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United Arab Bank: Condensed Interim Financial Statements - 31 March 2022

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5 days ago
United Arab Bank: Condensed Interim Financial Statements - 31 March 2022

Islamic banking, Provision, Receivables


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  1. United Arab Bank P .J.S.C. Review report and condensed interim financial statements For the three months period ended 31 March 2022
  2. United Arab Bank P .J.S.C. Review report and condensed interim financial statements For the three months period ended 31 March 2022 Pages Independent auditor’s review report to the shareholders and directors 2 Interim statement of financial position 3 Interim statement of income 4 Interim statement of comprehensive income 5 Interim statement of cash flows 6 Interim statement of changes in equity 7 Notes to the condensed interim financial statements 8 - 28
  3. Report on review of interim condensed financial statements to the Board of Directors of United Arab Bank P .J.S.C Introduction We have reviewed the accompanying interim condensed financial statements of United Arab Bank P.J.S.C. (the “Bank”), which comprise the interim statement of financial position as at 31 March 2022 and the related interim statements of income and comprehensive income, cash flows and changes in equity for the three months period then ended and explanatory notes. Management is responsible for the preparation and presentation of these condensed interim financial statements in accordance with International Accounting Standard IAS 34: Interim Financial Reporting (“IAS 34”). Our responsibility is to express a conclusion on these interim condensed financial statements based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial statements are not prepared, in all material respects, in accordance with IAS 34. For Ernst & Young Signed by: Anthony O’Sullivan Partner Registration No: 687 28 April 2022 Sharjah, United Arab Emirates A member firm of Ernst & Young Global Limited
  4. United Arab Bank P .J.S.C. INTERIM STATEMENT OF INCOME For the three months period ended 31 March 2022 (Unaudited) Three months period ended 31 March (Unaudited) ───────────── 2022 2021 AED’000 AED’000 Interest income Income from Islamic financing products 107,589 5,961 ────── 114,822 6,548 ────── 113,550 121,370 (38,209) (8,462) ────── (46,671) (41,950) (15,286) ────── (57,236) 66,879 64,134 Net fees and commission income Foreign exchange income Other operating income 12,494 4,616 32,863 ────── 11,549 4,312 52,324 ────── Total operating income 116,852 ────── 132,319 ────── Employee benefit expenses Depreciation Other operating expenses (33,906) (5,348) (19,227) ────── (35,328) (6,811) (17,503) ────── Total operating expenses (58,481) ────── 58,371 (59,642) ────── 72,677 (27,983) ────── (62,477) ────── 30,388 ══════ 10,200 ══════ Total interest income and income from Islamic financing products Interest expense Distribution to depositors – Islamic products Total interest expense and distribution to depositors Net interest income and income from Islamic products net of distribution to depositors Profit before impairment loss Net impairment losses 11 Net profit for the period Earnings per share (basic and diluted in AED) 4 0.02 ══════ 0.01 ══════ The notes on pages 8 to 28 form an integral part of the condensed interim financial information. The independent auditors’ report on review of the Bank’s condensed interim financial information is set out on page 2. 4
  5. United Arab Bank P .J.S.C. INTERIM STATEMENT OF COMPREHENSIVE INCOME For the three months period ended 31 March 2022 (Unaudited) Three months period ended 31 March (unaudited) ─────────────── 2022 2021 AED’000 AED’000 Net profit for the period 30,388 10,200 Other comprehensive loss Items that are or may be reclassified subsequently to the statement of income Fair value through other comprehensive income (FVOCI): Net change in fair value during the period Change in allowance for expected credit losses Reclassified to the income statement Other comprehensive loss for the period Total comprehensive loss for the period (133,084) 5,996 85,389 ─────── (41,699) ─────── (11,311) ═══════ (55,631) 4,246 21,639 ─────── (29,746) ─────── (19,546) ═══════ The notes on pages 8 to 28 form an integral part of the condensed interim financial information. The independent auditors’ report on review of the Bank’s condensed interim financial information is set out on page 2. 5
  6. United Arab Bank P .J.S.C. INTERIM STATEMENT OF CASH FLOWS For the three months period ended 31 March 2022 (Unaudited) Three months period ended 31 March (unaudited) ──────────────────── 2022 2021 AED’000 AED’000 Operating activities Net profit for the period Adjustments for: Depreciation Gain on sale of property and equipment Gain on sale of assets acquired in settlement of debt Net impairment losses Amortisation of premium paid on investments Net fair value loss / (gain) on disposal of investments and Islamic instruments Unrealised loss on investments 11 Operating cash flows before movements in working capital Changes in operating assets and liabilities: Loans and advances and Islamic financing receivables Balances with the UAE Central Bank maturing after three months Cash margin held by counterparty banks against borrowings and derivative transactions Other assets Due to banks maturing after three months Customer deposits and Islamic customer deposits Other liabilities Net cash used in operating activities Investing activities Purchase of property, equipment and capital work-in-progress Purchase of investments Proceeds from redemption / sale of investments Proceeds from sale of property and equipment Proceeds from sale of assets acquired in settlement of debt Net cash generated used in investing activities 7 10 30,388 10,200 5,348 (13,356) 27,983 3,088 6,811 (2,904) (846) 62,477 3,729 75 ──────── 53,526 ──────── (42,000) 24 ──────── 37,491 ──────── 301,707 (15,341) 430,784 4,072 88,885 (34,590) (1,118,611) (286,207) 52,263 ──────── (958,368) 56,648 (13,434) (230,835) (407,995) (57,426) ──────── (180,695) (5,026) (479,246) 70,356 70,000 ──────── (343,916) ──────── (3,243) (749,721) 676,630 7,500 2,947 ──────── (65,887) ──────── ──────── ──────── (1,302,284) ──────── ──────── (246,582) 1,680,891 ──────── 378,607 ════════ 746,707 ──────── 500,125 ════════ Financing activities Cash flows from financing activity Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 March Cash and cash equivalents comprise the following statement of financial position amounts with original maturities of three months or less: Cash and balances with UAE Central Bank Due from other banks Due to banks 848,283 140,930 (610,606) ──────── 378,607 ════════ 913,639 405,989 (819,503) ──────── 500,125 ════════ The notes on pages 8 to 28 form an integral part of the condensed interim financial information. The independent auditors’ report on review of the Bank’s condensed interim financial information is set out on page 2. 6
  7. United Arab Bank P .J.S.C. INTERIM STATEMENT OF CHANGES IN EQUITY For the three months period ended 31 March 2022 (Unaudited) At 1 January 2022 (audited) Profit for the period Other comprehensive loss for the period Total comprehensive income / (loss) for the period At 31 March 2022 (unaudited) At 1 January 2021 (audited) Profit for the period Other comprehensive loss for the period Total comprehensive income / (loss) for the period Depreciation transfer for land and buildings Revaluation transfer upon sale of building At 31 March 2021 (unaudited) Cumulative changes in fair value AED’000 Share capital AED’000 Special reserve AED’000 Statutory reserve AED’000 General reserve AED’000 Revaluation reserve AED’000 2,062,550 7,019 35,943 9,311 1,511,892 ─────── - ─────── - ─────── - ─────── - (610,587) ─────── - (41,699) ─────── (41,699) 30,388 ─────── 30,388 30,388 (41,699) ─────── (11,311) ─────── 2,062,550 ══════ ─────── 7,019 ══════ ─────── 35,943 ══════ ─────── 9,311 ══════ ─────── ══════ ─────── (34,043) ══════ ─────── (580,199) ══════ ─────── 1,500,581 ══════ 2,062,550 ─────── - 28,924 9,311 517 (667,257) 1,454,543 ─────── - ─────── - ─────── - ─────── - 10,200 ─────── 10,200 10,200 (29,746) ─────── (19,546) ─────── 2,062,550 ══════ ─────── ══════ ─────── 28,924 ══════ ─────── 9,311 ══════ (6) (511) ─────── ══════ 6 511 ─────── (656,540) ══════ ─────── 1,434,997 ══════ 7,656 20,498 (29,746) ─────── (29,746) ─────── (9,248) ══════ Accumulated losses AED’000 Total AED’000 The notes on pages 8 to 28 form an integral part of the condensed interim financial information. The independent auditors’ report on review of the Bank’s condensed interim financial information is set out on page 2. 7
  8. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 1 LEGAL STATUS AND ACTIVITIES United Arab Bank P.J.S.C. (the “Bank”) was incorporated in 1975 as a Private Joint Stock Company in the Emirate of Sharjah. The legal form of the Bank was converted to a public company with limited liability in 1982 by a decree of His Highness the Ruler of Sharjah and has been registered as a Public Joint Stock Company under the UAE Commercial Companies Law No. (8) of 1984 (as amended). The Bank’s registered office is located in the Emirate of Sharjah, United Arab Emirates. The address of the registered office is PO Box 25022, Sharjah, United Arab Emirates. The Bank carries out the business of commercial banking through its offices and branches in the United Arab Emirates. The Bank also carries out Islamic banking operations through Islamic banking windows at selected branches. The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), interpretations issued by International Financial Reporting Interpretations Committee (IFRIC) and applicable requirements of laws of the United Arab Emirates. Federal Decree-Law No. 26 of 2020 which amends certain provisions of Federal Law No. 2 of 2015 on Commercial Companies was issued on 20 September 2021 and the amendments came into effect on 2 January 2022. The Bank is in the process of reviewing the new provisions and will ensure compliance with the applicable amendments. 2. CHANGES IN ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS 2.1 Changes in accounting policies The accounting policies adopted in the preparation of the condensed interim financial information are consistent with those followed in the preparation of the Bank’s annual financial information for the year ended 31 December 2021, except for the adoption of new standards effective as of 1 January 2022. The Bank has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Standards, amendments and interpretations that are effective for the Bank’s accounting period beginning on 1 January 2022 Reference to the Conceptual Framework – Amendments to IFRS 3 The amendments replace a reference to a previous version of the IASB’s Conceptual Framework with a reference to the current version issued in March 2018 without significantly changing its requirements. The amendments add an exception to the recognition principle of IFRS 3 Business Combinations to avoid the issue of potential ‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date. The amendments also add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date. These amendments had no impact on the interim condensed financial statements of the Bank as there were no contingent assets, liabilities and contingent liabilities within the scope of these amendments arisen during the period. Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16 The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss These amendments had no impact on the interim condensed financial statements of the Bank as there were no sales of such items produced by property, plant and equipment made available for use on or after the beginning of the earliest period presented. 8
  9. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 2.1 Changes in accounting policies Standards, amendments and interpretations that are effective for the Group’s accounting period beginning on 1 January 2022 (continued) IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for de-recognition of financial liabilities The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. There is no similar amendment proposed for IAS 39 These amendments had no impact on the interim condensed financial statements of the Bank as there were no modifications of the Bank’s financial instruments during the period. Standard Issued but not yet Effective The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Bank’s interim condensed financial statements are disclosed below. The Bank intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. • • IFRS 17 Insurance Contracts Amendments to IAS 1: Classification of Liabilities as Current or Non-current There are no other applicable new standards and amendments to published standards or IFRS IC interpretations that have been issued but are not effective for the first time for the Bank’s financial year beginning on 1 January 2022 that would be expected to have a material impact on the Bank’s financial statements. 2.2 Key accounting estimates and judgments The preparation of the condensed interim financial statements requires management to make estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may therefore differ resulting in future changes in these estimates. In preparing this condensed interim financial information, significant judgments made by management in applying the Bank’s accounting policies and the key sources of estimation and uncertainty were the same as those that applied to the audited financial statements as at and for the year ended 31 December 2021. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1 Basis of preparation The condensed interim financial information of the Bank has been prepared in accordance with the International Financial Reporting Standards (“IFRS”), International Accounting Standard (IAS) 34: Interim Financial Reporting as issued by International Accounting Standard Board (IASB). The accounting policies applied by the Bank in the preparation of the condensed interim financial information are consistent with those applied by the Bank in the annual financial statements for the year ended 31 December 2021, except for changes in accounting policies explained in Note 2.1. The condensed interim financial information does not include all the information and disclosures required in the annual financial statements prepared in accordance with IFRS and should be read in conjunction with the Bank’s audited financial statements as at and for the year ended 31 December 2021. In addition, results for the three months period ended 31 March 2022 are not necessarily indicative of the results that may be expected for the full financial year ending 31 December 2022. In preparing this condensed interim financial information, significant judgments made by the management in applying the Bank’s accounting policies and the key sources of estimation were the same as those that were applied to the financial statements as at and for the year ended 31 December 2021 as explained in Note 2.2. 9
  10. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 3.2 Significant accounting policies The accounting policies applied by the Bank in the preparation of the condensed interim financial statements are consistent with those applied by the Bank in the annual audited financial statements for the year ended 31 December 2021, except for changes in accounting policies explained in Note 2.1. 4 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year. The calculations are as follows: Unaudited three months period ended 31 March ─────────────────────── 2022 2021 AED’000 AED’000 Net profit for the period Weighted average number of ordinary shares: Weighted average number of shares of AED 1 each outstanding for the period Basic earnings per share 30,388 ══════════ 10,200 ══════════ 2,062,550,649 ══════════ 2,062,550,649 ══════════ AED 0.02 AED 0.01 The diluted earnings per share are the same as basic earnings per share as the Bank has not issued any instruments which would have a dilutive impact on earnings per share if or when exercised. 5 CASH AND BALANCES WITH THE UAE CENTRAL BANK Cash on hand Balances with UAE Central Bank - Statutory and other deposits with UAE Central Bank* - Overnight Deposit Facility Unaudited 31 March 2022 AED’000 Audited 31 December 2021 AED’000 46,655 56,424 333,812 750,000 ─────── 1,130,467 ════════ 653,141 1,300,000 ─────── 2,009,565 ════════ * includes statutory reserve requirement of AED 282,184 thousand (31 December 2021: AED 266,843 thousand) The reserve requirements which are kept with the UAE Central Bank is not available to finance the day to day operations of the Bank. The UAE Central Bank balances are high grade in nature. 6 DUE FROM OTHER BANKS Unaudited 31 March 2022 AED’000 Demand deposits Term deposits 171,823 ─────── 171,823 ════════ Audited 31 December 2021 AED’000 228,735 150,000 ─────── 378,735 ════════ 10
  11. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 6 DUE FROM OTHER BANKS (continued) The Bank holds a stage 1 expected credit loss allowance of AED 68 thousand (31 December 2021: AED 134 thousand) on its due from other banks. Due from other banks includes AED 151,528 thousand (31 December 2021: AED 137,268 thousand) placed with foreign banks outside the UAE. AED 30,893 thousand (31 December 2021: AED 119,778 thousand) is held with other banks as margin for derivative transactions. 7 LOANS AND ADVANCES AND ISLAMIC FINANCING RECEIVABLES Unaudited 31 March 2022 AED’000 Audited 31 December 2021 AED’000 1,012,610 6,920,536 539,648 118,810 31,371 47,890 ──────── 8,670,865 1,089,186 7,176,977 505,367 153,989 42,785 49,871 ──────── 9,018,175 (786,507) ──────── 7,884,358 ════════ (804,825) ──────── 8,213,350 ════════ The composition of the loans and advances portfolio is as follows: Overdrafts Term loans (medium and short term)* Loans against trust receipts Bills discounted Other cash advances Bills drawn under letters of credit Gross amount of loans and advances and Islamic financing receivables Less: Provision for impairment on loans and advances and Islamic financing receivables Net loans and advances and Islamic financing receivables * Includes retail loans of AED 1,595,294 thousand (31 December 2021: AED 1,680,393 thousand) Islamic financing gross receivables amount to AED 472,383 thousand (31 December 2021: AED 454,646 thousand) recognized through the Bank’s Shari’a - compliant Islamic window. At 31 March 2022, the gross amount of loans and advances and Islamic financing receivables, individually determined to be impaired, before deducting any individually assessed impairment allowance amounted to AED 1,073,742 thousand (31 December 2021: AED 1,138,023 thousand). 11
  12. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 7 LOANS AND ADVANCES AND ISLAMIC FINANCING RECEIVABLES (continued) Grading of gross balances of loans and advances along with stages High Standard Watchlist Default Total gross carrying amount Expected credit loss As at 31 March 2022 (unaudited) High Standard Watchlist Default Total gross carrying amount Expected credit loss As at 31 December 2021 (audited) Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 9,714 6,950,501 ──────── 6,960,215 (80,014) ──────── 6,880,201 ════════ 394,923 241,985 ──────── 636,908 (199,359) ──────── 437,549 ════════ 1,073,742 ──────── 1,073,742 (507,134) ──────── 566,608 ════════ 9,714 7,345,424 241,985 1,073,742 ──────── 8,670,865 (786,507) ──────── 7,884,358 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 13,164 7,250,111 ─────── 7,263,275 (85,063) ─────── 7,178,212 ════════ 492,037 124,840 ─────── 616,877 (175,053) ─────── 441,824 ════════ 1,138,023 ─────── 1,138,023 (544,709) ─────── 593,314 ════════ 13,164 7,742,148 124,840 1,138,023 ─────── 9,018,175 (804,825) ─────── 8,213,350 ════════ Movement in the gross balances of loans and advances and Islamic financing receivables Gross carrying amount As at 31 December 2021 Net of new assets originated and assets repaid Write-offs Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 As at 31 March 2022 Gross carrying amount As at 31 December 2020 Net of new assets originated and assets repaid Write-offs Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 As at 31 December 2021 Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 7,263,275 (253,340) 616,877 (18,713) 1,138,023 (5,921) 9,018,175 (277,974) (55,694) 5,974 ──────── 6,960,215 ════════ 54,824 (16,080) ──────── 636,908 ════════ (69,336) 870 10,106 ──────── 1,073,742 ════════ (69,336) ──────── 8,670,865 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 7,468,058 (193,816) 1,523,926 (243,833) 1,677,199 (201,500) 10,669,183 (639,149) (326,591) 315,624 - 291,710 (954,926) - (1,011,859) 34,881 639,302 - (1,011,859) - ────────── ────────── ────────── ────────── 7,263,275 616,877 1,138,023 9,018,175 12
  13. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) ════════ 7 ════════ ════════ ════════ LOANS AND ADVANCES AND ISLAMIC FINANCING RECEIVABLES (continued) Movement in provision for impairment of loans and advances: Balance as at 31 December 2021 Charge to income statement Write-offs Transferred to 12 month ECL Transferred to lifetime ECL not credit impaired Transferred to lifetime ECL credit-impaired Transferred from lifetime ECL credit impaired on commitments and contingent liabilities As at 31 March 2022 (unaudited) Balance as at 31 December 2020 Charge to income statement Write-offs Transferred to 12 month ECL Transferred to lifetime ECL not credit impaired Transferred to lifetime ECL credit-impaired Transferred to lifetime ECL credit impaired on commitments and contingent liabilities As at 31 December 2021 (audited) Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 85,063 5,325 427 (10,801) - 175,107 14,959 (427) 10,801 (1,081) 544,655 30,684 (69,336) 1,081 804,825 50,968 (69,336) - ──────── 80,014 ════════ ──────── 199,359 ════════ 50 ──────── 507,134 ════════ 50 ──────── 786,507 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 87,398 20,834 2,907 (26,076) - 294,841 61,574 (2,907) 26,076 (204,477) 1,273,305 67,772 (1,011,859) 204,477 1,655,544 150,180 (1,011,859) - ──────── 85,063 ════════ ──────── 175,107 ════════ 10,960 ──────── 544,655 ════════ 10,960 ──────── 804,825 ════════ 13
  14. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 8 INVESTMENTS AND ISLAMIC INSTRUMENTS Unaudited 31 March 2022 ─────────────────────── Quoted Unquoted Total AED’000 AED’000 AED’000 Audited 31 December 2021 ─────────────────────── Quoted Unquoted Total AED’000 AED’000 AED’000 2,146,403 1,069,719 - 2,146,403 1,069,719 2,314,568 1,106,020 - 2,314,568 1,106,020 398,922 194,757 - 398,922 194,757 111,176 - 111,176 ──────── 3,809,801 ════════ ─────── ═══════ ──────── 3,809,801 ════════ ──────── 3,531,764 ════════ ──────── ════════ ──────── 3,531,764 ════════ 122 467 76 467 198 152 467 76 467 228 ──────── 122 ════════ 3,809,923 ════════ ─────── 543 ═══════ 543 ═══════ ──────── 665 ════════ 3,810,466 ════════ ──────── 152 ════════ 3,531,916 ════════ ──────── 543 ════════ 543 ════════ ──────── 695 ════════ 3,532,459 ════════ Debt: FVOCI Local Overseas Amortised cost Local Overseas Total debt securities Equity: FVOCI Local Overseas Total equities Total investments Expected credit loss Net investments (2,242) ──────── 3,808,224 ════════ (2,242) ──────── 3,530,217 ════════ The Bank holds a stage 1 ECL allowance on its investment securities classified under FVOCI amounting to AED 29,260 thousand as at 31 March 2022 (31 December 2021: AED 23,260 thousand). Included in the above are investment securities amounting to AED 388,702 thousand (31 December 2021: AED 816,437 thousand) secured under repurchase agreement with the lenders. The Banks holds an ECL allowance of AED 1,676 thousand (31 December 2021: AED 3,155 thousand) on these investment securities secured under repurchase agreements. Grading of gross balances of investment securities (FVOCI and Amortised Cost) along with stages: High Standard Total gross carrying amount Expected credit loss As at 31 March 2022 (unaudited) Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 1,958,775 1,851,026 ──────── 3,809,801 (31,502) ──────── 3,778,299 ════════ ──────── ──────── ════════ ──────── ──────── ════════ 1,958,775 1,851,026 ──────── 3,809,801 (31,502) ──────── 3,778,299 ════════ 14
  15. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 8 INVESTMENTS AND ISLAMIC INSTRUMENTS (continued) Grading of gross balances of investment securities (FVOCI and Amortised Cost) along with stages (continued): High Standard Total gross carrying amount Expected credit loss As at 31 December 2021 (audited) Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 1,703,378 1,828,386 ─────── 3,531,764 (25,502) ─────── 3,506,262 ════════ ─────── ─────── ════════ ─────── ─────── ════════ 1,703,378 1,828,386 ─────── 3,531,764 (25,502) ─────── 3,506,262 ════════ Movement in the provision for impairment of investment securities (FVOCI and Amortised Cost): Balance as at 31 December 2021 Net charge to income statement As at 31 March 2022 (unaudited) Balance as at 31 December 2020 Net charge to income statement As at 31 December 2021 (Audited) Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 25,502 6,000 ──────── 31,502 ════════ ──────── ════════ ──────── ════════ 25,502 6,000 ──────── 31,502 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 19,758 5,744 ──────── 25,502 ════════ ──────── ════════ ──────── ════════ 19,758 5,744 ──────── 25,502 ════════ 15
  16. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 9 DUE TO BANKS Demand deposits Term deposits Unaudited 31 March 2022 AED’000 Audited 31 December 2021 AED’000 6,631 1,575,564 ─────── 1,582,195 ═══════ 5,525 2,405,463 ─────── 2,410,988 ═══════ Term deposits include borrowings through repurchase agreements of AED 356,111 thousand (31 December 2021: AED 709,245 thousand). 10 CUSTOMER DEPOSITS AND ISLAMIC CUSTOMER DEPOSITS Unaudited 31 March 2022 AED’000 Audited 31 December 2021 AED’000 Term deposits Current accounts Call and savings accounts 7,086,204 7,304,064 2,826,161 2,819,597 207,853 282,764 ─────── ─────── 10,120,218 10,406,425 ═══════ ═══════ Customer’ deposits include Islamic customer deposits amounting to AED 2,401,527 thousand (31 December 2021: AED 2,299,713 thousand) undertaken through the Bank’s Shari’a - compliant Islamic window. 11 NET IMPAIRMENT LOSSES Provision for losses recognized in the condensed statement of income is as follows: Three months period ended 31 March (Unaudited) ───────────── 2022 2021 AED’000 AED’000 Net impairment of financial assets on: Loans and advances and Islamic financing receivables Contingent liabilities Due from other banks Investments and Islamic instruments Principal waivers on loans and advances and Islamic financing receivables Recovery on bad debts written-off Net impairment losses 43,722 16 (66) 6,000 (21,689) ─────── 27,983 ═══════ 85,120 (23,438) (28) 4,923 (2) (4,098) ─────── 62,477 ═══════ 16
  17. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 12 COMMITMENTS AND CONTINGENT LIABILITIES Contingent liabilities represent credit related commitments under letters of credit and guarantees that are designed to meet the requirements of the Bank’s customers towards third parties. Commitments represent credit facilities that are undrawn as on the date of the interim statement of financial position. The Bank has the following gross credit related commitments: Contingent liabilities Letters of credit Guarantees Unaudited 31 March 2022 AED’000 Audited 31 December 2021 AED’000 293,742 2,460,373 ─────── 2,754,115 ═══════ 278,000 2,386,034 ─────── 2,664,034 ═══════ Commitments Undrawn loan commitments 2,404,869 2,286,975 ═══════ ═══════ The undrawn loan commitments of the Bank are all revocable and are not considered for ECL computation. Grading of gross balances of contingent liabilities along with stages High Standard Watchlist Default Total gross carrying amount Expected credit loss As at 31 March 2022 (unaudited) High Standard Watchlist Default Total gross carrying amount Expected credit loss As at 31 December 2021 (audited) Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 4,307 2,285,303 ──────── 2,289,610 (10,291) ──────── 2,279,319 ════════ 185,481 111,883 ──────── 297,364 (44,023) ──────── 253,341 ════════ 167,141 ──────── 167,141 (46,235) ──────── 120,906 ════════ 4,307 2,470,784 111,883 167,141 ──────── 2,754,115 (100,549) ──────── 2,653,566 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 4,947 2,086,697 ─────── 2,091,644 (9,059) ─────── 2,082,585 ════════ 310,828 53,351 ─────── 364,179 (31,855) ─────── 332,324 ════════ 208,211 ─────── 208,211 (47,033) ─────── 161,178 ════════ 4,947 2,397,525 53,351 208,211 ─────── 2,664,034 (87,947) ─────── 2,576,087 ════════ 17
  18. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 12 COMMITMENTS AND CONTINGENT LIABILITIES (continued) Movement in the gross balance of contingent liabilities Gross carrying amount As at 31 December 2021 Changes due to financial assets recognized in the opening balance that have: Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 Originated / (expired) during the year As at 31 March 2022 Gross carrying amount As at 31 December 2020 Changes due to financial assets recognized in the opening balance that have: Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 Originated / (expired) during the year As at 31 December 2021 Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 2,091,644 364,178 208,212 2,664,034 (50,424) 123,060 125,330 ──────── 2,289,610 ════════ 50,424 (123,060) 1,768 4,054 ──────── 297,364 ════════ (1,768) (39,303) ──────── 167,141 ════════ 90,081 ──────── 2,754,115 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 1,860,322 791,621 91,262 2,743,205 (58,986) 160,523 129,785 ─────── 2,091,644 ════════ 58,986 (160,523) (125,109) (200,797) ─────── 364,178 ════════ 125,109 (8,159) ─────── 208,212 ════════ (79,171) ─────── 2,664,034 ════════ Movement in the provision for impairment of commitments and contingent liabilities Balance as at 31 December 2021 Changes due to provisions recognized in the opening balance that have: Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 Charge to income statement As at 31 March 2022 (unaudited) Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 8,990 44,510 47,032 100,532 (9,879) 3,430 7,750 ─────── 10,291 ════════ 9,879 (3,430) 798 (7,734) ─────── 44,023 ════════ (798) ─────── 46,234 ════════ 16 ─────── 100,549 ════════ 18
  19. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 12 COMMITMENTS AND CONTINGENT LIABILITIES (continued) Movement in the provision for impairment of commitments and contingent liabilities Balance as at 31 December 2020 Changes due to provisions recognized in the opening balance that have: Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 Charge to income statement Changes in estimate As at 31 December 2021 (audited) 13 Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 18,255 56,710 37,397 112,362 (7,247) 1,838 (3,856) ─────── 8,990 ════════ 7,247 (1,838) (1,860) (7,997) (7,752) ─────── 44,510 ════════ 1,860 (2,963) 10,738 ─────── 47,032 ════════ (10,960) (870) ─────── 100,532 ════════ DIVIDENDS At the virtual Annual General Meeting of the shareholders held on 14 April 2022, no cash or scrip dividend was proposed or subsequently approved for the year ended 31 December 2021 (31 December 2020: Nil). 19
  20. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 14 SEGMENTAL INFORMATION For the purposes of reporting to the chief operating decision makers, the Bank is organized into two segments: Wholesale banking - principally handling loans and other credit facilities and deposit and current accounts for corporate and institutional customers. This segment also includes Financial Markets which is principally involved in providing money market, trading and treasury services, as well as the management of the Bank’s funding operations Retail banking - principally handling individual customers’ deposits, and providing consumer type loans, overdrafts, credit card facilities and funds transfer facilities as well as Islamic banking services Transactions between segments are conducted at estimated market rates on an arm’s length basis. Interest is charged / credited to business segments based on a pool rate which approximates the marginal cost of funds. Segmental information for the three months period ended 31 March 2022 is as follows: Wholesale banking AED’000 Retail banking AED’000 Total AED’000 Net interest income and income from Islamic products net of distribution to depositors 49,540 17,339 66,879 Other operating income 46,321 3,653 49,974 (44,156) (14,326) (58,482) (27,741) ────── 23,964 ══════ (242) ─────── 6,424 ═══════ (27,983) ────── 30,388 ══════ 4,492 ══════ 534 ═══════ 5,026 ══════ 12,531,441 ════════ 10,720,122 ════════ 1,489,230 ═══════ 1,799,968 ═══════ 14,020,671 ═══════ 12,520,090 ═══════ Operating expenses Net impairment losses Profit for the period Capital expenditure - Property and equipment At 31 March 2022 Segment assets Segment liabilities 20
  21. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 14 SEGMENTAL INFORMATION (continued) Segmental information for the three months period ended 31 March 2021 was as follows: Wholesale banking AED’000 Retail banking AED’000 Total AED’000 Net interest income and income from Islamic products net of distribution to depositors 44,580 19,554 64,134 Other operating income 61,752 6,433 68,185 (44,302) (15,340) (59,642) (42,497) ────── 19,533 ══════ (19,980) ─────── (9,333) ═══════ (62,477) ────── 10,200 ══════ 2,783 ══════ 460 ═══════ 3,243 ══════ 12,375,240 ════════ 10,690,927 ════════ 2,043,745 ═══════ 2,293,061 ═══════ 14,418,985 ═══════ 12,983,988 ═══════ Operating expenses Net impairment losses Profit for the period Capital expenditure - Property and equipment At 31 March 2021 Segment assets Segment liabilities The Bank operates in only one geographic area, the Middle East. Accordingly, no further geographical analysis of operating income, net profit and net assets is given. 21
  22. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 15 RELATED PARTY TRANSACTIONS The Bank carries out transactions in the ordinary course of business with related parties, defined as shareholders who have a significant equity interest in the Bank, directors of the Bank, key management personnel of the Bank and companies over which such shareholders and directors exercise control or significant influence either directly or indirectly. The significant balances outstanding are as follows: Unaudited 31 March 2022 AED’000 Audited 31 December 2021 AED’000 145 ═══════ 3,216 ═══════ 4,000 ═══════ 94 ═══════ 3,454 ═══════ 4,000 ═══════ 21,653 ═══════ 6,012 ═══════ 45 ═══════ 11,045 ═══════ 7,151 ═══════ 45 ═══════ 190,615 ═══════ 26 ═══════ 273 ═══════ 223,243 ═══════ 77,186 ═══════ 171,989 ═══════ 13 ═══════ 273 ═══════ 235,035 ═══════ 76,020 ═══════ Shareholders: Due from banks Due to banks Commitments and contingencies Directors: Loans and advances Customer deposits Commitments and contingencies Other related entities of shareholders and directors: Loans and advances Due from banks Due to other banks Customer deposits Commitments and contingencies 22
  23. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 15 RELATED PARTY TRANSACTIONS (continued) Unaudited 31 March 2022 AED’000 Audited 31 December 2021 AED’000 3,509 ═══════ 4,513 ═══════ 2,132 ═══════ 4,312 ═══════ 252 ═══════ 919 ═══════ 221 ═══════ 899 ═══════ Key management personnel of the Bank: Loans and advances Customers’ deposits Shareholders, directors, their related entities and key management personnel: Accrued interest income Accrued interest expense The income, expenses, purchase and sale of investments in respect of related parties during the period included in the interim statement of income are as follows: Unaudited three months period ended 31 March 2022 2021 AED’000 AED’000 Shareholders, directors and their related entities Interest income 2,292 ═══════ 3,304 ═══════ Interest expense 336 ═══════ 362 ═══════ Professional fees 792 ═══════ ═══════ 23
  24. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 15 RELATED PARTY TRANSACTIONS (continued) Key management personnel Unaudited three months period ended 31 March 2022 2021 Number of key management personnel 15 ═══════ 14 ═══════ AED’000 AED’000 4,503 556 ─────── 5,059 ═══════ 22 ═══════ 1 ═══════ 5,264 591 ─────── 5,855 ═══════ 29 ═══════ ═══════ Salaries and other short term benefits Employees’ end of service benefits Total compensation to key management personnel Interest income Interest expense Unaudited three months period ended 31 March 2022 2021 AED’000 AED’000 Expected credit loss – charge to / (release) from income statement 667 ═══════ (1,228) ═══════ Terms and conditions of transactions with related parties The Bank has leased office space in various premises owned by a related party. The property leases and associated expenses for the three months period ended 31 March 2022 amounted to AED 471 thousand (31 March 2021: AED 481 thousand). The property rentals are negotiated each year at market rates. 24
  25. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 15 RELATED PARTY TRANSACTIONS (continued) Movement in the gross balances of all related party loans and advances Gross carrying amount As at 31 December 2021 Net of new assets originated and assets repaid Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 As at 31 March 2022 Gross carrying amount As at 31 December 2020 Net of new assets originated and assets repaid Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 As at 31 December 2021 Stage 1 AED’000 123,811 26,468 (737) (973) ──────── 148,569 ════════ Stage 2 AED’000 61,355 4,143 Stage 3 AED’000 Total AED’000 - 185,166 30,611 737 973 ──────── ──────── 67,208 ════════ ════════ ──────── 215,777 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 167,743 (5,265) (40,505) 1,838 ─────── 123,811 ═══════ 23,071 (383) 40,505 (1,838) ─────── 61,355 ═══════ ────── ══════ 190,814 (5,648) ─────── 185,166 ═══════ Movement in provision for impairment of related party loans and advances Balance as at 31 December 2021 Charge to income statement As at 31 March 2022 Balance as at 31 December 2020 Changes due to provisions recognized in the opening balance that have: Transferred to 12 month ECL Charge to income statement As at 31 December 2021 Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 1,795 1,581 ──────── 3,376 ════════ 3,600 (914) ──────── 2,686 ════════ ──────── ════════ 5,395 667 ──────── 6,062 ════════ Stage 1 AED’000 Stage 2 AED’000 Stage 3 AED’000 Total AED’000 2,118 1,854 - 3,972 120 (443) ─────── 1,795 ═══════ (120) 1,866 ─────── 3,600 ═══════ ────── ══════ 1,423 ─────── 5,395 ═══════ 25
  26. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 16 FAIR VALUES OF FINANCIAL INSTRUMENTS The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 - quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2 - other techniques for which all inputs have a significant effect on the recorded fair value that are observable, either directly or indirectly; and Level 3 - techniques that use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Financial instruments recorded at fair value The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: 31 March 2022 Investments Derivative assets Derivative liabilities Level 1 AED’000 Level 2 AED’000 Level 3 AED’000 Total AED’000 3,216,245 ─────── 3,216,245 ═══════ ═══════ 20,384 ─────── 20,384 ═══════ 20,463 ═══════ 543 ─────── 543 ═══════ ═══════ 3,216,788 20,384 ─────── 3,237,172 ═══════ 20,463 ═══════ 3,420,741 ─────── 3,420,741 ═══════ ═══════ 16,054 ─────── 16,054 ═══════ 116,664 ═══════ 543 ─────── 543 ═══════ ═══════ 3,421,284 16,054 ─────── 3,437,338 ═══════ 116,664 ═══════ 31 December 2021 Investments Derivative assets Derivative liabilities Financial instruments not recorded at fair value The fair values of financial instruments not recorded at fair value includes cash and balances with the UAE Central Bank, due from other banks, loans and advances, investments held at amortised cost, other assets (excluding derivative assets), due to banks, customer deposits and other liabilities (excluding derivative liabilities). Financial instruments carried at amortised cost The fair value of the quoted debt instruments at amortised cost as at 31 March 2022 amounted to AED 584,733 thousand (31 December 2021: AED 111,176 thousand). The fair value determination of the quoted debt instruments will fall under level 1 category wherein fair value is determined based on inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. 26
  27. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 17 DERIVATIVES Derivatives held for risk management The tables below show the fair values of derivative financial instruments held for trading purposes, recorded as assets and liabilities, together with their notional amounts. 31 March 2022 Forward contracts Interest rate swaps Positive fair value AED’000 Negative fair value AED’000 Notional amount AED’000 Notional amounts by term to maturity Within 3 3-12 1-5 years Over 5 months months years AED’000 AED’000 AED’000 AED’000 10,425 4,105 ────── 14,530 ══════ (627) (4,105) ────── (4,732) ══════ 3,052,776 913,976 ────── 3,966,752 ══════ 1,746,319 ────── 1,746,319 ══════ Positive fair value AED’000 Negative fair value AED’000 Notional amount AED’000 Notional amounts by term to maturity Within 3 3-12 1-5 years Over 5 months months years AED’000 AED’000 AED’000 AED’000 10,600 5,454 (1,710) (5,455) 2,170,134 1,082,415 758,524 - 907,270 - 504,340 482,415 600,000 ────── ────── ────── ────── ─────── ─────── ─────── 16,054 (7,165) 3,252,549 758,524 907,270 986,755 600,000 ══════ ══════ ══════ ══════ ═══════ ═══════ ═══════ 31 December 2021 Forward contracts Interest rate swaps 1,306,457 ─────── 1,306,457 ═══════ 913,976 ─────── 913,976 ═══════ ────── ══════ As at 31 March 2022, the Bank held the following interest rate swaps as hedging instruments in fair value hedges of interest rate risk, along with amounts relating to hedged items: Positive fair value AED’000 Negative fair value AED’000 Notional amount AED’000 5,854 ══════ (15,731) ══════ 1,928,062 ═══════ 31 March 2022 Hedge of investments 31 December 2021 Hedge of investments Notional amounts by term to maturity Within 3 3-12 1-5 years Over 5 months months years AED’000 AED’000 AED’000 AED’000 ══════ 91,813 ══════ 1,304,896 ═══════ 531,353 ══════ - (109,499) 1,989,166 - 146,900 1,180,635 661,631 ══════ ══════ ═══════ ══════ ══════ ═══════ ══════ The carrying amount of the hedged items are included in the line item ‘Investments’ on the statement of financial position with the notional amount totaling to AED 1,969,121 thousand (31 December 2021: AED 2,110,459 thousand ). These hedged items comprise of debt instruments which are held as FVOCI. The Bank has recognised the following gains relating to hedge ineffectiveness calculated as follows: On hedging instruments On hedged items 31 March 2022 Effectiveness recognised in Change in value profit and loss AED’000 AED’000 99,601 13,486 (86,115) - 31 March 2021 Effectiveness recognised in Change in value profit and loss AED’000 AED’000 69,425 5,124 (64,301) - 27
  28. United Arab Bank P .J.S.C. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the three months period ended 31 March 2022 (Unaudited) 18 CAPITAL ADEQUACY RATIO Common equity tier 1 ratio Tier 1 capital ratio Total Capital adequacy ratio Unaudited 31 March 2022 13.1% 13.1% 14.3% Audited 31 December 2021 12.6% 12.6% 13.8% As part of the capital stimulus package provided by the CBUAE under the TESS program, Banks are allowed to tap into the capital conservation buffer of 2.5% up to a maximum of 60% effective from 15 March 2021 until 30 June 2022. Upon full consumption of this capital relief, the minimum capital adequacy ratio requirement reduces to 11.5% (as opposed to 13.0% previously applicable) for reporting periods falling within the specified duration. The Bank continues to be in compliance with this revised minimum capital threshold requirement as per CBUAE guidelines for the quarter ended 31 March 2022. 28