED’000

2016USD’000

OPERATINGACTIVITIES

Profitbeforetaxation 4,186,888 4,933,302 1,139,910

Adjustmentsfor:

Depreciationonpropertyandequipment,net(Note15) 144,813 134,531 39,426

Amortisationofintangibleassets(Note16) – 16,905 –

Netgainsfrominvestmentproperties(Note13) (15,582) (192) (4,242)

Impairmentallowanceonloansandadvances,net(Note43.6) 1,689,913 752,846 460,091

Shareinprofitofassociate(Note12) (7,821) (1,302) (2,129)

Discountunwind(Note43.6) (64,359) (126,033) (17,522)

Netgainsfromdisposalofavailable-for-saleinvestments(Note31) (53,090) (17,028) (14,454)

Recoveriesonavailable-for-saleinvestmentsandother

impairmentallowances(Note33) (31,798) 1,268 (8,657)

Interestincomeonavailable-for-saleinvestments (629,703) (459,694) (171,441)

Dividendincomeonavailable-for-saleinvestments(Note31) (5,929) (9,867) (1,614)

Interestexpenseonborrowingsandeurocommercialpaper 732,589 548,484 199,452

Net(gains)/lossesfromtradingsecurities(Note30) (5,514) 4,237 (1,501)

Ineffectiveportionofhedges —losses(Note9) 3,278 13,720 892

Employees’incentiveplanbenefitexpense(Note25) 34,304 27,391 9,340

Cashflowfromoperatingactivitiesbeforechangesinoperatingassetsandliabilities 5,977,989 5,818,568 1,627,551

(Increase)/decreaseinbalanceswithcentralbanks (775,245) 755,800 (211,066)

Decreaseinduefrombanks,net 5,149,073 4,693,794 1,401,871

Decreaseinreverse-repoplacements 2,032,852 485,337 553,458

Netmovementinderivativefinancialinstruments (49,024) (97,156) (13,347)

Net(purchases)/proceedsfromdisposaloftradingsecurities (350,983) 133,101 (95,558)

Increaseinloansandadvancestocustomers,net (13,902,534) (14,981,028) (3,785,062)

(Increase)/decreaseinotherassets (432,651) 222,664 (117,792)

Increaseinduetobanks 1,056,196 344,696 287,557

Increaseindepositsfromcustomers 11,917,003 17,508,932 3,244,488

Increaseinotherliabilities 594,541 308,230 161,867

Netcashfromoperations 11,217,217 15,192,938 3,053,967

Overseastaxpaid,net (15,724) (8,905) (4,281)

Netcashfromoperatingactivities 11,201,493 15,184,033 3,049,686

INVESTINGACTIVITIES

Recoveriesonavailable-for-saleinvestments(Note33) 19,209 10,853 5,230

Proceedsfromredemption/disposalofavailable-for-saleinvestments 9,240,329 10,489,183 2,515,744

Netpurchaseofavailable-for-saleinvestments (21,551,793) (10,430,894) (5,867,627)

Interestreceivedonavailable-for-saleinvestments 828,715 656,729 225,623

Dividendsreceivedonavailable-for-saleinvestments(Note31) 5,929 9,867 1,614

Netproceedsfromdisposalsofinvestmentproperties(Note13) 3,453 – 941

Netpurchaseofpropertyandequipment,net (236,353) (163,488) (64,349)

Netcash(usedin)/frominvestingactivities (11,690,511) 572,250 (3,182,824)

FINANCINGACTIVITIES

Netincrease/(decrease)ineurocommercialpaper 2,931,445 (717,047) 798,106

Netproceedsfromborrowings 21,840,794 31,858,747 5,946,309

Repaymentofborrowings (17,295,347) (28,360,056) (4,708,779)

Interestpaidonborrowings (573,295) (501,331) (156,084)

DividendspaidtoequityholdersoftheBank (2,339,204) (2,079,292) (636,865)

Sharebuyback(Note23) – (17,005) –

Dividendspaidtonon-controllinginterests (13,458) (8,181) (3,664)

Purchaseofemployees’incentiveplanshares(Note23) (46,354) (50,195) (12,620)

Capitalnotescouponpaid(Note34) (138,013) (128,860) (37,575)

Netcashfrom/(usedin)financingactivities 4,366,568 (3,220) 1,188,828

Netincreaseincashandcashequivalents 3,877,550 15,753,063 1,055,690

Cashandcashequivalentsatthebeginningoftheyear 30,773,569 15,020,506 8,378,320

Cashandcashequivalentsattheendoftheyear(Note36) 34,651,119 30,773,569 9,434,010

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2016


126

1 ACTIVITIESANDAREASOFOPERATIONS

Abu DhabiCommercialBankPJSC(“ADCB”orthe“Bank”)isapublic

jointstockcompanywithlimitedliabilityincorporatedintheEmirate

of Abu Dhabi, United Arab Emirates (UAE). ADCB is principally

engagedinthebusinessofretail,commercialandIslamicbanking

andprovisionofotherfinancialservicesthroughitsnetworkofforty

eightbranchesand threepayoffices in theUAE, twobranches in

India,oneoffshorebranchinJersey,itssubsidiariesandtworepre-

sentativeofficeslocatedinLondonandSingapore.

The registeredheadofficeof ADCB is at Abu DhabiCommercial

BankHeadOfficeBuilding,SheikhZayedBinSultanStreet,PlotC-33,

SectorE-11,P.O.Box939,Abu Dhabi,UAE.

ADCBisregisteredasapublic jointstockcompany inaccordance

withtheUAEFederalLawNo.(8)of1984(asamended)(“Companies

Law”).TheUAEFederalLawNo.(2)of2015whichcameintoeffect

on 1 July 2015 replaced theexistingCompanies Law.TheGroup

expects to be fully compliant onor before the endof the grace

periodwhich expires on 30 June 2017 (as extendedpursuant to

CabinetResolution35/Fof2016).

2 APPLICATIONOFNEWANDREVISEDINTERNATIONALFINANCIALREPORTINGSTANDARDS(IFRSs)

In thecurrent year, theGrouphas applied anumberof newand

revisedIFRSsissuedbytheInternationalAccountingStandardsBoard

(“IASB”)thataremandatorilyeffectiveforanaccountingperiodthat

beginsonor after 1 January 2016. The applicationof thesenew

andrevisedIFRSshasnothadanymaterialimpactontheamounts

reported for the current and prior periods but may affect the

accountingfortheGroup’sfuturetransactionsorarrangements.

IFRS 14 Regulatory Deferral Accounts

AmendmentstoIAS 1 Presentation of Financial Statementsrelating

toDisclosureinitiative

AmendmentstoIFRS 11 Joint Arrangementsrelatingtoaccounting

foracquisitionsofinterestsinjointoperations

AmendmentstoIAS 16 Property, Plant and EquipmentandIAS 38

Intangible Assetsrelatingtoclarificationofacceptablemethodsof

depreciationandamortisation

Amendments to IAS 27 Separate Financial Statements relating to

accounting investments in subsidiaries, joint ventures and asso-

ciatestobeoptionallyaccountedforusingtheequitymethodin

separatefinancialstatements

AmendmentstoIFRS 10 Consolidated Financial Statements,IFRS 12

Disclosure of Interests in Other EntitiesandIAS 28 Investments in

Associates and Joint Venturesrelatingtoapplyingtheconsolidation

exceptionforinvestmententities

AnnualImprovementstoIFRSs2012 —2014Cyclecoveringamend-

mentstoIFRS5,IFRS7,IAS19andIAS34

Other than the above, there are no other significant IFRSs and

amendments thatwereeffective for the first timefor the financial

yearbeginningonorafter1 January2016.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2016

127


STANDARDSANDINTERPRETATIONSINISSUEBUTNOTYETEFFECTIVE

TheGrouphasnotearlyadoptedanynewandrevisedIFRSsthathavebeenissuedbutarenotyeteffective.

NewstandardsandsignificantamendmentstostandardsapplicabletotheGroup:Effectiveforannualperiodsbeginningonorafter

IFRS 7 Financial Instruments: DisclosuresrelatingtodisclosuresabouttheinitialapplicationofIFRS9. WhenIFRS9isfirstapplied

IFRS 7 Financial Instruments: Disclosuresrequiringadditionalhedgeaccountingdisclosures(andconse-

quentialamendments)resultingfromtheintroductionofthehedgeaccountingchapterinIFRS9.

WhenIFRS9isfirstapplied

IFRS 9 Financial Instruments(revisedversionsin2009,2010,2013and2014)issuedinNovember2009

introducednew requirements for theclassification andmeasurementof financial assets. IFRS9was

subsequentlyamendedinOctober2010toincluderequirementsfortheclassificationandmeasurement

offinancialliabilitiesandforderecognition,andinNovember2013toincludethenewrequirementsfor

generalhedgeaccounting.AnotherrevisedversionofIFRS9wasissuedinJuly2014mainlytoinclude

a) impairment requirements for financial assets andb) limited amendments to theclassification and

measurementrequirementsbyintroducinga‘fairvaluethroughothercomprehensiveincome’(FVTOCI)

measurementcategoryforcertainsimpledebtinstruments.

AfinalisedversionofIFRS9whichcontainsaccountingrequirementsforfinancialinstruments,replacing

IAS 39 Financial Instruments: Recognition and Measurement.Thestandardcontainsrequirementsinthe

followingareas:

Classificationandmeasurement: Financial assets are classifiedby reference to thebusinessmodel

withinwhichtheyareheldandtheircontractualcashflowcharacteristics.The2014versionofIFRS9

introducesa ‘fairvalue throughothercomprehensive income’category forcertaindebt instruments.

FinancialliabilitiesareclassifiedinasimilarmannertounderIAS39,howevertherearedifferencesinthe

requirementsapplyingtothemeasurementofanentity’sowncreditrisk.

Impairment:The2014versionofIFRS9introducesan‘expectedcreditloss’modelforthemeasurement

oftheimpairmentoffinancialassets,soitisnolongernecessaryforacrediteventtohaveoccurredbefore

acreditlossisrecognised.

Hedgeaccounting: Introduces anewhedgeaccountingmodel that is designed tobemoreclosely

alignedwithhowentitiesundertakeriskmanagementactivitieswhenhedgingfinancialandnon-financial

riskexposures.

Derecognition: The requirements for thederecognitionof financial assets and liabilities are carried

forwardfromIAS39.

1 January2018

IFRS 15 Revenue from Contracts with Customers —InMay2014,IFRS15wasissuedwhichestablished

asinglecomprehensivemodelforentitiestouseinaccountingforrevenuearisingfromcontractswith

customers.IFRS 15willsupersedethecurrentrevenuerecognitionguidanceincludingIAS18Revenue,IAS

11 Construction Contractsandtherelatedinterpretationswhenitbecomeseffective.

ThecoreprincipleofIFRS15isthatanentityshouldrecognizerevenuetodepictthetransferofpromised

goodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpects

tobeentitled inexchange for thosegoodsorservices.Specifically, thestandard introducesa5-step

approachtorevenuerecognition:

Step1:Identifythecontract(s)withacustomer.

Step2:Identifytheperformanceobligationsinthecontract.

Step3:Determinethetransactionprice.

Step4:Allocatethetransactionpricetotheperformanceobligationsinthecontract.

Step5:Recogniserevenuewhen(oras)theentitysatisfiesaperformanceobligation.

UnderIFRS15,anentityrecogniseswhen(oras)aperformanceobligationissatisfied,i.e.when‘control’

ofthegoodsorservicesunderlyingtheparticularperformanceobligationistransferredtothecustomer.

FarmoreprescriptiveguidancehasbeenaddedinIFRS15todealwithspecificscenarios.Furthermore,

extensivedisclosuresarerequiredbyIFRS15.

1 January2018

128

NewstandardsandsignificantamendmentstostandardsapplicabletotheGroup:Effectiveforannualperiodsbeginningonorafter

IFRS 16 LeasesspecifieshowanIFRSreporterwillrecognise,measure,presentanddiscloseleases.The

standardprovidesasinglelesseeaccountingmodel,requiringlesseestorecogniseassetsandliabilitiesfor

allleasesunlesstheleasetermis12monthsorlessortheunderlyingassethasalowvalue.Lessorscon-

tinuetoclassifyleasesasoperatingorfinance,withIFRS16’sapproachtolessoraccountingsubstantially

unchangedfromitspredecessor, IAS17.

1 January2019

AnnualImprovementstoIFRSStandards2014 —2016CycleamendingIFRS1,IFRS12andIAS28 TheamendmentstoIFRS1

andIAS 28areeffectivefor

annualperiodsbeginningon

orafter1 January2018,the

amendmenttoIFRS12for

annualperiodsbeginningon

orafter1 January2017

Amendmentsto IAS 12 Income Taxes relatingtotherecognitionofdeferredtaxassets forunrealised

losses

1 January2017

Amendments to IAS 7 Statement of Cash Flows toprovidedisclosures that enableusersof financial

statementstoevaluatechangesinliabilitiesarisingfromfinancingactivities.

1 January2017

IFRIC 22 Foreign Currency Transactions and Advance Consideration — the interpretation addresses

foreigncurrencytransactionsorpartsoftransactionswhere:

thereisconsiderationthatisdenominatedorpricedinaforeigncurrency;

theentityrecognisesaprepaymentassetoradeferredincomeliabilityinrespectofthatconsideration,

inadvanceoftherecognitionoftherelatedasset,expenseorincome;and

theprepaymentassetordeferredincomeliabilityisnon-monetary.

1 January2018

AmendmentstoIFRS 2 Share-based Paymentregardingclassificationandmeasurementofsharebased

paymenttransactions

1 January2018

Amendments to IFRS 4 Insurance Contracts relating to different effective dates of IFRS 9 and the

forthcomingnewinsurancecontractsstandard.

1 January2018

AmendmentstoIAS 40 Investment Propertystatingthatanentityshalltransferapropertyto,orfrom,

investmentpropertywhen,andonlywhen,thereisevidenceofachangeinuse.Achangeofuseoccurs

ifpropertymeets,orceasestomeet,thedefinitionofinvestmentproperty.Achangeinmanagement’s

intentionsfortheuseofapropertybyitselfdoesnotconstituteevidenceofachangeinuse.

1 January2018

AmendmentstoIFRS 15 Revenue from Contracts with Customerstoclarifythreeaspectsofthestandard

(identifyingperformanceobligations,principalversusagentconsiderations,andlicensing)andtoprovide

sometransitionreliefformodifiedcontractsandcompletedcontracts.

1 January2018

AmendmentstoIFRS 10 Consolidated Financial StatementsandIAS 28 Investments in Associates and

Joint Ventures(2011)relatingtothetreatmentofthesaleorcontributionofassetsfromandinvestorto

itsassociateorjointventure.

Effectivedatedeferred

indefinitely

ManagementanticipatesthattheseIFRSsandamendmentswillbeadoptedintheconsolidatedfinancialstatementsintheinitialperiodwhen

theybecomemandatorilyeffective.Theimpactofthesestandardsandamendmentsarecurrentlybeingassessedbythemanagement.

129


3 SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES

3.1 BASISOFPREPARATION

The consolidated financial statements have been preparedon a

goingconcernbasisandinaccordancewithInternationalFinancial

ReportingStandards(IFRSs) issuedbytheInternationalAccounting

StandardsBoard(IASB).

IFRSs comprise accounting standards issued by the IASB aswell

as Interpretations issued by the International Financial Reporting

InterpretationsCommittee(IFRIC).

AsrequiredbytheSecuritiesandCommoditiesAuthorityoftheUAE

(“SCA”)NotificationNo. 2624/2008dated 12 October 2008, the

Group’sexposureincashandbalanceswithcentralbanks,deposits

and balances due frombanks, trading and investment securities

outsidetheUAEhavebeenpresentedundertherespectivenotes.

Certaindisclosurenoteshavebeenreclassifiedandrearrangedfrom

theGroup’sprioryearconsolidatedfinancialstatementstoconform

tothecurrentyear’spresentation.

3.2 MEASUREMENT

Theconsolidated financial statementshavebeenpreparedunder

thehistoricalcostconventionexceptasmodifiedbytherevaluation

offinancialassetsandliabilitiesatfairvaluethroughprofitandloss,

available-for-salefinancialassetsandinvestmentproperties.

3.3 FUNCTIONALANDPRESENTATIONCURRENCY

Theconsolidatedfinancialstatementsarepreparedandpresentedin

UnitedArabEmiratesDirhams(AED),whichistheGroup’sfunctional

andpresentationcurrency.Exceptasindicated,financialinformation

presentedinAEDhasbeenroundedtothenearestthousand.

TheUnited StatesDollar (USD) amounts in the primary financial

statements arepresented for the convenienceof the readeronly

by converting theAEDbalances at thepeggedexchange rateof

1 USD =3.673AED.

3.4 USEOFESTIMATESANDJUDGEMENTS

Thepreparationof financial statements requiresmanagement to

makejudgements,estimatesandassumptionsthataffecttheapplica-

tionoftheaccountingpoliciesandthereportedamountsofassets,

liabilities,incomeandexpenses.Actualresultsmaydifferfromthese

estimates.

Estimatesandunderlyingassumptionsarereviewedonanongoing

basis.Revisionstoaccountingestimatesarerecognisedintheperiod

inwhichtheestimateisrevisedandinanyfutureperiodsaffected.

Informationaboutsignificantareasofestimationuncertaintyandcrit-

icaljudgementsinapplyingaccountingpoliciesthathavethemost

significant effecton the amounts recognised in the consolidated

financialstatementsaredescribedinNote 4.

3.5 BASISOFCONSOLIDATION

The consolidated financial statements incorporate the financial

statementsofAbu DhabiCommercialBankPJSCanditssubsidiaries

(collectivelyreferredtoasthe“Group”).

Subsidiaries

The consolidated financial statements incorporate the financial

statementsoftheBankandentitiescontrolledbytheBankandits

subsidiaries.ControlisachievedwhentheBank:

haspowerovertheinvestee;

isexposed,orhasrights,tovariablereturnsfromits involvement

withtheinvestee;and

hastheabilitytouseitspowertoaffectitsreturns.

TheBankreassesseswhetherornotitcontrolsaninvesteeiffacts

andcircumstancesindicatethattherearechangestooneormoreof

thethreeelementsofcontrollistedabove.

When a companyhas less than amajority of voting rights of an

investee,ithaspowerovertheinvesteewhenthevotingrightsare

sufficienttogiveitthepracticalabilitytodirecttherelevantactivities

oftheinvesteeunilaterally.TheBankconsidersallrelevantfactsand

circumstancesinassessingwhetherornottheBank’svotingrightsin

aninvesteearesufficienttogiveitpower,including:

thesizeoftheBank’sholdingofvotingrightsrelativetothesizeand

dispersionofholdingsoftheothervoteholders;

potentialvotingrightsheldbytheBank;

rightsarisingfromothercontractualarrangements;and

anyadditionalfactsandcircumstancesthatindicatethattheBank

has, or does not have, the current ability to direct the relevant

activities at the time the decisionneeds to bemade, including

votingpatternsatpreviousshareholders’meetings.

ConsolidationofasubsidiarybeginswhentheBankobtainscontrol

overthesubsidiaryandceaseswhentheBanklosescontrolofthe

subsidiary.Incomeandexpensesofsubsidiaryacquiredordisposed

ofduringtheyearareincludedintheconsolidatedincomestatement

andother comprehensive income from the date theBank gains

controluntilthedatewhentheBankceasestocontrolthesubsidiary.

Profitorlossandeachcomponentofothercomprehensiveincome

areattributedtoownersoftheBankandtothenon-controllinginter-

ests. Total comprehensive incomeof the subsidiaries is attributed

totheownersoftheBankandnon-controllinginterestsevenifthis

resultsinnon-controllinginterestshavingadeficitbalance.

Whennecessary,adjustmentsaremadetotheconsolidatedfinancial

statementsofsubsidiariestoaligntheiraccountingpolicieswiththe

Bank’saccountingpolicies.

All intragroup balances and income, expenses and cash flows

resulting from intragroup transactions are eliminated in full on

consolidation.

ChangesintheBank’sownershipinterestsinexisting

subsidiaries

Changes inBank’sownership interests in subsidiaries that donot

resultintheBanklosingcontroloverthesubsidiariesareaccounted

for as equity transactions. The carrying amount of the Bank’s

interestsisadjustedtoreflectthechangesintheirrelativeinterests

130

in the subsidiaries. Anydifferencebetween the amountbywhich

thenon-controlling interestsareadjustedandthefairvalueofthe

considerationpaidor received is recogniseddirectly inequityand

attributedtotheshareholdersoftheBank.

When theBank losescontrolofasubsidiary,againor loss is rec-

ognised in the consolidated income statement and is calculated

asthedifferencebetween(i) theaggregateofthefairvalueofthe

considerationreceivedandthefairvalueofanyretainedinterestand

(ii) thepreviouscarryingamountoftheassets(includinggoodwill),

liabilities of the subsidiary and any non-controlling interests. All

amountspreviouslyrecognisedinothercomprehensiveincomein

relationtothatsubsidiaryareaccountedforasiftheBankhaddirectly

disposedof the related assets or liabilities of the subsidiary (i.e.,

reclassifiedtoincomestatementortransferredtoanothercategory

ofequityasspecified/permittedbyapplicableIFRSs).Thefairvalue

ofanyinvestmentretainedintheformersubsidiaryatthedatewhen

controlislostisregardedasthefairvalueoninitialrecognitionfor

subsequentaccountingunderIAS39or,whenappropriate,thecost

oninitialrecognitionofaninvestmentinanassociateorjointventure.

SpecialPurposeEntities

Specialpurposeentities(SPEs)areentitiesthatarecreatedtoaccom-

plishanarrowandwell-definedobjectivesuchasthesecuritisationof

particularassets,ortheexecutionofaspecificborrowingorlending

transaction.ASPEisconsolidatedif,basedonanevaluationofthe

substanceof its relationshipwith theBank, theBank has power

overtheSPE,isexposedtoorhasrightstovariablereturnsfromits

involvementwiththeSPEanditsabilitytouseitspowerovertheSPE

atinceptionandsubsequentlytoaffecttheamountofitsreturn,the

BankconcludesthatitcontrolstheSPE.

TheassessmentofwhethertheBankhascontroloveraSPEiscarried

outatinceptionandnormallynofurtherreassessmentofcontrolis

carriedoutintheabsenceofchangesinthestructureortermsofthe

SPE,oradditionaltransactionsbetweentheBankandtheSPEexcept

whenever there is a change in the substanceof the relationship

betweentheBankandaSPE.

FundsunderManagement

TheBankmanages and administers assets held in unit trusts on

behalfofinvestors.Thefinancialstatementsoftheseentitiesarenot

includedintheconsolidatedfinancialstatementsexceptwhen the

Bank controls the entity, as referred to above. Information about

the FundsmanagedbytheBankissetoutinNote 50.

Investmentinassociate

AssociatesarethoseentitiesinwhichtheGrouphassignificantinflu-

ence.Significantinfluenceisthepowertoparticipateinthefinancial

andoperatingpolicydecisionsoftheinvesteebutisnotcontrolor

jointcontroloverthosepolicies.

Investmentinassociatesareaccountedforusingtheequitymethod

and are recognised initially at cost. The cost of the investments

includestransactioncosts.

TheconsolidatedfinancialstatementsincludetheGroup’sshareof

theprofitor lossandothercomprehensive incomeof investment

inassociate,afteradjustmentstoaligntheaccountingpolicieswith

thoseof theGroup, from thedate that significant influencecom-

mencesuntilthedatethatsignificantinfluenceceases.

WhentheGroup’sshareoflossesexceedsitsinterestinanassociate,

thecarryingamountoftheinvestment,includinganylong-terminter-

eststhatformpartthereof,isreducedtozero,andtherecognition

offurtherlossesisdiscontinuedexcepttotheextentthattheGroup

hasanobligationorhasmadepaymentsonbehalfoftheinvestee.

Therequirementsof IAS39areappliedtodeterminewhether it is

necessary to recognise any impairment losswith respect to the

Group’s investment in an associate.When necessary, the entire

carryingamountoftheinvestment(includinggoodwill)istestedfor

impairmentinaccordancewithIAS36 —ImpairmentofAssetsasa

singleassetbycomparingtherecoverableamount(higherofvalue

inuseandfairvaluelesscostofdisposal)withitscarryingamount.

Anyimpairmentlossrecognisedformspartofthecarryingamount of

theinvestment.Anyreversaloftheimpairmentlossisrecognisedin

accordancewithIAS36totheextentthattherecoverableamountof

theinvestmentsubsequentlyincreases.

TheGroupdiscontinues theuseof equitymethodof accounting

from thedatewhen the investment ceases tobe an associateor

whentheinvestmentisclassifiedasheldforsale.WhentheGroup

retainsaninterestintheformerassociateandtheretainedinterest

isafinancialasset,theGroupmeasurestheretainedinterestatfair

valueatthedateandthefairvalueisregardedasitsfairvalueoninitial

recognitioninaccordancewithIAS39.Thedifferencebetweenthe

carryingamountoftheassociateatthedateequitymethodwasdis-

continuedandthefairvalueoftheretainedinterestandanyproceeds

fromdisposingofapart interest intheassociateis includedinthe

determinationofthegainorlossondisposalofassociate.Inaddition,

theGroupaccountsforallamountspreviouslyrecognisedinother

comprehensive income in relationof that associateon the same

basisaswouldberequiredifthatassociatehaddirectlydisposedof

therelatedassetsorliabilities.Therefore,ifagainorlosspreviously

recognisedinothercomprehensiveincomebythatassociatewould

bereclassifiedtoprofitorlossonthedisposaloftherelatedassetsor

liabilities,theGroupreclassifiesthegainorlossfromequitytoprofit

orloss(asareclassificationadjustment)whentheequitymethodis

discontinued.

Jointarrangements

JointarrangementsarearrangementsofwhichtheGrouphasjoint

control,establishedbycontractsrequiringunanimousconsent for

decisions about the activities that significantly affect the arrange-

ments’returns.Theyareclassifiedandaccountedforasfollows:

Joint operation — when the Group has rights to the assets

andobligations for the liabilities, relating toanarrangement, it

accountsforeachofitsassets,liabilitiesandtransactions,includ-

ingitsshareofthoseheldorincurredjointly,inrelationtothejoint

operation.

Jointventure —whentheGrouphasrightsonlytothenetassets

ofthearrangements,itaccountsforitsinterestusingtheequity

method,asforassociates.

3.6 FOREIGNCURRENCIES

Items included in the financial statementsof eachof theGroup’s

entitiesaremeasuredusingthecurrencyoftheprimaryeconomic

environmentinwhichtheentityoperates(the‘functionalcurrency’).

Theconsolidated financialstatementsof theGrouparepresented

inAED,whichistheGroup’sfunctionalandpresentationcurrency.

131


Foreign currency transactions are translated into the functional

currencyusing the exchange rates prevailingon thedatesof the

transaction.Monetaryassetsand liabilitiesdenominated in foreign

currencies are translated into the functional currency at the rate

ofexchangeprevailingat the statementof financialpositiondate.

Anyresultingexchangedifferencesareincludedintheconsolidated

incomestatement.Non-monetaryassetsandliabilitiesaretranslated

at historical exchange ratesor year-endexchange rates if held at

fair value, as appropriate. The resulting foreignexchangegainsor

lossesare recognised ineitherconsolidated incomestatementor

consolidatedother comprehensive income statement depending

uponthenatureoftheassetorliability.

In the consolidated financial statements, the results and financial

positionsof branches and subsidiarieswhose functional currency

is not AED, are translated into theGroup’s presentation currency

asfollows:

(a) assets and liabilities at the rate of exchange prevailing at the

statementoffinancialpositiondate;

(b)incomeandexpensesat theaverageratesofexchangeforthe

reportingperiod;and

(c) all resultingexchangedifferencesarisingfromtheretranslation

ofopeningassetsandliabilitiesandarisingfromretranslationof

theresult forthereportingperiodfromtheaverageratetothe

exchangerateprevailingattheperiodendarerecognisedinother

comprehensiveincomeandaccumulatedinequityunder‘foreign

currencytranslationreserve’(Note23).

Ondisposalorpartialdisposal(i.e.,ofassociatesorjointlycontrolled

entities not involving a changeof accounting basis) of a foreign

operation, exchange differences relating thereto and previously

recognised inreservesarerecognised in theconsolidated income

statementon a proportionate basis, except in the caseof partial

disposal(i.e.,nolossofcontrol)ofasubsidiarythatincludesaforeign

operation,wheretheproportionateshareofaccumulatedexchange

differencesarere-attributedtonon-controllinginterestsandarenot

recognisedintheconsolidatedincomestatement.

3.7 FINANCIALINSTRUMENTS

Initialrecognition

Allfinancialassetsandliabilitiesareinitiallyrecognisedonthedate

atwhich theGroupbecomesaparty to thecontractualprovision

of the instrumentexcept for “regularway”purchases and salesof

financialassetswhicharerecognisedonsettlementdatebasis(other

thanderivativecontracts).SettlementdateisthedatethattheGroup

physicallyreceivesortransferstheassets.Regularwaypurchasesor

salesarethosethatrequiredeliveryofassetswithinthetimeframe

generallyestablishedbyregulationorconventioninthemarketplace.

AnysignificantchangeinthefairvalueofassetswhichtheGrouphas

committed topurchaseat theconsolidatedstatementof financial

positiondateisrecognisedintheconsolidatedincomestatementfor

assetsclassifiedasheldfortrading,inothercomprehensiveincome

for assets classified as available-for-sale and no adjustments are

recognisedforassetscarriedatcostoramortisedcost.

Financialassetsareclassifiedintothefollowingcategories:financial

assetsat‘fairvaluethroughprofitorloss’(FVTPL),‘held-to-maturity’

investments, ‘available-for-sale’ financial assets and ‘loans and

receivables.’ Financial liabilitiesareclassifiedaseither financial lia-

bilities at ‘FVTPL’or ‘other financial liabilities.’ Theclassificationof

financialinstrumentsatinitialrecognitiondependsonthepurpose

andmanagement’s intention forwhich the financial instruments

wereacquiredorincurredandtheircharacteristics.

Allfinancialinstrumentsaremeasuredinitiallyattheirfairvalue,plus

transactioncosts directly attributable to the acquisition, except in

thecaseof financial assetsand financial liabilities recordedat fair

valuethroughprofitorlosswheretransactioncostsarerecognised

immediatelyinprofitorloss.

Financialassetsandliabilitiesclassifiedasfairvaluethrough

profitorloss(FVTPL)

FinancialassetsandliabilitiesareclassifiedasatFVTPLwheneither

heldfortradingorwhendesignatedasatFVTPL.

Afinancialassetorliabilityisclassifiedasheldfortradingif:

ithasbeenacquiredorpurchasedprincipally for thepurposeof

sellingorpurchasingitinthenearterm;or

oninitialrecognitionit ispartofaportfolioofidentifiedfinancial

instruments that theGroupmanages together andhas a recent

actualpatternofshort-termprofit-taking;or

it isaderivativethatisnotdesignatedandeffectiveasahedging

instrument.

Afinancialassetorliabilityotherthanheldfortradingmaybedesig-

natedasatFVTPLuponinitialrecognitionif:

suchdesignationeliminatesorsignificantlyreducesameasurement

orrecognitioninconsistencythatwouldotherwiseariseformea-

suringassetsorliabilitiesonadifferentbasis;or

itformspartofagroupoffinancialassetsorfinancialliabilitiesor

both,which ismanaged and its performance is evaluatedon a

fairvaluebasis, inaccordancewiththeGroup’sdocumentedrisk

managementor investment strategy and information about the

groupingisprovidedinternallyonthatbasis;or

it forms part of a contract containingoneormore embedded

derivatives and IAS39 —Financial Instruments:Recognition and

Measurementpermitstheentirecombinedcontract(assetorliabil-

ity)tobedesignatedasatFVTPL.

FinancialassetsandliabilitiesatFVTPLarestatedatfairvalue,with

anygainsorlossesarisingonre-measurementrecognisedinconsol-

idatedincomestatement.

Held-to-maturity

Investmentswhichhavefixedordeterminablepaymentswithfixed

maturitieswhichtheGrouphasthepositiveintentionandabilityto

holdtomaturityareclassifiedasheldtomaturityinvestments.

Held-to-maturity investments are initially recognised at fair value

plusanydirectlyattributabletransactioncostsandaresubsequently

measuredatamortisedcostusingtheeffectiveinterestratemethod,

lessanyimpairmentlosses,withrevenuerecognisedonaneffective

yieldbasis.

Amortisedcostiscalculatedbytakingintoaccountanydiscountor

premiumonacquisitionusinganeffectiveinterestratemethod.

Ifthereisobjectiveevidencethatanimpairmentonheldtomatu-

rity investments carried at amortised cost has been incurred, the

132

amountofimpairmentlossrecognisedintheconsolidatedincome

statementisthedifferencebetweentheasset’scarryingamountand

thepresentvalueofestimatedfuturecashflows,discountedatthe

investments’originaleffectiveinterestrate.

Investments classified as held-to-maturity and not close to their

maturity,cannotordinarilybesoldorreclassifiedwithoutimpacting

theGroup’sabilitytousethisclassificationandcannotbedesignated

asahedged itemwith respect to interest rateorprepayment risk,

reflectingthelonger-termnatureoftheseinvestments.

Available-for-sale

Investments not classified as either “fair value through profit

or loss” or “held-to-maturity” are classified as “available-for-sale”.

Available-for-sale assets are intended to beheld for an indefinite

periodoftimeandmaybesoldinresponsetoliquidityrequirements

orchangesininterestrates,commoditypricesorequityprices.

Available-for-sale investments are initially recognised at fair value

plusanydirectlyattributabletransactioncostsandaresubsequently

measured at fair value. The fair valuesof quoted financial assets

in activemarkets arebasedoncurrent prices. If themarket for a

financialassetisnotactive,andforunquotedsecurities,theGroup

establishes fair value by using valuation techniques (e.g., recent

arm’slengthtransactions,discountedcashflowanalysisandother

valuationtechniques).Onlyinveryrarecaseswherefairvaluecannot

bemeasuredreliably,investmentsarecarriedatcostandtestedfor

impairment,ifany.

Gainsandlossesarisingfromchangesinfairvaluearerecognisedin

theothercomprehensiveincomestatementandrecordedincumu-

lativechangesinfairvaluewiththeexceptionofimpairmentlosses,

interestcalculatedusingtheeffective interestmethodandforeign

exchangegainsandlossesonmonetaryassetswhicharerecognised

directlyintheconsolidatedincomestatement.Wheretheinvestment

isdisposedoforisdeterminedtobeimpaired,thecumulativegainor

losspreviouslyrecognisedinequityinthecumulativechangesinfair

valueisincludedintheconsolidatedincomestatementfortheyear.

Ifanavailable-for-saleinvestmentisimpaired,thedifferencebetween

theacquisitioncost(netofanyprincipalrepaymentsandamortisa-

tion) and thecurrent fair value, less anyprevious impairment loss

recognisedintheconsolidatedincomestatementisremovedfrom

equityandrecognisedintheconsolidatedincomestatement.

Onceanimpairmentlosshasbeenrecognisedonanavailable-for-sale

financialasset,thesubsequentaccountingtreatmentforchangesin

the fair valueof that assetdiffersdependingon thenatureof the

available-for-salefinancialassetconcerned:

For an available-for-sale debt security, a subsequent decline in

thefairvalueoftheinstrumentisrecognisedintheconsolidated

income statementwhen there is further objective evidenceof

impairmentasaresultoffurtherdecreasesintheestimatedfuture

cashflowsofthefinancialasset.Wherethereisnofurtherobjective

evidenceofimpairment,thedeclineinthefairvalueofthefinancial

asset is recogniseddirectly in equity. If the fair valueof a debt

security increases in a subsequentperiod, and the increasecan

beobjectivelyrelatedtoaneventoccurringaftertheimpairment

losswas recognised in the consolidated income statement, the

impairmentlossisreversedthroughtheincomestatementtothe

extentoftheincreaseinfairvalue.

Foran available-for-saleequitysecurity,all subsequent increases

inthefairvalueoftheinstrumentaretreatedasarevaluationand

arerecognisedinothercomprehensiveincome,accumulatingin

equity.Asubsequentdeclineinthefairvalueoftheinstrumentis

recognised in theconsolidated income statement, to theextent

that furthercumulative impairment losseshavebeen incurred in

relationtotheacquisitioncostoftheequitysecurity.Impairment

lossesrecognisedontheequitysecurityarenotreversedthrough

theconsolidatedincomestatement.

Loansandreceivables

Loans and receivables include non-derivative financial assets

originated or acquired by theGroupwith fixed or determinable

paymentsthatarenotquotedinanactivemarketanditisexpected

that substantially all of the initial investments will be recovered

other thanbecauseofcreditdeterioration.TheGroup’s loansand

receivablesincludedepositsandbalancesduefrombanksandloans

and advances, net. Placementswith banks represent time-bound

termdeposits.

After initialmeasurementat fairvalueplusanydirectlyattributable

transactioncosts,depositsandbalancesduefrombanksandloans

and advances, net are subsequentlymeasured at amortised cost

using the effective interest rate, less allowance for impairment.

Amortisedcostiscalculatedbytakingintoaccountanydiscountor

premiumonacquisitionandfeesandcoststhatareanintegralpart

oftheeffectiveinterestrate.Thelossesarisingfromimpairmentare


Loanimpairment

Refertocreditriskmanagementsection —Note 43.6.

Financialliabilitiesandequity

Debtandequity instrumentsareclassifiedaseitherfinancial liabil-

ityor equity in accordancewith the substanceof thecontractual

arrangement and thedefinitionsof a financial liability andequity

instrument.

Anequityinstrumentisanycontractthatevidencesaresidualinterest

in theassetsofanentityafterdeductingallof its liabilities.Equity

instruments issuedby theGroup are recognised at theproceeds

received,netofdirectissuecosts.

Afinancialinstrumentisclassifiedasequityif,andonlyif,bothcondi-

tions(a)and(b)belowaremet.

(a) Theinstrumentincludesnocontractualobligation:

todelivercashoranotherfinancialassettoanotherentity;or

toexchangefinancialassetsorfinancialliabilitieswithanother

entity under conditions that are potentially unfavourable to

theGroup.

(b)IftheinstrumentwillormaybesettledintheGroup’sownequity

instruments,itis:

a non-derivative that includes no contractual obligation for

theGrouptodeliveravariablenumberofitsownequityinstru-

ments;or

aderivativethatwillbesettledonlybytheGroupexchanging

a fixed amountof cashor another financial asset for a fixed

numberofitsownequityinstruments.

133


Debtissuedandotherborrowedfunds

FinancialinstrumentsissuedbytheGroupareclassifiedasliabilities,

wherethesubstanceofthecontractualarrangementresultsinthe

Grouphavinganobligationeithertodelivercashoranotherfinancial

asset to theholder, or to satisfy theobligationother thanby the

exchangeofafixedamountofcashoranotherfinancialassetfora

fixednumberofownequityshares.Thesearerecognisedinitiallyat

fairvalue,netoftransactioncosts.

After initialmeasurement, debt issued andother borrowings are

subsequentlymeasuredatamortisedcostusingtheeffectiveinterest

rate.Amortisedcostiscalculatedbytakingintoaccountanydiscount

orpremiumonthe issueandcoststhatareanintegralpartofthe

effectiveinterestrate.

A compound financial instrumentwhich contains both a liability

andanequitycomponentisseparatedattheissuedate.Aportionof

thenetproceedsoftheinstrumentisallocatedtothedebtcompo-

nentonthedateofissuebasedonitsfairvalue(whichisgenerally

determined based on the quotedmarket prices for similar debt

instruments).Theequitycomponentisassignedtheresidualamount

afterdeductingfromthefairvalueoftheinstrumentasawholethe

amountseparatelydeterminedforthedebtcomponent.

Mandatoryconvertiblesecurities

Thecomponentsofmandatoryconvertiblesecuritiesissuedbythe

Group are classified separately as equity and financial liability in

accordancewiththesubstanceofthecontractualarrangement.At

thedateofissue,thefairvalueoftheliabilitycomponentisestimated

usingtheprevailingmarketinterestrateforasimilarnon-convertible

instrument.Thisamount is recordedasa liabilityonanamortised

cost basis using the effective interestmethoduntil extinguished

uponconversionor at the instrument’smaturity date. Theequity

componentisdeterminedbydeductingtheamountoftheliability

component from the fair valueof the convertible securities as a

whole.Thisisrecognisedandincludedasaseparatecomponentin

theconsolidatedstatementofchangesinequityandisnotsubse-

quentlyre-measured.

Otherfinancialliabilities

Other financial liabilities are initiallymeasured at fair value, netof

transactioncosts.Other financial liabilities are subsequentlymea-

sured at amortisedcost using theeffective interestmethod,with

interestexpenserecognisedonaneffectiveyieldbasis.

Reclassificationoffinancialassets

Reclassificationsarerecordedatfairvalueatthedateofreclassifica-

tion,whichisrecognisedasthenewamortisedcost.

For a financial asset reclassifiedoutof the available-for-sale cate-

gory,anypreviousgainorlossonthatassetrecognisedinequityis

amortisedtoprofitorlossovertheremaininglifeoftheinvestment

using theeffective interest rate. Anydifferencebetween thenew

amortisedcostandtheexpectedcashflowsisalsoamortisedover

theremaininglifeoftheassetusingtheeffectiveinterestrate.Ifthe

asset issubsequentlydeterminedtobe impairedthentheamount

recordedinequityisrecycledtotheconsolidatedincomestatement.

TheGroupmay in rare circumstances reclassify a non-derivative

tradingassetoutoftheheldfortradingcategoryintotheloansand

receivablescategoryifitmeetsthedefinitionofloansandreceivables

andtheGrouphastheintentionandabilitytoholdthefinancialasset

fortheforeseeablefutureoruntilmaturity.Ifafinancialassetisreclas-

sified,andiftheGroupsubsequentlyincreasesitsestimatesoffuture

cash receipts as a resultof increased recoverabilityof thosecash

receipts,theeffectofthatincreaseisrecognisedasanadjustment

totheeffectiveinterestratefromthedateofthechangeinestimate.

Reclassificationisattheelectionofmanagementandisdetermined

onaninstrumentbyinstrumentbasis.TheGroupdoesnotreclassify

any financial instrument into the fair value throughprofit or loss

categoryafterinitialrecognition.

Derecognitionoffinancialassetsandfinancialliabilities

Financialassets

Afinancialasset(or,whereapplicableapartofafinancialassetorpart

ofagroupofsimilarfinancialassets)isderecognisedwhen:

therightstoreceivecashflowsfromtheassethaveexpired;or

theGrouphastransferreditsrightstoreceivecashflowsfromthe

assetorhasassumedanobligationtopaythereceivedcashflows

infullwithoutmaterialdelaytoathirdpartyundera‘pass-through’

arrangement;andeither:

–theGrouphastransferredsubstantiallyalltherisksandrewardsof

theasset,or

–theGrouphasneither transferrednor retained substantially all

therisksandrewardsoftheasset,buthastransferredcontrolof

theasset.

When theGrouphasneither transferred its rights to receive cash

flows fromanassetnorhasentered intoapass-througharrange-

ment,andhasneither transferrednorretainedsubstantiallyall the

risksandrewardsof theassetnor transferredcontrolof theasset,

the asset is recognised to the extent of theGroup’s continuing

involvementintheasset.Inthatcase,theGroupalsorecognisesan

associatedliability.Thetransferredassetandtheassociatedliability

aremeasuredonabasisthatreflectstherightsandobligationsthat

theGrouphasretained.

Continuinginvolvementthattakestheformofaguaranteeoverthe

transferredasset ismeasuredat the lowerof theoriginalcarrying

amountoftheassetandthemaximumamountofconsiderationthat

theGroupcouldberequiredtorepay.

Financialliabilities

A financial liability isderecognisedwhen theobligationunder the

liability is discharged or cancelled or expires.Where an existing

financial liability is replacedby another from the same lenderon

substantially different terms, or the terms of an existing liability

aresubstantiallymodified, suchanexchangeorextinguishment is

treatedasaderecognitionoftheoriginalliabilityandtherecognition

ofanewliability.

Thedifferencebetweenthecarryingvalueoftheoriginalfinancial

liabilityandtheconsiderationpaidisrecognisedintheconsolidated

incomestatement.

Offsetting

Financialassetsandliabilitiesareoffsetandreportednetinthecon-

solidatedstatementoffinancialpositiononlywhenthereisalegally

enforceablerighttosetofftherecognisedamountsandwhenthe

Groupintendstosettleeitheronanetbasis,ortorealisetheasset

and settle the liability simultaneously. Income and expenses are

presentedon anet basisonlywhenpermittedby the accounting

134

standards, or for gains and losses arising fromagroupof similar

transactionssuchasintheGroup’stradingactivity.

TheGroupispartytoanumberofarrangements,includingmaster

netting agreements that give it the right tooffset financial assets

and financial liabilities but,where it doesnot intend to settle the

amountsnetorsimultaneously,theassetsandliabilitiesconcerned

arepresentedonagrossbasis.

3.8 SALEANDREPURCHASEAGREEMENTS

Securities sold subject toacommitment to repurchase themat a

predeterminedpriceataspecifiedfuturedate(repos)arecontinued

toberecognisedintheconsolidatedstatementoffinancialposition

anda liability is recorded in respectof theconsideration received

underborrowings.Thedifferencebetweensaleandrepurchaseprice

is treatedas interestexpenseusing theeffective interest rateyield

methodoverthelifeoftheagreement.Assetspurchasedwithacor-

respondingcommitmenttoresellataspecifiedfuturedate(reverse

repos)arenotrecognisedintheconsolidatedstatementoffinancial

position.Amountsplacedundertheseagreementsare includedin

Reverse-repoplacements. Thedifferencebetweenpurchase and

resaleprice is treated as interest incomeusing theeffective yield

methodoverthelifeoftheagreement.

3.9 SECURITIESBORROWINGANDLENDING

Securitiesborrowingand lending transactions areusually secured

bycashorsecuritiesadvancedbytheborrower.Borrowedsecurities

arenotrecognisedinthestatementoffinancialpositionnorarelent

securitiesderecognised.Cashcollateralreceivedorgivenistreated

asafinancialassetorliability.However,wheresecuritiesborrowed

aretransferredtothirdparties,aliabilityfortheobligationtoreturn

the securities to the stock lending counterparty is recorded. The

securitiesborrowingandlendingactivityarrangementsaregenerally

enteredintothroughreposandreverserepos.

3.10 CASHANDCASHEQUIVALENTS

Cash and cash equivalents include cashonhand, balances held

withcentralbanks,depositsandbalancesduefrombanks,dueto

banks, itemsinthecourseofcollectionfromorintransmissionto

otherbanksandhighly liquidassetswithoriginalmaturitiesof less

thanthreemonthsfromthedateofacquisition,whicharesubject

toinsignificantriskofchangesintheirfairvalue,andareusedbythe

Groupinthemanagementofitsshort-termcommitments.Cashand

cashequivalentsarecarriedatamortisedcost in thestatementof

financialposition.

3.11 AMORTISEDCOSTMEASUREMENT

The amortised cost of a financial asset or liability is the amount

atwhichthefinancialassetor liability ismeasuredat initial recog-

nition,minusprincipal repayments, plusorminus the cumulative

amortisationusing theeffective interestmethodofanydifference

between the initial amount recognised and thematurity amount,

minusanyreductionforimpairment.Theeffectiveinterestrateisthe

ratethatexactlydiscountsestimatedfuturecashpaymentsthrough

theexpected lifeof the financial liability, or,where appropriate, a

shorterperiodtothenetcarryingamountofthefinancialassetor

financialliability.

3.12 FAIRVALUEMEASUREMENT

TheGroupmeasuresitsfinancialassetsandliabilitiesatthemarket

pricethatitwouldreceivetosellanassetorpaytotransferaliability

inanorderly transactionbetweenmarketparticipantsat themea-

surementdateintheprincipalmarket,orinitsabsenceinthemost

advantageousmarketfortheassetsorliabilities.TheGroupconsiders

principalmarketasthemarketwiththegreatestvolumeandlevelof

activityforfinancialassetsandliabilities.

TheGroupmeasuresitsnon-financialassetsatapricethattakesinto

accountamarketparticipant’sabilitytogenerateeconomicbenefits

byusingtheassetsfortheirhighestandbestuse.

Fairvalueisthepricethatwouldbereceivedtosellanassetorpaid

totransferaliability inanorderlytransactionbetweenmarketpar-

ticipantsatthemeasurementdateintheprincipal,orinitsabsence,

themostadvantageousmarket towhich theGrouphasaccessat

thatdateundercurrentmarketconditionsregardlessofwhetherthat

priceisdirectlyobservableorestimatedusinganothervaluationtech-

nique.Thefairvalueofaliabilityreflectsitsnon-performancerisk.

Whenapplicable,theGroupmeasuresthefairvalueofaninstrument

using thequotedprice in an activemarket for that instrument. A

market isregardedasactive if transactionsfortheassetor liability

takesplacewithsufficientfrequencyandvolumetoprovidepricing

informationonanongoingbasis.

Whenthereisnoquotedpriceinanactivemarket,theGroupuses

valuationtechniquesthatmaximisetheuseof relevantobservable

inputsandminimisetheuseofunobservableinputs.Thechosenval-

uationtechniqueincorporatesallthefactorsthatmarketparticipants

wouldtakeintoaccountintopricingatransaction.

Thebestevidenceofthefairvalueofafinancialinstrumentatinitial

recognition isnormally the transactionprice, i.e., the fair valueof

theconsiderationgivenor received. If theGroupdetermines that

thefairvalueatinitialrecognitiondiffersfromthetransactionprice

andthefairvalueisevidencedneitherbyaquotedpriceinanactive

marketforanidenticalassetoraliabilitynorbasedonvaluationtech-

niquethatusesonlydatafromobservablemarkets,theinstrument

is initiallymeasured at fair value, adjusted todefer thedifference

betweenthefairvalueatinitialrecognitionandthetransactionprice.

Subsequently, thedifference is recognised in profit or losson an

appropriatebasisover the lifeof the instrumentbutno later than

whenthevaluationissupportedwhollybyobservablemarketdataor

thetransactionisclosedout.

Ifanassetoraliabilitymeasuredatfairvaluehasabidandanask

price,theGroupmeasuresassetsandlongpositionsatabidprice

andliabilitiesandshortpositionsatanaskprice.

Portfoliosoffinancialassetsandfinancialliabilitiesthatareexposed

tomarket risk andcredit risk that aremanagedby theGroupon

thebasisofthenetexposuretoeitherthemarketorcreditrisk,are

measuredonthebasisofapricethatwouldbereceivedtosellanet

longposition(orpaidtotransferanetshortposition)foraparticular

risk exposure. Those portfolio-level adjustments are allocated to

the individual assets and liabilitieson thebasisof the relative risk

adjustmentofeachoftheindividualinstrumentsintheportfolio.

135


TheGroup’spolicy is to recognise transfers intoand transfersout

offairvaluehierarchylevelsasofthedateoftheeventorchangein

circumstancesthatcausedthetransfer.

3.13 DERIVATIVES

Aderivativefinancialinstrumentisafinancialcontractbetweentwo

partieswhere payments are dependent uponmovements in the

priceofoneormoreunderlyingfinancialinstrument,referencerate

orindex.

Derivativefinancialinstrumentsareinitiallymeasuredatfairvalueat

tradedate,andaresubsequentlyre-measuredatfairvalueattheend

ofeachreportingperiod.Allderivativesarecarriedattheirfairvalues

asassetswherethefairvaluesarepositiveandasliabilitieswherethe

fairvaluesarenegative.Derivativeassetsandliabilitiesarisingfrom

differenttransactionsareonlyoffsetifthetransactionsarewiththe

samecounterparty,alegalrightofoffsetexistsandthepartiesintend

tosettlethecashflowsonanetbasis.

Derivative fair values aredetermined fromquotedprices in active

marketswhere available.Where there is no activemarket for an

instrument,fairvalueisderivedfrompricesforthederivative’scom-

ponentsusingappropriatepricingorvaluationmodels.

Themethodofrecognisingfairvaluegainsandlossesdependson

whetherderivativesareheldfortradingoraredesignatedashedging

instruments,andifthelatter,thenatureoftherisksbeinghedged.All

gainsandlossesfromchangesinthefairvalueofderivativesheldfor

tradingarerecognisedintheconsolidatedincomestatementunder

netgainondealinginderivatives(Note 30).

Derivativesembedded innon-derivativehostcontractsaretreated

asseparatederivativeswhentheymeetthedefinitionofaderivative,

theirrisksandcharacteristicsarenotcloselyrelatedtothoseofthe

hostcontractsandthehostcontractsarenotmeasuredatFVTPL.

3.14 HEDGEACCOUNTING

Derivativesdesignatedashedgesareclassifiedaseither:(i) hedges

ofthechangeinthefairvalueofrecognisedassetsor liabilitiesor

firmcommitments(‘fairvaluehedges’);(ii) hedgesofthevariability

infuturecashflowsattributabletoaparticularriskassociatedwitha

recognisedassetorliability,orahighlyprobableforecasttransaction

thatcouldaffectfuturereportednetincome(‘cashflowhedges’);or

(iii) ahedgeofanet investmentinaforeignoperation(‘net invest-

menthedges’).Hedgeaccountingisappliedtoderivativesdesignated

inthiswayprovidedcertaincriteriaaremet.

At the inception of a hedging relationship, to qualify for hedge

accounting, theGroupdocuments the relationship between the

hedginginstrumentsandthehedgeditemsaswellasitsriskmanage-

mentobjectiveanditsstrategyforundertakingthehedge.TheGroup

also requiresadocumentedassessment,bothathedge inception

andonanongoingbasis,ofwhetherornotthehedginginstruments,

primarilyderivatives,thatareusedinhedgingtransactionsarehighly

effectiveinoffsettingthechangesattributabletothehedgedrisksin

thefairvaluesorcashflowsofthehedgeditems.Interestincomeand

expenseondesignatedqualifyinghedgeinstrumentsisincludedin

‘Netinterestincome.’

Fairvaluehedges

Where ahedging relationship is designated as a fair valuehedge,

the hedgeditemisadjustedforthechangeinfairvalueinrespect

of the risk beinghedged.Gainsor losseson the changes in fair

value of both the derivative and the hedged item attributable to

hedged riskare recognised in theconsolidated incomestatement

andthecarryingamountofthehedgeditemisadjustedaccordingly.

If the derivative expires, is sold, terminated, exercised, no longer

meetsthecriteriaforfairvaluehedgeaccountingorthedesignation

is revoked, hedge accounting is discontinued.Any adjustmentup

tothatpointtothecarryingvalueofahedgeditem,forwhichthe

effective interestmethod isused, isamortised in theconsolidated

incomestatementaspartoftherecalculatedeffectiveinterestrate

overtheperiodtomaturityorderecognition.

Cashflowhedges

Theeffectiveportionofchangesinthefairvalueofderivativesthat

aredesignatedandqualifyascash flowhedgesare recognised in

othercomprehensiveincomeandaccumulatedinequity.Thegain

orlossrelatingtotheineffectivepartisrecognisedimmediatelyinthe

consolidatedincomestatement.Amountsaccumulatedinequityare

reclassifiedfromothercomprehensiveincomeandtransferredtothe

consolidatedincomestatementintheperiodsinwhichthehedged

item affects profit or loss, in the same line of the consolidated

incomestatementastherecognisedhedgeditem.However,when

theforecasttransactionthatishedgedresultsintherecognitionofa

non-financialassetoranon-financialliability,thecumulativegainsor

lossespreviouslydeferredinequityaretransferredfromequityand

includedintheinitialmeasurementofthecostofthenon-financial

asset or non-financial liability.Hedge accounting is discontinued

whentheGrouprevokesthehedgingrelationship,whenthehedging

instrument expiresor is sold, terminatedor exercised, orwhen a

hedgenolongermeetsthecriteriaforhedgeaccounting.

Any cumulative gains or losses recognised in equity remain in

equityuntiltheforecasttransactionisrecognised, inthecaseofa

non-financialassetoranon-financial liability,oruntil the forecast

transactionaffectstheconsolidatedincomestatement.Ifthefore-

casttransactionisnolongerexpectedtooccur,thecumulativegains

or losses recognised in equity are immediately transferred to the

consolidatedincomestatementfromothercomprehensiveincome.

Netinvestmenthedges

Hedgesofnetinvestmentsinforeignoperationsareaccountedfor

inasimilarwaytocashflowhedges.Againorlossontheeffective

portionofthehedginginstrumentisrecognisedinothercomprehen-

siveincomeandheldinthenetinvestmenthedgereserve.Thegain

orlossrelatingtotheineffectiveportionisrecognisedimmediatelyin

theconsolidatedincomestatement.Gainsandlossesaccumulated

in equity are reclassified fromother comprehensive income and

included intheconsolidated incomestatementonthedisposalof

theforeignoperation.

Hedgeeffectivenesstesting

To qualify for hedge accounting, theGroup requires that at the

inceptionof thehedge and through its life, eachhedgemust be

expected to be highly effective (prospective effectiveness) and

demonstrateactualeffectiveness(retrospectiveeffectiveness)onan

ongoingbasis.

136

The documentation of each hedging relationship sets out how

theeffectivenessofthehedgeisassessed.ThemethodtheGroup

adoptsforassessinghedgeeffectivenessdependsonitsriskman-

agementstrategy.

For prospective effectiveness, the hedging instrument must be

expectedtobehighlyeffectiveinoffsettingchangesinfairvalueor

cashflowsattributabletothehedgedriskduringtheperiodforwhich

thehedge is designated. For actual effectiveness tobe achieved,

thechanges in fair valueor cash flowsmustoffset eachother in

therangeof80percentto125percent.Hedgeineffectivenessis


Derivativesthatdonotqualifyforhedgeaccounting

Allgainsandlossesfromchangesinthefairvaluesofderivativesthat

donot qualify for hedge accounting are recognised immediately

intheconsolidatedincomestatementin“netgainsfromdealingin

derivatives”underNettradingincome(Note 30).

3.15 TREASURYSHARESANDCONTRACTSONOWNSHARES

Ownequity instrumentsof theGroupwhich are acquiredby the

Group or any of its subsidiaries (treasury shares) are deducted

fromother reserves andaccounted for atweighted averagecost.

Considerationpaidorreceivedonthepurchase,sale,issueorcan-

cellationoftheGroup’sownequityinstrumentsisrecogniseddirectly

inequity.

No gain or loss is recognised in the consolidated income state-

ment on the purchase, sale, issueor cancellationof ownequity

instruments.

Contractsonownsharesthatrequirephysicalsettlementofafixed

numberof own shares for a fixed consideration are classified as

equity and added toor deducted fromequity.Contractsonown

sharesthatrequirenetcashsettlementorprovideachoiceofset-

tlementareclassifiedastradinginstrumentsandchangesinthefair

valuearereportedintheconsolidatedincomestatement.

3.16 FINANCIALGUARANTEES

FinancialguaranteesarecontractsthatrequiretheGrouptomake

specified payments to reimburse the holder for a loss it incurs

becauseaspecifiedparty fails tomeet itsobligationwhendue in

accordancewiththecontractualterms.

Financial guarantee contracts are initially recognised at their fair

value,whichislikelytoequalthepremiumreceivedonissuance.The

receivedpremiumisamortisedoverthelifeofthefinancialguaran-

tee. Theguarantee liability (thenotional amount) is subsequently

recognisedatthehigherofthisamortisedamountandthepresent

valueofanyexpectedpayments(whenapaymentunderguarantee

has becomeprobable). Thepremium receivedon these financial

guaranteesisincludedwithinotherliabilities.

3.17 ACCEPTANCES

AcceptancesarisewhentheBankisunderanobligationtomakepay-

mentsagainstdocumentsdrawnunderlettersofcredit.Acceptances

specify the amountofmoney, thedate and theperson towhom

the payment is due. After acceptance, the instrument becomes

anunconditional liability (timedraft) of theBank and is therefore

recognisedas a financial liability in theconsolidated statementof

financial positionwith a correspondingcontractual rightof reim-

bursementfromthecustomerrecognisedasafinancialasset.

Acceptanceshavebeenconsideredwithin the scopeof IAS39 —

Financial Instruments: Recognition and Measurement and are

recognisedas a financial liability in theconsolidated statementof

financialpositionwithacontractualrightofreimbursementfromthe

customer as a financial asset. Therefore, commitments in respect

of acceptances have been accounted for as financial assets and

financialliabilities.

3.18 COLLATERALREPOSSESSED

TheBank acquires collaterals in settlement of certain loans and

advances.Thesecollateralsarerecognisedatnetrealisablevalueon

thedateofacquisitionandareclassifiedas investmentproperties.

Subsequently, the fair value is determinedon a periodic basis by

independentprofessional valuers. Fair valueadjustmentson these

collateralsareincludedintheconsolidatedincomestatementinthe

periodinwhichthesegainsorlossesarise.

3.19 LEASING

Thedeterminationofwhetheranarrangementisaleaseoritcontains

alease,isbasedonthesubstanceofthearrangementandrequiresan

assessmentofwhetherthefulfilmentofthearrangementisdepend-

enton theuseof a specific assetor assets and the arrangement

conveysarighttousetheasset.

Groupas a lessee —Leaseswhichdonot transfer to theGroup

substantiallyalltherisksandbenefitsincidentaltoownershipofthe

leased items areoperating leases.Operating lease payments are

recognisedasanexpenseintheconsolidatedincomestatementona

straightlinebasisovertheleaseterm.Contingentrentalspayableare

recognisedasanexpenseintheperiodinwhichtheyareincurred.

Groupas a lessor —Leaseswhere theGroup does not transfer

substantiallyall theriskandbenefitsofownershipof theassetare

classifiedasoperatingleases.Rentalincomearerecognisedinthe

consolidatedincomestatementonastraightlinebasisoverthelease

term.Contingent rentsare recognisedas revenue in theperiod in

whichtheyareearned.

3.20 INVESTMENTPROPERTIES

Investmentproperty ispropertyheldeither toearn rental income

orforcapitalappreciationorboth,butnotforsale intheordinary

courseofbusiness,useintheproductionorsupplyofgoodsorser-

vicesorforadministrativepurposes.Investmentpropertyisreflected

atvaluationbasedonfairvalueatthestatementoffinancialposition

date.RefertoNote 3.12forpolicyonfairvaluation.

The fair value is determinedon a periodic basis by independent

professionalvaluers.Fairvalueadjustmentsoninvestmentproperty

areincludedintheconsolidatedincomestatementintheperiodin

whichthesegainsorlossesarise.

Investmentpropertiesunderdevelopmentthatarebeingconstructed

ordeveloped for futureuseas investmentpropertyaremeasured

initiallyatcostincludingalldirectcostsattributabletothedesignand

constructionofthepropertyincludingrelatedstaffcosts.Subsequent

137


toinitialrecognition,investmentpropertiesunderdevelopmentare

measuredatfairvalue.Gainsandlossesarisingfromchangesinthe

fairvalueofinvestmentpropertyunderdevelopmentareincludedin

theconsolidatedincomestatementintheperiodinwhichtheyarise.

Aninvestmentpropertyisderecognisedupondisposalorwhenthe

investmentproperty and investmentpropertyunderdevelopment

are permanently withdrawn from use and no future economic

benefits are expected from thedisposal. Any gainor loss arising

on derecognition of the property (calculated as the difference

between net disposal proceeds and the carrying amount of the

asset)isincludedinprofitorlossintheperiodinwhichtheproperty

isderecognised.

3.21 PROPERTYANDEQUIPMENT

Propertyandequipmentarestatedatcostlessaccumulateddepre-

ciationandimpairmentloss,ifany.Costincludesexpenditurethatis

directlyattributabletotheacquisitionoftheasset.Changes inthe

expectedusefullifeareaccountedforbychangingthedepreciation

periodormethod,asappropriate,andtreatedaschangesinaccount-

ingestimates.

Depreciation ischarged to theconsolidated incomestatementso

astowriteoffthedepreciableamountofpropertyandequipment

overtheirestimatedusefullivesusingthestraight-linemethod.The

depreciableamountisthecostofanassetlessitsresidualvalue.Land

isnotdepreciated.

Estimatedusefullivesareasfollows:

Freeholdproperties 25years

Leaseholdandfreeholdimprovements 7to10years

Furniture,equipmentandvehicles 3to5years

Computerequipment,softwareandaccessories 4to10years

Property andequipment isderecognisedondisposalorwhenno

future economicbenefits are expected from its use.Gainor loss

arisingonthedisposalorretirementofanassetisdeterminedasthe

differencebetweenthesalesproceedsandthecarryingamountof

theassetatthatdateandisrecognisedintheconsolidatedincome

statement.

3.22 CAPITALWORKINPROGRESS

Capitalworkinprogressisstatedatcost.Whentheassetisreadyfor

use,capitalworkinprogressistransferredtotheappropriateproperty

andequipment category anddepreciated in accordancewith the

Group’spolicies.

3.23 INTANGIBLEASSETS

TheGroup’sintangibleassetsotherthangoodwillincludeintangible

assetsacquiredinbusinesscombinations.

An intangibleasset is recognisedonlywhen itscostcanbemea-

suredreliablyanditisprobablethattheexpectedfutureeconomic

benefitsthatareattributabletoitwillflowtotheGroup.Intangible

assetsacquiredseparatelyaremeasuredoninitialrecognitionatfair

valueandsubsequentlyatcostlessaccumulatedamortisationand

impairmentloss.

Intangibleassetsacquiredinabusinesscombinationandrecognised

separatelyfromgoodwillareinitiallyrecognisedattheirfairvalueat

theacquisitiondatewhichisregardedastheircost.

Theusefullivesofintangibleassetsareassessedtobeeitherfinite

orindefinite.Intangibleassetswithfinitelivesareamortisedoverthe

usefuleconomiclife.Theamortisationperiodandtheamortisation

methodforanintangibleassetwithafiniteusefullifearereviewedat

theendofeachreportingperiod.Changesintheexpectedusefullife

ortheexpectedpatternofconsumptionoffutureeconomicbenefits

embodied in the asset are accounted for by changing the amor-

tisationperiodormethod,asappropriate, and treatedaschanges

inaccountingestimatesandaccountedforonaprospectivebasis.

The amortisation expenseon intangible assetswith finite lives is


Estimatedusefullivesareasfollows:

Creditcardcustomerrelationships 3years

Wealthmanagementcustomerrelationships 4years

Coredepositintangible 5years

Anintangibleassetisderecognisedondisposal,orwhennofuture

economic benefits are expected fromuse or disposal. Gains or

lossesarisingfromderecognitionofanintangibleasset,measuredas

thedifferencebetweenthenetdisposalproceedsandthecarrying

amountof the asset, are recognised in the consolidated income

statementwhentheassetisderecognised.

3.24 BORROWINGCOSTS

Borrowingcostsdirectlyattributabletotheacquisitionorconstruc-

tionof qualifying assets,which are assets that necessarily take a

substantial periodof time toget ready for their intendeduse are

addedtothecostofthoseassets,untilsuchtimeastheassetsare

substantiallyreadyfortheirintendeduse.

Allotherborrowingcostsarerecognisedintheconsolidatedincome

statementintheperiodinwhichtheyareincurred.

3.25 BUSINESSCOMBINATIONSANDGOODWILL

Thepurchasemethodofaccountingisusedtoaccountforbusiness

acquisitionsbytheGroup.Thecostofacquisitionismeasuredatthe

fair valueof theconsiderationgivenat thedateofexchange.The

acquired identifiable assets, liabilities andcontingent liabilities are

measuredattheir fairvaluesatthedateofacquisition.Anyexcess

ofthecostofacquisitionoverthefairvalueoftheGroup’sshareof

the identifiable assets, liabilities andcontingent liabilities acquired

is recorded as goodwill. If the costof acquisition is less than the

fair valueof theGroup’s shareof the identifiable assets, liabilities

andcontingentliabilitiesofthebusinessacquired,thedifferenceis

recognisedimmediatelyintheconsolidatedincomestatement.

Goodwill acquiredonbusiness combination is carried at cost as

establishedatthedateofacquisitionofthebusinesslessaccumu-

latedimpairmentlosses,ifany.

Forthepurposeofimpairmenttesting,goodwillisallocatedtoeach

oftheGroup’scashgeneratingunitsthatisexpectedtobenefitfrom

thesynergiesofthecombination.

138

Acash-generatingunittowhichgoodwillhasbeenallocatedistested

forimpairmentannually,ormorefrequentlywhenthereisindication

that the unitmay be impaired. If the recoverable amount of the

cash-generatingunitislessthanitscarryingamount,theimpairment

lossisallocatedfirsttoreducethecarryingamountofanygoodwill

allocated to theunit and then to theother assetsof theunit pro

ratabasedon thecarrying amountof eachasset in theunit. Any

impairmentlossofgoodwillisrecogniseddirectlyintheconsolidated

incomestatement.Animpairmentlossrecognisedforgoodwillisnot

reversedinsubsequentperiods.

Ondisposal of the relevant cash-generatingunit, the attributable

amountofgoodwillisincludedinthedeterminationofthegainor

lossondisposal.

3.26 IMPAIRMENTOFNON-FINANCIALASSETS

Ateachconsolidatedstatementoffinancialpositiondate,theGroup

reviews thecarrying amountsof its non-financial assets todeter-

minewhetherthereisanyindicationthatthoseassetshavesuffered

an impairment loss. If any such indicationexists, the recoverable

amountoftheassetsisestimatedinordertodeterminetheextent

oftheimpairmentloss(ifany).Whereit isnotpossibletoestimate

therecoverableamountofanindividualasset,theGroupestimates

the recoverableamountof thecash-generatingunit towhich the

assetbelongs.

Recoverableamountisthehigheroffairvaluelesscoststoselland

valueinuse.Inassessingvalueinuse,theestimatedfuturecashflows

arediscountedtotheirpresentvalueusingapre-taxdiscountrate

thatreflectscurrentmarketassessmentsofthetimevalueofmoney

andtherisksspecifictotheassetforwhichtheestimatesoffuture

cashflowshavenotbeenadjusted.

Iftherecoverableamountofanasset(orcash-generatingunit)isesti-

matedtobelessthanitscarryingamount,thecarryingamountofthe

asset(cash-generatingunit)isreducedtoitsrecoverableamount.An

impairmentlossisrecognisedintheconsolidatedincomestatement,

unlesstherelevantasset iscarriedatarevaluedamount, inwhich

casetheimpairmentlossistreatedasarevaluationdecrease.

Where an impairment loss subsequently reverses, the carrying

amountoftheasset(cash-generatingunit)isincreasedtotherevised

estimateofitsrecoverableamount,suchthattheincreasedcarrying

amountdoesnotexceedthecarryingamountthatwouldhavebeen

determinedhadnoimpairmentlossbeenrecognisedfortheasset

(cash-generatingunit) in prior years. A reversal of an impairment

loss is recognised in the consolidated income statement, unless

therelevantassetiscarriedatarevaluedamount,inwhichcasethe

reversaloftheimpairmentlossistreatedasarevaluationincrease.

3.27 EMPLOYEEBENEFITS

(i) Employees’endofservicebenefits

(a)Definedbenefitplan

Adefinedbenefitplanisapost-employmentbenefitplanotherthan

adefinedcontributionplan.Theliabilityrecognisedinthestatement

of financial position in respectof definedbenefit gratuity plans is

thepresentvalueofthedefinedbenefitobligationattheendofthe

reportingperiodtogetherwithadjustmentsforunrecognisedpast-

servicecosts.Thedefinedbenefitobligationiscalculatedannually

by independent actuariesusing theprojectedunit creditmethod.

Thepresentvalueofthedefinedbenefitobligationisdeterminedby

discountingtheestimatedfuturecashoutflowsusinginterestratesof

high-qualitycorporatebondsthataredenominatedinthecurrency

inwhichthebenefitswillbepaid,andthathavetermstomaturity

approximatingthetermsoftherelatedpensionobligation.

Past-service costs are recognised immediately in income, unless

thechangestothegratuityplanareconditionalontheemployees

remaininginserviceforaspecifiedperiodoftime(thevestingperiod).

Inthiscase,thepast-servicecostsareamortisedonastraight-line

basisoverthevestingperiod.

Remeasurementsofthenetdefinedbenefitliability,whichcomprise

actuarialgainsandlossesarerecognisedimmediatelyinothercom-

prehensiveincome.Actuarialgainsandlossescompriseexperience

adjustments(theeffectsofdifferencesbetweenthepreviousactuar-

ialassumptionsandwhathasactuallyoccurred),aswellastheeffects

ofchangesinactuarialassumptions.

TheGroupprovidesendofservicebenefitsforitsexpatriateemploy-

ees.Theentitlementtothesebenefitsisbasedupontheemployees’

lengthofserviceandcompletionofaminimumserviceperiod.The

expected costs of these benefits are accruedover the periodof

employment.

(b)Definedcontributionplan

Adefinedcontributionplanisapost-employmentbenefitplanunder

whichanentitypays fixedcontributions intoaseparateentityand

willhavenolegalorconstructiveobligationtopayfurtheramounts.

Obligationsforcontributionstodefinedcontributionpensionplans

are recognised as an employee benefit expense in consolidated

incomestatementintheperiodsduringwhichservicesarerendered

byemployees.

Pensionandnational insurancecontributions for theUAEcitizens

aremadebytheGrouptotheAbu DhabiRetirementPensionsand

BenefitsFundinaccordancewithUAEFederalLawNo. 7of1999and

torespectivepensionfundsforotherGCCNationalemployees.

(ii)Terminationbenefits

Termination benefits are recognised as an expense when the

Group is committeddemonstrably,without realistic possibility of

withdrawal,toaformaldetailedplantoeitherterminateemployment

beforethenormalretirementdate,ortoprovideterminationbenefits

as a result of anoffermade toencourage voluntary redundancy.

Terminationbenefitsforvoluntaryredundanciesarerecognisedifthe

Grouphasmadeanofferofvoluntaryredundancy,itisprobablethat

theofferwillbeaccepted,andthenumberofacceptancescanbe

estimatedreliably.Ifbenefitsarepayablemorethan12monthsafter

thereportingdate,thentheyarediscountedtotheirpresentvalue.

(iii)Short-termemployeebenefits

Short-termemployeebenefitobligationsaremeasuredonanundis-

countedbasisandareexpensedastherelatedserviceisprovided.

A liability is recognisedfor theamountexpectedtobepaidunder

short-termcashbonusor profit-sharingplans if theGrouphas a

presentlegalorconstructiveobligationtopaythisamountasaresult

ofpastserviceprovidedbytheemployeeandtheobligationcanbe

estimatedreliably.

139


(iv)Employees’incentiveplanshares

Thecostof the equity-settled share-basedpayments is expensed

over the vestingperiod, basedon theGroup’s estimateof equity

instruments thatwill eventually vest.At theendofeach reporting

period,theGrouprevisesitsestimateofthenumberofequityinstru-

mentsexpectedtovest.The impactof therevisionof theoriginal

estimates,ifany,isrecognisedintheconsolidatedincomestatement

overtheremainingvestingperiod,withacorrespondingadjustment

totheemployees’incentiveplanreserve.

Where the terms of an equity-settled award are modified, the

minimumexpense recognised is the expense as if the termshad

not beenmodified. An additional expense is recognised for any

modificationwhichincreasesthetotalfairvalueoftheshare-based

paymentarrangementorisotherwisebeneficialtotheemployeeas

measuredatthedateofmodification.

Whereanequity-settledawardiscancelled, it istreatedasif ithad

vestedon thedateof cancellation, and anyexpensenot yet rec-

ognisedfortheawardisrecognisedimmediately.Thisincludesany

awardwherenon-vestingconditionswithinthecontrolofeitherthe

entityorthecounterpartyarenotmet.However,ifanewawardis

substitutedforthecancelledaward,anddesignatedasareplacement

awardonthedatethatitisgranted,thecancelledandnewawards

aretreatedas if theywereamodificationoftheoriginalaward,as

describedinthepreviousparagraph.

Thedilutiveeffectofoutstandingincentiveplansharesisreflectedin

thecomputationofdilutedearningspershare(Note 34).

3.28 PROVISIONSANDCONTINGENTLIABILITIES

Provisions are recognisedwhen theGrouphas apresent legalor

constructiveobligationasaresultofpasteventsandit isprobable

thatanoutflowofresourcesembodyingeconomicbenefitswillbe

requiredtosettletheobligationandareliableestimateoftheamount

oftheobligationcanbemade.Whereaprovisionismeasuredusing

thecashflowsestimatedtosettlethepresentobligation,itscarrying

amountisthepresentvalueofthosecashflows.

Provisionsforonerouscontractsarerecognisedwhentheexpected

benefitstobederivedbytheGroupfromacontractarelowerthan

theunavoidablecostofmeeting itsobligationunderthecontract.

Theprovisionismeasuredatthepresentvalueofthelowerofthe

expectedcostofterminatingthecontractandtheexpectednetcost

ofcontinuingwiththecontract.Beforeaprovisionisestablished,the

Grouprecognisesanyimpairmentlossontheassetsassociatedwith

thatcontract.

Whensomeoralloftheeconomicbenefitsrequiredtosettleapro-

visionareexpectedtoberecoveredfromathirdparty,areceivableis

recognisedasanassetonlyifitisvirtuallycertainthatreimbursement

will be received and the amount of the receivable can bemea-

suredreliably.

Contingent liabilities,which includecertainguaranteesand letters

ofcredit,arepossibleobligationsthatarisefrompasteventswhose

existence will be confirmed only by the occurrence, or non-

occurrence,ofoneormoreuncertainfutureeventsnotwhollywithin

theGroup’scontrol;orarepresentobligationsthathavearisenfrom

pasteventsbutarenotrecognisedbecause it isnotprobablethat

settlementwillrequireoutflowofeconomicbenefits,orbecausethe

amountoftheobligationscannotbereliablymeasured.Contingent

liabilitiesarenotrecognisedintheconsolidatedfinancialstatements

but aredisclosed in thenotes to theconsolidated financial state-

ments,unlesstheyareremote.

3.29 SEGMENTREPORTING

A segment is a distinguishable component of theGroup that is

engagedeitherinprovidingproductsorservices(businesssegment),

orinproductsorserviceswithinaparticulareconomicenvironment

(geographicalsegment),whichissubjecttorisksandrewardsthatare

differentfromthoseofothersegments.RefertoNote 39onBusiness

Segmentreporting.

3.30 TAXATION

Provisionismadefortaxesatratesenactedorsubstantivelyenacted

asatstatementoffinancialpositiondateontaxableprofitsofoverseas

branchesandsubsidiariesinaccordancewiththefiscalregulationsof

therespectivecountriesinwhichtheGroupoperates.

3.31 REVENUEANDEXPENSERECOGNITION

Revenueisrecognisedtotheextentthatitisprobablethattheeco-

nomicbenefitswillflowtotheGroupandtherevenuecanbereliably

measured.Thefollowingspecificrecognitioncriteriamustalsobe

metbeforerevenueisrecognised.

(i) Interestincomeandexpense

For all financial instrumentsmeasured at amortised cost, interest

bearingfinancialassetsclassifiedasavailable-for-saleandfinancial

instrumentsclassifiedasfairvaluethroughprofitorloss,interestand

similar incomeorexpense is recordedusing theeffective interest

rate(EIR),which istheratethatexactlydiscountsestimatedfuture

cashpaymentsorreceiptsthroughtheexpectedlifeofthefinancial

instrumentorashorterperiod,whereappropriate,tothenetcarrying

amountof the financial assetor financial liability. Thecalculation

takesintoaccountallcontractualtermsofthefinancialinstrument

and includesanyfeesor incrementalcosts thataredirectlyattrib-

utabletotheinstrumentandareanintegralpartoftheEIR,butnot

futurecreditlosses.

The carrying amountof the financial asset or financial liability is

adjustediftheGrouprevisesitsestimatesofpaymentsorreceipts.

The adjustedcarrying amount is calculatedbasedon theoriginal

effectiveinterestrate.

Once the recordedvalueofa financialassetoragroupofsimilar

financialassetshasbeenreducedduetoanimpairmentloss,interest

incomecontinuestoberecognisedusingtherateof interestused

todiscountthefuturecashflowsforthepurposeofmeasuringthe

impairmentloss.

(ii)Dividendincome

Dividend income is recognisedon theex-dividenddatewhen the

Group’srighttoreceivethepaymentisestablished.

140

(iii)Feeandcommissionincome

TheGroupearnsfeeandcommissionincomefromadiverserange

ofservicesitprovidestoitscustomers.Feeincomecanbedivided

intothefollowingtwocategories:

(a) Fee income earned from services that are provided over a

certainperiodoftime

Feesearnedfortheprovisionofservicesoveraperiodoftimeare

accruedoverthatperiod.Thesefeesincludecommissionincome

and assetmanagement, custody andothermanagement and

advisoryfees.

Loancommitmentfeesforloansthatarelikelytobedrawndown

andothercreditrelatedfeesaredeferred(togetherwithanyincre-

mentalcosts)andrecognisedasanadjustmenttotheeffective

interest rateon the loan.When it isunlikely thata loanwillbe

drawndown,theloancommitmentfeesarerecognisedoverthe

commitmentperiodonastraight-linebasis.

(b)Feeincomefromprovidingtransactionservices

Feesarisingfromnegotiatingorparticipatinginthenegotiation

ofatransactionforathirdparty,suchasthearrangementofthe

acquisitionofsharesorothersecuritiesorthepurchaseorsale

ofbusinesses,arerecognisedoncompletionof theunderlying

transaction. Fees or components of fees that are linked to a

certain performance are recognised after fulfilling the corre-

spondingcriteria.

3.32 ISLAMICFINANCING

TheGroupengagesinShari’ahcompliantIslamicbankingactivities

throughvariousIslamicinstrumentssuchasMurabaha,Ijara,Salam,

Mudaraba,SukukandWakala.

Murabahafinancing

AsalecontractwherebytheGroupsellstoacustomercommodities

andotherassetsatanagreed-uponprofitmarkuponcost.TheGroup

purchasestheassetsbasedonapromisereceivedfromcustomer

tobuythe itempurchasedaccordingtospecifictermsandcondi-

tions.Profit fromMurabaha isquantifiableat thecommencement

ofthetransaction.Suchincomeisrecognisedasitaccruesoverthe

periodofthecontractoneffectiveprofitratemethodonthebalance

outstanding.

Ijarafinancing

Ijara financing is anagreementwhereby theGroup (lessor) leases

orconstructsanassetbasedonthecustomer’s(lessee)requestand

promisetoleasetheassetsforaspecificperiodagainstcertainrent

instalments.Ijaracouldendintransferringtheownershipoftheasset

tothelesseeattheendoftheleaseperiod.Also,theGrouptransfers

substantiallyalltherisksandrewardsrelatedtotheownershipofthe

leasedassettothelessee.Ijaraincomeisrecognisedonaneffective

profitratebasisovertheleaseterm.

Mudaraba

AcontractbetweentheGroupandacustomer,wherebyoneparty

provides the funds (RabAlMal) and theotherparty (theMudarib)

investsthefundsinaprojectoraparticularactivityandanyprofits

generatedaredistributedbetweenthepartiesaccordingtotheprofit

sharesthatwerepre-agreedinthecontract.TheMudaribwouldbear

thelossincaseofdefault,negligenceorviolationofanyoftheterms

andconditionsoftheMudaraba,otherwise,lossesarebornebythe

RabAlMal.Incomeisrecognisedbasedonexpectedresultsadjusted

foractualresultsondistributionbytheMudarib,whereasiftheGroup

istheRabAlMalthelossesarechargedtotheGroup’sconsolidated

incomestatementwhenincurred.

Salam

BaiAlSalamisasalecontractwherethecustomer(seller)undertakes

todeliver/supplyaspecified tangibleasset to theGroup (buyer)at

mutuallyagreedfuturedate(s)inexchangeforanadvancepricefully

paidonthespotbythebuyer.

RevenueonSalam financing is recognisedon theeffectiveprofit

ratebasisovertheperiodofthecontract,basedontheSalamcapital

outstanding.

Wakala

AnagreementbetweentheGroupandcustomerwherebyoneparty

(RabAlMal)providesacertainsumofmoney toanagent (Wakil),

whoinvestsitaccordingtospecificconditionsinreturnforacertain

fee(alumpsumofmoneyorapercentageoftheamountinvested).

Theagent isobliged toguarantee the investedamount incaseof

default,negligenceorviolationofanyofthetermsandconditionsof

theWakala.TheGroupmaybeWakilorRabAlMaldependingonthe

natureofthetransaction.

EstimatedincomefromWakalaisrecognisedontheeffectiveprofit

ratebasisovertheperiod,adjustedbyactualincomewhenreceived.

Lossesareaccountedforwhenincurred.

Sukuk

Certificatesofequalvaluerepresentingundividedsharesinowner-

shipoftangibleassets,usufructsandservicesor(intheownership

of)theassetsofparticularprojectsorspecialinvestmentactivity.It

isasset-backed trustcertificatesevidencingownershipofanasset

oritsusufruct(earningsorbenefits)andcomplieswiththeprinciple

ofShari’ah.

4 SIGNIFICANTACCOUNTINGJUDGEMENTS,ESTIMATESANDASSUMPTIONS

ThereportedresultsoftheGrouparesensitivetotheaccountingpoli-

cies,assumptionsandestimatesthatunderliethepreparationofthese

consolidatedfinancialstatements.IFRSrequiresthemanagement,in

preparing theGroup’s consolidated financial statements, to select

suitableaccountingpolicies,applythemconsistentlyandmakejudge-

mentsandestimatesthatarereasonableandprudent.Intheabsence

ofanapplicablestandardorinterpretation,IAS8AccountingPolicies,

ChangesinAccountingEstimatesandErrors,requiresmanagement

todevelopandapplyanaccountingpolicythatresultsinrelevantand

reliableinformationinthelightoftherequirementsandguidancein

IFRSdealingwithsimilarandrelatedissuesandtheIASB’sFramework

for thePreparation andPresentationof Financial Statements. The

judgements and assumptions involved in theGroup’s accounting

policiesthatareconsideredbytheBoardofDirectorstobethemost

important to theportrayal of its financial condition arediscussed

below.Theuseofestimates,assumptionsormodelsthatdifferfrom

thoseadoptedbytheGroupwouldaffectitsreportedresults.

141


IMPAIRMENTLOSSESONLOANSANDADVANCES

Applicationofthemethodologyforassessingloanimpairment,asset

outinNote 43.6,involvesconsiderablejudgementandestimation.

For individually significant loans, judgement is required in deter-

miningfirst,whetherthereare indicationsthatan impairment loss

mayhavealreadybeen incurred,and thenestimating theamount

and timingof expected cash flows,which form the basis of the

impairmentlossthatisrecorded.

Forcollectivelyassessed loans, judgement is involved in selecting

and applying the criteria for grouping together loanswith similar

creditcharacteristics, aswell as in selectingandapplying the sta-

tistical andothermodelsused toestimate the losses incurred for

eachgroupofloansinthereportingperiod.Thebenchmarkingof

lossrates,theassessmentoftheextenttowhichhistoricallossesare

representativeofcurrentconditions,andtheongoingrefinementof

modellingmethodologies,provideameansofidentifyingchanges

thatmayberequired,buttheprocessisinherentlyoneofestimation.

IMPAIRMENTOFAVAILABLE-FOR-SALEINVESTMENTS

TheGroup exercises judgement to consider impairment on the

available-for-sale investments. This includes determination of

whether anydecline in the fair valuebelowcostof equity instru-

ments is significant or prolonged. Inmaking this judgement, the

Groupevaluatesamongotherfactors,thenormalvolatilityinmarket

price.Inaddition,theGroupconsidersimpairmenttobeappropriate

whenthereisevidenceofdeteriorationinthefinancialhealthofthe

investee,industryandsectorperformanceorchangesintechnology.

VALUATIONOFFINANCIALINSTRUMENTS

Thebestevidenceoffairvalueisaquotedpricefortheinstrument

beingmeasuredinanactivelytradedmarket. Intheeventthatthe

marketforafinancialinstrumentisnotactive,avaluationtechnique

isused.Themajorityofvaluationtechniquesemployonlyobservable

market data and so the reliability of the fair valuemeasurement

is high.However, certain financial instruments are valuedon the

basisof valuation techniques that includeoneormoresignificant

marketinputsthatareunobservable.Valuationtechniquesthatrely

toagreaterextentonunobservableinputsrequireahigherlevelof

managementjudgementtocalculateafairvaluethanthosebased

whollyonobservableinputs.

Valuation techniquesused tocalculate fairvaluesarediscussed in

Note 41.Themainassumptionsandestimateswhichmanagement

considerwhenapplyingamodelwithvaluationtechniquesare:

the likelihood andexpected timingof future cash flowson the

instrument.Thesecashflowsareestimatedbasedonthetermsof

theinstrument,andjudgementmayberequiredwhentheabilityof

thecounterpartytoservicetheinstrumentinaccordancewiththe

contractualtermsisindoubt.Futurecashflowsmaybesensitiveto

changesinmarketrates;

selecting an appropriate discount rate for the instrument. The

determinationof this rate is basedon an assessmentofwhat a

marketparticipantwouldregardastheappropriatespreadofthe

ratefortheinstrumentovertheappropriaterisk-freerate;and

whenapplying amodelwithunobservable inputs, estimates are

madetoreflectuncertaintiesinfairvaluesresultingfromalackof

marketdatainputs,forexample,asaresultofilliquidityinthemarket.

Fortheseinstruments,thefairvaluemeasurementis lessreliable.

Inputs into valuationsbasedonunobservabledataare inherently

uncertainbecausethereislittleornocurrentmarketdataavailable

fromwhichtodeterminethelevelatwhichanarm’slengthtrans-

actionwouldoccurundernormalbusinessconditions.However,in

mostcasesthereissomemarketdataavailableonwhichtobasea

determinationoffairvalue,forexamplehistoricaldata,andthefair

valuesofmost financial instruments arebasedon somemarket

observableinputsevenwhenunobservableinputsaresignificant.

FAIRVALUATIONOFINVESTMENTPROPERTIES

The fair valuesof investment properties is basedon the highest

andbestuseof theproperties,which is theircurrentuse.Thefair

valuationof the investmentproperties iscarriedoutby independ-

ent valuers basedonmodelswhose inputs areobservable in an

activemarketsuchasmarketconditions,marketprices,futurerental

incomeetc.

Thefairvaluemovementsoninvestmentpropertiesaredisclosedin

moredetailinNote 13.

CONSOLIDATIONOFFUNDS

The changes introduced by IFRS 10 — Consolidated Financial

Statements require an investor toconsolidate an investeewhen it

controls the investee.The investorcontrolsan investeewhen it is

exposed,orhasrights,tovariablereturnsfromitsinvolvementwith

the investeeandhas theability toaffect those returns through its

powerovertheinvestee.Thenewdefinitionofcontrolrequiresthe

Group to exercise significant judgement on anongoing basis to

determinewhichentitiesarecontrolled,andthereforearerequired

tobeconsolidated.

5 CASHANDBALANCESWITHCENTRALBANKS

2016AED’000

2015AED’000

Cashonhand 1,145,235 917,855

Balanceswithcentralbanks 3,109,498 2,869,993

Reservesmaintainedwithcentralbanks 9,900,556 9,745,626

CertificateofdepositswithUAECentralBank 5,013,645 6,641,250

Reverse-repowithCentralBank 92,968 5,553

Totalcashandbalanceswithcentralbanks 19,261,902 20,180,277

Thegeographicalconcentrationisasfollows:

WithintheUAE 19,106,421 20,145,189

OutsidetheUAE 155,481 35,088

19,261,902 20,180,277

Reservesmaintainedwithcentralbanksrepresentdepositswiththe

centralbanksatstipulatedpercentagesofitsdemand,savings,time

andotherdeposits.Theseareonlyavailablefordaytodayoperations

undercertainspecifiedconditions.

142

6 DEPOSITSANDBALANCESDUEFROMBANKS,NET

2016AED’000

2015 AED’000

Nostrobalances 724,047 398,773

Margindeposits 40,660 524,324

Timedeposits 19,955,290 13,843,958

Wakalaplacements 360,000 187,942

Loansandadvancestobanks 3,686,987 7,596,546

Grossdepositsandbalancesduefrombanks 24,766,984 22,551,543

Less:Allowanceforimpairment(Note 43.6) (103,369) (169,622)

Totaldepositsandbalancesduefrombanks,net 24,663,615 22,381,921


WithintheUAE 10,098,340 6,206,241

OutsidetheUAE 14,668,644 16,345,302

24,766,984 22,551,543

Less:Allowanceforimpairment(Note 43.6) (103,369) (169,622)

24,663,615 22,381,921

Duringtheyear,loansandadvancestobankshavebeenreclassifiedto“Depositsandbalancesduefrombanks,net”tobetterreflectthe

underlyingnatureof thebusinessof theborrowers.Accordingly, comparativeamountspertaining topreviousyearwere reclassified to

conformtocurrentyear’spresentation.

TheGrouphedgesitsforeigncurrencytimedepositsforforeigncurrencyexchangerateriskusingforeignexchangeswapcontractsand

designatestheseinstrumentsascashflowhedges.ThefairvalueoftheseswapswasAEDNilasat31 December2016(31 December2015 —

netpositivefairvalueofAED479 thousand).

TheGroupentered intostructured financing repurchaseagreementswhereby loansandadvances tobankswerepledgedandheldby

counterpartiesascollateral.TherisksandrewardsrelatingtotheloanspledgedremainswiththeGroup.Theloansplacedascollateralare

governedundercollateralserviceagreementsunderInternationalSwapsandDerivativesAssociation(ISDA)agreements.Thefollowingtable

reflectsthecarryingvalueoftheseloansandtheassociatedfinancialliabilities:

2016 2015

Carryingvalueofpledgedloans

AED’000

Carryingvalueofassociatedliabilities

AED’000

Carryingvalue ofpledgedloans

AED’000


AED’000

Repurchasefinancing 1,624,801 1,098,684 1,720,801 1,181,421

7 REVERSE-REPOPLACEMENTS

2016AED’000

2015 AED’000

Banksandfinancialinstitutions 1,524,806 2,419,776

Customers – 1,836,501

Totalreverse-repoplacements 1,524,806 4,256,277


WithintheUAE – 2,762,095

OutsidetheUAE 1,524,806 1,494,182

1,524,806 4,256,277

TheGroupentersintoreverserepurchaseandcollateralswapagreementsunderwhichbondswithfairvalueofAED1,574,002 thousand

(31 December2015 —cashofAED12,158 thousandandbondswithfairvalueofAED4,386,217 thousand)werereceivedascollateralagainst

reverse-repoplacements.Therisksandrewardsrelatingtothesebondsremainwiththecounterparties.Thetermsandconditionsofthese

collateralsaregovernedbyGlobalMasterRepurchaseAgreements(GMRA).

143


8 TRADINGSECURITIES

2016AED’000

2015AED’000

Bonds 418,758 62,261


WithintheUAE 141,138 48,416

OutsidetheUAE 277,620 13,845

418,758 62,261

Bondsrepresentinvestmentsmainlyinbanksandpublicsector.The

fairvalueoftradingsecuritiesisbasedonquotedmarketprices.

9 DERIVATIVEFINANCIALINSTRUMENTS

In theordinary courseof business theGroupenters into various

typesofderivativetransactionsthatareaffectedbyvariablesinthe

underlyinginstruments.

Aderivativeisafinancialinstrumentorothercontractwithallthreeof

thefollowingcharacteristics:

(a) itsvaluechangesinresponsetothechangeinaspecifiedinter-

est rate, financial instrument price, commodity price, foreign

exchange rate, indexof pricesor rates, credit ratingor credit

index,orothervariable,providedinthecaseofanon-financial

variablethatthevariableisnotspecifictoapartytothecontract

(sometimescalledthe‘underlying’);

(b)it requiresno initial net investmentor an initial net investment

thatissmallerthanwouldberequiredforothertypesofcontracts

thatwouldbeexpectedtohaveasimilarresponsetochangesin

marketfactors;and

(c) itissettledatafuturedate.

DerivativefinancialinstrumentswhichtheGroupentersintoincludes

forward foreignexchangecontracts, interest rate futures, forward

rate agreements, currency, commodity, interest rate swaps and

currencyandinterestrateoptions.

TheGroupuses the followingderivative financial instruments for

hedgingandtradingpurposes.

ForwardandFuturestransactions

Currencyforwardsrepresentcommitmentstopurchaseforeignand

domesticcurrencies,includingnon-deliverableforwardtransactions

(i.e.,thetransactionisnetsettled).Foreigncurrencyandinterestrate

futuresarecontractualobligationstoreceiveorpayanetamount

basedonchangesincurrencyratesorinterestratesortobuyorsell

foreigncurrencyorafinancialinstrumentonafuturedateataspeci-

fiedpriceestablishedinanorganisedfinancialmarket.Thecreditrisk

forfuturescontractsisnegligibleastheyarecollateralisedbycashor

marketablesecuritiesandchangesinthefutures’contractvalueare

settleddailywiththebroker.Forwardrateagreementsareindividually

negotiated interest rate futures thatcall foracashsettlementata

futuredateforthedifferencebetweenacontractedrateofinterest

andthecurrentmarketratebasedonanotionalprincipalamount.

Swaptransactions

Currencyandinterestrateswapsarecommitmentstoexchangeone

setofcashflowsforanother.Swapsresultinaneconomicexchange

ofcurrenciesorinterestrates(forexample:fixedrateforfloatingrate)

oracombinationofallthese(forexample:cross-currencyinterest

rateswaps).Noexchangeofprincipaltakesplaceexceptforcertain

crosscurrencyinterestrateswaps.TheGroup’screditriskrepresents

thepotential lossifcounterpartiesfailtofulfiltheirobligation.This

riskismonitoredonanongoingbasisthroughmarketrisklimitson

exposures andcredit risk assessmentof counterparties using the

sametechniquesasthoseoflendingactivities.

Optiontransactions

Foreigncurrency and interest rateoptions are contractual agree-

mentsunderwhichtheseller(writer)grantsthepurchaser(holder)

theright,butnottheobligation,eithertobuy(acalloption)orsell

(aputoption)atorbyasetdateorduringasetperiod,aspecific

amountof a foreigncurrencyor a specific rateof interestor any

financialinstrumentatapredeterminedprice.Thesellerreceivesa

premium from thepurchaser in consideration for the assumption

of foreign exchange or interest rate risk.Optionsmay be either

exchange-tradedornegotiatedbetweentheGroupandacustomer

overthecounter(OTC).

Derivative contracts canbeexchange tradedorOTC.TheGroup

valuesexchangetradedderivativesusing inputsat market-clearing

levels.OTC derivatives are valued usingmarket based inputs or

broker/dealer quotations.Wheremodels are required, theGroup

usesavarietyofinputs,includingcontractualterms,marketprices,

marketvolatilities,yieldcurvesandotherreferencemarketdata.

Fairvaluemeasurementmodels

ForOTCderivatives that trade in liquidmarkets such as generic

forwards,swapsandoptions,modelinputscangenerallybeverified

andmodel selection conforms tomarket practice.CertainOTC

derivativestradeinlessliquidmarketswithlimitedpricinginformation

andthedeterminationoffairvalueforthesederivativesisinherently

more difficult. Subsequent to initial recognition, theGrouponly

updates valuation inputswhencorroboratedbyevidence suchas

similarmarkettransactions,third-partypricingservicesand/orbroker

dealerquotationsorotherempiricalmarketdata.Intheabsenceof

suchevidence,Management’sbestestimatesareused.

Derivativesheldorissuedfortradingpurposes

TheGroup’stradingactivitiesarepredominantlyrelatedtooffering

hedging solutions to customers at competitive prices inorder to

enablethemtotransfer,modifyorreducecurrentandexpectedrisks.

TheGroupalsomanagesrisktakenasaresultofclienttransactions

orinitiatespositionswiththeexpectationofprofitingfromfavourable

movementinprices,ratesorindices.

Derivativesheldorissuedforhedgingpurposes

The Group uses derivative financial instruments for hedging

purposesaspartof itsassetand liabilitymanagementactivities in

order to reduce itsownexposure to fluctuations in currency and

interestrates.TheGroupusesforwardforeignexchangecontracts,

crosscurrencyinterestrateswapsandinterestrateswapstohedge

currencyrateandinterestraterisks. Inallsuchcases,thehedging

relationshipandobjectivesincludingdetailsofthehedgeditemand

hedginginstrumentareformallydocumentedandthetransactions

areaccountedforbasedonthetypeofhedge.

144

Thetablebelowshowsthepositive(assets)andnegative(liabilities)fairvaluesofderivativefinancialinstruments.

Fairvalues

AssetsAED’000

LiabilitiesAED’000

NotionalAED’000

2016

Derivativesheldorissuedfortrading

Foreignexchangederivatives 606,608 416,641 113,962,359

Interestrateandcrosscurrencyswaps 2,401,276 2,424,337 165,014,702

Interestrateandcommodityoptions 256,446 225,476 14,707,345

Forwardrateagreements 972 1,130 4,471,101

Futures(exchangetraded) 10,612 1,290 20,353,204

Commodityandenergyswaps 213,716 200,638 3,098,707

Swaptions 51,174 29,098 5,047,292

Totalderivativesheldorissuedfortrading 3,540,804 3,298,610 326,654,710

Derivativesheldasfairvaluehedges

Interestrateandcrosscurrencyswaps 352,416 973,647 52,411,284

Derivativesheldascashflowhedges


Forwardforeignexchangecontracts 34,911 333,067 10,874,259

Totalderivativesheldascashflowhedges 78,569 520,272 18,026,693

Totalderivativefinancialinstruments 3,971,789 4,792,529 397,092,687

2015

Derivativesheldorissuedfortrading

Foreignexchangederivatives 603,776 547,656 83,468,566

Interestrateandcrosscurrencyswaps 2,451,771 2,510,906 126,344,389

Interestrateandcommodityoptions 188,336 178,628 16,178,025

Forwardrateagreements 796 397 1,234,013

Futures(exchangetraded) 1,335 1,045 38,970,027

Commodityandenergyswaps 297,824 297,369 1,322,557

Swaptions 36,062 19,578 6,733,713

Totalderivativesheldorissuedfortrading 3,579,900 3,555,579 274,251,290

Derivativesheldasfairvaluehedges

Interestrateandcrosscurrencyswaps 365,361 1,001,934 48,936,487

Derivativesheldascashflowhedges


Forwardforeignexchangecontracts 7,376 148,204 15,233,654

Totalderivativesheldascashflowhedges 56,647 183,667 18,934,403

Totalderivativefinancialinstruments 4,001,908 4,741,180 342,122,180

Thenotionalamountsindicatethevolumeofoutstandingcontractsandareneitherindicativeofthemarketrisknorcreditrisk.Referto

Note 47formarketriskmeasurementandmanagement.

Thenethedgeineffectivenesslossesrecognisedintheconsolidatedincomestatementareasfollows:

2016AED’000

2015 AED’000

(Losses)/gainsonthehedgeditemsattributabletoriskhedged (18,597) 136,113

Gains/(losses)onthehedginginstruments 15,421 (149,289)

Fairvaluehedgingineffectiveness (3,176) (13,176)

Cashflowhedgingineffectiveness (102) (544)

(3,278) (13,720)

145


ThetablebelowprovidestheGroup’sforecastofnetcashflowsinrespectofitscashflowhedgesandtheperiodsinwhichthesecashflows

areexpectedtoimpactconsolidatedincomestatement,excludinganyhedgingadjustmentthatmaybeapplied.

Forecastednetcashflows

Lessthan3monthsAED’000

3monthstolessthan

1yearAED’000

1yeartolessthan2years

AED’000

2yearstolessthan5years

AED’000

Above5years

AED’000Total

AED’000

2016 (58,653) (249,376) 37,508 (63,737) (60,451) (394,709)

2015 (49,719) (23,394) (9,557) 23,131 – (59,539)

Asat31 December2016,theGroupreceivedcashcollateralofAED253,524 thousand(31 December2015 —AED76,674 thousand)and

receivedbondswithfairvalueofAED3,167 thousand(31 December2015 —AEDNil)againstpositivefairvalueofderivativeassets.

Asat31 December2016,theGroupplacedcashcollateralofAED120,878 thousand(31 December2015 —AED600,980 thousand)and

investmentsecuritiesofAED2,012,757 thousand(31 December2015 —AED1,367,440 thousand)againstthenegativefairvalueofderivative

liabilities. Thesecollaterals aregovernedbycollateral serviceagreementsunder International SwapsandDerivativesAssociation (ISDA)

agreements.

10 INVESTMENTSECURITIES

UAEAED’000

OtherGCC(*)countriesAED’000

RestoftheworldAED’000

TotalAED’000

2016

Available-for-saleinvestments

Quoted:

Governmentsecurities 3,556,811 2,356,584 3,275,588 9,188,983

Bonds —Publicsector 5,383,401 456,788 1,336,649 7,176,838

Bonds —Banksandfinancialinstitutions 3,189,513 975,724 3,034,272 7,199,509

Bonds —Corporate 565,698 – 254,575 820,273

Equityinstruments 548 – – 548

Mutualfunds 74,690 – 83,368 158,058

Totalquoted 12,770,661 3,789,096 7,984,452 24,544,209

Unquoted:

Governmentsecurities 8,178,003 – – 8,178,003

Equityinstruments 323,872 – 13,382 337,254

Totalunquoted 8,501,875 – 13,382 8,515,257

Totalavailable-for-saleinvestments 21,272,536 3,789,096 7,997,834 33,059,466

2015

Available-for-saleinvestments

Quoted:

Governmentsecurities 1,032,722 736,295 3,153,778 4,922,795

Bonds —Publicsector 4,654,165 102,898 1,250,173 6,007,236

Bonds —Banksandfinancialinstitutions 2,612,778 348,164 5,342,028 8,302,970

Bonds —Corporate 528,172 – 146,130 674,302

Equityinstruments 540 – 448 988

Mutualfunds 66,719 – 76,867 143,586

Totalquoted 8,895,096 1,187,357 9,969,424 20,051,877

Unquoted:

Governmentsecurities – 398,109 – 398,109

Equityinstruments 349,484 – 13,248 362,732

Mutualfunds 50,889 – – 50,889

Totalunquoted 400,373 398,109 13,248 811,730

Totalavailable-for-saleinvestments 9,295,469 1,585,466 9,982,672 20,863,607

(*)GulfCooperationCouncil

146

TheGrouphedgesinterestrateandforeigncurrencyrisksoncertainfixedrateandfloatingrateinvestmentsthroughinterestrateandcurrency

swapsanddesignatestheseasfairvalueandcashflowhedges,respectively.Thenetpositivefairvalueoftheseswapsat31 December2016

wasAED269,512 thousand(31 December2015 —netpositivefairvalueAED224,564 thousand).Thehedgeineffectivenessgainsandlosses

relatingtothesehedgeswereincludedintheconsolidatedincomestatement.

TheGroupenteredintorepurchaseagreementswherebybondswerepledgedandheldbycounterpartiesascollateral.Therisksandrewards

relatingtotheinvestmentspledgedremainswiththeGroup.ThebondsplacedascollateralaregovernedunderGlobalMasterRepurchase

Agreements(GMRA).Thefollowingtablereflectsthecarryingvalueofthesebondsandtheassociatedfinancialliabilities:

2016 2015

Carryingvalueofpledgedsecurities

AED’000


AED’000

Carryingvalueofpledgedsecurities

AED’000


AED’000

Repurchasefinancing 275,351 264,835 3,304,381 3,152,676

Further, as at 31 December 2016, the Group pledged investment securities with fair value amounting to AED 2,028,708 thousand

(31 December2015 —AED 1,382,197 thousand)ascollateral againstmargincalls.The risksand rewardson thesepledged investments

remains withtheGroup.

11 LOANSANDADVANCESTOCUSTOMERS,NET

2016AED’000

2015 AED’000

Overdrafts(retailandcorporate) 5,689,706 4,487,083

Retailloans 29,661,611 28,400,112

Corporateloans 121,242,781 111,442,577

Creditcards 3,873,572 3,517,946

Otherfacilities 3,932,400 4,578,009

Grossloansandadvancestocustomers 164,400,070 152,425,727

Less:Allowanceforimpairment(Note43.6) (5,942,375) (6,175,265)

Totalloansandadvancestocustomers,net 158,457,695 146,250,462

Forreclassificationofloansandadvancestobanksto“Depositsandbalancesduefrombanks,net”,referNote6.

ForIslamicfinancingassetsincludedintheabovetable,referNote24.

TheGrouphedgescertainfixedrateandfloatingrateloansandadvancestocustomersforinterestrateriskusinginterestrateswapsand

designatestheseinstrumentsasfairvalueandcashflowhedges,respectively.Thenetnegativefairvalueoftheseswapsat31 December2016

wasAED128,190 thousand(31 December2015 —netnegativefairvalueofAED481 thousand).

TheGroupenteredintostructuredfinancingrepurchaseagreementswherebyloansandadvancestocustomerswerepledgedandheldby

counterpartiesascollateral.TherisksandrewardsrelatingtotheloanspledgedremainswiththeGroup.Theloansplacedascollateralare

governedundercollateralserviceagreementsunderInternationalSwapsandDerivativesAssociation(ISDA)agreements.Thefollowingtable

reflectsthecarryingvalueoftheseloansandtheassociatedfinancialliabilities:

2016 2015


AED’000


AED’000


AED’000


AED’000

Repurchasefinancing 322,814 165,697 302,444 225,120

Further,theGroupenteredintoasecuritylendingandborrowingarrangement,underwhichloansandadvancestocustomerswithnominal

valueofAED795,475 thousandwerelentagainsthighqualitybondswithnominalvalueofAED558,296 thousand.Therisksandrewards

relating to loans lent andbondsborrowed remainswith respectivecounterparties. The arrangement is governedunder the terms and

conditionsofGlobalMasterSecuritiesLendingAgreement(GMSLA).

147


12 INVESTMENTINASSOCIATE

InvestmentinassociaterepresentstheBank’sinterestinanassociaterepresenting35%equitystakeintheentity.TheBankhasdetermined

thatitexercisessignificantinfluencebasedontherepresentationinthemanagementoftheentity.

Theinvestmentinassociatehasbeenaccountedintheconsolidatedfinancialstatementsusingtheequitymethodatthenetfairvalueofthe

identifiableassetsandliabilitiesoftheassociateonthedateofacquisition.

Detailsoftheinvestmentinassociateasat31 December2016and2015areasfollows:

Nameofassociate Ownershipinterest Countryofincorporation Principalactivities

FourNPropertyLLC 35% UAE Residentialfacilitiesforlowerincomegroup

Forbalancesandtransactionswithassociate,referNote 37.

13 INVESTMENTPROPERTIES

AED’000

1 January2015 615,778

Additionsduringtheyear 31,677

Revaluationofinvestmentproperties 192

1 January2016 647,647

Additionsduringtheyear 505

Disposalsduringtheyear (4,401)

Revaluationofinvestmentproperties 16,025

31 December2016 659,776

Netgains from investmentproperties includes lossesofAED443

thousand(31 December2015 —AEDNil)ondisposalsduringtheyear.

Additions during the year includeAEDNil (31 December 2015 —

AED31,677 thousand),beingrealestateacquiredonsettlementsof

certainloansandadvances.Thisbeinganon-cashtransactionhas

notbeenreflectedintheconsolidatedstatementofcashflows.

FAIRVALUATIONS

Valuationsarecarriedoutbyregisteredindependentvaluershaving

an appropriate recognised professional qualification and recent

experienceinthelocationandcategoryofthepropertybeingvalued.

Thepropertieswerevaluedduringthelastquarteroftheyear.

Inestimatingthefairvaluesoftheproperties,thehighestandbest

useofthepropertiesistheircurrentuse.

Thevaluationmethodologiesconsideredbyexternalvaluersinclude:

DirectComparablemethod:Thismethodseekstodeterminethe

valueofthepropertyfromtransactionsofcomparableproperties

in the vicinity applying adjustments to reflect differences to the

subjectproperty.

Investmentmethod:Thismethodisusedtoassessthevalueofthe

propertybycapitalisingthenetoperatingincomeoftheproperty

atanappropriateyieldaninvestorwouldexpectforaninvestment

ofthedurationoftheinterestbeingvalued.

AllinvestmentpropertiesoftheGrouparelocatedwithintheUAE.

Detailsof rental incomeanddirectoperatingexpenses relating to

investmentpropertiesduringtheyearareasfollow:

2016AED’000

2015AED’000

Rentalincome 49,435 41,212

Directoperatingexpenses 8,323 4,994

14 OTHERASSETS

2016AED’000

2015AED’000

Interestreceivable 1,584,558 1,079,214

Advancetax 5,575 7,241

Prepayments 58,553 55,083

Acceptances(Note 21) 13,262,942 7,168,716

Others 209,360 261,386

Totalotherassets 15,120,988 8,571,640

148

15 PROPERTYANDEQUIPMENT,NET

Freeholdpropertiesandimprovements

AED’000

Leaseholdimprovements

AED’000

Furniture,equipment

andvehiclesAED’000

Computerequipment,

softwareandaccessories

AED’000

Capitalworkinprogress

AED’000Total

AED’000

Costorvaluation

Asat1 January2015 854,766 144,325 176,442 616,478 39,734 1,831,745

Exchangedifference (156) (1) (99) (176) (37) (469)

Additionsduringtheyear 230 534 2,472 1,884 158,854 163,974

Transfers 15,827 12,230 15,042 83,210 (126,309) –

Disposalsduringtheyear – – (3,446) (4,548) – (7,994)

Asat1 January2016 870,667 157,088 190,411 696,848 72,242 1,987,256

Exchangedifference (83) – (55) (110) (23) (271)

Additionsduringtheyear 294 47 3,648 3,102 229,422 236,513

Transfers 13,447 18,596 8,814 102,092 (142,949) –

Transfertoexpenses – – – – (27) (27)

Disposalsduringtheyear – – (2,155) (452) – (2,607)

Asat31 December2016 884,325 175,731 200,663 801,480 158,665 2,220,864

Accumulateddepreciation

Asat1 January2015 301,378 108,897 145,308 469,974 – 1,025,557

Exchangedifference (42) – (60) (137) – (239)

Chargefortheyear 37,530 12,494 11,870 72,637 – 134,531

Disposalsduringtheyear – – (3,192) (4,546) – (7,738)

Asat1 January2016 338,866 121,391 153,926 537,928 – 1,152,111

Exchangedifference (23) (1) 2 (121) – (143)

Chargefortheyear 38,457 11,521 11,119 83,716 – 144,813

Transfers – – 38 (38) – –

Disposalsduringtheyear – – (2,152) (450) – (2,602)

Asat31 December2016 377,300 132,911 162,933 621,035 – 1,294,179

Carryingamount

Asat31 December2016 507,025 42,820 37,730 180,445 158,665 926,685

Asat31 December2015 531,801 35,697 36,485 158,920 72,242 835,145

149


16 INTANGIBLEASSETS

Otherintangibleassets

GoodwillAED’000

Creditcardcustomer

relationshipsAED’000

Wealthmanagement

customerrelationships

AED’000

CoredepositintangibleAED’000

TotalAED’000

Costorvaluation

Asat1 January2015 18,800 12,700 18,000 112,700 162,200

Asat31 December2016 18,800 12,700 18,000 112,700 162,200

Accumulatedamortisation

Asat1 January2015 – 12,700 18,000 95,795 126,495

Amortisationduringtheyear – – – 16,905 16,905

Asat1 January2016 – 12,700 18,000 112,700 143,400

Asat31 December2016 – 12,700 18,000 112,700 143,400

Carryingamount

Asat31 December2016 18,800 – – – 18,800

Asat31 December2015 18,800 – – – 18,800

On1 October2010,theBankacquiredtheretailbanking,wealthmanagementandsmallandmediumenterprisebusinesses(the“Business”)

of TheRoyalBankof Scotland (“RBS”) in theUAE for a considerationofAED 168,900 thousand.Basedon the fair valuation andpur-

chasepriceallocationexerciseperformedbyanexternalconsultant immediatelyfollowingtheacquisitionin2010,theBankrecognised

AED 143,400 thousandasintangibleassetsandAED18,800 thousandasgoodwill.

GOODWILL

Forthepurposeofimpairmenttesting,goodwillisallocatedtothe

Group’soperatingdivisionswhichrepresentthelowestlevelwithin

theGroupatwhichgoodwillismonitoredforinternalmanagement

purposes,whichisnothigherthantheGroup’sbusinesssegments.

Theaggregatecarryingamountsofgoodwillallocatedtoeachunit

areasfollows:

AED’000

Cashgeneratingunit(CGU)

Creditcards 10,784

Loans 5,099

Overdrafts 94

Wealthmanagementbusiness 2,823

Totalgoodwill 18,800

OTHERINTANGIBLEASSETS

Customer

relationships

Customer relationship intangibleassets represent

thevalueattributabletothebusinessexpectedto

be generated fromcustomers that existed as at

theacquisitiondate. Indetermining the fairvalue

ofcustomer relationships,creditcardandwealth

management customerswere considered sepa-

rately,giventheirdifferingriskprofiles,relationships

and loyalty. These relationships are expected to

generatematerialrecurringincomeintheformof

interest,feesandcommission.

Coredeposit

intangible

The valueof core deposit intangible asset arises

fromthe fact that thedepositbaseof theGroup

represents a cheaper source of funding than

wholesaleormoneymarket funding. The spread

betweenthecostofdepositfundingandthecost

ofwholesale/moneymarketfundingrepresentsthe

valueofthecoredepositintangible.

150

IMPAIRMENTASSESSMENTOFGOODWILL

Noimpairmentlossesongoodwillwererecognisedduringtheyear

ended31 December2016(2015 —AEDNil).

TherecoverableamountsfortheCGUshavebeenassessedbased

ontheirvalueinuse.Valueinuseforeachunitwasdeterminedby

discounting the futurecash flowsexpected tobegenerated from

thecontinuinguseof theseunits. Value inusewasbasedon the

followingkeyassumptions:

Cash flows were projected based on past experience, actual

operating results and the business plan in 2016. Cash flows

wereextrapolatedusinga rateexpected tobe realizedby these

businesses.The forecastperiod isbasedon theGroup’scurrent

perspectivewithrespecttotheoperationoftheseunits.

Appropriatediscountrateswereappliedindeterminingtherecov-

erableamountsfortheCGUs.Thesediscountrateswereestimated

basedoncapitalassetpricingmodelusingdatafromU.S.bondand

UAEcapitalmarkets.

The key assumptionsdescribed abovemay change as economic

andmarketconditionschange.TheGroupestimatesthatreasonable

changesintheseassumptionsarenotexpectedtocausetherecov-

erableamountoftheunitstodeclinebelowthecarryingamount.

17 DUETOBANKS

2016AED’000

2015AED’000

Vostrobalances 267,453 282,666


Timedeposits 3,329,859 1,320,838

Totalduetobanks 3,842,714 1,691,793

TheBankhedgescertainforeigncurrencytimedepositsforforeign

currency risk using foreign exchange swap contracts and desig-

nates theseascash flowhedges.The fairvalueof theseswapsat

31 December2016wasAEDNil(31 December2015 —netnegative

fairvalueofAED1,562 thousand).

18 DEPOSITSFROMCUSTOMERS

2016AED’000

2015AED’000

Timedeposits 84,044,103 62,189,594

Currentaccountdeposits 51,596,345 51,713,778

Savingsdeposits 12,644,918 10,932,983

Murabahadeposits 6,011,966 17,628,523

Long-termgovernmentdeposits 411,313 418,907


Totaldepositsfromcustomers 155,442,207 143,526,296

ForIslamicdeposits(excludingMurabahadeposits)includedinthe

abovetable,referNote24.

TheBankhedgescertainforeigncurrencytimedepositsforforeign

currencyandfloatinginterestraterisksusingforeignexchangeand

interestrateswapsanddesignatestheseswapsaseithercashflow

or fairvaluehedges.Thenetnegative fairvalueof theseswapsat

31 December2016wasAED88,191 thousand(31 December2015 —

netnegativefairvalueofAED32,953 thousand).

19 EUROCOMMERCIALPAPER

Thedetails of euro commercial paper (ECP) issuancesunder the

Bank’sECPprogrammeareasfollows:

2016AED’000

2015AED’000

Currency

USdollar(USD) 5,972,681 2,294,750

Euro(EUR) 1,309,526 2,341,393

GreatBritainpound(GBP) 1,446,326 543,636

Swissfranc(CHF) – 453,223

Australiandollar(AUD) – 67,062

Totaleurocommercialpaper 8,728,533 5,700,064

TheBankhedgescertainECP for foreigncurrencyexchange rate

riskthroughforeignexchangeswapcontractsanddesignatesthese

instrumentsascashflowhedges.Thenetnegativefairvalueofthese

hedgecontractsasat31 December2016wasAED161,942 thousand

(31 December2015 —netnegativefairvalueofAED82,811 thousand).

At31 December2016,theeffectiveinterestrateonECPsissuedranges

betweennegative0.03%p.a. to positive 1.76%p.a. (31 December

2015 —betweennegative0.85%p.a.topositive2.17%p.a.).

151


20 BORROWINGS

Thedetailsofborrowingsasat31 December2016areasfollows:

Instrument Currency

Within1year

AED’0001–3yearsAED’000

3–5yearsAED’000

Over5years

AED’000Total

AED’000

Globalmedium-termnotes Australiandollar(AUD) – 672,505 77,142 – 749,647

Chineserenminbi(CNH) 157,452 350,729 – – 508,181

Euro(EUR) – 164,183 46,691 73,796 284,670

Malaysianringgit(MYR) 576,215 – – – 576,215

Swissfranc(CHF) 388,677 – 284,354 – 673,031

UAEdirham(AED) 500,358 – – – 500,358

Japaneseyen(JPY) 47,263 47,647 – – 94,910

HongKongdollar(HKD) – – 294,740 103,451 398,191

USdollar(USD) 3,203,777 7,686,977 3,096,121 2,749,226 16,736,101

4,873,742 8,922,041 3,799,048 2,926,473 20,521,304

Bilateralloans —floatingrate USdollar(USD) 2,018,887 1,285,550 – – 3,304,437

Syndicatedloan —floatingrate USdollar(USD) 734,600 2,919,383 – – 3,653,983

Certificateofdepositsissued GreatBritainpound(GBP) 898,422 – – – 898,422

Euro(EUR) 189,304 – – – 189,304

Indianrupee(INR) 307,793 – – – 307,793

USdollar(USD) 1,707,110 1,835,966 – – 3,543,076

Subordinatednotes —fixedrate USdollar(USD) – – – 3,702,602 3,702,602

Swissfranc(CHF) – – – 364,893 364,893

Borrowingsthroughrepurchaseagreements

USdollar(USD) 956,327 370,556 – 202,333 1,529,216

11,686,185 15,333,496 3,799,048 7,196,301 38,015,030

TheGrouphedgescertainborrowingsforforeigncurrencyexchangerateriskandinterestrateriskusingeitherinterestrateorcrosscurrency

swapsanddesignatestheseswapsaseitherfairvalueorcashflowhedges.Thenetnegativefairvalueoftheseswapsasat31 December2016

wasAED954,122 thousand.

152

Thedetailsofborrowingsasat31 December2015areasfollows:

Instrument Currency

Within1year

AED’0001–3yearsAED’000

3–5yearsAED’000

Over5years

AED’000Total

AED’000

Globalmedium-termnotes Australiandollar(AUD) – – 679,758 – 679,758

Chineserenminbi(CNH) – 167,032 – – 167,032

Euro(EUR) – – 48,314 – 48,314

Malaysianringgit(MYR) – 598,227 – – 598,227

Swissfranc(CHF) – 388,677 – – 388,677

Turkishlira(TRY) 46,821 – – – 46,821

UAEdirham(AED) – 504,164 – – 504,164

Japaneseyen(JPY) 130,562 45,896 46,192 – 222,650

HongKongdollar(HKD) – – 151,181 – 151,181

USdollar(USD) – 4,586,299 7,988,737 2,014,940 14,589,976

177,383 6,290,295 8,914,182 2,014,940 17,396,800

Islamicsukuknotes USdollar(USD) 1,841,406 – – – 1,841,406

Bilateralloans —floatingrate USdollar(USD) 550,950 2,751,371 – – 3,302,321

Syndicatedloan —floatingrate USdollar(USD) – 1,465,125 – – 1,465,125

Certificateofdepositsissued GreatBritainpound(GBP) 636,355 – – – 636,355

HongKongdollar(HKD) 236,708 – – – 236,708

Subordinatednotes —fixedrate USdollar(USD) – – – 3,662,417 3,662,417

Swissfranc(CHF) – – – 371,382 371,382


USdollar(USD) 3,284,750 1,274,467 – – 4,559,217

6,727,552 11,781,258 8,914,182 6,048,739 33,471,731

TheGrouphedgescertainborrowingsforforeigncurrencyexchangeriskandinterestrateriskusingeitherinterestrateorcrosscurrency

swapsanddesignatestheseswapsaseitherfairvalueorcashflowhedges.Thenetnegativefairvalueoftheseswapsasat31 December2015

wasAED870,826 thousand.

153


Interestsarepayableinarrearsandthecontractualcouponratesasat31 December2016areasfollows:

Instrument CCY Within1year 1–3years 3–5years Over5years

Globalmediumtermnotes

AUD – Fixedrateof4.75%p.a. Fixedrateof3.73%p.a. –

CNH Fixedratebetween3.70%p.a.to4.125%p.a.

Fixedratebetween3.85%p.a.to4.50%p.a.

– –

EUR – Quarterlycoupons with46basispoints overEuribor

Quarterlycoupons with59basispoints overEuribor

Fixedrateof0.75%p.a.

MYR Fixedrateof4.30%p.a.to5.35%p.a.

– – –

CHF Quarterlycouponswith110basispointsoverCHFLibor

– – –

AED Fixedrateof6.00%p.a. – – –

JPY Fixedrateof0.48%p.a. Fixedrateof0.68%p.a. – –

HKD – – Fixedratebetween2.30%p.a.to2.86%p.a.

Fixedrateof2.84%p.a.

USD(*) Fixedrateof1.45%p.a.andquarterlycouponsbetween108to130basispointsoverLibor

Fixedratebetween2.50%p.a.to3.00%p.a.

Fixedrateof2.63%p.a.andquarterlycouponswith73basispoints overLibor

Fixedratebetween 4.30%p.a.to5.12%p.a.

Bilateralloans —floatingrate

USD Quarterly/monthlycouponswith60to70basispointsoverLibor

Monthlycouponswith68to80basispointsoverLibor

– –

Syndicatedloan —floatingrate

USD Monthlycoupons with68basispoints overLibor

Quarterlycouponswith60to95basispointsoverLibor

– –

Certificateofdepositsissued

GBP Fixedratebetween0.69%p.a.to0.93%p.a.

– – –

EUR Fixedratebetweennegative0.013%p.a. tonegative0.05%p.a.

– – –

INR Fixedratebetween 6.5%p.a.to6.85%p.a.

– – –

USD Fixedratebetween1.39%p.a.to1.81%p.a.andquarterlycouponswith76basispoints overLibor

Quarterlycoupons with114basispointsoverLibor

– –

Subordinatednotes —fixedrate

USD – – – Fixedratebetween3.125%p.a.to4.50%p.a.

CHF – – – Fixedrateof1.885%p.a.


USD Fixedraterangingfromnegative0.25%p.a.topositive1.50%p.a.andquarterlycouponsbetween130to145basispointsoverLibor

Quarterlycouponsbetween130to145basispointsoverLibor

– Semi-annualcouponsbetweennegative20tonegative18basispointsoverLibor

(*)includesAED2,087,489 thousand30yearaccretingnoteswithyieldrangingfrom4.30%p.a.to5.12%p.a.andarecallableattheendofevery5thyearfromissuedate.

ThesubordinatedfixedratenotesqualifyasTier2subordinatedloancapitalforthefirst5yearperiodtill2018andthereafterareamortised

attherateof20%perannumuntil2023forcapitaladequacycalculation(Note52).ThishasbeenapprovedbytheCentralBankoftheUAE.

SubordinatednotesofAED1,457,121 thousandmaturein2023butarecallableafter5yearsfromtheissuancedateattheoptionoftheBank.

154

21 OTHERLIABILITIES

2016AED’000

2015AED’000

Interestpayable 1,022,845 506,502

Recognisedliabilityfordefinedbenefitobligation 421,275 384,677

Accountspayableandothercreditors 271,313 291,506

Deferredincome 635,476 626,360

Acceptances(Note 14) 13,262,942 7,168,716

Others 1,503,508 1,425,473

Totalotherliabilities 17,117,359 10,403,234

DEFINEDBENEFITOBLIGATION

TheGroupprovides gratuity benefits to its eligible employees in

UAE.Themostrecentactuarialvaluationsofthepresentvalueofthe

definedbenefitobligationwerecarriedoutinthelastquarterof2016

byaregisteredactuaryintheUAE.Thepresentvalueofthedefined

benefitobligationandtherelatedcurrentandpastservicecost,were

measuredusingtheProjectedUnitCreditMethod.

Keyassumptionsusedintheactuarialvaluationareasfollows:

Discountrate:4.00%p.a.

Salaryincrementrate:2.50%p.a.till2019and4.50%p.a.thereafter.

Demographicassumptionsformortalityandretirementwereusedin

valuingtheliabilitiesandbenefitsundertheplan.

TheliabilitywouldbehigherbyAED12,988 thousandhadthedis-

count rateused in the assumptionbeen lowerby0.50%and the

liabilitywouldbelowerbyAED12,219 thousandhadthediscountrate

usedintheassumptionbeenhigherby0.50%.Similarly,theliability

wouldbehigherbyAED13,001 thousandhadthesalaryincrement

rateusedintheassumptionbeenhigherby0.50%andtheliability

wouldbelowerbyAED12,350 thousandhadthesalaryincrement

rateusedintheassumptionbeenlowerby0.50%.

Themovementindefinedbenefitobligationisasfollows:

2016AED’000

2015AED’000

Openingbalance 384,677 334,872

Netchargeduringtheyear(*) 55,847 68,121

Actuarial(gains)/lossesondefinedbenefitobligation (1,573) 10,141

Benefitspaid (17,676) (28,457)

Closingbalance 421,275 384,677

(*)recognisedunder“staffcosts”intheconsolidatedincomestatement

DEFINEDBENEFITCONTRIBUTION

Underdefinedcontributionplans,theGrouppayscontributionsto

Abu DhabiRetirementPensionsandBenefitsFundforUAENational

employeesandtorespectivepensionfundsforotherGCCNational

employees. Thecharge for the year in respectof thesecontribu-

tions is AED28,863 thousand (2015 —AED27,763 thousand). As

at 31 December 2016, pension payable of AED 3,461 thousand

has beenclassifiedunderother liabilities —others (31 December

2015 —AED 5,905 thousand).

22 SHARECAPITAL

Issuedandfullypaid

AuthorisedAED’000

2016AED’000

2015AED’000

OrdinarysharesofAED1each 5,595,597 5,198,231 5,595,597

InDecember 2016, theBoardofDirectors approvedcancellation

of 397,366,172 shares which were acquired by the Bank during

the buyback period (Note 23). The cancellation is effective from

8 January2017astheperiodoftwoyearsforthesaleofpurchased

sharesendedon5 January2017.Thecancellationoftreasuryshares

beinganon-cashtransactionhasnotbeenreflectedintheconsoli-

datedstatementofcashflows.

Asat31 December2016,Abu DhabiInvestmentCouncilheld62.523%

(31 December2015 —58.083%)oftheBank’sissuedandfullypaidup

sharecapital.

DIVIDENDS

Fortheyearended31 December2016,theBoardofDirectorshas

proposed topaycashdividendofAED2,079,292 thousand,being

AED 0.40 dividend per share and representing 40% of the paid

upcapital (31 December 2015 —AED2,339,204 thousand, being

AED 0.45dividendpershareand representing45%of thepaidup

capitalnetofsharesboughtback).Thisissubjecttotheapprovalof

theshareholdersintheAnnualGeneralMeeting.

155


23 OTHERRESERVES

Reservesmovementfortheyearended31 December2016:

Treasuryshares

AED’000

Employees’incentiveplan

shares,netAED’000

Statutoryreserve

AED’000

Legalreserve

AED’000

Generalreserve

AED’000

Contingencyreserve

AED’000

Foreigncurrency

translationreserve

AED’000

Cashflowhedgereserve

AED’000

CumulativechangesinfairvaluesAED’000

TotalAED’000

Asat1 January2016 (1,825,653) (92,959) 2,797,799 2,797,799 2,000,000 150,000 (73,260) 3,057 (100,219) 5,656,564

Exchangedifferencearisingontranslationofforeignoperations – – – – – – (5,481) – – (5,481)

Netfairvaluechangesoncashflowhedges – – – – – – – (314,683) – (314,683)

Netfairvaluechangesreclassifiedtoconsolidatedincomestatement – – – – – – – 168,133 – 168,133

Netfairvaluechangesonavailable-for-saleinvestments – – – – – – – – 167,287 167,287

Netfairvaluechangesreleasedtoconsolidatedincomestatementondisposalofavailable-for-saleinvestments – – – – – – – – (53,090) (53,090)

Totalothercomprehensive(loss)/gainfortheyear – – – – – – (5,481) (146,550) 114,197 (37,834)

Sharespurchased – (46,354) – – – – – – – (46,354)

Fairvalueadjustments – 4,950 – – – – – – – 4,950

Shares —vestedportion(Note25) – 34,304 – – – – – – – 34,304

Cancellationoftreasuryshares(Note22) 1,825,653 – – – – – – – – 1,825,653

Asat31 December2016 – (100,059) 2,797,799 2,797,799 2,000,000 150,000 (78,741) (143,493) 13,978 7,437,283

Asat1 January2015 (1,808,648) (66,099) 2,692,154 2,647,367 2,000,000 150,000 (63,385) (11,283) 251,692 5,791,798




Netfairvaluechangesonavailable-for-saleinvestments – – – – – – – – (334,883) (334,883)


Totalothercomprehensive(loss)/gainfortheyear – – – – – – (9,875) 14,340 (351,911) (347,446)


Fairvalueandotheradjustments – (4,056) – – – – – – – (4,056)


Sharebuyback (17,005) – – – – – – – – (17,005)

Transferfromretainedearnings(Note52) – – 105,645 150,432 – – – – – 256,077

Asat31 December2015 (1,825,653) (92,959) 2,797,799 2,797,799 2,000,000 150,000 (73,260) 3,057 (100,219) 5,656,564

FormoreinformationonreservesreferNote 52.

156

23 OTHERRESERVES

Reservesmovementfortheyearended31 December2016:

Treasuryshares

AED’000

Employees’incentiveplan

shares,netAED’000

Statutoryreserve

AED’000

Legalreserve

AED’000

Generalreserve

AED’000

Contingencyreserve

AED’000

Foreigncurrency

translationreserve

AED’000

Cashflowhedgereserve

AED’000

CumulativechangesinfairvaluesAED’000

TotalAED’000

Asat1 January2016 (1,825,653) (92,959) 2,797,799 2,797,799 2,000,000 150,000 (73,260) 3,057 (100,219) 5,656,564




Netfairvaluechangesonavailable-for-saleinvestments – – – – – – – – 167,287 167,287


Totalothercomprehensive(loss)/gainfortheyear – – – – – – (5,481) (146,550) 114,197 (37,834)


Fairvalueadjustments – 4,950 – – – – – – – 4,950


Cancellationoftreasuryshares(Note22) 1,825,653 – – – – – – – – 1,825,653

Asat31 December2016 – (100,059) 2,797,799 2,797,799 2,000,000 150,000 (78,741) (143,493) 13,978 7,437,283

Asat1 January2015 (1,808,648) (66,099) 2,692,154 2,647,367 2,000,000 150,000 (63,385) (11,283) 251,692 5,791,798




Netfairvaluechangesonavailable-for-saleinvestments – – – – – – – – (334,883) (334,883)


Totalothercomprehensive(loss)/gainfortheyear – – – – – – (9,875) 14,340 (351,911) (347,446)


Fairvalueandotheradjustments – (4,056) – – – – – – – (4,056)


Sharebuyback (17,005) – – – – – – – – (17,005)

Transferfromretainedearnings(Note52) – – 105,645 150,432 – – – – – 256,077

Asat31 December2015 (1,825,653) (92,959) 2,797,799 2,797,799 2,000,000 150,000 (73,260) 3,057 (100,219) 5,656,564

FormoreinformationonreservesreferNote 52.

157


24 ISLAMICFINANCING

Islamicfinancingassets2016

AED’0002015

AED’000

Murabaha 2,589,031 2,180,790

Ijarafinancing 9,552,393 6,749,806

Salam 6,564,582 5,303,398

Others 169,878 230,373

GrossIslamicfinancingassets 18,875,884 14,464,367

Less:Allowanceforimpairment (376,892) (191,169)

NetIslamicfinancingassets 18,498,992 14,273,198

GrossIjaraandrelatedpresentvalueof

theminimumIjarapayments2016

AED’0002015

AED’000

Notlaterthanoneyear 1,018,822 483,002

Laterthanoneyearbutnotlaterthan5years 4,868,456 1,853,649

Laterthan5years 6,068,848 6,132,908

GrossIjara 11,956,126 8,469,559

Less:Deferredincome (2,403,733) (1,719,753)

NetIjara 9,552,393 6,749,806

Netpresentvalue

Notlaterthanoneyear 812,845 384,998

Laterthanoneyearbutnotlaterthan5years 3,890,182 1,477,280

Laterthan5years 4,849,366 4,887,528

Totalnetpresentvalue 9,552,393 6,749,806

IncomefromIslamicfinancing2016

AED’0002015

AED’000

Murabaha 101,525 83,625

Ijarafinancing 320,557 226,074

Salam 414,896 359,588

Others 6,700 7,857

TotalincomefromIslamicfinancing 843,678 677,144

Islamicdeposits2016

AED’0002015

AED’000

Currentaccountdeposits 3,480,635 2,646,781


Mudarabasavingsdeposits 5,840,816 4,919,033

Mudarabatermdeposits 1,009,604 1,280,738

Wakaladeposits 1,615,814 1,363,893

TotalIslamicdeposits 11,987,425 10,221,567

Islamicprofitdistribution2016

AED’0002015

AED’000

Mudarabasavingsandtermdeposits 51,937 41,505

Wakaladeposits 37,973 17,410

Sukuk 48,609 50,797

TotalIslamicprofitdistribution 138,519 109,712

InNovember2011,ADCBthroughitssubsidiaryADCBIslamicFinance

(Cayman) Limited (Sukuk company) issued a Shari’ah compliant

financingarrangement —SukukamountingtoUSD500,000 thou-

sand (AED1,836,500 thousand).TheSukukcarriedaprofit rateof

4.07%p.a.payablesemi-annuallyandmatured inNovember2016.

TheSukukwaslistedonLondonStockExchange.

25 EMPLOYEES’INCENTIVEPLANSHARES,NET

TheGroupoperatesDeferredCompensationPlan(the“Plan”)torecogniseandretaingoodperformingemployees.UnderthePlan,the

employeesaregrantedsharesoftheBankwhentheymeetthevestingconditionsatapriceprevailingatthegrantdate.Thesesharesare

acquiredandheldbyasubsidiaryoftheBankuntilvestingconditionsaremet.TheGroup’sNomination,CompensationandHRCommittee

determinesandapprovesthesharestobegrantedtoemployeesbasedontheGroup’skeyperformanceindicators.

Fortheyearended31 December2016,theGrouphadfiveincentiveplansinforceasdescribedbelow:

1 January2016 1 January2016 1 January2015 1 January2015 January1,2014

Numberofsharesgranted 2,075,000 4,096,402 1,795,000 3,840,968 1,665,000

Fairvalueofthegranted sharesatthegrantdate inAEDthousand 13,674 26,995 12,619 27,002 10,823

Vestingdate 31 December2019 31 December2018 31 December2018 31 December2017 31December2017

Vestingconditions —Three/fouryears’servicefromthegrantdateormeetingspecialconditionsduringthevestingperiod(death,disability,

retirement,terminationorachievingthebudgetedperformance).

158

Themovementofplansharesisasfollows:

2016 2015

Openingbalance 6,727,404 6,097,905

Sharesgrantedduringtheyear 6,171,402 5,635,968

Exercisedduringtheyear (3,670,727) (4,455,263)

Forfeitedduringtheyear (160,944) (551,206)

Closingbalance 9,067,135 6,727,404

Amountof“Plan”costrecognisedunder“staffcosts”intheconsolidatedstatementofincome(AED‘000) 34,304 27,391

Totalnumberofun-allottedsharesunderthePlanasat31 December

2016were8,615,124shares(31 December2015 —7,337,530shares).

Theseun-allotted shares include forfeited shares and shares pur-

chased for futureplans. TheGroup’sNomination,Compensation

andHRCommittee’sintentionistoincludethesesharesinthenext

incentiveplanscheme.

26 CAPITALNOTES

In February 2009, the Department of Finance, Government of

Abu DhabisubscribedtoADCB’sTierIregulatorycapitalnoteswitha

principalamountofAED4,000,000 thousand(the“Notes”).

TheNotesarenon-voting,non-cumulativeperpetualsecuritiesfor

whichthereisnofixedredemptiondate.Redemptionisonlyatthe

optionoftheBank.TheNotesaredirect,unsecured,subordinated

obligationsoftheBankandrankpari passuwithoutanypreference

among themselvesand the rightsandclaimsof theNoteholders

will be subordinated to theclaimsof SeniorCreditors. TheNotes

boreinterestattherateof6%perannumpayablesemi-annuallyuntil

February2014,andbeara floating interest rateof6monthEIBOR

plus2.3%perannumthereafter.HowevertheBankmayat itssole

discretionelectnottomakeacouponpayment.TheNoteholders

donothavearighttoclaimthecouponandanelectionbytheBank

nottoservicethecouponisnotconsideredaneventofdefault.In

addition, there are certain circumstances (“non-payment event”)

underwhichtheBankisprohibitedfrommakingacouponpayment

onarelevantcouponpaymentdate.

IftheBankmakesanon-paymentelectionoranon-paymentevent

occurs, then theBankwill not (a) declareor pay anydistribution

ordividendor (b) redeem,purchase, cancel, reduceorotherwise

acquireanyofthesharecapitaloranysecuritiesoftheBankranking

pari passuwithorjuniortotheNotesexceptsecurities,thetermof

whichstipulateamandatoryredemptionorconversionintoequity,

ineachcaseunlessoruntiltwoconsecutivecouponpaymentshave

beenpaidinfull.

27 INTERESTINCOME

2016AED’000

2015AED’000

Loansandadvancestobanks 477,720 301,740

Loansandadvancestocustomers 6,791,680 6,348,531

Available-for-saleinvestments 632,233 459,260

Tradingsecurities 5,970 10,437

Totalinterestincome 7,907,603 7,119,968

28 INTERESTEXPENSE

2016AED’000

2015AED’000

Depositsfrombanks 23,363 7,212

Depositsfromcustomers 1,654,764 919,506

Eurocommercialpaper 97,024 36,003

Borrowings 636,438 518,880

Totalinterestexpense 2,411,589 1,481,601

29 NETFEESANDCOMMISSIONINCOME

2016AED’000

2015AED’000

Feesandcommissionincome

Retailbankingfees 1,115,779 1,014,470

Corporatebankingfees 560,200 559,501

Feesfromtrustandotherfiduciaryactivities 156,447 178,418

Brokeragefees 16,831 14,018

Otherfees 45,888 41,775

Totalfeesandcommissionincome 1,895,145 1,808,182

Feesandcommissionexpenses (422,842) (370,605)

Netfeesandcommissionincome 1,472,303 1,437,577

30 NETTRADINGINCOME

2016AED’000

2015AED’000

Netgainsfromdealinginderivatives 81,961 64,145

Netgainsfromdealinginforeigncurrencies 434,378 292,104

Netgains/(losses)fromtradingsecurities 5,514 (4,237)

Nettradingincome 521,853 352,012

159


31 OTHEROPERATINGINCOME

2016AED’000

2015AED’000

Propertymanagementincome 150,017 151,464

Rentalincome 61,148 53,220

Dividendincome 5,929 9,867

Netgainsfromdisposalofavailable-for-saleinvestments 53,090 17,028

Lossesarisingfromretirementofhedges (8,598) (3,887)

Others 22,950 37,214

Totalotheroperatingincome 284,536 264,906

32 OPERATINGEXPENSES

2016AED’000

2015AED’000

Staffexpenses 1,656,860 1,689,427

Depreciation(Note 15) 144,813 134,531

Amortisationofintangibleassets(Note 16) – 16,905

Others 994,189 986,075

Totaloperatingexpenses 2,795,862 2,826,938

33 IMPAIRMENTALLOWANCES

2016AED’000

2015AED’000

Chargefortheyear 1,689,913 752,846

Recoveriesduringtheyear (137,597) (252,566)

Impairmentallowanceonloansandadvances,net(Note43.6) 1,552,316 500,280

Recoveriesonavailable-for-saleinvestments (19,209) (10,853)

Impairment(release)/allowance — others (12,589) 12,121

Totalimpairmentallowances 1,520,518 501,548

34 EARNINGSPERSHARE

BASICANDDILUTEDEARNINGSPERSHARE

ThecalculationofbasicearningspershareisbasedonthenetprofitattributabletoequityholdersoftheBankandtheweightedaverage

numberofequitysharesoutstanding.Dilutedearningspershareiscalculatedbyadjustingtheweightedaveragenumberofequityshares

outstandingforthedilutiveeffectsofpotentialequitysharesheldonaccountofemployees’incentiveplan.

2016AED’000

2015 AED’000

NetprofitfortheyearattributabletotheequityholdersoftheBank 4,148,651 4,924,244

Less:Couponpaidoncapitalnotes(Note26) (138,013) (128,860)

NetadjustedprofitfortheyearattributabletotheequityholdersoftheBank(a) 4,010,638 4,795,384

Numberofsharesinthousand

Weightedaveragenumberofsharesinissuethroughouttheyear 5,595,597 5,595,597

Less:Weightedaveragenumberoftreasurysharesarisingonbuyback (397,366) (397,330)

Less:WeightedaveragenumberofsharesresultingfromEmployees’incentiveplanshares (17,115) (14,607)

Weightedaveragenumberofequitysharesinissueduringtheyearforbasicearningspershare(b) 5,181,116 5,183,660

Add:WeightedaveragenumberofsharesresultingfromEmployees’incentiveplanshares 17,115 14,607

Weightedaveragenumberofequitysharesinissueduringtheyearfordilutedearningspershare(c) 5,198,231 5,198,267

Basicearningspershare(AED)(a)/(b) 0.77 0.93

Dilutedearningspershare(AED)(a)/(c) 0.77 0.92

160

35 OPERATINGLEASE

GROUPASLESSEE

Operating leases relates to leasesofbranchpremises,officesand

ATMsof theGroupwith lease termsmainlybetween1 to3years.

TheGrouphastheoptiontorenewthe leaseagreementsbutnot

theoption to purchase the leased premises at the expiry of the

leaseperiods.

2016AED’000

2015AED’000

Paymentsrecognisedasanexpense

Minimumleasepayments 82,728 68,472

Non-cancellableoperatingleasecommitments


Laterthanoneyearbutnotlaterthan5years 78,278 15,642

Laterthan5years 2,833 225

Totalnon-cancellableoperatingleasecommitments 124,933 47,212

GROUPASLESSOR

OperatingleasesrelatetopropertiesownedbytheGroupwithvaried

leaseterms,withanoptiontoextendtheleaseterm.Alloperating

leasecontractscontainmarketreviewclause intheeventthat the

lesseeexercises itsoption to renew.The lesseedoesnothavean

optiontopurchasethepropertyattheexpiryoftheleaseperiod.

RentalincomesearnedbytheGroupfromitsinvestmentproperties

anddirectoperatingexpensesarisingontheinvestmentproperties

fortheyeararesetoutinNote 13.

2016AED’000

2015AED’000

Non-cancellableoperatingleasereceivables:


Laterthanoneyearbutnotlaterthan5years 35,196 42,793

Laterthan5years 35,531 41,318

Totalnon-cancellableoperatingleasereceivables 93,659 117,401

36 CASHANDCASHEQUIVALENTS

Cashandcashequivalentsincludedintheconsolidatedstatement

of cash flowscomprise the following statementof financial posi-

tionamounts:

2016AED’000

2015AED’000

Cashandbalanceswithcentralbanks 19,261,902 20,180,277

Depositsandbalancesduefrombanks,net(excludingloansandadvancestobanks,net) 21,079,997 14,954,997

Reverse-repoplacements 1,524,806 4,256,277

Duetobanks (3,842,714) (1,691,793)

38,023,991 37,699,758

Less:Cashandbalanceswithcentralbanks,depositsandbalancesduefrombanks,netandreverse-repoplacements —withoriginalmaturityofmorethan3months (4,867,005) (7,364,126)

Add:Duetobanks —withoriginalmaturityofmorethan3months 1,494,133 437,937

Totalcashandcashequivalents 34,651,119 30,773,569

37 RELATEDPARTYTRANSACTIONS

TheGroupenters into transactionswith theparentand its related

entities,associate,fundsundermanagement,directors,seniorman-

agementandtheirrelatedentitiesandtheGovernmentofAbu Dhabi

(ultimate controlling party and its related entities) in theordinary

courseofbusinessatcommercialinterestandcommissionrates.

Keymanagementpersonnel aredefined as thosepersonshaving

authority and responsibility for planning, directing andcontrolling

theactivitiesoftheGroup,beingthedirectors,chiefexecutiveofficer

andhisdirectreports.

TransactionsbetweentheBankanditssubsidiarieshavebeenelimi-

natedonconsolidationandarenotdisclosedinthisnote.

DetailsofalltransactionsinwhichaDirectorand/orrelatedparties

mighthaveactualorpotentialconflictsareprovidedtotheBoardof

Directors(the“Board”)foritsreviewandapproval.WhereaDirector

isinterested,thatDirectorneitherparticipatesinthediscussionsnor

voteson suchmatters.TheBank’spolicy is, so far aspossible, to

engageintransactionswithrelatedpartiesonlyonarm’slengthterms

and in accordancewith relevant laws and regulations. TheBoard

Secretariatmaintainsaconflictsandrelatedpartiesregisterwhichis

regularlyreviewedbytheBoardCorporateGovernanceCommittee.

Inaddition,theBoardmaintainsawarenessofothercommitments

ofitsDirectorsandseniormanagement.TheBankhasimplemented

aDirectors’conflictofinterestpolicyand,forseniormanagement,

aCodeofConduct.Asaresultofwrittendeclarationssubmittedby

eachoftheBoardmembers,theBoardsatisfiesitselfthattheother

commitmentsof theDirectorsdonotconflictwith theirdutiesor

that,whereconflictsarise,theBoardissufficientlyawareandpolicies

areinplacetominimisetherisks.

161


PARENTANDULTIMATECONTROLLINGPARTY

Abu DhabiInvestmentCouncilholds62.523%(31 December2015 —58.083%)oftheBank’sissuedandfullypaidupsharecapital(Note 22).

Abu Dhabi InvestmentCouncilwasestablishedby theGovernmentofAbu Dhabipursuant to lawNo. 16of2006and so theultimate

controllingpartyistheGovernmentofAbu Dhabi.

Relatedpartybalancesandtransactionsincludedintheconsolidatedstatementoffinancialpositionandconsolidatedincomestatementare

asfollows:

Ultimatecontrolling

partyanditsrelatedparties

AED’000

Directorsandtheir

relatedpartiesAED’000

Keymanagement

AED’000

Associateandfundsunder

managementAED’000

TotalAED’000

2016

Balances:

Depositsandbalancesduefrombanks 8,365,227 – – – 8,365,227

Tradingsecurities 27,660 – – – 27,660

Derivativefinancialinstruments —assets 1,366,421 – – – 1,366,421

Investmentsecurities 13,106,324 – – 158,085 13,264,409

Loansandadvancestocustomers 23,653,122 304,837 36,371 293,232 24,287,562

Otherassets 113,542 1,230 – 6,618 121,390

Duetobanks 90,949 – – – 90,949

Derivativefinancialinstruments —liabilities 532,920 – – – 532,920

Depositsfromcustomers 34,839,067 216,577 30,075 58,814 35,144,533

Borrowings 51,164 – – – 51,164

Otherliabilities 220,116 1,252 9,555 636 231,559

Capitalnotes 4,000,000 – – – 4,000,000

Commitmentsandcontingentliabilities 7,291,066 92,007 1,633 28,096 7,412,802

Transactions:

Interest,feesandotherincome 491,222 11,407 1,216 56,816 560,661

Interestexpense 334,390 1,578 293 4 336,265

Derivativeincome 62,168 – – – 62,168

Shareinprofitofassociate – – – 7,821 7,821

CouponpaidonCapitalnotes 138,013 – – – 138,013

2015

Balances:

Depositsandbalancesduefrombanks 3,345,680 – – – 3,345,680

Reverse-repoplacements 2,762,095 – – – 2,762,095


Derivativefinancialinstruments —assets 1,709,379 – – – 1,709,379

Investmentsecurities 3,534,254 – – 194,504 3,728,758

Loansandadvancestocustomers 21,016,695 287,425 38,603 348,688 21,691,411

Otherassets 181,227 2,266 352 10,245 194,090

Derivativefinancialinstruments —liabilities 719,449 – – – 719,449

Duetobanks 47,676 – – – 47,676

Depositsfromcustomers 28,538,837 177,902 20,698 59,294 28,796,731

Otherliabilities 37,574 426 8,182 – 46,182

Capitalnotes 4,000,000 – – – 4,000,000

Commitmentsandcontingentliabilities 3,785,311 148,806 2,026 29,039 3,965,182

Transactions:

Interest,feesandotherincome 305,040 9,954 1,088 48,864 364,946

Interestexpense 234,477 210 155 4 234,846

Derivativeincome 142,663 – – – 142,663

Shareinprofitofassociate – – – 1,302 1,302

CouponpaidonCapitalnotes 128,860 – – – 128,860

Asat31 December2016,Fundsundermanagementheld6,313,612shares(31 December2015:6,743,997shares)oftheBank.Duringtheyear,

theBankpaiddividendofAED2,903 thousand(2015:AED1,937 thousand)totheseFunds.

162

Remuneration of key management employees and Board of

Directorsfeesandexpensesduringtheyearareasfollows:

2016AED’000

2015AED’000

Short-termbenefits 25,623 25,536

Terminationbenefits 2,292 2,636

Variablepaybenefits 29,650 30,375

57,565 58,547

BoardofDirectorsfeesandexpenses 9,629 7,909

In addition to the above, the keymanagement personnel were

granted long termdeferred compensation including share based

paymentsofAED26,900 thousand(2015 —AED27,625 thousand).

38 COMMITMENTSANDCONTINGENTLIABILITIES

TheGrouphadthefollowingcommitmentsandcontingentliabilities

at31 December:

2016AED’000

2015AED’000

Lettersofcredit 11,721,924 7,397,227

Guarantees 22,000,322 20,688,203

Commitmentstoextendcredit —Revocable(*) 11,021,112 10,140,076

Commitmentstoextendcredit — Irrevocable 13,656,251 13,436,760

Totalcommitmentsonbehalfofcustomers 58,399,609 51,662,266

Commitmentsforfuturecapitalexpenditure 307,268 364,985

Commitmentstoinvestininvestmentsecurities 57,202 89,182

Totalcommitmentsandcontingentliabilities 58,764,079 52,116,433

(*)includesAED7,032,650 thousand(31 December2015:AED6,860,860 thou-sand)forundrawncreditcardlimits.

CREDIT-RELATEDCOMMITMENTS

Credit-relatedcommitmentsincludecommitmentstoextendcredit,

standbylettersofcreditandguaranteeswhicharedesignedtomeet

therequirementsoftheBank’scustomers.Irrevocablecommitments

toextendcreditrepresentcontractualcommitmentstomakeloans

and advances and revolving credits. Revocable commitments to

extendcredit representcommitments tomake loanandadvances

andrevolvingcreditswhichcanbecancelledbytheBankuncondi-

tionallywithoutanycontractualobligations.Commitmentsgenerally

have fixed expiry datesor other termination clauses. Since com-

mitmentsmayexpirewithoutbeingdrawnupon,thetotalcontract

amountsdonotnecessarilyrepresentfuturecashrequirements.

LettersofcreditandguaranteescommittheBanktomakepayments

onbehalfofcustomerscontingentuponthefailureofthecustomer

toperformunderthetermsofthecontract.Thesecontractswould

beexposed tomarket risk if issuedor extendedat a fixed rateof

interest.Howeverthesecontractsareprimarilymadeatfloatingrates.

Commitments andcontingent liabilitieswhichhavebeenentered

intoonbehalfofcustomersandforwhichtherearecorresponding

obligations fromcustomers, arenot included in assets and liabili-

ties.TheBank’smaximumexposure tocredit loss, in theeventof

non-performancebytheotherpartyandwhereallcounterclaims,

collateral or security proves valueless, is representedby thecon-

tractualnominalamountoftheseinstrumentsincludedinthetable

above.Thesecommitmentsandcontingentobligationsaresubject

totheBank’snormalcreditapprovalprocesses.

39 OPERATINGSEGMENTS

TheGrouphasfourreportablesegmentsasdescribedbelow.These

segmentsoffer different products and services and aremanaged

separatelybasedontheGroup’smanagementandinternalreporting

structure.TheGroup’sManagementExecutiveCommittee(theChief

OperatingDecisionMaker“CODM”),isresponsibleforallocationof

resources to these segments,whereas, theGroup’s Performance

ManagementCommittee,basedondelegationfromCODMreviews

theperformanceofthesesegmentsonaregularbasis.

The following summary describes theoperations in eachof the

Group’sreportablesegments:

Consumerbanking

comprisesof retail,wealthmanagement, Islamicfinancing and investment in associate. It includesloans,depositsandothertransactionsandbalanceswith retail customers and corporate and privateaccountsofhighnetworth individuals and fundsmanagementactivities.

Wholesalebanking

comprisesofbusinessbanking,cashmanagement,tradefinance,corporatefinance,smallandmediumenterprise financing, investment banking, Indianoperations, Islamic financing, infrastructure andassetfinance,governmentandpublicenterprises.Itincludesloans,depositsandothertransactionsandbalanceswithcorporatecustomers.

Investmentsandtreasury

comprises of central treasury operations, man-agementof theGroup’s investmentportfolioandinterest rate, currency and commodity derivativeportfolio and Islamic financing. Investments andtreasury undertakes the Group’s funding andcentralized risk management activities throughborrowings, issue of debt securities and use ofderivativesforriskmanagement.Italsoundertakestradingandcorporatefinanceactivitiesandinvest-inginliquidassetssuchasshort-termplacements,corporateandgovernmentdebtsecurities.

Propertymanagement

comprisesofrealestatemanagementandengineer-ingserviceoperationsofsubsidiaries —Abu DhabiCommercialPropertiesLLC,Abu DhabiCommercialEngineering Services LLC and rental income ofADCB.

Information regarding the results of each reportable segment is

includedbelow.Performanceismeasuredbasedonsegmentprofit

beforeincometax,asincludedintheinternalmanagementreports

that are reviewedby the PerformanceManagementCommittee.

Segment profit is used tomeasureperformance asmanagement

believesthatsuchinformationisthemostrelevantinevaluatingthe

results of certain segments relative toother entities that operate

within these industries. Inter-segmentpricing isdeterminedonan

arm’slengthbasis.

163


ThefollowingisananalysisoftheGroup’srevenueandresultsbyoperatingsegmentfortheyearended:

ConsumerbankingAED’000

WholesalebankingAED’000

Investmentsandtreasury

AED’000

Propertymanagement

AED’000Total

AED’000

2016

Netinterestincome 2,557,455 1,730,381 1,096,797 111,381 5,496,014

NetincomefromIslamicfinancing 431,726 180,482 89,224 3,727 705,159

TotalnetinterestandIslamicfinancingincome 2,989,181 1,910,863 1,186,021 115,108 6,201,173

Non-interestincome 963,611 668,334 413,995 248,334 2,294,274

Operatingexpenses (1,781,678) (701,123) (197,110) (115,951) (2,795,862)

Operatingprofitbeforeimpairmentallowances 2,171,114 1,878,074 1,402,906 247,491 5,699,585

Impairment(allowances)/recoveries (942,934) (596,793) 19,209 – (1,520,518)

Shareinprofitofassociate 7,821 – – – 7,821

Profitbeforetaxation 1,236,001 1,281,281 1,422,115 247,491 4,186,888

Overseasincometaxexpense – (29,820) – – (29,820)

Netprofitfortheyear 1,236,001 1,251,461 1,422,115 247,491 4,157,068

Capitalexpenditure 236,858

31 December2016

Segmentassets 73,885,539 105,660,754 78,147,077 595,887 258,289,257

Segmentliabilities 51,659,677 80,948,903 95,283,613 46,179 227,938,372

2015

Netinterestincome 2,493,272 1,656,724 1,393,896 94,475 5,638,367

NetincomefromIslamicfinancing 362,122 162,771 40,059 2,480 567,432

TotalnetinterestandIslamicfinancingincome 2,855,394 1,819,495 1,433,955 96,955 6,205,799

Non-interestincome 893,219 676,495 261,898 223,075 2,054,687

Operatingexpenses (1,730,726) (765,803) (218,433) (111,976) (2,826,938)

Operatingprofitbeforeimpairmentallowances 2,017,887 1,730,187 1,477,420 208,054 5,433,548

Impairment(allowances)/recoveries (684,406) 172,005 10,853 – (501,548)

Shareinprofitofassociate 1,302 – – – 1,302

Profitbeforetaxation 1,334,783 1,902,192 1,488,273 208,054 4,933,302

Overseasincometaxexpense – (6,233) – – (6,233)

Netprofitfortheyear 1,334,783 1,895,959 1,488,273 208,054 4,927,069

Capitalexpenditure 163,488

31 December2015

Segmentassets 69,845,328 94,301,998 63,465,784 653,991 228,267,101

Segmentliabilities 43,486,000 67,541,312 88,484,442 22,544 199,534,298

164

OTHERDISCLOSURES

Thefollowingistheanalysisofthetotaloperatingincomeofeachsegmentbetweenincomefromexternalpartiesandinter-segment.

External Inter-segment

2016AED’000

2015 AED’000

2016AED’000

2015 AED’000

Consumerbanking 4,975,754 4,795,767 (1,022,962) (1,047,154)

Wholesalebanking 3,269,908 3,373,491 (690,711) (877,501)

Investmentsandtreasury 14,001 (117,309) 1,586,015 1,813,162

Propertymanagement 235,784 208,537 127,658 111,493

Totaloperatingincome 8,495,447 8,260,486 – –

GEOGRAPHICALINFORMATION

TheGroupoperatesintwoprincipalgeographicareasi.e.DomesticandInternational.TheUnitedArabEmiratesisdesignatedasdomestic

areawhichrepresentstheoperationsoftheGroupthatoriginatesfromtheUAEbranchesandsubsidiaries;andinternationalarearepresents

theoperationsof theGroupthatoriginatesfromitsbranches in India,Jerseyandthrough itssubsidiariesoutsideUAE.The information

regardingGroup’srevenueandnon-currentassetsbygeographicallocationaredetailedasfollows:

Domestic International

2016AED’000

2015 AED’000

2016AED’000

2015 AED’000

Income

NetinterestandIslamicfinancingincome 6,198,091 6,185,591 3,082 20,208

Non-interestincome 2,270,639 2,041,837 23,635 12,850

Non-currentassets

Investmentinassociate 204,977 197,156 – –

Investmentproperties 659,776 647,647 – –

Propertyandequipment,net 921,938 830,136 4,747 5,009

Intangibleassets 18,800 18,800 – –

165


40 FINANCIALINSTRUMENTS

CATEGORIESOFFINANCIALINSTRUMENTS

The following tables analyse theGroup’s financial assets and financial liabilities in accordancewithcategoriesof financial instruments

under IAS39.

Held-for-trading

AED’000

HedgingderivativesAED’000

Available-for-sale

AED’000

Amortisedcost

AED’000Total

AED’000

2016

Assets

Cashandbalanceswithcentralbanks – – – 19,261,902 19,261,902

Depositsandbalancesduefrombanks,net – – – 24,663,615 24,663,615

Reverse-repoplacements – – – 1,524,806 1,524,806


Derivativefinancialinstruments 3,540,804 430,985 – – 3,971,789

Investmentsecurities – – 33,059,466 – 33,059,466

Loansandadvancestocustomers,net – – – 158,457,695 158,457,695

Otherassets – – – 15,062,435 15,062,435

Totalfinancialassets 3,959,562 430,985 33,059,466 218,970,453 256,420,466

Liabilities

Duetobanks – – – 3,842,714 3,842,714

Derivativefinancialinstruments 3,298,610 1,493,919 – – 4,792,529

Depositsfromcustomers – – – 155,442,207 155,442,207

Eurocommercialpaper – – – 8,728,533 8,728,533

Borrowings – – – 38,015,030 38,015,030

Otherliabilities – – – 16,057,147 16,057,147

Totalfinancialliabilities 3,298,610 1,493,919 – 222,085,631 226,878,160

2015

Assets

Cashandbalanceswithcentralbanks – – – 20,180,277 20,180,277

Depositsandbalancesduefrombanks,net – – – 22,381,921 22,381,921

Reverse-repoplacements – – – 4,256,277 4,256,277


Derivativefinancialinstruments 3,579,900 422,008 – – 4,001,908

Investmentsecurities – – 20,863,607 – 20,863,607

Loansandadvancestocustomers,net – – – 146,250,462 146,250,462

Otherassets – – – 8,516,557 8,516,557

Totalfinancialassets 3,642,161 422,008 20,863,607 201,585,494 226,513,270

Liabilities

Duetobanks – – – 1,691,793 1,691,793

Derivativefinancialinstruments 3,555,579 1,185,601 – – 4,741,180

Depositsfromcustomers – – – 143,526,296 143,526,296

Eurocommercialpaper – – – 5,700,064 5,700,064

Borrowings – – – 33,471,731 33,471,731

Otherliabilities – – – 9,386,292 9,386,292

Totalfinancialliabilities 3,555,579 1,185,601 – 193,776,176 198,517,356

166

41 FAIRVALUEHIERARCHY

FAIRVALUEMEASUREMENTSRECOGNISEDINTHE

STATEMENTOFFINANCIALPOSITION

Thefairvaluemeasurementsarecategorisedintodifferentlevelsin

thefairvaluehierarchybasedontheinputstovaluationtechniques

used.Thedifferentlevelsaredefinedasfollows:

QUOTEDMARKETPRICES —LEVEL 1

Financial instruments are classified as Level 1 if their values are

observable in an activemarket. Such instruments are valued by

referencetounadjustedquotedpricesforidenticalassetsorliabilities

inactivemarketswherethequotedpriceisreadilyavailableandthe

pricerepresentsactualandregularlyoccurringmarkettransactions.

VALUATIONTECHNIQUESUSINGOBSERVABLE

INPUTS —LEVEL 2

Financial instrumentsclassifiedasLevel2havebeenvaluedusing

modelswhoseinputsareobservableinanactivemarket.Valuation

basedonobservable inputs include financial instruments such as

swapsandforwardswhicharevaluedusingmarketstandardpricing

techniquesandoptionsthatarecommonlytradedinmarketswhere

alltheinputstothemarketstandardpricingmodelsareobservable.

ThecategoryincludesderivativefinancialinstrumentssuchasOTC

derivatives, commodity derivatives, foreign exchange spot and

forwardcontracts,certaininvestmentsecuritiesandborrowings.

Theseinstrumentsarevaluedusingtheinputsobservableinanactive

market. Valuationof the derivative financial instruments ismade

throughdiscounted cash flowmethodusing the applicable yield

curveforthedurationoftheinstrumentsfornon-optionalderivatives

andstandardoptionpricingmodelssuchasBlack-Scholesandother

valuationmodelsforderivativeswithoptions.

VALUATIONTECHNIQUESUSINGSIGNIFICANT

UNOBSERVABLEINPUTS —LEVEL 3

Financial instruments and investment properties are classified as

Level3iftheirvaluationincorporatessignificantinputsthatarenot

basedonobservablemarketdata(unobservableinputs).Avaluation

input is consideredobservable if it canbedirectlyobserved from

transactionsinanactivemarket.

Unobservable input levels are generally determined based on

observableinputsofasimilarnature,historicalobservationsorother

analyticaltechniques.

Financial instruments under this categorymainly includesprivate

equity instrumentsandfunds.Thecarryingvaluesof these invest-

mentsareadjustedasfollows:

a) Privateequity instruments —usingthelatestavailablenetbook

value;and

b) Funds — based on the net asset value provided by the fund

manager.

This hierarchy requires the useof observablemarket datawhen

available.TheGroupconsidersrelevantandobservablemarketprices

initsvaluationswherepossible.

ReferNote13inrespectofvaluationmethodologyusedforinvest-

mentproperties.

167


Exceptasdetailedinthefollowingtable,theManagementconsidersthatthecarryingamountsoffinancialassetsandliabilitiesrecognisedin

theconsolidatedfinancialstatementsapproximatetheirfairvalues.

Level 1 Level 2 Level 3

Notes

Quotedmarketprices

AED’000

Observableinputs

AED’000

Significantunobservable

inputsAED’000

Totalfairvalue

AED’000

Carryingvalue

AED’000

2016

Assetsatfairvalue

Tradingsecurities 8 418,758 – – 418,758 418,758

Derivativefinancialinstruments 9 10,612 3,961,177 – 3,971,789 3,971,789

Investmentsecurities 10

Quoted 23,494,544 1,049,665 – 24,544,209 24,544,209

Unquoted – 8,178,003 337,254 8,515,257 8,515,257

Investmentproperties 13 – – 659,776 659,776 659,776

Total 23,923,914 13,188,845 997,030 38,109,789 38,109,789

Liabilitiesatfairvalue


Liabilitiesatamortisedcost

Borrowings 20 17,228,384 20,671,150 – 37,899,534 38,015,030

Total 17,229,674 25,462,389 – 42,692,063 42,807,559

2015

Assetsatfairvalue

Tradingsecurities 8 62,261 – – 62,261 62,261


Investmentsecurities 10

Quoted 19,298,541 753,336 – 20,051,877 20,051,877

Unquoted – 398,109 413,621 811,730 811,730

Investmentproperties 13 – – 647,647 647,647 647,647

Total 19,362,137 5,152,018 1,061,268 25,575,423 25,575,423

Liabilitiesatfairvalue


Liabilitiesatamortisedcost

Borrowings 20 18,965,637 14,585,679 – 33,551,316 33,471,731

Total 18,966,682 19,325,814 – 38,292,496 38,212,911

168

UNCONSOLIDATEDSTRUCTUREDENTITY

Level1financialinstrumentsincludetheBank’sinvestmentsincertain

Funds.ThetotalcarryingvalueofinvestmentsintheseFundsasat

31 December2016wasAED158,085 thousand(31 December2015 —

AED 194,504 thousand). The Bank has also extended revocable

overdraft facilities to theseFundsamountingtoAED28,365 thou-

sand (31 December 2015 —AED28,365 thousand), outofwhich

AED 1,188 thousandwasutilisedandoutstandingasat31 December

2016 (31 December 2015 — AED 244 thousand). Themaximum

exposuretolossintheseFundsisequaltothecarryingvalueofthe

investmentsandcreditriskcarriedinthefacilitiesextended.

TheGroup’sOTCderivatives in the tradingbook are classified as

Level 2 as they are valued using inputs that can beobserved in

themarket.

Reconciliation showing themovement in fair values of Level 3

available-for-saleinvestmentsisasfollows:

2016AED’000

2015AED’000

Openingbalance 413,621 378,216

Purchases,net 4,130 14,520

Disposalsincludingcapitalrefunds (50,623) (5,304)

Adjustmentthroughcomprehensiveincome (29,874) 26,189

Closingbalance 337,254 413,621

The purchases under Level 3 category represents capital contri-

butionsmadeduring theyear intoprivateequityand fundsunder

existingcapitalcommitments.

Gainof AED 11,315 thousandwas realisedondisposal of Level 3

investmentsduringtheyear(2015:AEDNil).

TherewerenotransfersbetweenLevel1andLevel2available-for-sale

investmentsduring2016andthereisnochangeinvaluationtech-

niquesusedduringtheyear.

Thesignificantunobservableinputsusedinthefairvaluemeasure-

mentof theGroup’s investmentpropertiesare rental incomeand

capitalizationrates.Significantdecreaseinrentalincome,orincrease

incapitalizationrates,inisolationwouldresultinasignificantlower

fair valuemeasurement. Generally, a change in the assumption

usedforrentalincomeshouldbeaccompaniedbyachangeinthe

assumptionforcapitalizationratesinthesamedirectionasincrease

inrentalincomeincreasestheexpectationsofthesellertoearnfrom

the investment property. Therefore, the effectsof these changes

partiallyoffseteachother.

42 RISKMANAGEMENT

Riskgovernancestructureemphasisesandbalancesstrongcentral

oversightandcontrolofriskwithclearaccountabilityforandown-

ershipofriskwithineachbusinessunit.UndertheGroup’sapproach

toriskgovernance,thebusinessprimarilyownstheriskthatitgen-

erates and is equally responsible for assessing risk, designing and

implementingcontrolsandmonitoringandreportingtheirongoing

effectivenesstosafeguardtheGroupfromexceedingitsriskappetite.

Ultimateresponsibilityforsettingoutriskappetiteandeffectiveman-

agementofriskrestwiththeBoard.Thisismanagedthroughvarious

Board level committees; namelyBoardRisk&CreditCommittee

(BRCC)andBoardAudit&ComplianceCommittee (BACC),which

ensurethatrisktakingauthorityandpoliciesarecascadeddownfrom

theBoardtotheappropriatebusinessunits.

Actingwithin theauthoritydelegatedby theBoard, theBRCChas

overallresponsibilityforoversightandreviewofcredit,market,oper-

ational,liquidity,fraudandreputationalrisks.Itperiodicallyreviews

andmonitorscompliancewiththeGroup’soverallriskappetiteand

makes recommendations thereon to theBoard. Its responsibilities

alsoincludereviewingtheappropriatenessandeffectivenessofthe

Group’s riskmanagement systems and controls, overseeing the

managementriskcommitteesandensuringthattheGroup’sriskgov-

ernanceissupportiveofprudentrisktakingatalllevelsintheGroup.

TheBRCCreceivesonaregularbasis,portfoliolevelbriefingsfrom

theGroupChiefRiskOfficeralongwithregularreportsonriskman-

agement,includingourportfoliotrends,policyparameters,keyrisk

indicators,resultsofstresstestingandchangestotheassumptions,

liquiditymeasures,capitaladequacyandplanning,andalsoisauthor-

ized to investigateor seek any information relating to any activity

within its termsofreference.TheBRCCalsoconducts ‘deepdive’

reviewsonarollingbasisofdifferentsectionsof theconsolidated

groupriskinformationreport.

TheManagementExecutiveCommittee(MEC)hasprimaryrespon-

sibility for implementing,overseeingand takingownership for the

enforcementofriskstrategyandinternalcontroldirectiveslaiddown

bytheBoardandBoardCommittees.

TheManagement levelcommitteesalsoactivelymanage riskpar-

ticularlytheAssetsandLiabilitiesManagementCommittee(ALCO),

ManagementRisk&CreditCommittee (MRCC) andManagement

Recoveries Committee (MRC). The Risk Management function

headedbytheGroup’sChiefRiskOfficerreportsindependentlyto

BRCC.The risk function is independentof theorigination, trading

andsalesfunctiontoensurebalanceinriskrewarddecisionisnot

compromisedandtoensuretransparencyofdecisionsinaccordance

with laiddownstandardsandpolicies.The risk functionexercises

control over credit,market, short-term liquidity, operational and

compliancerisk.

BACCprovidesassistancetotheBoardtofulfil itsdutiestoensure

andoversee theGroup’s financial statements, independence and

performanceoftheGroup’sexternalandinternalauditors,compli-

ancewithlegalandregulatoryrequirementsandinternalpoliciesand

internalcontroloverfinancialreporting.

169


TheInternalAuditdivision(IAD)aimstoapplyasystematicanddisci-

plinedapproachtoevaluatingandimprovingtheeffectivenessofthe

Group’sriskmanagement,controlandgovernanceprocesses.The

IADreportsdirectlytoBACC.TheIADconsistsofateamofauditors,

whosetasksare,amongotherthings,toevaluatethequalityofthe

Group’slendingportfolio,controlsinoperationalprocessesandthe

integrityoftheGroup’sinformationsystemsanddatabases.TheIAD

auditors, alongside the compliancedepartment, also ensure that

transactionsundertakenbytheGroupareconductedincompliance

withapplicablelegalandregulatoryrequirementsandinaccordance

withtheGroup’sinternalprocedures,therebyminimisingtheriskof

fraudulent,improperorillegalpractices.

43 CREDITRISKMANAGEMENT

Creditriskistheriskthatonepartytoafinancialinstrumentwillcause

financiallossfortheotherpartybyfailingtodischargeanobligation.

TheGroup’s risk function follows theapproaches listedbelow for

creditriskmanagement,dependingonthetypeofcustomer.

Individual accountmanagement —These accounts aremanaged

by a relationshipmanager and a creditmanager. This category

includescustomersofwholesalebankingandfinancialinstitutions.

Riskmanagementisconductedthroughexpertanalysisbackedby

toolstosupport decision-makingbasedon internalmodelsofrisk

assessment.

Portfoliomanagement —Thiscategorygenerallyincludesindividu-

als,soleproprietorshipsandpartnershipsandcertainsmallerSME’s.

Managementoftheserisksisbasedoninternalmodelsofassessment

andscorecardbaseddecisionscomplementedbyinternalportfolio

analytics.

TheGroupcontrolscreditriskbyaggregatingandmonitoringcredit

exposures (both direct and indirect exposures) on the loans and

advances, investment securities, non-funded exposures and due

frombanks.TheGroupsetstransactionlimitsforspecificcounterpar-

tiesandcontinuallyassessesthecreditworthinessofcounterparties.

TheGroupsetsandmonitorscountry,industry,productandtenor

risksandusesitsowninternalratingmodelsforassigningcustomer

ratingswhichmeasuresthedegreeofriskofacustomer.Eachrating

correspondstoacertainprobabilityofdefault.TheGrouphasvarious

internalratingmodelsfordifferentcustomersegments.

Inadditiontomonitoringcreditlimits,theGroupmanagesthecredit

exposure relating to its trading activities by entering intomaster

nettingagreementsandcollateralarrangementswithcounterparties

inappropriatecircumstancesandlimitingthedurationofexposure.

Incertaincases,theGroupmayalsocloseouttransactionsorassign

themtoothercounterpartiestomitigatecreditrisk.

TheGroupwidecreditpoliciesandstandardsareapprovedbyBRCC.

Thesegovernalldelegatedlendingauthoritiesandincludepolicies,

standards,metrics,strategiesandproceduresspecifictoeachofthe

differentbusinesssegmentsandaredecidedbasedon themacro

economicconditions, the risk appetiteof theGroup,market data

and internal skill setsandcapabilities.Theyare regularly reviewed

andmodifiedtoensuretheystaycurrent,relevantandprotectthe

Group’s interest in changingoperating conditions. In addition to

Groupwidepolicies,thereareunderwritingstandardssetforeach

portfoliosegment.

170

43.1 ANALYSISOFMAXIMUMEXPOSURETOCREDITRISK

Thefollowingtablepresentsthemaximumexposureofcreditriskforonandoff-balancesheetfinancialinstrumentsasat31 December2016

and2015,afterallowanceforimpairmentandnettingwhereappropriateandaftertakingintoaccountanycollateralheldorothercreditrisk

mitigants(CRMs).

Thegrossexposuretocreditriskforonbalancesheetitemsistheircarryingvalue.Forfinancialguaranteesrecordedoffbalancesheet,the

grossexposuretocreditriskisthemaximumamountthattheGroupwouldhavetopayiftheguaranteesweretobecalledupon.Forloans

andothercreditrelatedcommitmentsthatareirrevocableoverthelifeoftherespectivefacilities,thegrossexposuretocreditriskisthefull

amountofthecommittedfacilities.

Theanalysisofcreditriskunderthissectionincludesonlyfinancialinstrumentssubjecttocreditrisk.Otherfinancialassetssuchastrading

portfoliowhichareexposedonlytomarketriskhavebeenexcluded.Wherefinancialinstrumentsarerecordedatfairvalue,theamounts

shownbelowrepresentthecurrentcreditexposurebutnotthemaximumriskexposurethatcouldariseinthefutureasaresultofchanges

infairvalues.

On-balancesheet

AED’000

Off-balancesheet

AED’000

Grosscreditriskexposure

AED’000CRM

AED’000

MaximumcreditriskexposureAED’000

2016

Depositsandbalancesduefrombanks,net 24,663,615 – 24,663,615 – 24,663,615

Reverse-repoplacements 1,524,806 – 1,524,806 1,524,806 –

Derivativefinancialinstruments 3,971,789 – 3,971,789 2,512,087 1,459,702

Investmentsecurities 33,059,466 2,695 33,062,161 – 32,566,301

Loansandadvancestocustomers,net 158,457,695 47,378,497 205,836,192 118,272,602 87,563,590

Otherassets 15,120,988 – 15,120,988 – 15,056,860

Total 236,798,359 47,381,192 284,179,551 122,309,495 161,310,068

2015

Depositsandbalancesduefrombanks,net 22,381,921 – 22,381,921 860 22,381,061

Reverse-repoplacements 4,256,277 – 4,256,277 4,256,277 –

Derivativefinancialinstruments 4,001,908 – 4,001,908 3,559,661 442,247

Investmentsecurities 20,863,607 25,228 20,888,835 – 20,330,640

Loansandadvancestocustomers,net 146,250,462 41,522,190 187,772,652 87,723,250 100,049,402

Otherassets 8,571,640 – 8,571,640 – 8,509,316

Total 206,325,815 41,547,418 247,873,233 95,540,048 151,712,666

171


43.2 CONCENTRATIONOFCREDITRISK

Concentrationof credit risk ariseswhenanumberof counterpartiesor exposureshavecomparable economiccharacteristicsor such

counterpartiesareengagedinsimilaractivitiesoroperateinthesamegeographicalareasoreconomicsectorsthatwouldimpacttheirability

tomeetcontractualobligationstobesimilarlyaffectedbychangesineconomicorotherconditions.Theanalysisofcreditriskconcentrations

presentedbelowarebasedonthelocationofthecounterpartyorcustomerortheeconomicactivityinwhichtheyareengaged.

(a)Creditriskconcentrationbygeographicalsector

Domestic(UAE)

AED’000

OtherGCCcountriesAED’000

OtherArabcountriesAED’000

AsiaAED’000

EuropeAED’000

USAAED’000

RestoftheworldAED’000

TotalAED’000

2016

Assets

Depositsandbalancesduefrombanks,net 10,086,945 10,494,538 187,030 1,183,529 827,613 313,746 1,570,214 24,663,615

Reverse-repoplacements – – – – 1,524,806 – – 1,524,806

Derivativefinancialinstruments 1,980,575 6,168 – 62,261 1,805,504 – 117,281 3,971,789

Investmentsecurities 20,873,426 3,789,096 527,924 4,679,056 1,603,317 474,907 615,880 32,563,606

Loansandadvancestocustomers,net 149,546,974 3,569,807 94,017 3,379,068 421,511 801 1,445,517 158,457,695

Otherassets 9,531,950 376,384 9,655 1,857,813 308,288 2,920,411 52,359 15,056,860

Totalassets 192,019,870 18,235,993 818,626 11,161,727 6,491,039 3,709,865 3,801,251 236,238,371

Commitmentandcontingentliabilities 37,707,647 2,037,393 210,924 2,404,408 3,624,923 1,139,044 256,853 47,381,192

2015

Assets

Depositsandbalancesduefrombanks,net 6,192,300 8,610,690 4,915 2,905,939 3,017,500 51,936 1,598,641 22,381,921

Reverse-repoplacements 2,762,095 – – – 1,494,182 – – 4,256,277

Derivativefinancialinstruments 2,148,499 6,446 18,137 60,774 1,748,708 – 19,344 4,001,908

Investmentsecurities 8,827,837 1,585,466 1,232,926 4,134,947 2,570,783 1,219,978 733,475 20,305,412

Loansandadvancestocustomers,net 139,007,850 2,803,341 272,813 3,219,027 747,216 5,166 195,049 146,250,462

Otherassets 5,903,786 220,182 674 63,391 62,832 2,142,083 116,368 8,509,316

Totalassets 164,842,367 13,226,125 1,529,465 10,384,078 9,641,221 3,419,163 2,662,877 205,705,296

Commitmentandcontingentliabilities 33,670,414 1,510,973 219,349 2,854,262 2,218,901 885,465 188,054 41,547,418

172

(b)Creditriskconcentrationbyeconomic/industrysector

Theeconomicactivitysectorcompositionoftheloansandadvancestocustomersisasfollows:

2016 2015

WithintheUAEAED’000

OutsidetheUAEAED’000

TotalAED’000

WithintheUAEAED’000

OutsidetheUAEAED’000

TotalAED’000

Economicactivitysector

Agriculture 207,906 – 207,906 216,646 – 216,646

Energy 98,138 410,237 508,375 78,005 215,698 293,703

Trading 4,117,854 1,302,085 5,419,939 3,854,238 1,071,780 4,926,018

Realestateinvestment&hospitality 56,682,307 1,387,668 58,069,975 53,293,920 1,088,985 54,382,905

Transport 2,019,289 1,584,562 3,603,851 1,417,433 962,756 2,380,189

Personal 40,429,267 236,162 40,665,429 39,077,248 235,132 39,312,380

Government&publicsectorentities 35,138,681 990,422 36,129,103 32,822,161 258,258 33,080,419

Financialinstitutions(*) 10,205,802 2,639,883 12,845,685 9,864,452 2,456,281 12,320,733

Manufacturing 2,239,667 1,645,144 3,884,811 1,774,395 1,508,795 3,283,190

Services 2,084,554 230,353 2,314,907 1,591,190 187,590 1,778,780

Others 678,063 72,026 750,089 203,714 247,050 450,764

153,901,528 10,498,542 164,400,070 144,193,402 8,232,325 152,425,727

Less:Allowanceforimpairment (5,942,375) (6,175,265)

Totalloansandadvancestocustomers,net 158,457,695 146,250,462

(*)includesinvestmentcompanies

Asatreportingdate,the20largestcustomerloanexposuresconstitute35.38%ofthegrossloansandadvancestocustomers(31 December

2015 —37.01%).

Theindustrysectorcompositionofotherexposuresisasfollows:

Commercialandbusiness

AED’000PersonalAED’000

Publicsector

AED’000Government

AED’000

Banksandfinancial

institutionsAED’000

TotalAED’000

2016

Assets

Depositsandbalancesduefrombanks,net – – – – 24,663,615 24,663,615

Reverse-repoplacements – – – – 1,524,806 1,524,806

Derivativefinancialinstruments 1,074,639 10,448 394,192 14,801 2,477,709 3,971,789

Investmentsecurities 820,273 – 7,176,838 17,366,986 7,199,509 32,563,606

Otherassets 11,356,547 314,820 612,320 195,217 2,577,956 15,056,860

Totalassets 13,251,459 325,268 8,183,350 17,577,004 38,443,595 77,780,676

Commitmentandcontingentliabilities 29,547,460 4,594,988 3,003,226 1,156,399 9,079,119 47,381,192

2015

Assets

Depositsandbalancesduefrombanks,net – – – – 22,381,921 22,381,921

Reverse-repoplacements – – – 1,836,501 2,419,776 4,256,277

Derivativefinancialinstruments 1,068,352 1,469 640,607 15,505 2,275,975 4,001,908

Investmentsecurities 674,302 – 6,007,236 5,320,904 8,302,970 20,305,412

Otherassets 7,481,474 326,789 300,665 157,592 242,796 8,509,316

Totalassets 9,224,128 328,258 6,948,508 7,330,502 35,623,438 59,454,834

Commitmentandcontingentliabilities 27,948,884 1,815,765 3,107,636 1,225,424 7,449,709 41,547,418

173


43.3 CREDITRISKMANAGEMENTOVERVIEW

OrganisationalFramework

TheriskmanagementstructureoftheGroupisclearlyestablished

withwelldefinedrolesandresponsibilitiesasexplainedinNote 42.

ThecommitteesresponsibleformanagingcreditriskareMRCCand

MRC.TheGroupriskmanagementpracticesandstrategiesarean

integral part of business planning andbudgetingprocess. All risk

managementareasarecentralisedundertheCreditandRiskdivision.

BRCCisresponsibleforapprovinghighvaluecreditsandisrespon-

sible for theapprovalof creditpolicies andprocesses in linewith

growth,riskmanagementandstrategicobjectives. Inaddition,the

Groupmanagesthecreditexposurebyobtainingcollateralswhere

appropriate and limiting the duration of exposure. Credit risk in

respectof derivative financial instruments is limited to thosewith

positivefairvalues.

RegularauditsofbusinessunitsandtheGroup’screditprocessesare

undertakenbytheInternalAuditandCompliancedivisions.

43.4 CREDITRISKMEASUREMENTANDMITIGATIONPOLICIES

Loansandadvancestocustomersisthemainsourceofcreditrisk

although theGroupcanalsobeexposed toother formsofcredit

risk through, forexample, loans tobanks, loancommitmentsand

debtsecurities.TheGroup’sriskmanagementpoliciesandprocesses

aredesignedtoidentifyandanalyserisk,tosetappropriateriskappe-

titeand tomonitor the risksandadherence to limitsbymeansof

reliableandtimelydata.TheGroupassessestheprobabilityofdefault

ofindividualcounterpartiesusinginternalratingtoolstailoredtothe

variouscategoriesofcounterparties(Note 43.5).

Exposuretocreditriskisalsomanagedthroughregularanalysisof

theabilityofborrowersandpotentialborrowerstomeetinterestand

capital repaymentobligations andby changing the lending limits

whereappropriate.

Collateral

TheGroupholdscollateralagainstvariouscreditriskexposuresinthe

formofmortgageinterestsoverproperty,otherregisteredsecurities

over assets, fixeddeposits andguarantees. Estimatesof fair value

of thecollateral (including shares) areupdatedona regularbasis.

Collateralgenerally isnotheldover loansandadvances tobanks,

exceptwhensecuritiesareheldaspartof reverserepurchaseand

securitiesborrowingactivity.Theprincipalcollateraltypesforloans

andadvancesare:

Cashandmarketablesecurities;

Mortgagesoverresidentialandcommercialproperties;

Charges over business assets such as premises, inventory and

accountsreceivable;

Chargesover financial instruments such as debt securities and

equities;and

Guarantees.

Theestimated fair valueofcollateral andother securityenhance-

mentsheldagainstvariouscreditriskexposuresfortheyearended

31 December2016wasAED164,856,273 thousand (31 December

2015 —AED135,122,154 thousand).

Collateral held as security against impaired loansprimarily relates

tocommercialandresidentialpropertiesandsecurities.Wherethe

estimatedfairvalueofcollateralheldexceedstheoutstandingloan,

anyexcessonrealisation ispaidbacktothecustomersand isnot

availableforoffsetagainstotherloans.

Derivatives

TheGroupmaintainsstrictcontrollimitsonnetopenderivativeposi-

tions (i.e. thedifferencebetweenpurchaseandsalecontracts),by

bothamountandterm.Atanytime,theamountsubjecttocreditrisk

islimitedtothecurrentfairvalueofinstrumentsthatarefavourable

to theGroup (i.e.positive fairvalueofassets),which in relationto

derivativesisasmallfractionofthecontractornotionalvaluesused

toexpress thevolumeof instrumentsoutstanding.Thiscredit risk

exposureismanagedaspartoftheoveralllendinglimitswithcus-

tomerstogetherwithpotentialexposuresfrommarketmovements.

Settlementriskarisesinanysituationwhereapaymentincash,secu-

ritiesorequitiesismadeintheexpectationofacorrespondingreceipt

incash,securitiesorequities.Dailysettlementlimitsareestablished

foreachcounterpartytocovertheaggregateofallsettlementrisks

arisingfromtheGroup’smarkettransactionsonanysingleday.

Masternettingarrangements

TheGroupfurtherrestrictsitsexposuretocreditlossesbyentering

intomaster netting arrangementswith counterpartieswithwhich

it undertakes a significant volumeof transactions.Master netting

arrangementsdonotgenerally result in anoffsetof statementof

financial position assets and liabilities, as transactions are usually

settledonagrossbasis,hencetheimpactofnettinginpracticeis

immaterial.

However, the credit risk associatedwith favourable contracts is

reducedby amaster netting arrangement to the extent that if a

defaultoccurs,allamountswiththecounterpartyareterminatedand

settledonanetbasis.TheGroup’soverallexposuretocreditriskon

derivativeinstrumentssubjecttomasternettingarrangementscan

changesubstantiallywithinayear,asitisaffectedbyeachtransaction

subjecttothearrangement.

43.5 PORTFOLIOMONITORINGANDIDENTIFYINGCREDITRISK

CreditRiskManagementdivision is actively involved in identifying

andmonitoringcreditriskonloans.Itmonitorstheportfoliothrough

systemgeneratedMIS andperiodic reviewsgivingdue consider-

ation to industry/general economic trends,market feedback and

mediareports.

Within the retail portfolios comprising of homogeneous assets,

statisticaltechniquesaredeployedtomonitorpotentialweaknesses

within a particular portfolio. The approach is consistentwith the

Group’spolicyofraisingaspecificimpairmentallowanceassoonas

objectiveevidenceof impairment is identified.Retailaccountsare

classified according to specifiedcategoriesof arrears status (days

pastduebuckets),whichreflectsthelevelofcontractualpayments

whichareoverdueonaloan.

Theprobabilityofdefaultincreaseswiththenumberofcontractual

paymentsmissed, thus raising the associated impairment require-

ment.Intheevent,whereadecisionistakentowriteoffaloan,the

account ismoved to legal recovery function.However, in certain

174

cases,anaccountmaybechargedoffdirectly fromaperforming

status,suchasinthecaseofinsolvencyordeath.

Inthewholesalebankingportfolio,theGroupwillmorefrequently

participateindebtrestructuringagreementsaspartofthebusiness

supportprocess.Debtrestructuringagreementsmayincludeactions

to facilitate recoveryof theprincipal and interestoutstandingand

mayincluderatenegotiation,relaxingpaymentschedules,etc.

Exposuretocreditriskbydayspastdue

TheGroup’s risk classificationof loans and advanceswhich is in

adherencewiththerecommendationsofCentralBankoftheUnited

ArabEmiratesguidelinesisasfollows:

RiskCategory

Neitherpastduenorimpaired Upto30dayspastdue

Pastduebutnotimpairedloans Between31and90dayspastdue

Pastdueandimpaired Over91dayspastdue

Theclassificationofloansandadvancestocustomersbydayspast

dueareasfollows:

2016AED’000

2015AED’000

Neitherpastduenorimpaired 156,862,836 144,402,392

Pastduebutnotimpaired 2,937,273 3,189,229

Pastdueandimpaired 4,599,961 4,834,106

164,400,070 152,425,727

Less:Allowanceforimpairment (5,942,375) (6,175,265)

Loansandadvancestocustomers,net 158,457,695 146,250,462

Analysisoftheageofpastduebutnotimpairedloansasattheendof

thereportingperiodisasfollows:

2016AED’000

2015AED’000

31–60days 2,168,307 2,514,110

Morethan60days 768,966 675,119

Totalpastduebutnotimpairedloans 2,937,273 3,189,229

Exposuretocreditriskbyinternalriskgrades

TheGroupusesaninternalgradingsystemwhichemploystengrades

that categorise theGroup’swholesale andhighnetworth (HNW)

customersbasedonvariousqualitativeandquantitativefactorssuch

as borrower financial strength, industry risk factors,management

quality, operational efficiency, company standing, liquidity, capital

structure,peergroupanalysis,etc.Someofthesegradesarefurther

sub-classifiedwithaplusoraminussign.Lowergradesareindicative

of a lower likelihoodofdefault.Credit grades 1–7areassigned to

performing customers or accountswhile credit grades 8–10 are

assignedtonon-performingordefaultingcustomers.

CreditratingsareusedbytheGrouptodecidethemaximumlending

amountpercustomergroupandalsotosetminimumpricingthresh-

olds. Retail customersor individual borrowers arenot assigned a

credit ratingunder this structure.However, retail bankingdivision

usesbehaviourscoringforitscustomers.

Theinternalcreditgradesystemisnotintendedtoreplicateexternal

creditgradesbutasfactorsusedtogradeaborrowermaybesimilar,

a borrower ratedpoorly by an external rating agency is typically

assignedaworseinternalcreditgrade.

Thefollowingtablerepresentscreditqualityofloansandadvancestocustomers,netthatareneitherpastduenorimpairedandderivative

financialassetsasat31December:

2016 2015

Loansandadvancesto

customers,netAED’000

Derivativefinancial

assetsAED’000

Loansandadvancesto

customers,net AED’000

Derivativefinancial

assets AED’000

Internalriskgrades

Grades1to4 69,786,621 3,884,351 48,488,878 3,771,580

Grades5to6 43,787,697 87,326 54,452,178 230,328

Grade7 8,765,784 112 9,191,443 –

Ungraded —includingretailloans 34,522,734 – 32,269,893 –

156,862,836 3,971,789 144,402,392 4,001,908

175


Externalcreditratings

ThetablebelowpresentstheexternalcreditratingsasatDecember 31oftheGroup’sdepositsandbalancesduefrombanks,gross,reverse-

repoplacementsandavailable-for-salebondsecuritiesbasedonStandard&Poor’sratingscale.Bondissuerlevelratingsareusedincase

ratingsarenotavailableatissuancelevel.WhereverStandard&Poor’sratingsarenotavailable,comparableFitchorMoody’sequivalentratings

scaleisused.

2016 2015

Depositsandbalances

duefrombanks,gross

AED’000

Reverse-repoplacements

AED’000

Available-for-salebondsAED’000

Depositsandbalances

duefrom banks,gross

AED’000

Reverse-repoplacements

AED’000

Available-for- salebonds AED’000

Ratings

AAAtoAA– 1,984,049 – 6,941,123 1,057,894 925,594 5,114,768

A+toA– 17,230,632 1,524,806 6,194,170 10,892,268 1,376,402 6,327,081

BBB+toBBB– 3,252,390 – 6,779,436 6,323,654 117,780 6,344,134

BB+toB– 1,907,404 – 2,558,913 4,119,360 – 1,194,583

CCC+toC– – – – 26 – –

UAESovereigns – – 9,863,410 – – 720,796

Unrated 392,509 – 226,554 158,341 1,836,501 604,050

24,766,984 1,524,806 32,563,606 22,551,543 4,256,277 20,305,412

UAESovereignsandunratedavailable-for-salebondsecuritiesinternalratingswithcomparableexternalratingsareasfollows:

InternalRating

ExternalRating

2016AED’000

2015 AED’000

UAESovereigns Grade2to3 AAtoA 9,863,410 720,796

Unrated Grade3to5 AtoBB+ 226,554 604,050

10,089,964 1,324,846

43.6 IDENTIFICATIONOFIMPAIRMENT

AteachreportingdatetheGroupassesseswhetherthereisobjective

evidencethatfinancialassetscarriedatamortisedcostareimpaired.

Afinancialassetoragroupoffinancialassetsisimpairedwhenobjec-

tiveevidencedemonstratesthatalosseventhasoccurredafterthe

initialrecognitionoftheassetandthatthelosseventhasanimpact

onthefuturecashflowsoftheassetthatcanbeestimatedreliably.

Objective evidence that financial assets are impaired can include

significant financial difficultyof theborroweror issuer, default or

delinquencybyaborrower, restructuringof a loanoradvanceby

theGroupontermsthattheGroupwouldnototherwiseconsider,

indicationsthataborrowerorissuerwillenterbankruptcy,thedisap-

pearanceofanactivemarketforasecurityorotherobservabledata

relatingtoaGroup’sassetsuchasadversechangesinthepayment

statusofborrowersorissuersintheGroup,oreconomicconditions

thatcorrelatewithdefaultsintheGroup.

TheGroupconsidersevidenceofimpairmentforloansandadvances

andinvestmentsecuritiesmeasuredatamortisedcostatbothindivid-

ualandcollectivelevel.

Individuallyassessedloansandadvances

Impairmentlossesforindividuallyassessedloansaredeterminedby

anevaluationofobjectiveevidencerelatingtoeachexposureona

case-by-casebasis.Thisprocedureisappliedtoallclassifiedloans

andadvancestocorporate,commercial,highnetworth individual

and bankswhich are individually significant accounts or are not

subjecttoaportfolio-based-approach.Specificfactorsconsidered

bymanagementwhendetermining allowance for impairmenton

significantindividualloansandadvancesincludestheGroup’saggre-

gateexposuretothecustomer,viabilityofthecustomer’sbusiness

modelandtheircapacitytotradesuccessfullyoutoffinancialdiffi-

cultiesandgeneratesufficientcashflowtoservicedebtobligations,

theamountand timingofexpected receiptsand recoveries, likely

dividendavailableonliquidationorbankruptcy,extentofothercred-

itors’commitmentsrankingaheadoforpari passuwiththeGroup,

likelihoodofothercreditorscontinuing tosupport thecustomers,

realisablevalueofsecurity(orothercreditmitigants)andlikelihood

ofsuccessfulrepossessionandlikelydeductionofanycostsinvolved

inrecoveryofamountsoutstanding.

The amount of impairment loss is measured as the difference

betweentheloan’scarryingamountandthepresentvalueofesti-

matedfuturecashflowsexcludingfuturecreditlossesbutincluding

amountsrecoverablefromguaranteesandcollateral,discountedat

theloan’soriginaleffectiveinterestrate,whenitbecamedelinquent

under the contract. The amount of the loss is recognised using

anallowanceaccountand is included intheconsolidated income

statementline —impairmentallowances.

TheGroup’spolicyrequiresregularreviewofthelevelofimpairment

allowancesonindividualfacilities,regularvaluationofthecollateral

andconsiderationofitsenforceability.Impairedloanscontinuetobe

classifiedasimpairedunlesstheyarefullycurrentandthecollection

ofscheduledinterestandprincipalisconsideredprobable.

176

Collectivelyassessedloansandadvances

Impairmentisassessedonacollectivebasisintwocircumstances:

tocover losseswhichmayhavebeen incurredbuthavenotyet

beenidentifiedonloanssubjecttoindividualassessment;and

forhomogenousgroupsofloansthatarenotconsideredindividu-

allysignificant.

Incurredbutnotyetidentifiedlossonindividualloans

Individuallyassessedloansforwhichnoevidenceoflosshasbeen

specifically identifiedon an individual basis are grouped together

according to their credit risk characteristics based on industry,

productor loanratingforthepurposeofcalculatinganestimated

collectiveloss.ThisreflectsimpairmentlossesthattheGroupmay

have incurredasa resultofeventsoccurringbefore the reporting

date,whichtheGroupisnotableto identifyonan individual loan

basis, and that canbe reliably estimated. As soon as information

becomesavailablewhichidentifieslossesonindividualloanswithin

thegroupofthecustomer,thoseloansareexcludedfromcollective

impairment assessment and assessedon an individual basis. The

managementoftheGroupassesses,basedonhistoricalexperience

andtheprevailingeconomicandcreditconditions,themagnitude

ofloanswhichmaybeimpairedbutnotidentifiedasofthereport-

ingdate.

In assessing collective impairment, the Group uses statistical

modellingof historical trendsof theprobabilityof default, timing

of recoveries and the amountof loss incurred, adjusted forman-

agement’s judgementas towhethercurrenteconomicandcredit

conditions are such that the actual losses are likely tobegreater

or less than suggestedbyhistoricalmodelling.Default rates, loss

rates and the expected timing of future recoveries are regularly

benchmarkedagainstactualoutcomestoensurethat theyremain

appropriate.

The collective impairment allowance is determined after taking

intoaccountfactorssuchashistoricallossexperienceinportfolios

of similar credit risk characteristics, past restructurings, estimated

periodbetweenimpairmentoccurringandthelossbeingidentified

andevidencedby the establishmentof an appropriate allowance

against individual loans andmanagement’s judgement basedon

experienceas towhethercurrenteconomicandcreditconditions

are such that the actual level of inherent losses at the reporting

date is likelytobegreateror lessthanthatsuggestedbyhistorical

experience.

Theperiodbetweena lossoccurring and its identification is esti-

matedbymanagementforeachidentifiedportfolio.

Homogenousgroupsofloansandadvances

Statisticalmethodsareused todetermine impairment lossesona

collectivebasisforhomogenousgroupsofloansthatarenotcon-

sideredindividuallysignificant,becauseindividual loanassessment

is impracticable. Losses in thesegroupsof loansare recordedon

individualbasiswhenindividualloansarewrittenoff,atwhichpoint

theyareremovedfromthegroup.

Impairment of retail loans is calculated by applying a formula

approachwhichallocatesprogressivelyhigherlossratesinlinewith

theoverdueinstalmentdate.

Allunsecuredretailloansfallingundersimilaroverduecategoriesare

assumedtocarrysimilarcreditriskandanallowanceforimpairment

is takenonaportfoliobasis. Incasesof secured loanswhere the

Grouppossesses collateral (mortgage) the realisable valueof the

collateralistakenintoconsiderationinassessingtheallowancefor

impairment.

Write-offofloansandadvances

Loanandadvances(andtherelatedimpairmentallowance) isnor-

mallywrittenoff,eitherpartiallyorinfull,whenthereisnorealistic

prospectofrecoveryoftheprincipalamountand,foracollateralised

loan, when the proceeds from realizing the security have been

received.Allretailloans(exceptmortgages)arewrittenoffat181days

pastduebasedonapprovedwriteoffpolicies.However, recovery

effortscontinueontheseloans.

Themovementinindividualandcollectiveimpairmentallowanceonloansandadvancesisasfollows:

2016 2015

Individualimpairment

AED’000

Collectiveimpairment

AED’000Total

AED’000


AED’000


AED’000Total

AED’000

Openingbalance 3,375,998 2,968,889 6,344,887 3,856,796 2,920,947 6,777,743

Chargefortheyear 1,464,214 225,699 1,689,913 704,616 48,230 752,846

Recoveriesduringtheyear (137,597) – (137,597) (252,566) – (252,566)

Netchargefortheyear 1,326,617 225,699 1,552,316 452,050 48,230 500,280

Discountunwind (64,359) – (64,359) (126,033) – (126,033)

Netamountswritten-off (1,786,884) – (1,786,884) (806,219) – (806,219)

Currencytranslation (49) (167) (216) (596) (288) (884)

Closingbalance 2,851,323 3,194,421 6,045,744 3,375,998 2,968,889 6,344,887

177


Allocationofimpairmentallowanceonloansandadvancestocustomersandbanksisasfollows:

2016 2015


AED’000


AED’000Total

AED’000


AED’000


AED’000Total

AED’000

Loansandadvancestocustomers(Note11) 2,851,323 3,091,052 5,942,375 3,375,998 2,799,267 6,175,265

Loansandadvancestobanks(Note6) – 103,369 103,369 – 169,622 169,622

Totalimpairmentallowanceonloansandadvances 2,851,323 3,194,421 6,045,744 3,375,998 2,968,889 6,344,887

Reversalofimpairment

Iftheamountofanimpairmentlossdecreasesinasubsequentperiod,

andthedecreasecanberelatedobjectivelytoaneventoccurring

aftertheimpairmentwasrecognised,theexcessiswrittenbackby

reducingtheloanimpairmentallowanceaccountaccordingly.The

write-backisrecognisedintheconsolidatedincomestatementinthe

periodinwhichitoccurs.

Derivativerelatedcreditrisk

Creditriskinrespectofderivativefinancialinstrumentsarisesfrom

thepotentialforacounterpartytodefaultonitscontractualobliga-

tionsandislimitedtothepositivefairvalueofinstrumentsthatare

favourabletotheGroup.TheGroupentersintoderivativecontracts

with financial institutionsandcorporateswhichareof satisfactory

creditstandingaspertheGroup’s independentcreditassessment.

Creditriskinderivativesismitigatedthroughlimitcontrolandmaster

nettingagreementsasexplainedinNote 43.4.

Off-balancesheet

The Group applies the same riskmanagement policies for off-

balancesheet risksas itdoes for itson-balancesheet risks. In the

caseof commitments to lend, customers andcounterpartieswill

besubjecttothesamecreditmanagementpoliciesasforloansand

advances.Collateralmaybesoughtdependingonthestrengthofthe

counterpartyandthenatureofthetransaction.

43.7 RENEGOTIATEDLOANS

Thecontractualtermsofa loanmaybemodifiedforanumberof

reasons, and not limited to credit deteriorationof the customer.

Whendeterminingwhether a renegotiated loan shouldbederec-

ognised and anew loan tobe recognised, theGroupperformsa

quantitativeandqualitativeevaluationofwhetherthechangestothe

originalcontractualtermsresultinasubstantiallydifferentfinancial

instrument,inwhichcaseanexistingloanisderecognisedandthe

renegotiatedloanisrecognisedatfairvalue.Forloansundercredit

deterioration, irrespectiveofwhether the loan isderecognisedon

renegotiation, itremainsdisclosedatsameriskgradeuntil there is

sufficientevidenceofimprovement.

44 INTERESTRATERISKFRAMEWORK,MEASUREMENTANDMONITORING

Interest rate risk arises from interest bearing financial instruments

andreflectsthepossibilitythatchangesininterestrateswilladversely

affectthevalueofthefinancialinstrumentsandtherelatedincome.

TheGroupmanages this riskprincipally throughmonitoring inter-

est rategapsandbymatching the re-pricingprofileofassetsand

liabilities.

Overall interest rate risk positions are managed by the Group’s

Treasurydivision,whichusesderivativeinstrumentslikeinterestrate

swapsandcrosscurrencyinterestrateswapstomanagetheoverall

interest rate riskarising fromtheGroup’s interestbearing financial

instruments.

Financialassetsandliabilitiesexposedtointerestrateriskarefinan-

cial assets and financial liabilitieswith either a fixedor a floating

contractualrateofinterest.AsignificantportionoftheGroup’sloans

andadvances,depositsandbalancesdue frombanks, investment

securities,depositsfromcustomers,duetobanks,borrowingsand

capitalnotesfallunderthiscategory.

Financialassetsthatarenotsubjecttoanyinterestrateriskmainly

compriseof investments inequity investments,cashandbalances

withcentralbanksexcludingcertificateofdepositsandreverserepo.

Theoff-balancesheetgaprepresentsthenetnotionalamountsof

theoff-balancesheetfinancialinstruments,suchasinterestrateand

crosscurrencyinterestrateswapswhichareusedtomanageinterest

raterisk.

TheGroupuses financial simulation tools toperiodicallymeasure

andmonitor interest rate sensitivity. The results are analysed and

monitoredbytheAssetandLiabilityCommittee(ALCO).

178

TheGroup’sinterestratesensitivitypositionbasedoncontractualrepricingarrangementsasat31 December2016isasfollows.Derivative

financial instruments(otherthanthosedesignatedinahedgerelationship)andtradingbookassetsandliabilities(excludingnon-interest

bearing)areincludedinthe‘lessthan3months’columnattheirfairvalue.Derivativefinancialinstrumentsdesignatedinahedgerelationship

areincludedaccordingtotheircontractualnextre-pricingtenor.


3monthstolessthan6

monthsAED’000

6monthstoless

than1yearAED’000


AED’000

Over3 years

AED’000

Non-interestbearing

itemsAED’000

TotalAED’000

Assets

Cashandbalanceswithcentralbanks 5,106,613 – – – – 14,155,289 19,261,902

Depositsandbalancesduefrombanks,net 23,456,909 582,296 1,059 – – 623,351 24,663,615

Reverse-repoplacements 1,524,806 – – – – – 1,524,806

Tradingsecurities 418,758 – – – – – 418,758

Derivativefinancialinstruments 3,035,420 27,556 1,291 – – 907,522 3,971,789

Investmentsecurities 11,136,292 1,115,803 1,877,216 5,570,319 12,863,976 495,860 33,059,466

Loansandadvancestocustomers,net 102,808,107 21,978,078 983,007 10,263,812 29,265,091 (6,840,400) 158,457,695

Investmentinassociate – – – – – 204,977 204,977

Investmentproperties – – – – – 659,776 659,776

Otherassets 80,218 – – – – 15,040,770 15,120,988

Propertyandequipment,net – – – – – 926,685 926,685

Intangibleassets – – – – – 18,800 18,800

Totalassets 147,567,123 23,703,733 2,862,573 15,834,131 42,129,067 26,192,630 258,289,257

Liabilitiesandequity

Duetobanks 2,924,638 280,000 370,623 – – 267,453 3,842,714

Derivativefinancialinstruments 3,797,437 1,781 – – – 993,311 4,792,529

Depositsfromcustomers 72,031,911 18,245,571 12,408,630 4,010,122 5,823,325 42,922,648 155,442,207

Eurocommercialpaper 4,194,486 2,583,440 1,950,607 – – – 8,728,533

Borrowings 14,624,830 2,408,763 1,807,246 8,757,859 10,416,332 – 38,015,030

Otherliabilities 31,677 – – – – 17,085,682 17,117,359

Equity – – – – – 30,350,885 30,350,885

Totalliabilitiesandequity 97,604,979 23,519,555 16,537,106 12,767,981 16,239,657 91,619,979 258,289,257

On-balancesheetgap 49,962,144 184,178 (13,674,533) 3,066,150 25,889,410 (65,427,349) –

Off-balancesheetgap (4,800,276) (5,202,216) (317,368) 6,154,031 4,165,829 – –

Totalinterestratesensitivitygap 45,161,868 (5,018,038) (13,991,901) 9,220,181 30,055,239 (65,427,349)

Cumulativeinterestratesensitivitygap 45,161,868 40,143,830 26,151,929 35,372,110 65,427,349 –

Non-interestbearingitemsunderloansandadvancestocustomers,netincludemainlyloanlossprovisions.

179


TheGroup’sinterestratesensitivitypositionbasedoncontractualrepricingarrangementsasat31 December2015wasasfollows:


3monthstolessthan6

monthsAED’000

6monthstoless

than1yearAED’000


AED’000

Over3 years

AED’000

Non-interestbearing

itemsAED’000

TotalAED’000

Assets

Cashandbalanceswithcentralbanks 3,877,603 1,300,000 1,469,200 – – 13,533,474 20,180,277

Depositsandbalancesduefrombanks,net 20,365,863 1,437,654 349,253 – – 229,151 22,381,921

Reverse-repoplacements 4,146,087 110,190 – – – – 4,256,277

Tradingsecurities 62,261 – – – – – 62,261

Derivativefinancialinstruments 2,930,189 59,257 13,035 14,779 348 984,300 4,001,908

Investmentsecurities 2,710,931 2,095,029 1,799,232 5,764,041 7,936,179 558,195 20,863,607

Loansandadvancestocustomers,net 102,371,373 14,114,374 2,232,211 8,870,446 25,961,856 (7,299,798) 146,250,462

Investmentinassociate – – – – – 197,156 197,156

Investmentproperties – – – – – 647,647 647,647

Otherassets 76,656 – – – – 8,494,984 8,571,640

Propertyandequipment,net – – – – – 835,145 835,145

Intangibleassets – – – – – 18,800 18,800

Totalassets 136,540,963 19,116,504 5,862,931 14,649,266 33,898,383 18,199,054 228,267,101


Duetobanks 1,162,570 173,097 73,460 – – 282,666 1,691,793

Derivativefinancialinstruments 3,638,300 20,274 – 85 14,141 1,068,380 4,741,180

Depositsfromcustomers 68,647,987 13,793,142 16,836,605 4,079,116 148,735 40,020,711 143,526,296

Eurocommercialpaper 3,199,655 1,408,901 1,091,508 – – – 5,700,064

Borrowings 12,665,540 292,738 1,917,582 4,011,062 14,584,809 – 33,471,731

Otherliabilities 25,700 – – – – 10,377,534 10,403,234

Equity – – – – – 28,732,803 28,732,803

Totalliabilitiesandequity 89,339,752 15,688,152 19,919,155 8,090,263 14,747,685 80,482,094 228,267,101

On-balancesheetgap 47,201,211 3,428,352 (14,056,224) 6,559,003 19,150,698 (62,283,040) –

Off-balancesheetgap (144,450) 1,896,915 (7,411,791) 5,727 5,653,599 – –

Totalinterestratesensitivitygap 47,056,761 5,325,267 (21,468,015) 6,564,730 24,804,297 (62,283,040)

Cumulativeinterestratesensitivitygap 47,056,761 52,382,028 30,914,013 37,478,743 62,283,040 –

Non-interestbearingitemsunderloansandadvancestocustomers,netincludemainlyloanlossprovisions.

180

45 LIQUIDITYRISKFRAMEWORK,MEASUREMENTANDMONITORING

Liquidity risk is the risk that theGroupwill beunable tomeet its

paymentobligationsassociatedwithitsfinancialliabilitieswhenthey

falldueandtoreplenishfundswhentheyarewithdrawn.TheGroup’s

approachtomanagingliquidityistoensure,thatitwillalwayshave

sufficientliquiditytomeetitsliabilitieswhendue,underbothnormal

and stressedconditions,without incurringunacceptable lossesor

riskingdamagetotheGroup’sreputation.

LIQUIDITYRISKMANAGEMENTPROCESS

TheGrouphasBoardofDirectors(BOD)approvedliquidityriskappe-

titeframeworkwhichestablishestheminimumliquiditytobecarried

bytheGroupinordertosurviveastressenvironmentforastipulated

timehorizon. TheBODhas delegated toManagement Executive

Committee(MEC)theresponsibilityofliquiditymanagementwhich

isoverseenontheirbehalfbytheAssetLiabilityCommittee(ALCO)

onaday todaybasis.ALCOsetsandmonitors liquidity ratiosand

regularlyrevisesandcalibratestheliquiditymanagementpoliciesto

ensurethattheGroupisinapositiontomeetitsobligationsasthey

falldue.ALCOalsoensuresthatthebankremainscompliantwithall

regulatoryandinternalpolicyguidelinespertainingtoliquidityrisk.

TheGroup’sliquiditymanagementprocess,ascarriedoutwithinthe

GroupandmonitoredbytheGroup’sTreasurydivisionincludes:

Monitoringof liquidity positionon a daily,weekly andmonthly

basis.Thisentailsforecastingoffuturecashinflows/outflowsand

ensuringthattheGroupcanmeettherequiredoutflows;

ConductingregularlyliquiditystresstestingoftheGroup’sliquidity

positionunder a varietyof scenarios coveringbothnormal and

more severemarket conditionswithwell defined triggers and

suggestedactions;

Ensuring regular compliance with the liquidity ratios such as

Advances to StableResources (ADR) ratio, Eligible LiquidAssets

ratio (ELAR) and LiquidityCoverage ratio (LCR) stipulatedby the

Central Bankof theUAE and internally approvedmanagement

triggersforliquidityrisk;

MonitoringBasel-III basedNSFR liquidity risk ratio as ameasure

of long term liquidity stressandmaintaining the ratioabove the

managementapprovedthreshold;and

Conducting regular enterprise wide liquidity stress test which

estimatesliquidityrequirementsunderidiosyncraticandsystemic

stress conditions. The enterprisewide stress test incorporates

diverse liquidity triggers like currencyde-peg, failureof amajor

localbank,credit ratingdowngrades inadditiontoregularstress

cashflowanalysis.

TheGrouphassetaninternalceilingontheADRratiothatshouldnot

behigherthan1:1between:

–theamountofloansandadvancestogetherwiththeamountof

inter-bankplacementswitharemaininglifeofmorethanthree

months;and

–the amountof stable resource comprisingof freeown funds

witharemaininglifeofmorethansixmonths,stablecustomer

depositsandstandbyliquidityfacilities.

The above definition is in linewith theCentral Bankof theUAE

definitionoftheAdvancestoStableResourcesratio.

Monitoringcompositionof fundingsourcesatagranular levelhas

settriggersforavoidingconcentrationoffundingsources.Thecon-

centrationoffundingsourcesismonitoredaspercentageofthetotal

liabilityposition.Someoftheratiosmonitoredareasfollows:

Eurocommercialpapertototalliabilities

Wholesalefundstototalliabilities

Moneymarketdepositstototalliabilities

Corefundstototalliabilities

Non-corefundstototalliabilities

Offshorefundstototalliabilities

TheGrouphasestablishedseveralearlywarningindicatorsforliquid-

ity risk in linewith theCentralBankof theUAE requirementsand

monitorsthemregularly.Someofthekeyearlywarningindicators

areasfollows:

Creditratingdowngrade

Declineinstockprice

Wideningcredit-default-swaplevels

Risingretail/wholesalefundingcosts

Increasedcollateralcalls

TheGrouphasalsoestablishedabreachmanagementandescala-

tionprocesswithcleardefinitionofrolesandresponsibilities.

TOOLSFORLIQUIDITYMANAGEMENT

TheGroupthrough itsTreasurydivisionensures that ithasaccess

todiversesourcesoffundingrangingfromlocalcustomerdepos-

its from its retail, corporate and institutional customers aswell as

internationalsovereignwealthfundsandcentralbankstolongterm

funding such asdebt securities and subordinated liabilities issued

undertheglobalmedium-termnoteprogram.

WhilsttheGroup’sdebtsecuritiesandsub-debttypicallyareissued

withmaturitiesofgreater thanoneyear,deposits frombanksand

customers generally have shortermaturitieswhich increase the

liquidity riskof theGroup.TheGroup’sTreasurydivisionmanages

thisriskby:

Diversificationof funding sources andbalancingbetween long

termandshort-termfundingsourcesthroughborrowingunderits

globalmedium-termnotesissueprograms;

Monitoringthestickinessofliabilityportfolioandrewardingbusi-

ness units for sticky deposits through the fund transfer pricing

process;and

Investing in various short-termormedium-termbuthighlymar-

ketable assets in linewith Basel-III guidelines forHighQuality

LiquidAssets (HQLA) such as certificateof depositwithCentral

Bank, investmentgradebonds thatcanbe repurchasedat short

notices,etc.

Further, theBankalsohas the following facilities fromtheCentral

BankoftheUAEtomanageitsliquidityriskduringcriticaltimes:

Overdraft facility against its cash reserves at overnight rate at a

spreadof150basispoints;

Overdraftfacilitybeyondthecashreservesatovernightspreadof

300basispoints;and

Repo facility againstCDs atovernight ratewith a spreadof 100

basispoints.

181


TheBankhasaccesstoMarginalLendingFacility(MLF)initiatedbythe

CentralBankoftheUAEeffectivefromMarch2014.UnderMLF,Bank

canborrow fromUAECentral Bankbyposting eligible collateral.

TheBankperiodicallytestsMLFfacilitywiththeCentralBankforits

operationalreadiness.

NoneoftheaboveCentralBankfacilitieswereutilisedandoutstand-

ingattheendoftheyear.

Bankhasinplaceacontingentfundingplanwhichlistsoutthetrigger

pointstobemonitoredforinvokingthecontingentfundingplan.The

triggerpointsarebasedonmarketobservabledatapointslikecredit

spreads and internal andexternal events likedecline in customer

depositsanddryingupofwholesalemarkets.Thecontingentfunding

planclearlydefinestherolesandresponsibilitiesandisupdatedwith

changingmarketconditionsbyALCO.

The table below summarizes thematurity profile of theGroup’s

assetsandliabilities.Thecontractualmaturitiesofassetsandliabili-

tieshavebeendeterminedonthebasisoftheremainingperiodatthe

endofthereportingperioddatetothecontractualmaturitydateand

donottakeintoaccounttheeffectivematuritiesasindicatedbythe

Group’sdepositretentionhistoryandtheavailabilityofliquidfunds.

Derivative financial instruments (other than thosedesignated in a

hedge relationship) and tradingportfolio assets and liabilities are

includedin ‘lessthan3months’attheirfairvalue.Liquidityriskon

theseitemsisnotmanagedonthebasisofremainingmaturitysince

they are not held for settlement according to suchmaturity and

will frequently be settled before remainingmaturity at fair value.

Derivativesdesignatedinahedgerelationshipareincludedaccording

totheirremainingmaturityatfairvalue.Investmentsecuritiesinequi-

tiesandmutualfundswithnomaturityareincludedin‘over3years’.

Thematurityprofile ismonitoredbymanagement toensure ade-

quateliquidityismaintained.

Thematurityprofileoftheassetsandliabilitiesasat31 December2016wasasfollows:


3monthstolessthan6monthsAED’000

6monthstoless

than1yearAED’000


AED’000

Over3 years

AED’000Total

AED’000

Assets

Cashandbalanceswithcentralbanks 19,261,902 – – – – 19,261,902

Depositsandbalancesduefrombanks,net 21,694,052 494,560 1,179,112 1,117,394 178,497 24,663,615

Reverse-repoplacements 1,524,806 – – – – 1,524,806

Tradingsecurities 418,758 – – – – 418,758

Derivativefinancialinstruments 3,577,372 6,711 23,842 107,728 256,136 3,971,789

Investmentsecurities 2,559,515 1,115,803 1,919,397 8,594,384 18,870,367 33,059,466

Loansandadvancestocustomers,net 17,701,538 2,519,066 2,810,152 21,344,744 114,082,195 158,457,695

Investmentinassociate – – – – 204,977 204,977

Investmentproperties – – – 659,776 – 659,776

Otherassets 8,586,173 6,220,217 201,466 113,132 – 15,120,988

Propertyandequipment,net – – – – 926,685 926,685

Intangibleassets – – – – 18,800 18,800

Totalassets 75,324,116 10,356,357 6,133,969 31,937,158 134,537,657 258,289,257


Duetobanks 3,192,091 280,000 370,623 – – 3,842,714


Depositsfromcustomers 114,534,445 18,250,019 12,412,350 4,010,122 6,235,271 155,442,207

Eurocommercialpaper 4,194,486 2,583,440 1,950,607 – – 8,728,533

Borrowings 3,310,229 3,938,361 4,437,595 15,333,496 10,995,349 38,015,030

Otherliabilities 10,453,470 5,944,548 184,933 113,132 421,276 17,117,359

Equity – – – – 30,350,885 30,350,885

Totalliabilitiesandequity 139,060,226 31,270,354 19,662,376 19,743,094 48,553,207 258,289,257

Balancesheetliquiditygap (63,736,110) (20,913,997) (13,528,407) 12,194,064 85,984,450 –

Off-balancesheet

Financialguaranteesandirrevocablecommitments 1,986,474 2,073,031 1,502,320 6,876,685 3,145,407 15,583,917

182

Thematurityprofileoftheassetsandliabilitiesat31 December2015wasasfollows:



6monthstoless

than1yearAED’000


AED’000

Over3 years

AED’000Total

AED’000

Assets

Cashandbalanceswithcentralbanks 17,411,077 1,300,000 1,469,200 – – 20,180,277

Depositsandbalancesduefrombanks,net 17,166,344 1,022,458 891,978 3,301,141 – 22,381,921

Reverse-repoplacements 4,146,087 110,190 – – – 4,256,277

Tradingsecurities 62,261 – – – – 62,261


Investmentsecurities 2,847,570 2,095,029 1,810,265 6,174,564 7,936,179 20,863,607

Loansandadvancestocustomers,net 15,229,305 2,338,779 3,693,351 19,214,497 105,774,530 146,250,462

Investmentinassociate – – – – 197,156 197,156

Investmentproperties – – – 647,647 – 647,647

Otherassets 3,371,109 1,375,895 3,824,636 – – 8,571,640

Propertyandequipment,net – – – – 835,145 835,145

Intangibleassets – – – – 18,800 18,800

Totalassets 63,830,943 8,372,812 11,711,365 29,389,662 114,962,319 228,267,101


Duetobanks 1,445,236 173,097 73,460 – – 1,691,793


Depositsfromcustomers 108,249,792 13,793,142 16,836,605 4,079,116 567,641 143,526,296

Eurocommercialpaper 3,199,655 1,408,901 1,091,508 – – 5,700,064

Borrowings 3,834,208 292,738 2,600,606 11,781,258 14,962,921 33,471,731

Otherliabilities 4,878,097 1,316,571 3,823,889 – 384,677 10,403,234

Equity – – – – 28,732,803 28,732,803

Totalliabilitiesandequity 125,232,601 17,115,500 24,460,862 16,229,629 45,228,509 228,267,101

Balancesheetliquiditygap (61,401,658) (8,742,688) (12,749,497) 13,160,033 69,733,810 –

Off-balancesheet

Financialguaranteesandirrevocablecommitments 873,984 951,775 2,263,418 5,722,196 5,360,613 15,171,986

183


ThetablebelowsummarizesthematurityprofileoftheGroup’sfinancialliabilitiesasat31 December2016and2015basedoncontractual

undiscountedrepaymentobligations.Asinterestpaymentsuptocontractualmaturityareincludedinthetable,totalsdonotmatchwiththe

consolidatedstatementoffinancialposition.Thecontractualmaturitiesofliabilitieshavebeendeterminedbasedontheremainingperiod

attheconsolidatedstatementoffinancialpositiondatetothecontractualmaturitydateanddonottakeintoaccounttheeffectiveexpected

maturities.Derivativefinancialinstrumentsheldfortradingareincludedin“lessthan3months”columnattheirfairvalue.TheGroupexpects

thatmanycustomerswillnotrequestrepaymentontheearliestdatetheGroupcouldberequiredtopayandthetabledoesnotreflectthe

expectedcashflowsindicatedbytheGroup’sdepositretentionhistory.

CarryingAmountAED’000

GrossoutflowAED’000



6monthstoless

than1yearAED’000


AED’000

Over3 years

AED’000

2016

Liabilities

Duetobanks 3,842,714 3,859,662 3,200,015 282,557 377,090 – –

Derivativefinancialinstruments 4,792,529 3,873,255 3,345,536 360,939 227,028 251,144 (311,392)

Depositsfromcustomers 155,442,207 157,460,668 115,369,820 18,383,402 12,649,285 4,211,579 6,846,582

Eurocommercialpaper 8,728,533 8,756,624 4,198,566 2,590,704 1,967,354 – –

Borrowings 38,015,030 47,910,490 3,570,904 4,110,051 4,687,354 16,641,356 18,900,825

Totalfinancialliabilities 210,821,013 221,860,699 129,684,841 25,727,653 19,908,111 21,104,079 25,436,015

2015

Liabilities

Duetobanks 1,691,793 1,694,509 1,446,384 173,952 74,173 – –

Derivativefinancialinstruments 4,741,180 4,112,501 3,581,419 191,594 12,109 373,466 (46,087)

Depositsfromcustomers 143,526,296 144,690,813 108,724,839 13,927,282 17,152,421 4,291,254 595,017

Eurocommercialpaper 5,700,064 5,703,859 3,199,992 1,410,567 1,093,300 – –

Borrowings 33,471,731 41,505,978 4,089,956 428,454 2,989,783 12,983,127 21,014,658

Totalfinancialliabilities 189,131,064 197,707,660 121,042,590 16,131,849 21,321,786 17,647,847 21,563,588

184

46 FOREIGNEXCHANGERISKFRAMEWORK,MEASUREMENTANDMONITORING

TheGrouptakesonexposuretotheeffectsoffluctuationsintheprevailingforeigncurrencyexchangeratesonitsfinancialpositionandcash

flows.TheBoardofDirectorssetslimitsonthelevelofexposurebycurrencyandinaggregateforbothovernightandintra-daypositions,

whicharemonitoredonadailybasis.ThesensitivityofcurrencyfluctuationriskisgiveninNote47.Theoffbalancesheetpositionrepresents

thenominalvalueofforeigncurrencyswaps,optionscurrencyetc.andoutstandingundertheGroup’stradingandhedgingportfolioat

reportingdate.TheanalysisofcurrencyconcentrationsoftheGroup’sstatementoffinancialpositionarepresentedbelow:

AEDAED’000

USDAED’000

EURAED’000

CHFAED’000

GBPAED’000

MYRAED’000

OthersAED’000

TotalAED’000

2016

Assets

Cashandbalanceswithcentralbanks 12,442,019 6,664,063 – – – – 155,820 19,261,902

Depositsandbalancesduefrombanks,net 1,800,481 19,484,771 485,547 12,304 540,549 25 2,339,938 24,663,615

Reverse-repoplacements – 1,524,806 – – – – – 1,524,806

Tradingsecurities – 418,758 – – – – – 418,758

Derivativefinancialinstruments 1,256,420 2,650,981 365 – 244 – 63,779 3,971,789

Investmentsecurities 243,784 28,807,910 3,083,936 99,359 – – 824,477 33,059,466

Loansandadvancestocustomers,net 137,642,396 19,814,901 43,023 1 7 – 957,367 158,457,695

Investmentinassociate 204,977 – – – – – – 204,977

Investmentproperties 659,776 – – – – – – 659,776

Otherassets 1,304,183 13,527,265 101,431 6,622 10,988 3,684 166,815 15,120,988

Propertyandequipment,net 921,977 – – – – – 4,708 926,685

Intangibleassets 18,800 – – – – – – 18,800

Totalassets 156,494,813 92,893,455 3,714,302 118,286 551,788 3,709 4,512,904 258,289,257


Duetobanks 1,611,120 2,199,155 – – 8 – 32,431 3,842,714

Derivativefinancialinstruments 1,850,394 2,886,563 1,194 – – – 54,378 4,792,529

Depositsfromcustomers 90,539,715 54,348,820 3,078,875 41,765 939,653 9 6,493,370 155,442,207

Eurocommercialpaper – 5,972,681 1,309,526 – 1,446,326 – – 8,728,533

Borrowings 500,358 32,469,415 473,974 1,037,924 898,422 576,215 2,058,722 38,015,030

Otherliabilities 4,213,737 12,617,699 71,343 4,913 461 3,684 205,522 17,117,359

Equity 31,055,648 (704,763) – – – – – 30,350,885

Totalliabilitiesandequity 129,770,972 109,789,570 4,934,912 1,084,602 3,284,870 579,908 8,844,423 258,289,257

Netbalancesheetposition 26,723,841 (16,896,115) (1,220,610) (966,316) (2,733,082) (576,199) (4,331,519) –

Netoff-balancesheetposition 980,821 (11,876,456) 102,050 962,821 2,276,172 576,215 6,978,377 –

NetFXopenposition 27,704,662 (28,772,571) (1,118,560) (3,495) (456,910) 16 2,646,858 –

185


AEDAED’000

USDAED’000

EURAED’000

CHFAED’000

GBPAED’000

MYRAED’000

OthersAED’000

TotalAED’000

2015

Assets

Cashandbalanceswithcentralbanks 13,950,380 6,194,515 103 – – – 35,279 20,180,277

Depositsandbalancesduefrombanks,net 3,832,116 14,905,000 531,275 12,670 38,580 102 3,062,178 22,381,921

Reverse-repoplacements – 4,256,277 – – – – – 4,256,277

Tradingsecurities – 3,717 44,699 – – – 13,845 62,261

Derivativefinancialinstruments 874,848 3,115,109 512 – – – 11,439 4,001,908

Investmentsecurities 257,430 16,069,387 2,629,898 334,633 – – 1,572,259 20,863,607

Loansandadvancestocustomers,net 120,873,185 24,553,824 12,549 – 16,689 – 794,215 146,250,462

Investmentinassociate 197,156 – – – – – – 197,156

Investmentproperties 647,647 – – – – – – 647,647

Otherassets 974,115 7,178,221 46,239 3,858 7,767 3,799 357,641 8,571,640

Propertyandequipment,net 830,232 – – – – – 4,913 835,145

Intangibleassets 18,800 – – – – – – 18,800

Totalassets 142,455,909 76,276,050 3,265,275 351,161 63,036 3,901 5,851,769 228,267,101


Duetobanks 775,277 815,467 136 – 69,360 – 31,553 1,691,793

Derivativefinancialinstruments 755,240 3,977,552 46 – – – 8,342 4,741,180

Depositsfromcustomers 79,220,339 46,533,001 3,049,906 48,664 1,085,803 24 13,588,559 143,526,296

Eurocommercialpaper – 2,294,750 2,341,393 453,223 543,636 – 67,062 5,700,064

Borrowings 504,164 29,420,462 48,314 760,059 636,355 598,227 1,504,150 33,471,731

Otherliabilities 2,911,803 6,590,494 48,886 3,870 9,984 3,799 834,398 10,403,234

Equity 28,756,412 3,261 (26,132) (738) – – – 28,732,803

Totalliabilitiesandequity 112,923,235 89,634,987 5,462,549 1,265,078 2,345,138 602,050 16,034,064 228,267,101

Netbalancesheetposition 29,532,674 (13,358,937) (2,197,274) (913,917) (2,282,102) (598,149) (10,182,295) –

Netoff-balancesheetposition (3,121,094) (12,671,349) 501,495 818,191 2,697,440 598,227 11,177,090 –

NetFXopenposition 26,411,580 (26,030,286) (1,695,779) (95,726) 415,338 78 994,795 –

47 MARKETRISKFRAMEWORK,MEASUREMENTANDMANAGEMENT

TheGroup’s activities expose it primarily tomarket riskwhich is

definedas the risk thatchanges inmarketprices, suchas interest

rates, equity prices, foreign exchange rates, commodity prices

andcreditspreads(notrelatingtochangesintheobligor’s/issuer’s

creditstanding)whichwillaffect theGroup’s incomeor thevalue

ofitsholdingsoffinancialinstruments.Theobjectiveofmarketrisk

managementistomanageandcontrolmarketriskexposureswithin

acceptableparameters,whileoptimizingthereturnonrisk.

Interestrateriskistheriskthatthefairvalueorfuturecashflowsof

afinancialinstrumentwillfluctuatebecauseofchangesinmarket

interestrates.

Currencyriskistheriskthatthefairvalueorfuturecashflowsofa

financial instrumentwill fluctuatebecauseofchanges in foreign

exchangerates.

Otherpriceriskistheriskthatthefairvalueorfuturecashflowsof

afinancialinstrumentwillfluctuatebecauseofchangesinmarket

prices(otherthanthosearisingfrominterestrateriskorcurrency

risk),whetherthosechangesarecausedbyfactorsspecifictothe

individualfinancialinstrumentoritsissuerorbyfactorsaffectingall

similarfinancialinstrumentstradedinthemarket.

TheGroupseparatesitsexposuretomarketriskbetweentradingand

bankingbookasdefinedbelow:

MARKETRISKARISINGFROMTRADINGBOOK

Tradingpositionsareheldbythetreasurydivision,andincludeposi-

tions arising frommarketmaking andproprietary position taking,

togetherwithfinancialassetsandliabilitiesthataremanagedona

fairvaluebasis.Realisedandunrealisedgainsand losseson these

positionsarereportedinconsolidatedincomestatement.

MARKETRISKARISINGFROMBANKINGBOOK

MarketriskfrombankingbookarisesfromexecutionoftheGroup’s

core business strategies, products and services to its customers,

thatinvariablycreateinterestrateriskandopencurrencypositions

thattheGroupendeavourstomanagethroughstrategicpositionsto

mitigatetheinherentriskcausedbythesepositions.

186

Bankingbookincludesallpositionsthatarenotheldfortradingsuch

asbutnot limited to theGroup’s investments in available-for-sale

instruments,loansandadvancescarriedatamortisedcost,deriva-

tivesusedforhedgingandotherfinancialassetsheldforlongterm.

Theseexposurescanresultfromavarietyoffactorsincludingbutnot

limitedtore-pricingofgapsinassets,liabilitiesandoff-balancesheet

instrumentsandchanges inthelevelandshapeofmarket interest

ratecurves.

RISKIDENTIFICATIONANDCLASSIFICATION

TheMRCCapprovesmarketriskpoliciesfortheGroup.Allbusiness

segmentsareresponsibleforcomprehensiveidentificationandveri-

ficationofmarketriskswithintheirbusinessunits.Regularmeetings

areheldbetweenmarket riskmanagement and theheadsof risk

takingbusinesses to discuss anddecideon risk exposures in the

contextofthemarketenvironment.

MANAGEMENTOFMARKETRISK

TheBoardofDirectors have set risk limits basedon theValue-at

Risk (VaR), StressedValue at Risk (SVaR),Greeks, sensitivity/stress

analysisandforeignexchangeopenpositionlimitswhichareclosely

monitoredbytheriskmanagementdivisionandreportedregularlyto

theseniormanagementanddiscussedbyALCO.

Market risk is identified,measured,managedandcontrolledbyan

independent risk control function.Market riskmanagement aims

toreducevolatilityinoperatingperformanceandmaketheGroup’s

marketriskprofiletransparenttoseniormanagement,theBoardof

DirectorsandRegulators.

MarketriskmanagementisoverseenbytheManagementRiskand

Credit Committee (MRCC) and performs the following primary

functions:

establishmentofacomprehensivemark-to-marketvaluationpolicy

framework;

establishmentofacomprehensivemarketriskpolicyframework;

independentmeasurement,monitoring and control ofmarket

risk;and

settingandmonitoringoflimits.

RISKMEASUREMENT

Thefollowingarethetoolsusedtomeasurethemarketrisk,because

nosinglemeasurecanreflectallaspectsofmarketrisk.TheGroup

usesvariousmatrices,bothstatisticalandnon-statistical, including

sensitivityanalysis.

STATISTICALRISKMEASURES

TheGroupmeasures the riskof loss arising from futurepotential

adversemovementsinmarketrates,pricesandvolatilitiesusingVaR

methodology. The VaR that theGroupmeasures is an estimate,

using a confidence level of 99%of the potential loss that is not

expectedtobeexceededifthecurrentmarketpositionsweretobe

heldunchanged foroneday. This confidence level suggests that

potentialdaily losses inexcessoftheVaRmeasureare likelytobe

experienced,onceeveryhundreddays.TheBoardhassetlimitsfor

theacceptablelevelofrisksinmanagingthetradingbook.

TheGroupusessimulationmodelstoassessthepossiblechanges

inthemarketvalueofthetradingbookbasedonhistoricaldata.VaR

modelsareusuallydesignedtomeasurethemarketriskinanormal

market environment and therefore theuseof VaRhas limitations

becauseitisbasedonhistoricalcorrelationsandvolatilitiesinmarket

pricesandassumesthatthefuturemovementswillfollowastatistical

distribution.

TheVaRrepresentstheriskofportfoliosatthecloseofabusiness

dayandintra-dayrisklevelsmayvaryfromthosereportedattheend

oftheday.Theactualtradingresultshowever,maydifferfromthe

VaRcalculationsand,inparticular,thecalculationdoesnotprovide

ameaningful indication of profits and losses in stressedmarket

conditions.

ToovercometheVaRlimitationsmentionedabove,theGroupruns

bothSVaRandExpectedShortfalldailytomonitorthetailriskoutside

theconfidencelimit.StressedVaRistheVaRrunthroughastressed

yearratherthanthepreviousyearasusedinVaR.

TheGroup’sVaRfortheyearended31 Decemberisasbelow:

2016AED’000

2015AED’000

Dailyvalueatrisk(VaRat99% —1day)

Overallrisk (5,151) (3,228)

AverageVaR (5,754) (6,714)

NON-STATISTICALRISKMEASURES

Non-statistical riskmeasures, other than stress/sensitivity testing,

include independentmarket valuations toensure that theGroup’s

valuationsarecorrectandRiskGreekstoensurethattradingiswithin

theriskappetitethresholds.Thesemeasuresprovidegranularinfor-

mationoftheGroup’smarketriskexposures.

Independentmarketvaluations/Greeksarevalidatedbythemarket

risk function inorder toensure that themarket valuations/Greeks

aremeasuredcorrectly.TheGroupuses firstorderRiskGreeks to

monitorandcontrolmarketriskonadaytodaybasis.Theinterest

ratedelta and vega and the foreignexchangedelta and vega are

computeddaily andmonitored against a limit. TheBoardhas set

limits for thedeltaand thevegawithinacceptable levelof risks in

managingthetradingbook.

SENSITIVITYANALYSIS

ToovercometheVaRlimitationsmentionedunderstatisticalmeasure

above,theGroupalsocarriesoutdailystresstests/sensitivityanalysis

of its portfolio to simulate conditionsoutsidenormal confidence

intervalsinordertoanalysepotentialriskthatmayarisefromextreme

marketevents thatare rarebutplausible.The resultsof thestress

tests are reported regularly to theGroup’s ALCOcommittee for

theirreview.

CURRENCYRISK

The following tabledepicts the sensitivityof fair valuations in the

tradingandbankingbooktohypothetical,instantaneouschangesin

thelevelofforeigncurrencyexchangerates —withothermarketrisk

factorsheldconstant(includingtheUSD-AEDcurrencypairwhichis

187


pegged) —whichwouldhaveanimpactontheGroup’sconsolidated

incomestatement:

2016 2015

PriceShock inpercentage

+5%AED’000

–5%AED’000

+5%AED’000

–5%AED’000

USD-AUD 109 606 1,122 (227)

EUR-USD 2,194 2,744 2,536 3,195

GBP-USD (3,762) (265) 193 214

USD-JPY (294) 566 6,541 3,839

USD-CHF 770 125 1,367 (786)

USD-INR (10,918) 12,063 (10,614) 12,606

INTERESTRATERISK —TRADINGBOOK


tradingbooktohypotheticalandinstantaneouschangesinthelevel

of interest rates —withothermarket risk factorsheld constant —

whichwouldhaveanimpactontheGroup’sconsolidatedincome

statement:

Relativeinstantaneousratemoveshiftforalltenors:

2016 2015

+25%AED’000

–25%AED’000

+25%AED’000

–25%AED’000

AED (26,876) 33,214 (17,319) 23,349

USD 577 (1,015) 10,215 (9,471)

INTERESTRATERISK —BANKINGBOOK


non-tradingbooktohypotheticalandinstantaneouschangesinthe

levelofinterestrates —withothermarketriskfactorsheldconstant —

whichwouldhaveanimpactontheGroup’sconsolidatedincome

statement:

2016 2015

+25bpsAED’000

–25bpsAED’000

+25bpsAED’000

–25bpsAED’000

Sensitivityofnetinterestincome 95,861 (95,862) 88,701 (88,123)

Thesensitivityontheconsolidatedincomestatement istheeffect

oftheassumedchangesininterestratesonthenetinterestincome

foroneyear,basedonthefloatingratenon-tradingfinancialassets

andfinancialliabilities,includingtheeffectofhedginginstruments.

48 OPERATIONALRISKMANAGEMENT

Operationalriskistheriskoflossresultingfrominadequateorfailed

internal processes, people and systemsor fromexternal events.

Operationalriskscanarisefromallbusinessprocessesandactivities

carriedoutbytheGroupandcanexposetheGrouptopotentially

large losses. The Group manages operational risk exposures

throughaconsistentsetofmanagementprocessesthatincluderisk

identification,assessment,control,mitigationandmonitoring.The

OperationalRiskManagementFrameworkisbuiltonelementsthat

allowtheGrouptoeffectivelymanageandmeasureitsoperational

riskprofileandtocalculatetheamountofoperationalriskcapitalit

needstoholdtoabsorbpotentiallosses.Theframeworkisgoverned

bythreelinesofdefenceconcept.

Eachbusinessgroup,asanintegralpartoftheirfirstlineofdefence

responsibilities, is responsible for identifying andmanaging risks

thatarisefromtheiractivities. Identifiedoperationalriskexposures

arerated‘Minor’,‘Moderate’,‘Significant’and‘Major’inaccordance

withdefinedriskassessmentcriteria.SignificantandMajorrisksare

analysedtoidentifytherootcauseofanyfailureforremediationand

futuremitigation.Additionally,dataonoperationallossesissystem-

aticallycollectedandanalysedtoaddresstherootcauseoffailures.

Asthesecondlineofdefence,GroupOperationalRiskisresponsible

forsettingandmaintainingthestandardsforoperationalriskman-

agementandcontrol.Thisincludesdefiningappropriatepoliciesand

providestoolstomanageandmonitoroperationalriskswithinthe

Group’sactivities.GroupOperationalRiskfunctioniswellsupported

by BusinessOperational RiskManagers, for identifying risks that

arematerial to theGroupandformaintaininganeffectivecontrol

environment across the organization. Additionally, a system has

beenimplementedtoensurethatoperationalriskdataisconsistently

captured across theGroup in linewith the regulatory framework.

Newproducts,material process changes andcritical outsourcing

arrangements are also assessed and authorized in accordance

withproductgovernancepoliciesandprocedures.Operationalrisk

reporting is an integral part of the governance framework.On a

quarterlybasis reporting isdone to theHeadsofBusinessGroup,

SeniorManagementCommitteesandtheBoardRiskCommittee.

Asthethirdlineofdefence,InternalAuditfunctionprovidesfurther

independent reviewof theGroup’s operational riskmanagement

processes,systemsandcontrolsandreportstotheBoardandSenior

ManagementCommittee.

49 FOREIGNCURRENCYBALANCES

Net assets amounting to Indian rupeeequivalentofAED206,829

thousand(31 December2015 —AED202,732 thousand)heldinIndia

aresubjecttotheexchangecontrolregulationsofIndia.

50 TRUSTACTIVITIES

Asat31 December2016,thenetassetvalueofthefundsunderthe

managementoftheGroupamountedtoAED2,928,980 thousand

(31 December2015 —AED2,161,522 thousand).

188

51 SUBSIDIARIES

ThefollowingisthelistofsubsidiariesoftheBank:

NameofsubsidiaryOwnershipinterest

Incorporation

Year Country Principalactivities

ADCBSecuritiesLLC 100% 2005 UAE Agentintradingoffinancialinstrumentsandstocks.

Abu DhabiCommercialPropertiesLLC 100% 2005 UAE Realestatepropertymanagementandadvisoryservices.

Abu DhabiCommercialFinanceSolutionsLLC 100% 2005 UAE Financialinvestments.

Abu DhabiCommercialInvestmentServicesLLC 100% 2005 UAE Financialinvestments.

KineticInfrastructureDevelopmentLLC 100% 2006 UAE Financialinvestments.

Abu DhabiCommercialPropertyDevelopmentLLC(*)

100% 2006 UAE Propertydevelopment.

Abu DhabiCommercialEngineeringServicesLLC 100% 2007 UAE Engineeringservices.

ADCBFinance(Cayman)Limited 100% 2008 CaymanIslands Treasuryfinancingactivities.

ADCBMarkets(Cayman)Limited(FormerlyknownasADCBHoldings(Cayman)Limited)

100% 2008 CaymanIslands Treasuryrelatedactivities.

ADCBHoldings(Labuan)Limited 100% 2008 Malaysia Holdingcompany.

ADCBHoldings(Malaysia)SdnBhd 100% 2008 Malaysia Investmentholdingcompany.

ACBLTIP(IOM)Limited Controllinginterest

2008 Isleofman Trustactivities.

Abu DhabiCommercialPropertiesConsultancyLLC(*)

100% 2008 UAE Realestateconsultancy.

Abu DhabiCommercialBank(UKRepresentativeOffice)Limited

100% 2008 UnitedKingdom UKrepresentativeofficeandprocessserviceagent.

ADCBFundManagementSARL 100% 2009 Luxembourg Fundmanagementcompany.

Abu DhabiCommercialIslamicFinancePvt.J.S.C. 100% 2009 UAE Islamicbanking.

ITMAMServicesFZLLC(FormerlyknownasADCBServicesFZLLC)

100% 2010 UAE TransactionprocessingandbackofficesupportfortheGroup.

ADCBIslamicFinance(Cayman)Limited 100% 2011 CaymanIslands Islamicfinancingactivities.

ADNACVenturesWLL 99.75% 2012 Bahrain Trustactivities.

ITMAMServicesLLC 100% 2013 UAE TransactionprocessingandbackofficesupportfortheGroup.

Abu DhabiCommercialEnterprisesLLC 100% 2013 Qatar Engineeringservices.

OmicronCapital(Cayman)Limited 100% 2014 CaymanIslands Treasuryfinancingactivities.

ADCBStructuringI(Cayman)Limited 100% 2016 CaymanIslands Treasuryfinancingactivities.

ADCBStructuringII(Cayman)Limited 100% 2016 CaymanIslands Treasuryfinancingactivities.

(*)Thesesubsidiariesaredormant.

189


52 CAPITALADEQUACYANDCAPITALMANAGEMENT

CAPITALMANAGEMENTPROCESS

TheGroup’sobjectiveswhenmanagingcapital,whichisabroader

conceptthanthe‘equity’onthefaceofstatementoffinancialposi-

tion,are:

tocomplywiththecapitalrequirementssetbytheCentralBankof

theUnitedArabEmirates;

tosafeguardtheGroup’sabilitytocontinueasagoingconcernand

increasethereturnsfortheshareholders;and

tomaintainastrongcapitalbasetosupport thedevelopmentof

itsbusiness.

Capital adequacyand theuseof regulatorycapital aremonitored

onaregularbasisbytheBank’smanagementemployingtechniques

basedontheguidelinesdevelopedbytheBaselCommitteeandthe

CentralBankoftheUnitedArabEmirates.Therequiredinformation

isfiledwiththeregulatorsonaregularbasisasrequiredunderBasel

IIstandards.

TheUAECentralBankvideitscircularNo.27/2009dated17 November

2009 informed all theBanksoperating in theUAE to implement

StandardisedapproachofBaselIIfromthedateofthecircular.For

credit andmarket risk, theCentral Bankhas issuedguidelines for

implementationof Standardised approachandbanks are required

to comply and report under Pillar 2 — InternalCapital Adequacy

AssessmentProcess (ICAAP) requirements sinceMarch2010. For

operationalrisk,theCentralBankhasgivenbankstheoptiontouse

theBasicIndicatorsapproachortheStandardisedapproachandthe

GrouphaschosentousetheStandardisedapproach.

TheBank currently uses the approachdefined below for Pillar 1

reporting:

Credit risk:Standardisedapproach isusedby theGroup incalcu-

lating itscapital requirements forcredit risk.Thisapproachallows

theuseofexternal ratings fromdesignatedcredit ratingagencies,

whereveravailable,indeterminingtheappropriateriskweights.The

riskweightisdeterminedbytheassetclassandtheexternalratingof

thecounterparty.Thenetexposureincorporatesoffbalancesheet

exposures after applying the credit conversion factors (CCF) and

creditriskmitigants(CRM).

Marketrisk:Fortheregulatorymarketriskcapitalrequirement,the

Groupusesthestandardisedapproach.

Operationalrisk:BaselII includesacapitalrequirementforopera-

tional risk,againutilising three levelsofsophistication.Thecapital

requiredunderthebasicindicatorapproachisasimplepercentageof

grossrevenues,whereasunderthestandardisedapproachitisoneof

threedifferentpercentagesoftotaloperatingincomeundereachof

eightdefinedbusinesslines.Boththeseapproachesuseanaverage

of the last threefinancialyears’ revenues.TheGrouphasadopted

thestandardisedapproachindeterminingtheoperationalriskcapital

requirements.

TheGroup alsoprepares an annual comprehensive ICAAPdocu-

ment.Thisdocument isadetailedassessmentbytheGroupof its

riskprofile,approachestoassessandmeasurevariousmaterialrisks,

capitalplanningunderregularandstressscenarios.

TheGroup’scapitalmanagementisdrivenbylong/shorttermstrat-

egiesandorganisationalrequirementswithdueconsiderationtothe

regulatory, economic andcommercial environment inwhich the

Bankoperates.

TheGroup seeks tooptimise returnsoncapital and it has always

been the objective tomaintain a strong capital base to support

businessdevelopmentandtomeetregulatorycapitalrequirements

atalltimes.

Capitalsupply

AsperBaselIIrequirement,capitalshouldcompriseofthefollowing:

Tier 1 capital includes paid-up share capital, share premium,

published reserves (including post-tax retained earnings but

excluding positive balance of cumulative changes in fair value),

hybrid Tier 1 instruments (with prior approval fromCentral Bank)

andnon-controllinginterestsintheequityofsubsidiarieslessthan

wholly-owned.

Deductions aremade from Tier 1 core capital as per the Basel

guidelines/CentralBankoftheUAErulesandincludesgoodwilland

otherintangiblesatnetbookvalue,adjustmentsforthecumulative

effectofforeigncurrencytranslation,negativebalanceofcumula-

tivechangesinfairvalue,treasuryshares,currentyearloss/retained

losses,shortfallinprovisionsandotherdeductionstobedetermined

bytheCentralBankoftheUAE.

Tier 2 capital includes collective provisions per Basel guidelines

andUAECentralBankrules,undisclosedreserves,assetrevaluation

reserves/cumulativechangesinfairvalue,hybrid(debt/equity)capital

instrumentsandsubordinatedtermloan.

Tier 3 capital includes principal formof eligible capital to cover

marketrisksandconsistsofshareholders’equityandretainedearn-

ings(Tier1capital)andsupplementarycapital(Tier2capital).Subject

topriorapprovalfromtheCentralBankoftheUAE,banksmayemploy

athirdtierofcapital(Tier3),consistingofshorttermsubordinated

debtasdefinedinparagraph49(xiv)ofBaselII,forthesolepurpose

ofmeetingaproportionofthecapitalrequirementsformarketrisks,

subjecttotheconditionsinparagraph49(xiii)and49(xiv).

SECURITISEDASSETS

Exposures to securitisedassets thatare ratedB+andbelow (long

term),belowA3/P3(shortterm),orareun-ratedaredeductedfrom

thecapitalbaseandthedeductionswillbe50%fromTier1and50%

fromTier2capital.

190

CAPITALALLOCATION

Theallocationofcapitalbetweenspecificoperationsandactivities

is, toa largeextent,drivenbyoptimisationof the returnachieved

on thecapital allocated. The amountof capital allocated toeach

operationoractivity isbasedprimarilyupontheregulatorycapital

andtheGroup’sbusinessstrategy,butinsomecasestheregulatory

requirementsdonotreflectfullythevaryingdegreeofriskassociated

withdifferentactivities.Insuchcasesthecapitalrequirementsmay

beflexedtoreflectdifferingriskprofiles,subjecttotheoveralllevel

of capital to support a particular operationor activity not falling

belowtheminimumrequiredforregulatorypurposes.Theprocess

ofallocatingcapitaltospecificoperationsandactivitiesisundertaken

independentlyofthoseresponsiblefortheoperationbyBankRisk&

CreditandFinancefunctionsandissubjecttoreviewbytheALCOas

appropriate.

CAPITALADEQUACYRATIO

The ratio calculated in accordance with Basel II guidelines is

asfollows:

2016AED’000

2015AED’000

Tier1capital

Sharecapital(Note 22) 5,198,231 5,595,597

Sharepremium 2,419,999 3,848,286

Otherreserves(Note 23) 7,423,305 5,656,564

Retainedearnings 11,052,553 9,627,315

Non-controllinginterests – 5,041

Capitalnotes(Note 26) 4,000,000 4,000,000

Less:Intangibleassets(Note 16) (18,800) (18,800)

Less:Investmentinassociate(Note 12) (102,489) (98,578)

Totaltier1capital 29,972,799 28,615,425

Tier2capital

Collectiveimpairmentallowanceonloansandadvances 2,115,655 1,966,431

Cumulativechangesinfairvalue(Note 23) 6,290 –

Subordinatednotes(Note 20) 4,217,314 4,226,037

Less:Investmentinassociate(Note 12) (102,488) (98,578)

Totaltier2capital 6,236,771 6,093,890

Totalregulatorycapital 36,209,570 34,709,315

Risk-weightedassets

Creditrisk 169,252,435 157,314,517

Marketrisk 8,343,579 5,652,368

Operationalrisk 13,741,466 12,689,402

Totalrisk-weightedassets 191,337,480 175,656,287

Capitaladequacyratio 18.92% 19.76%

Tier1ratio 15.66% 16.29%

Tier2ratio 3.26% 3.47%

Thecapitaladequacyratiowasabovetheminimumrequirementof

12%for31 December2016(31 December2015 —12%)stipulatedby

theCentralBankoftheUAE.

Tier1capitalresources

(a) Ordinary shareholders’ funds, which include the cumulative

proceedsfromtheissuanceofordinarysharesattheirnominal

valuenetoftreasuryshares.Theseinstrumentsconferashareof

ownershipintheBank,andcarrynoobligations.

(b)StatutoryandLegalreserves:

(i) Statutory reserve: As required by Article 239 of the UAE

Federal LawNo. (2) of 2015, 10%of the net profit for the

year is transferred to the statutory reserve. TheBankmay

resolvetodiscontinuesuchannualtransferswhenthereserve

equals50%ofthenominalvalueofthepaidupsharecapital.

Transfertostatutoryreservefortheyearisnolongerrequired

asthereservehasreached50%ofthepaid-upsharecapital

(31 December2015 —AED105,645 thousand).Thestatutory

reserveisnotavailablefordistribution.

(ii) Legalreserve:InaccordancewiththeArticle82ofUnionLaw

No.10of1980andtheArticlesofAssociationoftheBank,10%

ofthenetprofitfortheyearistransferredtothelegalreserve.

TheBankmay resolve todiscontinue suchannual transfers

when the reserve equals 50%of the nominal valueof the

paid-up share capital. Transfer to legal reserve for the year

isnolongerrequiredasthereservehasreached50%ofthe

paid-upsharecapital(31 December2015 —AED150,432 thou-

sand).Thelegalreserveisnotavailablefordistribution.

(c) GeneralandContingencyreserves:

(i) Generalreserve:InaccordancewiththeArticlesofAssociation

oftheBank,afurtherpercentageofnetprofitfortheyearcan

be transferred to thegeneral reservebasedon the recom-

mendationoftheBoardofDirectors.TheBankmayresolve

todiscontinuesuchannualtransferswhenthereserveequals

25%of thenominal valueof thepaidup sharecapital.This

reservemayonlybeusedforthepurposesrecommendedby

theBoardofDirectorsandapprovedbytheshareholders.

(ii) Contingencyreserve:Thecontingencyreserveisestablished

tocoverunforeseenfuturerisksorcontingencieswhichmay

arisefromgeneralbankingrisks.

(d)Employees’incentiveplanshares:TheBankgrantsequity-settled

share-basedpaymentstoemployees.Thesesharesareacquired

bytheBankforitsemployeesandaredeductedfromcapital.

(e) Cashflowhedgereserve:Theeffectiveportionofchangesinthe

fair valueofderivatives thataredesignatedandqualifyascash

flowhedgesarerecognisedinothercomprehensiveincomeand

accumulatedinequity.

(f) Foreign currency translation reserve: The translation reserve

comprises all foreign exchange differences arising from the

translationofthefinancialstatementsofforeignoperations.

(g) Retained earningswhich represent the cumulative profits not

distributedtoshareholders,andothereligiblereserves.

(h)Non-controllinginterestsinequityofsubsidiaries.

191


(i) Capital notes: In February 2009, theDepartment of Finance,

GovernmentofAbu DhabisubscribedtoADCB’sTier1regulatory

capitalnoteswithaprincipalamountofAED4,000,000 thou-

sand (the “Notes”). TheNotes arenon-voting, non-cumulative

perpetualsecuritiesforwhichthereisnofixedredemptiondate.

RedemptionisonlyattheoptionoftheBank.

DeductionsfromTier1resourcesincludeintangibleassetsand50%

ofinvestmentinassociate.

Tier2capitalresources

(a) Collectiveimpairmentonloansandadvanceslimitedto1.25%of

creditrisk-weightedassets.

(b)Cumulativechanges in fairvalue —Thecumulativechanges in

fairvalues includes thecumulativenetchange in the fairvalue

ofavailable-for-saleinvestmentsmeasuredatfairvaluethrough

other comprehensive income.However, it is limited to 45% if

thebalanceispositive.Butifthebalanceisnegative,theentire

balanceisadjustedinTier1capital.

(c) Eligiblesubordinatednotes(Note 20).

Deductions fromTier 2 resources include 50%of investment in

associate.

53 SOCIALCONTRIBUTIONS

TheGroupmadethefollowingsocialcontributionsduringtheyear:

2016AED’000

2015AED’000

Donations 6,019 3,689

Sponsorships 5,922 4,371

Totalsocialcontributions 11,941 8,060

54 LEGALPROCEEDINGS

TheGroupisinvolvedinvariouslegalproceedingsandclaimsarising

in the ordinary course of business.While the outcomeof these

matterscannotbepredictedwithcertainty,managementdoesnot

believethatthesematterswillhaveamaterialadverseeffectonthe

Group’sconsolidatedfinancialstatementsifdisposedunfavourably.

192

Documents

Consolidated Financial Statements...Commercial Bank PJSC, Abu Dhabi (the “Bank”) which comprise the consolidated statement of financial position as at 31 December 2016, and the