Abu Dhabi Comm Bnk

1st Quarter Results

RNS Number : 2325F
Abu Dhabi Commercial Bank PJSC
22 April 2014
 



 

 

 

 

 

 

 


 

 

Abu Dhabi Commercial Bank PJSC
Review report and condensed consolidated interim financial 
information for the three month period ended March 31, 2014

 

 

 

Table of contents

Report on review of condensed consolidated interim financial information........................................................................................................................................................ 3

Condensed consolidated interim statement of financial position.................................................................................................................................................................................... 4

Condensed consolidated interim income statement (unaudited).................................................................................................................................................................................. 5

Condensed consolidated interim statement of comprehensive income (unaudited)................................................................................................................................... 6

Condensed consolidated interim statement of changes in equity (unaudited)................................................................................................................................................. 7

Condensed consolidated interim statement of cash flows (unaudited).................................................................................................................................................................... 8

Notes to the condensed consolidated interim financial information

1.     Activities and areas of operations.................................................................................................................................................................................................................................................. 10

2.     Summary of significant accounting policies.......................................................................................................................................................................................................................... 10

2.1... Basis of preparation............................................................................................................................................................................................................................................................................ 10

2.2... Application of new and revised International Financial Reporting Standards (IFRSs)........................................................................................................ 11

2.3... Basis of consolidation......................................................................................................................................................................................................................................................................... 12

2.4... Investment securities........................................................................................................................................................................................................................................................................ 13

2.5... Investment properties...................................................................................................................................................................................................................................................................... 15

3.     Cash and balances with central banks...................................................................................................................................................................................................................................... 16

4.     Deposits and balances due from banks................................................................................................................................................................................................................................... 16

5.     Trading securities......................................................................................................................................................................................................................................................................................... 16

6.     Derivative financial instruments.................................................................................................................................................................................................................................................... 17

7.     Investment securities................................................................................................................................................................................................................................................................................ 18

8.     Loans and advances, net........................................................................................................................................................................................................................................................................ 19

9.     Investment properties............................................................................................................................................................................................................................................................................. 20

10.   Other assets....................................................................................................................................................................................................................................................................................................... 21

11.   Due to banks..................................................................................................................................................................................................................................................................................................... 21

12.   Deposits from customers....................................................................................................................................................................................................................................................................... 21

13.   Euro commercial paper........................................................................................................................................................................................................................................................................... 22

14.   Borrowings.......................................................................................................................................................................................................................................................................................................... 23

15.   Other liabilities................................................................................................................................................................................................................................................................................................ 26

16.   Share capital...................................................................................................................................................................................................................................................................................................... 26

17.   Other reserves, net of treasury shares..................................................................................................................................................................................................................................... 27

18.   Capital notes...................................................................................................................................................................................................................................................................................................... 28

19.   Interest income (unaudited)............................................................................................................................................................................................................................................................. 28

20.   Interest expense (unaudited).......................................................................................................................................................................................................................................................... 28

21.   Net fees and commission income (unaudited).................................................................................................................................................................................................................. 28

22.   Net trading income (unaudited).................................................................................................................................................................................................................................................... 29

23.   Other operating income (unaudited)........................................................................................................................................................................................................................................ 29

24.   Operating expenses (unaudited).................................................................................................................................................................................................................................................. 29

25.   Impairment allowances (unaudited)......................................................................................................................................................................................................................................... 29

26.   Earnings per share (unaudited).................................................................................................................................................................................................................................................... 29

27.   Commitments and contingent liabilities.................................................................................................................................................................................................................................. 30

28.   Operating segments................................................................................................................................................................................................................................................................................... 30

29.   Capital adequacy ratio............................................................................................................................................................................................................................................................................. 33

30.   Disposal of fund subsidiaries (unaudited)........................................................................................................................................................................................................................... 34

31.   Fair value hierarchy................................................................................................................................................................................................................................................................................... 35

32.   Legal proceedings......................................................................................................................................................................................................................................................................................... 36

 



 

 

 

 

 

 

 

 

Report on review of condensed consolidated interim financial information 

 

To the Board of Directors of

Abu Dhabi Commercial Bank PJSC

Abu Dhabi, UAE.

 

Introduction

 

We have reviewed the accompanying condensed consolidated interim statement of financial position of Abu Dhabi Commercial Bank PJSC (the "Bank") and its subsidiaries (together referred to as the "Group") as at March 31, 2014 and the related condensed consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the three month period then ended and accompanying notes. Management is responsible for the preparation and presentation of these condensed consolidated interim financial information in accordance with International Accounting Standard 34, "Interim Financial Reporting ("IAS 34")". Our responsibility is to express a conclusion on these condensed consolidated interim financial information 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 consolidated interim financial information of the Group is not prepared, in all material respects, in accordance with IAS 34

 

 

 

PricewaterhouseCoopers

 

 

 

 

Jacques Fakhoury

Registration Auditor Number 379

April 22, 2014

 



 


Condensed consolidated interim statement of financial position

As at March 31, 2014

 




As at


As at




March 31


December 31




2014


2013




unaudited


audited


Notes


 AED'000


AED'000

Assets






Cash and balances with central banks

3


10,145,787


9,961,206

Deposits and balances due from banks

4


12,039,909


11,344,700

Trading securities

5


59,675


884,640

Derivative financial instruments

6


3,452,133


3,616,203

Investment securities

7


21,836,447


20,854,772

Loans and advances, net

8


132,197,134


131,648,670

Investment properties

9


560,942


560,690

Other assets

10


4,947,386


3,404,638

Property and equipment, net



808,414


805,322

Intangible assets



54,910


61,695

Total assets



186,102,737


183,142,536

Liabilities






Due to banks

11


5,511,404


4,291,011

Derivative financial instruments

6


3,919,378


3,965,587

Deposits from customers

12


115,704,173


115,427,708

Euro commercial paper

13


5,381,861


5,940,435

Borrowings

14


24,940,683


23,785,568

Other liabilities

15


7,000,393


4,910,917

Total liabilities



162,457,892


158,321,226

Equity






Share capital

16


5,595,597


5,595,597

Share premium



3,848,286


3,848,286

Other reserves, net of treasury shares

17


5,219,455


5,135,440

Retained earnings



4,972,656


5,597,275

Capital notes

18


4,000,000


4,000,000

Equity attributable to equity holders of the Bank



23,635,994


24,176,598

Non-controlling interests



8,851


644,712

Total equity



23,644,845


24,821,310







Total liabilities and equity



186,102,737


183,142,536

 

These condensed consolidated interim financial information were approved by the Board of Directors and authorised for issue on April 22, 2014 and signed on its behalf by:

 

 

 

 

                                                                                                                                                                                                                  

Eissa Al Suwaidi                                          Ala'a Eraiqat                                                  Deepak Khullar

Chairman                                                         Chief Executive Officer                            Chief Financial Officer

 

The accompanying notes are an integral part of these condensed consolidated interim financial information.

Condensed consolidated interim income statement (unaudited)

For the three month period ended March 31, 2014

 




3 months ended March 31


Notes


2014

AED'000


2013

AED'000







Interest income

19


1,589,144


1,657,834 

Interest expense

20


(333,096)


(491,345)

Net interest income



1,256,048


1,166,489  

Income from Islamic financing



151,377


137,851

Islamic profit distribution



(27,179)


(45,288)

Net income from Islamic financing



124,198


92,563







Total net interest and Islamic financing income



1,380,246


1,259,052 

Net fees and commission income

21


284,750


214,893 

Net trading income

22


174,569


125,871 

Other operating income

23


61,083


144,269

Operating income



1,900,648


1,744,085  

Operating expenses

24


(624,909)


(517,392)

Operating profit before impairment allowances



1,275,739


1,226,693

Impairment allowances

25


(173,566)


(321,679) 

Profit before taxation



1,102,173


905,014  

Overseas income tax credit/(expense)



1,106


(2,030)

Net profit for the period



1,103,279


902,984  







Attributed to:






Equity holders of the Bank



953,172


829,499  

Non-controlling interests



150,107


73,485

Net profit for the period



1,103,279


902,984  







Basic earnings per share (AED)

26


0.16


0.13







Diluted earnings per share (AED)

26


0.16


0.13

 

The accompanying notes are an integral part of these condensed consolidated interim financial information.

 

 

 



 

Condensed consolidated interim statement of comprehensive income (unaudited)

For the three month period ended March 31, 2014

 


3 months ended March 31


2014

AED'000


2013

AED'000





Net profit for the period

1,103,279


902,984  





Items that may be re-classified subsequently to the condensed consolidated interim income statement








Exchange difference arising on translation of foreign operations

6,581


2,357

Fair value changes on cash flow hedges

(396)


(7,273)

Fair value changes on available-for-sale investments

60,603


22,784

Other comprehensive income for the period

66,788


17,868

Total comprehensive income for the period

1,170,067


920,852 





Attributed to:




Equity holders of the Bank

1,019,960


847,367 

Non-controlling interests

150,107


73,485

Total comprehensive income for the period

1,170,067


920,852

 

The accompanying notes are an integral part of these condensed consolidated interim financial information.

 

 

 

 

 

 

 

 

 


Condensed consolidated interim statement of changes in equity (unaudited) 

For the three month period ended March 31, 2014

 


 

 

Share capital


 

 

Share premium

 

Other reserves, net of treasury shares

 

 

Retained earnings

 

 

 

Capital notes

Equity attributable to equity holders of the Bank

 

   Non-controlling interests

 

 

 

Total equity


AED'000


AED'000


AED'000


AED'000


AED'000


AED'000


 AED'000


AED'000

















Balance at January 1, 2014

5,595,597


3,848,286


5,135,440


5,597,275


4,000,000


24,176,598


644,712


24,821,310

Net profit for the period

-


-


-


953,172


-


953,172


150,107


1,103,279

Other comprehensive income for the period

-


-


66,788


-


-


66,788


-


66,788

Other movements (Note 17)

-


-


17,227


11,545


-


28,772


-


28,772

Dividends to equity holders of the parent

-


-


-


(1,560,857)


-


(1,560,857)


-


(1,560,857)

Net increase in non-controlling interests

-


-


-


-


-


-


50,527


50,527

Disposal of  fund subsidiaries (Note 30)

-


-


-


-


-


-


(836,495)


(836,495)

Net gains on treasury shares arising on disposal of fund subsidiaries (Note 30)

-


-


-


91,521


-


91,521


-


91,521

Capital notes coupon paid (Note 18)

-


-


-


(120,000)


-


(120,000)


-


(120,000)

















Balance at March 31, 2014

5,595,597


3,848,286


5,219,455


4,972,656


4,000,000


23,635,994


8,851


23,644,845

 

Balance at January 1, 2013

  

  5,595,597


     3,848,286


 

   6,288,591


    

4,537,315


 

 4,000,000


 

     24,269,789


   

437,800


  

     24,707,589

Net profit for the period

               -   


               -   


       -


829,499  


               -   


        829,499 


73,485


902,984 

Other comprehensive income for the period

               -   


               -   


17,868


 -


               -   


         17,868


          - 


         17,868

Other movements (Note 17)

 -


 -


14,583


-


 -


14,583


 -


14,583

Net decrease in non-controlling interests

 -


 -


 -


 -


 -


                      -  


(32,865)


(32,865)

Net realised gain on treasury shares

 -


 -


 -


624


 -


624


-


624

Capital notes coupon paid (Note 18)

 -


 -


 -


   (120,000)


 -


   (120,000)


-


   (120,000)

















Balance at March 31, 2013

5,595,597


3,848,286


6,321,042


5,247,438


4,000,000


25,012,363


478,420


25,490,783

 

Following the Annual General Meeting held on March 12, 2014, the shareholders approved the distribution of proposed cash dividends of AED 1,560,857 thousand, being AED 0.30 dividends per share and representing 30% of the paid up share capital net of shares bought back (For the year 2012 - AED 1,398,620 thousand, being AED 0.25 dividends per share and representing 25% of the paid up share capital net of shares bought back). 

 

 

The accompanying notes form an integral part of these condensed consolidated interim financial information.

 



 


Condensed consolidated interim statement of cash flows (unaudited)

For the three month period ended March 31, 2014

 


3 months ended March 31


2014

AED'000

2013

AED'000

OPERATING ACTIVITIES



Profit before taxation

1,102,173

905,014

Adjustments for:



Depreciation on property and equipment, net (Note 24)

30,494

31,959

Amortisation of intangible assets (Note 24)

6,785

7,882

Impairment allowance on loans and advances, net (Note 8)

288,633

389,377

Discount unwind (Note 8)

(39,208)

(34,141)

Impairment recoveries on available-for-sale investments (Note 25)

(14,126)

(8,088)

Net gains from trading securities (Note 22)

(95,783)

(76,036)

Ineffective portion of hedges - (gains)/losses (Note 6)

(732)

1,894

Employees' incentive plan benefit expense (Note 17)

6,760

9,935

Cash flow from operating activities before changes in operating assets and liabilities

1,284,996

 

1,227,796

Increase in balances with central banks

-

(750,755)

Decrease/(increase) in due from banks

875,955

(5,802,597)

Decrease in net trading derivative financial instruments

85,406

75,553 

Net proceeds from disposal of/(purchases of) trading securities

161,294

(26,973)

Increase in loans and advances

(797,138)

(1,538,154)

Increase in other assets

(107,347)

(266,288)

Increase in due to banks

350,839

86,540 

Increase in deposits from customers

182,752

1,864,372

Increase in other liabilities

22,163

51,358 

Cash from/(used in) operating activities

2,058,920

(5,079,148)

Overseas tax paid

-

(2,707)

Net cash from/(used in) operating activities

2,058,920

(5,081,855)

INVESTING ACTIVITIES



Impairment recoveries on available-for-sale investments (Note 25)

14,126

8,088

Overseas tax paid, net

-

(8,929)

Net proceeds from disposal of available-for-sale investments

750,688

425,768

Net purchase of available-for-sale investments

(1,534,736)

(1,209,070)

Additions to investment properties

(252)

(16,659)

Cash received on disposal of fund subsidiaries (Note 30)

95,112

-

Net purchase of property and equipment, net

(33,586)

(16,911)

Net cash used in investing activities

(708,648)

(817,713)

FINANCING ACTIVITIES



Net (decrease)/increase in euro commercial paper

(512,973)

192,613

Net proceeds from borrowings

9,592,753

8,194,928

Repayment of borrowings

(8,448,794)

(9,245,259)

Net proceeds from sale of treasury shares by fund subsidiaries

1,751

11,015

Dividends paid to equity holders of the parent

(1,020,752)

-

Buy back of own shares (Note 16)

-

(4,276)

Net movement in non-controlling interests

50,527

(40,715)

Capital notes coupon paid (Note 18)

(120,000)

(120,000)

Net cash used in financing activities

(457,488)

(1,011,694)




Net increase/(decrease) in cash and cash equivalents

892,784

(6,911,262)




Cash and cash equivalents at the beginning of the period

9,797,941

19,180,314

Cash and cash equivalents at the end of the period 

10,690,725

12,269,052 

 

Operating activities include dividend income and interest income on available-for-sale investments.

 

The accompanying notes are an integral part of these condensed consolidated interim financial information.

 



 

Condensed consolidated interim statement of cash flows (unaudited)

For the three month period ended March 31, 2014 (continued)

 

Cash and cash equivalents

 

Cash and cash equivalents included in the condensed consolidated interim statement of cash flows comprise the following amounts:

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



 AED'000


AED'000

Cash and balances with central banks


10,145,787


9,961,206

Deposits and balances due from banks


12,039,909


11,344,700

Due to banks


(5,511,404)


(4,291,011)



16,674,292


17,014,895

Less:  Cash and balances with central banks and Deposits and balances due from banks  - with original maturity of more than 3 months


(6,363,209)


 

(7,245,757)

Add:  Due to banks - with original maturity of more than 3 months


379,642


28,803

Total cash and cash equivalents


10,690,725


9,797,941

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial information.


1.    Activities and areas of operations

 

Abu Dhabi Commercial Bank PJSC ("ADCB" or the "Bank") is a public joint stock company with limited liability incorporated in the emirate of Abu Dhabi, United Arab Emirates (UAE). ADCB is principally engaged in the business of retail, commercial and Islamic banking and provision of other financial services through its network of fifty branches and three pay offices in the UAE, two branches in India, one offshore branch in Jersey and its subsidiaries and one representative office located in London.

 

The registered head office of the Bank is at Abu Dhabi Commercial Bank Head Office Building, Salam Street, Plot C- 33, Sector E-11, P. O. Box 939, Abu Dhabi, UAE

 

ADCB is registered as a public joint stock company in accordance with the UAE Federal Commercial Companies Law No. 8 of 1984 (as amended).

 

2.    Summary of significant accounting policies

 

2.1      Basis of preparation

 

The condensed consolidated interim financial information has been prepared on a going concern basis and in accordance with IAS 34 - Interim Financial Reporting. It does not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Bank for the year ended December 31, 2013, which were prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) Interpretations.

 

The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated interim financial information as were applied in the preparation and presentation of the Bank's consolidated financial statements for the year ended December 31, 2013. In March 2014, the Bank has deconsolidated its fund subsidiaries due to loss of control which is disclosed in Note 30.

 

For details of related party balances and transactions, refer to Note 35 in the consolidated financial statements for the year ended December 31, 2013. The related party balances and transactions for the quarter ended March 31, 2014 are similar in nature and magnitude. Note 8 of these condensed consolidated interim financial information provide details of lending exposure to Government entities.

 

The results for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the financial year ending December 31, 2014.

 

The condensed consolidated interim financial information is prepared and presented in United Arab Emirates Dirhams (AED) which is the Bank's functional and presentation currency and are rounded off to the nearest thousand unless otherwise indicated.

 

As required by the Securities and Commodities Authority of the UAE (SCA) Notification No. 2624/2008 dated October 12, 2008, accounting policies relating to investment securities and investment properties have been disclosed in these condensed consolidated interim financial information.

 

The preparation of the condensed consolidated interim financial information in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

The main areas of judgments, estimates and assumptions applied in these condensed consolidated interim financial information, including the key sources of estimation uncertainty were the same as those applied in the Bank's consolidated financial statements for the year ended December 31, 2013.



 

2.    Summary of significant accounting policies (continued)

 

2.2      Application of new and revised International Financial Reporting Standards (IFRSs)

 

2.2.1      New and revised IFRSs effective for accounting periods beginning January 1, 2014

 

Amendments to IAS 32 - Financial Instruments require presentation to clarify certain aspects because of diversity in application of the requirements on offsetting, focused on four main areas:

 

§ the meaning of 'currently has a legally enforceable right of set-off ',

§ the application of simultaneous realisation and settlement,

§ the offsetting of collateral amounts and

§ the unit of account for applying the offsetting requirements.

 

Amendments to IFRS 10 - Consolidated Financial Statements, IFRS 12 -Disclosure of Interests in Other Entities and IAS 27 - Separate Financial Statements relate only to investment entities, therefore will not apply to the Bank.

 

Amendment to IAS 36 - Impairment of Assets to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and to introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount (based on fair value less costs of disposal) is determined using a present value technique.

 

Amendment to IAS 39 - Financial Instruments: Recognition and Measurement to make it clear that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met.

 

Other than the above, there are no other IFRSs that were effective for the first time for the financial year beginning January 1, 2014.

 

2.2.2     Standards and Interpretations in issue not yet effective

 

The Bank has not early adopted new and revised IFRSs that have been issued but are not yet effective.

 

 

 

New Standards and amendments to Standards:

Effective for annual periods beginning on or after

IFRS 14 - Regulatory Deferral Accounts permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements.

 

January 1, 2016

IFRS 9 - Financial Instruments: Classification and Measurement (intended as complete replacement for IAS 39).

January 1, 2018

 

Key requirements of IFRS 9 are described as follows:

IFRS 9 requires all recognised financial assets that are within the scope of IAS 39 - Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding, are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.

 

Management anticipates that these IFRSs will be adopted in the condensed consolidated interim financial statements in the initial period when they become mandatorily effective. The Bank will assess IFRS 9's full impact once the standard is formally issued.

2.   Summary of significant accounting policies (continued)

 

2.3      Basis of consolidation

 

The condensed consolidated interim financial information incorporates the financial statements of
Abu Dhabi Commercial Bank PJSC and its subsidiaries (collectively referred to as "ADCB" or the "Bank").

 

Subsidiaries

 

Subsidiaries are entities controlled by the Bank. The Bank controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the condensed consolidated interim financial information from the date that control commences until the date that control ceases.

 

Special purpose entities

 

Special Purpose Entities (SPEs) are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of particular assets, or the execution of a specific borrowing or lending transaction. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Bank, the Bank's power over the SPE, exposures or rights to variable returns from its involvement with the SPE and its ability to use its power over the SPE at inception and subsequently to affect the amount of its return, the Bank concludes that it controls the SPE.

 

The assessment of whether the Bank has control over an SPE is carried out at inception and normally no further reassessment of control is carried out in the absence of changes in the structure or terms of the SPE, or additional transactions between the Bank and the SPE except whenever there is a change in the substance of the relationship between the Bank and the SPE.

 

Funds management

 

The Bank manages and administers assets held in unit trusts on behalf of investors. The financial statements of these entities are not included in the condensed consolidated interim financial information except when the Bank controls the entity, as referred to above, or is the principal investor.

 

Loss of control

 

Upon the loss of control, the Bank derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Bank retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an equity-accounted investee or in accordance with the Bank's accounting policy for financial instruments depending on the level of influence retained.

 

Transactions eliminated on consolidation

 

Intra-group balances, income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the condensed consolidated interim financial information. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

Joint arrangements

Joint arrangements are arrangements of which the Bank has joint control, established by contracts requiring unanimous consent for decisions about the activities that significantly affect the arrangements' returns. They are classified and accounted for as follows:



 

2.   Summary of significant accounting policies (continued)

 

2.3   Basis of consolidation (continued)

 

Joint arrangements (continued)

 

Joint operation - when the Bank has rights to the assets and obligations for the liabilities, relating to an arrangement, it accounts for each of its assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint operation.

 

Joint venture - when the Bank has rights only to the net assets of the arrangements, it accounts for its interest using the equity method, as for associates.

 

2.4      Investment securities

 

Investment securities are initially measured at fair value plus, in the case of investment securities not at fair value through profit or loss, incremental direct transaction costs, and subsequently accounted for depending on their classification as either held-to-maturity, fair value through profit or loss or available-for-sale.

 

Investment securities are classified into the following categories depending on the nature and purpose of the investment:

 

§ Investments at fair value through profit or loss;

§ Held-to-maturity investments and

§ Available-for-sale.

 

Investments at fair value through profit or loss (FVTPL)

 

Investment securities are classified as at FVTPL when either held for trading or when designated as at FVTPL.

 

Investment securities are classified as held for trading if:

 

§ it has been acquired principally for the purpose of selling it in the near term; or

§ on initial recognition it is part of a portfolio of identified financial instruments that the Bank manages together and has a recent actual pattern of short-term profit-taking; or

§ it is a derivative that is not designated and effective as a hedging instrument.

 

Investment securities other than held for trading may be designated as at FVTPL upon initial recognition if:

 

§ such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise for measuring such securities on a different basis; or

§ it forms part of a group of financial assets, which is managed and its performance is evaluated on a fair value basis, in accordance with the Bank's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

§ it forms part of a contract containing one or more embedded derivatives, and IAS 39-Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

 

Investment securities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in the condensed consolidated interim income statement. 

 

Held-to-maturity

 

Investments which have fixed or determinable payments with fixed maturities which the Bank has the positive intention and ability to hold to maturity are classified as held-to-maturity investments.



 

2.   Summary of significant accounting policies (continued)

 

2.4   Investment securities (continued)

 

Held-to-maturity (continued)

 

Held-to-maturity investments are initially recognised at fair value plus any directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method, less any impairment losses, with revenue recognised on an effective yield basis.

 

Amortised cost is calculated by taking into account any discount or premium on acquisition using an effective interest rate method.

 

If there is objective evidence that an impairment on held-to-maturity investments carried at amortised cost has been incurred, the amount of impairment loss recognised in the condensed consolidated interim income statement is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the investments' original effective interest rate.

 

Investments classified as held-to-maturity and not close to their maturity, cannot ordinarily be sold or reclassified without impacting the Bank's ability to use this classification and cannot be designated as a hedged item with respect to interest rate or prepayment risk, reflecting the longer-term nature of these investments.

 

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 be held for an indefinite period of time and may be sold in response to liquidity requirements or changes in interest rates, commodity prices or equity prices.

 

Available-for-sale investments are initially recognised at fair value plus any directly attributable transaction costs and are subsequently measured at fair value. The fair values of quoted financial assets in active markets are based on current prices. If the market for a financial asset is not active, and for unquoted securities, the Bank establishes fair value by using valuation techniques (e.g. recent arms length transactions, discounted cash flow analysis and other valuation techniques). Only in very rare cases where fair value cannot be measured reliably, investments are carried at cost and tested for impairment, if any.

 

Gains and losses arising from changes in fair value are recognised in the condensed consolidated interim statement of comprehensive income and recorded in cumulative changes in fair value with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly in the condensed consolidated interim income statement. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in equity in the cumulative changes in fair value is included in the condensed consolidated interim income statement for the period.

 

If an available-for-sale investment is impaired, the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any previous impairment loss recognised in the condensed consolidated interim income statement is removed from equity and recognised in the condensed consolidated interim income statement.

 

Once an impairment loss has been recognised on an available-for-sale financial asset, the subsequent accounting treatment for changes in the fair value of that asset differs depending on the nature of the available-for-sale financial asset concerned:

2.   Summary of significant accounting policies (continued)

 

2.4   Investment securities (continued)

 

Available-for-sale (continued)

 

§ For an available-for-sale debt security, a subsequent decline in the fair value of the instrument is recognised in the condensed consolidated interim income statement when there is further objective evidence of impairment as a result of further decreases in the estimated future cash flows of the financial asset. Where there is no further objective evidence of impairment, the decline in the fair value of the financial asset is recognised directly in equity. If the fair value of a debt security increases in a subsequent period, and the increase can be objectively related to an event occurring after the impairment loss was recognised in the condensed consolidated interim income statement, the impairment loss is reversed through the condensed consolidated interim income statement to the extent of the increase in fair value.

 

§ For an available-for-sale equity security, all subsequent increases in the fair value of the instrument are treated as a revaluation and are recognised in other comprehensive income, accumulating in equity. A subsequent decline in the fair value of the instrument is recognised in the condensed consolidated interim income statement, to the extent that further cumulative impairment losses have been incurred in relation to the acquisition cost of the equity security. Impairment losses recognised on the equity security are not reversed through the condensed consolidated interim income statement.

 

2.5      Investment properties

 

Investment property is property held either to earn rental income or for capital appreciation or both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is reflected at valuation based on fair value at the statement of financial position date. The fair value is determined on a periodic basis by independent professional valuers.

 

Investment property under development that is being constructed or developed for future use as investment property is measured initially at cost including all direct costs attributable to the design and construction of the property including related staff costs. Subsequent to initial recognition, investment properties under development are measured at fair value.

 

Gains and losses arising from changes in the fair value of investment properties are included in the condensed consolidated interim income statement in the period in which they arise.



 

3.    Cash and balances with central banks

 


As at


As at


March 31


December 31


2014


2013


unaudited


audited


 AED'000


AED'000

Cash on hand

435,965


586,709

Balances with central banks

1,321,338


370,743

Reserves maintained with central banks

6,913,484


7,448,647

Certificate of deposits with UAE Central Bank

1,475,000


1,475,000

Reverse repo with Central Bank

-


80,107

Total cash and balances with central banks

10,145,787


9,961,206

The geographical concentration is as follows:




Within the UAE

10,107,777


9,857,886

Outside the UAE

38,010


103,320


10,145,787


9,961,206

 

Reserves maintained with central banks represent deposits with the central banks at stipulated percentages of its demand, savings, time and other deposits. These are only available for day to day operations under certain specified conditions and cannot be withdrawn without the central banks' prior approval.

 

4.    Deposits and balances due from banks

 


As at


As at


March 31


December 31


2014


2013


unaudited


audited


 AED'000


AED'000

Nostro balances

420,523


1,031,020

Margin deposits

182,546


232,021

Time deposits

9,486,840


8,061,659

Murabaha placements

750,000


1,870,000

Wakala placements

1,200,000


150,000

Total deposits and balances due from banks

12,039,909


11,344,700

The geographical concentration is as follows:




Within the UAE

6,777,767


4,614,768

Outside the UAE

5,262,142


6,729,932


12,039,909


11,344,700

 

The Bank hedges its foreign currency time deposits placements for foreign currency exchange rate risk using foreign exchange swap contracts and designates these instruments as cash flow hedges. The net positive fair value of these swaps as at March 31, 2014 was AED 4,891 thousand (December 31, 2013 - AED Nil).

 

5.    Trading securities

 


As at


As at


March 31


December 31


2014


2013


unaudited


audited


 AED'000


AED'000

Bonds

59,675


136,772

Equity instruments

-


747,868

Total trading securities

59,675


884,640

The geographical concentration is as follows:




Within the UAE

53,831


659,568

Outside the UAE

5,844


225,072


59,675


884,640

 



 

5.   Trading securities (continued)

 

Bonds represent investments mainly in government and public sector bonds. The fair value of trading investments is based on quoted market prices.

 

The decline in trading securities is mainly because of disposal of fund subsidiaries (Note 30).

 

6.    Derivative financial instruments

 

The table below shows the positive (assets) and negative (liabilities) fair values of derivative financial instruments.

 



Fair values



Assets


Liabilities

As at March 31, 2014 (unaudited)


AED'000


AED'000






Derivatives held or issued for trading





 Forward foreign exchange contracts


94,635


63,313

 Foreign exchange options


12,121


55,037

 Interest rate and cross currency swaps


2,738,643


2,782,056

 Options


137,342


233,753

 Futures (exchange traded)


4,695


5,448

 Commodity and energy swaps


25,429


24,995

 Swaptions


74,080


23,594

Total derivatives held or issued for trading


3,086,945


3,188,196

Derivatives held as fair value hedges





 Interest and cross currency swaps


256,480


724,879

Derivatives held as cash flow hedges





Interest rate swaps


42,998


1,065

Forward foreign exchange contracts


65,710


5,238

Total derivatives held as cashflow hedges


108,708


6,303






Total derivative financial instruments


3,452,133


3,919,378






As at December 31, 2013 (audited)





Derivatives held or issued for trading





 Forward foreign exchange contracts


96,863


55,816

 Foreign exchange options


7,734


31,525

 Interest rate and cross currency swaps


2,869,393


2,853,585

 Options


58,591


156,821

 Futures (exchange traded)


1,767


                   -  

 Commodity and energy swaps


36,767


36,385

 Swaptions


70,685


23,513

Total derivatives held or issued for trading


3,141,800


3,157,645

Derivatives held as fair value hedges





 Interest and cross currency swaps


295,327


807,917

Derivatives held as cash flow hedges





Interest rate swaps


42,273


-

Forward foreign exchange contracts


136,803


25

Total derivatives held as cashflow hedges


179,076


25






Total derivative financial instruments


3,616,203


3,965,587

 

The net hedge ineffectiveness gains relating to the fair value and cash flow hedges amounting to AED 732 thousand (March 31, 2013 - losses of AED 1,894 thousand) has been recognised in the condensed consolidated interim income statement.

 

As at March 31, 2014, the Bank received cash collateral of AED 239,225 thousand (December 31, 2013 - AED 341,993 thousand) against positive fair value of derivative assets from certain counterparties.

 

As at March 31, 2014, the Bank placed cash collateral of AED 220,911 thousand (December 31, 2013 - AED 280,378 thousand) and investment securities of AED 1,699,566 thousand (December 31, 2013 - AED 1,502,425 thousand) against the negative fair value of derivative liabilities. 

7.    Investment securities

 



Other





GCC

Rest of



UAE

countries

the world

Total

As at March 31, 2014 (unaudited)

AED'000

AED'000

AED'000

AED'000

Available-for-sale investments





Quoted:





 Government securities

2,690,233

1,446,015

457,827

4,594,075

 Bonds - Public sector

5,693,556

490,667

1,155,322

7,339,545

 Bonds - Banks and financial institutions

2,560,515

836,524

5,788,765

9,185,804

 Bonds - Corporate

93,375

-

-

93,375

 Equity instruments

1,424

-

-

1,424

 Mutual funds

74,515

-

95,460

169,975

Total quoted

11,113,618

2,773,206

7,497,374

21,384,198

Unquoted:





 Government securities

67,276

-

-

67,276

 Bonds - Public sector

59,378

-

-

59,378

 Bonds - Banks and financial institutions

-

-

32

32

 Bonds - Corporate

-

-

1,125

1,125

 Equity instruments

239,554

-

13,240

252,794

 Mutual funds

71,644

-

-

71,644

 Total unquoted

437,852

-

14,397

452,249

Total available-for-sale investments

11,551,470

2,773,206

7,511,771

21,836,447

 

As at December 31, 2013 (audited)





Available-for-sale investments





Quoted:





 Government securities

2,675,550

1,294,248

487,908

4,457,706

 Bonds - Public sector

5,428,547

491,255

972,824

6,892,626

 Bonds - Banks and financial institutions

2,249,622

834,683

5,953,539

9,037,844

 Bonds - Corporate

90,833

-

-

90,833

 Equity instruments

1,028

-

-

1,028

Total quoted

10,445,580

2,620,186

7,414,271

20,480,037

Unquoted:





 Bonds - Public sector

58,147

-

-

58,147

 Bonds - Banks and financial institutions

-

-

32

32

 Bonds - Corporate

-

-

1,131

1,131

 Equity instruments

230,476

-

13,240

243,716

 Mutual funds

71,709

-

-

71,709

 Total unquoted

360,332

-

14,403

374,735

Total available-for-sale investments

10,805,912

2,620,186

7,428,674

20,854,772

 

The Bank hedges interest rate risk on certain fixed rate and floating rate investments through interest rate swaps and designates these as fair value and cash flow hedges, respectively. The net negative fair value of these interest rate swaps as at March 31, 2014 was AED 172,094 thousand (December 31, 2013 - net negative fair value AED 210,427 thousand). The hedge ineffectiveness gains and losses relating to these hedges were included in the condensed consolidated interim income statement.

 

The Bank entered into repurchase agreements and total return swap agreements whereby bonds were pledged and held by counterparties as collateral. The risks and rewards relating to the investments pledged remain with the Bank. The following table reflects the carrying value of these bonds and the associated financial liabilities:

 


As at March 31, 2014 (unaudited)


As at December 31, 2013 (audited)


Carrying value of pledged assets


Carrying value of associated liabilities


Carrying value of pledged assets


Carrying value of associated liabilities


AED'000


AED'000


AED'000


AED'000









Repurchase financing

736,473


620,737


2,390,637 


          2,274,631 









 

Further, the Bank pledged investment securities with fair value amounting to AED 1,709,231 thousand (December 31, 2013 - AED 1,508,768 thousand) as collateral against margin calls. The risks and rewards relating to the investment securities pledged remain with the Bank.

8.    Loans and advances, net

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000






Overdrafts (retail and corporate)


3,882,236


4,396,183

Retail loans


15,546,180


14,957,734

Corporate loans


100,535,964


101,121,762

Credit cards


2,277,422


2,238,316

Islamic financing assets  (see below)


10,417,455


10,666,627

Other facilities


6,154,461


5,157,995

Gross loans and advances


138,813,718


138,538,617

Less: Allowance for impairment


(6,616,584)


(6,889,947)

Total loans and advances, net


132,197,134


131,648,670

 

Islamic financing assets

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000

Murabaha


1,088,707


1,038,429

Ijara financing


5,063,271


5,594,710

Mudaraba


447,644


463,049

Salam


3,718,021


3,476,441

Others


99,812


93,998

Gross Islamic financing assets


10,417,455


10,666,627

Less: Allowance for impairment


(158,405)


(102,384)

Net Islamic financing assets


10,259,050


10,564,243

 

The Bank hedges certain fixed rate and floating rate loans and advances for interest rate risk using interest rate swaps and designates these instruments as fair value and cash flow hedges, respectively. The net positive fair value of these swaps as at March 31, 2014 was AED 5,090 thousand (December 31, 2013 - net positive fair value of AED 9,103 thousand).

 

Movements of the individual and collective impairment allowance on loans and advances:

 


As at March 31, 2014 (unaudited)


As at December 31, 2013 (audited)


Individual impairment


Collective impairment


 

Total


Individual impairment


Collective impairment


 

Total


AED'000


AED'000


AED'000


AED'000


AED'000


AED'000













At January 1,

4,250,195


2,639,752


6,889,947


4,207,137


2,256,583


6,463,720













Charge for the period/year

131,752


156,881


288,633


1,170,603


383,517


1,554,120

Recoveries during the period/year

(100,941)


-


(100,941)


(187,964)


-


(187,964)

Net charge for the period/year

30,811


156,881


187,692


982,639


383,517


1,366,156

Discount unwind/others

(39,208)


(44,245)


(83,453)


(144,016)


-


(144,016)

Net amounts written-off

(378,067)


-


(378,067)


(795,407)


-


(795,407)

Currency translation

167


298


465


(158)


(348)


(506)

Balance at

3,863,898


2,752,686


6,616,584


4,250,195


2,639,752


6,889,947

 



 

8.    Loans and advances, net (continued)

 

The economic activity sector composition of the loans and advances portfolio is as follows:

 


As at March 31, 2014 (unaudited)


As at December 31, 2013 (audited)


Within the UAE

Outside the UAE

Total


Within the UAE

Outside the UAE

Total


AED'000

AED'000

AED'000


AED'000

AED'000

AED'000

Economic sector








210,249

-

210,249


215,777

                  -  

215,777

513,752

241,408

755,160


527,279

183,377

710,656

1,953,881

133,435

2,087,316


2,172,597

155,286

2,327,883

49,223,071

894,909

50,117,980


51,704,059

733,630

52,437,689

623,828

659,336

1,283,164


558,357

673,627

1,231,984

30,725,249

255,272

30,980,521


29,901,512

389,073

30,290,585

32,115,398

-

32,115,398


31,690,007

560,690

32,250,697

9,814,933

6,725,950

16,540,883


9,844,961

4,987,911

14,832,872

944,582

540,140

1,484,722


944,955

364,810

1,309,765

2,029,834

137,188

2,167,022


1,586,456

352,906

1,939,362

794,363

276,940

1,071,303


769,479

221,868

991,347

128,949,140

9,864,578

138,813,718


129,915,439

8,623,178

138,538,617

Less: Allowance for impairment



(6,616,584)




(6,889,947)

Total loans and advances, net



132,197,134




131,648,670

 (*) includes investment companies.

 

Loans and advances include a loan to the Government of Abu Dhabi ("Government") of AED 425,898 thousand (December 31, 2013 - AED 436,008 thousand). This loan arose as a result of the Government acquiring certain non-performing loans in previous years against which the Bank was indemnified by the Government through a guarantee. The Bank has an equivalent amount of long term deposit against this loan (Note 12).

 

9.    Investment properties

 


     Completed and in use

Under development

 

Total


AED'000

AED'000

AED'000





As at January 1, 2013

               264,695

                 264,700

                 529,395

Additions during the year

14,147

17,148

31,295

Transfer on completion of construction

281,848

(281,848)

                              -  

As at January 1, 2014 (audited)

560,690

-

560,690

Additions during the period

252

-

252

As at March 31, 2014 (unaudited)

560,942

-

560,942

 

Valuations are carried out by registered independent valuers having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. The properties were valued during the last quarter of the year 2013.

 

The valuation methodologies considered by external valuers include:

 

§ Direct Comparable method: This method seeks to determine the value of the property from transactions of comparable properties in the vicinity applying adjustments to reflect differences to the subject property.

 

§ Investment method: This method is used to assess the value of the property by capitalising the net operating income of the property at an appropriate yield an investor would expect for an investment of the duration of the interest being valued.

 

All investment properties of the Bank are located within the UAE.



 

10.   Other assets

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000

Interest receivable


1,053,734


911,968

Advance tax


22,341


79,603

Clearing receivables


-


404

Prepayments


68,134


38,985

Acceptances


3,639,040


2,140,725

Others


164,137


232,953

Total other assets


4,947,386


3,404,638

 

Acceptances arise when the Bank is under an obligation to make payments against documents drawn under letters of credit. Acceptances specify the amount of money, the date, and the person to which the payment is due. After acceptance, the instrument becomes an unconditional liability (time draft) of the Bank and is therefore recognised as a financial liability (Note 15) in the condensed consolidated interim statement of financial position with a corresponding contractual right of reimbursement from the customer recognised as a financial asset.

 

11.  Due to banks

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000

Vostro balances


291,983


192,242

Margin deposits


198,381


255,097

Time deposits


5,021,040


3,843,672

Total due to banks


5,511,404


4,291,011

 

The Bank hedges certain time deposits for foreign currency exchange risk using foreign exchange swap contracts and designates these as cash flow hedges. The net positive fair value of these swaps as at March 31, 2014 was AED 1,702 thousand (December 31, 2013 - AED Nil).

 

12.   Deposits from customers

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000

Category :





Time deposits


53,359,689


65,550,746

Current account deposits


45,033,234


37,131,506

Savings deposits


7,666,707


6,951,691

Murabaha deposits


8,802,166


4,974,515

Long term government deposits (Note 8)


425,898


436,008

Margin deposits


416,479


383,242

Total deposits from customers


115,704,173


115,427,708







12.  Deposits from customers (continued)

 

Islamic deposits (excluding Murabaha deposits) included in the above table are as follows:

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000

Mudaraba savings deposits


3,635,919


3,270,613

Current account deposits


2,501,449


2,139,789

Wakala deposits


1,723,676


1,224,052

Mudaraba term deposits


1,457,251


1,528,311

Margin deposits


11,422


9,247

Total Islamic deposits


9,329,717


8,172,012

 

The Bank hedges certain foreign currency time deposits for foreign currency exchange risk using foreign exchange swap contracts and designates these as cash flow hedges. The net positive fair value of these swaps as at March 31, 2014 was AED 22,281 thousand (December 31, 2013 - net positive fair value of AED 59,578 thousand).

 

13.   Euro commercial paper

 

The Bank established a USD 4,000,000 thousand euro commercial paper programme for the issuance of euro commercial paper (ECP). The details of the ECP are as follows:

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited

Currency


AED'000


AED'000

Swiss franc (CHF)


519,137


618,385

Euro (EUR)


1,605,219


1,568,178

GB pound (GBP)


794,758


1,329,692

US dollar (USD)


2,462,747


2,424,180

Total euro commercial paper


5,381,861


5,940,435

 

The Bank hedges certain ECP for foreign currency exchange risk through foreign exchange swap contracts and designates these instruments as cash flow hedges. The net positive fair value of these hedge contracts as at March 31, 2014 was AED 31,598 thousand (December 31, 2013 - net positive fair value of AED 77,202 thousand).

 

ECP are issued at a discount and the discount rate ranges between 0.13% to 0.74% (December 31, 2013 - 0.12% to 1.03%)

 


14.   Borrowings

 

The details of borrowings as at March 31, 2014 (unaudited) are as follows:

 





Within 1 year


1-3 years


3-5 years


Over 5 years


Total

Instrument


Currency


AED'000


AED'000


AED'000


AED'000


AED'000

Global medium term notes


Chinese renminbi (CNH)


-


-


173,580


-


173,580



Malaysian ringgit (MYR)


-


871,027


847,028


-


1,718,055



Swiss franc (CHF)


-


575,705


388,677


-


964,382



Turkish lira (TRY)


-


94,003


-


-


94,003



UAE dirham (AED)


-


500,000


-


-


500,000



Japanese yen (JPY)


-


146,385


-


-


146,385



US dollar (USD)


4,220,342


1,888,846


5,478,767


624,410


12,212,365


















4,220,342


4,075,966


6,888,052


624,410


15,808,770














Islamic sukuk notes


US dollar (USD)


-


1,831,866


-


-


1,831,866

Bilateral loans - floating rate


US dollar (USD)


1,652,539


-


-


-


1,652,539

Subordinated notes - floating rate


US dollar (USD)


-


1,058,316


-


-


1,058,316

                                       - fixed rate


US dollar (USD)


-


-


-


3,816,802


3,816,802



Swiss franc (CHF)


-


-


-


380,130


380,130

Borrowings through repurchase agreements


US dollar (USD)


620,737


-


-


-


620,737

Certificate of deposits (CDs)


Euro (EUR)


50,638


-


-


-


50,638


















6,544,256


6,966,148


6,888,052


4,821,342


25,219,798














Fair value adjustment on borrowings hedged










(279,115)


























24,940,683

 

Included in borrowings is AED 20,365,287 thousand which have been hedged using interest rate, foreign exchange and cross currency swaps. These swaps are designated as either fair value or cash flow hedges. The net negative fair value of these swaps as at March 31, 2014 was AED 259,462 thousand.


14.  Borrowings (continued)

 

The details of borrowings as at December 31, 2013 (audited) are as follows:

 





Within 1 year


1-3 years


3-5 years


Over 5 years


Total

Instrument


Currency


AED'000


AED'000


AED'000


AED'000


AED'000

Global medium term notes


Chinese renminbi (CNH)


                    -  


                    -  


173,580


                    -  


173,580



Malaysian ringgit (MYR)


                    -  


871,027


847,028


                    -  


1,718,055



Swiss franc (CHF)


                    -  


575,705


388,677


                    -  


964,382



Turkish lira (TRY)


                    -  


94,003


                    -  


                    -  


94,003



UAE dirham (AED)


                    -  


                    -  


500,000


                    -  


500,000



Japanese yen (JPY)


-


92,046


-


-


92,046



US dollar (USD)


4,218,641


                    -  


4,627,500


624,410


9,470,551


















4,218,641


1,632,781


6,536,785


624,410


13,012,617














Islamic sukuk notes


US dollar (USD)


                    -  


1,831,435


                    -  


                    -  


1,831,435

Bilateral loans - floating rate


US dollar (USD)


1,652,261


                    -  


                    -  


                    -  


1,652,261

Subordinated notes - floating rate


US dollar (USD)


                    -  


1,058,152


                    -  


                    -  


1,058,152

                                       - fixed rate


US dollar (USD)


                    -  


                    -  


                    -  


3,816,027


3,816,027



Swiss franc (CHF)


                    -  


                    -  


                    -  


380,130


380,130

Borrowings through repurchase agreements


US dollar (USD)


2,274,631


                    -  


                    -  


                    -  


2,274,631

Certificate of deposits (CDs)


Euro (EUR)


50,587


-


-


-


50,587


















8,196,120


4,522,368


6,536,785


4,820,567


24,075,840














Fair value adjustment on borrowings hedged










(290,272)


























23,785,568

 

Included in borrowings is AED 17,567,911 thousand which have been hedged using interest rate, foreign exchange and cross currency swaps. These swaps are designated as either fair value or cash flow hedges. The net negative fair value of these swaps as at December 31, 2013 was AED 268,993 thousand.


14.  Borrowings (continued)

 

Interest on global medium term notes is payable quarterly, semi-annually and annually in arrears and the contractual coupon rates as at March 31, 2014 (unaudited) are as follows: 

 

Currency

Within 1 year


1-3 years


3-5 years


Over 5 years

CNH

-


-


Fixed rate of 3.7% p.a. and 4.125% p.a.


-

MYR

-


Fixed rate of 5.20% p.a.


Fixed rate of 4.30% p.a. and 5.35% p.a.


-

CHF

-


Fixed rate of 3.01% p.a.


Quarterly coupons with 110 basis points over CHF LIBOR


-

TRY

-


Fixed rate of 12.75% p.a.


-


-

AED

-


Fixed rate of 6.00% p.a.


-



JPY

-


Fixed rate of 0.41% p.a. and 0.81% p.a.


-


-

USD

Fixed rate of 0.905% p.a. to 4.75% p.a.


Quarterly coupons with 108 to 130 basis points over LIBOR


Fixed rate of 2.50% p.a. and 3% p.a.


Fixed rate of 4.70% p.a. to 5.10% p.a.

 

Sukuk financing notes

 

The Sukuk carries an expected profit rate of 4.07% per annum payable semi-annually.

 

Bilateral loans

 

USD: Quarterly coupons with 58 to 78 basis points plus LIBOR.

 

Subordinated notes:

 

Subordinated floating rate notes

 

Interest on the subordinated floating rate notes is payable quarterly in arrears at a coupon rate of 110 basis points over 3 months LIBOR. The subordinated floating rate notes qualify as Tier 2 subordinated loan capital for the first 5 year period till 2011 and thereafter are amortised at the rate of 20% per annum until 2016 for capital adequacy calculation (Note 29). This has been approved by the Central Bank of the UAE.

 

Subordinated fixed rate notes

 

Interest on the subordinated fixed rate notes is payable half yearly in arrears and the contractual coupon rates as at March 31, 2014 (unaudited) are as follows:

 

Currency                           Over 5 years

USD                                       Fixed rate 3.125% p.a. to 4.5% p.a.

CHF                                       Fixed rate 1.885% p.a.

 

The subordinated fixed rate notes qualify as Tier 2 subordinated loan capital for the first 5 year period till 2018 and thereafter are amortised at the rate of 20% per annum until 2023 for capital adequacy calculation (Note 29). This has been approved by the Central Bank of the UAE. Subordinated notes of AED 1,476,933 thousand mature in 2023 but are callable after 5 years from the issuance date at the option of the Bank.

 



 

14.  Borrowings (continued)

 

Borrowings through repurchase agreements

 

USD:      Quarterly coupons in arrears with 300 basis points plus LIBOR.

Half yearly coupons in arrears with 86 to 300 basis points over LIBOR.

 

Certificate of deposits - Fixed rate of 0.409% p.a.

 

Further, the Bank has undrawn borrowing floating rate facilities of AED 1,469,200 thousand expiring in April 2014 (December 31, 2013 - AED 1,469,200 thousand).

 

15.   Other liabilities

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000

Interest payable


438,859


398,931

Recognised liability for defined benefit obligations


288,814


256,102

Accounts payable and other creditors


217,880


189,724

Clearing payables


393


131

Deferred income


439,636


445,561

Acceptances (Note 10)


3,639,040


2,140,725

Others(*)


1,975,771


1,479,743

Total other liabilities


7,000,393


4,910,917

 

(*) Others include dividends payable of AED 540,105 thousand pertaining for the year 2013.

 

16.    Share capital

 


Authorised

Issued and fully paid



As at

As at



March 31

December 31



2014

2013



unaudited

audited


AED'000

AED'000

AED'000

 

Ordinary shares of AED 1 each

5,595,597

5,595,597

5,595,597


                      

                      

                      

 

As at March 31, 2014, Abu Dhabi Investment Council held 58.083% (December 31, 2013 - 58.083%) of the Bank's issued and fully paid up share capital.

 

Treasury shares                                  

 

The Bank bought back ordinary shares from certain shareholders and these shares are held as treasury shares (Note 17) and are expected eventually to be cancelled. This buyback programme of up to 10% of the Bank's shares was approved by the Securities & Commodities Authority, Central Bank of the UAE and the Bank's shareholders. The approval has been extended until January 2015. There was no buy back of shares during the period (December 31, 2013 - 392,741,711 shares).



 


17.   Other reserves, net of treasury shares

 

Reserves movement for the three month period ended March 31, 2014:

 



Employees'





Foreign






incentive





currency


Cumulative



Treasury

 plan

Statutory

Legal

General

Contingency

translation

Hedge

changes in



shares

shares, net

reserve

reserve

reserve

reserve

reserve

reserve

fair values

Total


AED'000

AED'000

AED'000

AED'000

AED'000

AED'000

AED'000

AED'000

AED'000

AED'000












Balance at January 1, 2014

(1,818,969)

(57,438)

2,287,181

2,242,394

2,000,000

150,000

(59,686)

40,800

351,158

5,135,440

Exchange difference arising on translation of foreign

operations

-

-

-

-

-

-

6,581

-

-

6,581

Fair value changes on cash flow hedges

-

-

-

-

-

-

-

(396)

-

(396)

Fair value changes on available-for-sale investments

-

-

-

-

-

-

-

-

60,603

60,603

Total comprehensive profit/(loss) for the period

-

-

-

-

-

-

6,581

(396)

60,603

66,788

Fair value adjustment

-

(11,545)

-

-

-

-

-

-

-

(11,545)

Shares - vested portion 

-

6,760

-

-

-

-

-

-

-

6,760

Net movement in treasury shares on disposal of fund subsidiaries (Note 30)

22,012

-

-

-

-

-

-

-

-

22,012

Balance at March 31, 2014 (unaudited)

(1,796,957)

(62,223)

2,287,181

2,242,394

2,000,000

150,000

(53,105)

40,404

411,761

5,219,455












Balance at January 1, 2013

(30,937)

(96,256)

1,950,650

1,905,863

2,000,000

 150,000

     (34,333)

    26,756

      416,848

6,288,591

Exchange difference arising on translation of foreign

operations

-

-

-

-

-

-

        2,357

-

-

     2,357

Fair value changes on cash flow hedges

-

-

-

-

-

-

-

    (7,273)

-

       (7,273)

Fair value changes on available-for-sale investments

              -  

                -  

                -  

                -  

                -  

                  -  

                 -  

              -  

22,784

22,784

Total comprehensive profit/(loss) for the period

                -

                -

                -

-  

-  

-  

 2,357

(7,273)

22,784

17,868

Shares - vested portion

-

9,935

-

-

-

-

-

-

-

9,935

Buy back of own shares (Note 16)

(4,276)

-

-

-

-

-

-

-

-

(4,276)

Net movement in treasury shares held by fund subsidiaries

8,924

-

-

-

-

-

-

-

-

8,924

Balance at March 31, 2013 (unaudited)

 (26,289)

(86,321)

1,950,650

1,905,863

2,000,000

 150,000

       (31,976)

    19,483

        439,632

6,321,042

 


18.   Capital notes

 

In February 2009, the Department of Finance, Government of Abu Dhabi subscribed to ADCB's Tier I regulatory capital notes with a principal amount of AED 4,000,000 thousand (the "Notes").

 

The Notes are non-voting, non-cumulative perpetual securities for which there is no fixed redemption date. Redemption is only at the option of the Bank. The Notes are direct, unsecured, subordinated obligations of the Bank and rank pari passu without any preference among themselves and the rights and claims of the Note holders will be subordinated to the claims of Senior Creditors. The Notes bear interest at the rate of 6% per annum payable semi-annually until February 2014, and a floating interest rate of 6 month EIBOR plus 2.3% per annum thereafter. However, the Bank may at its sole discretion elect not to make a coupon payment. The Note holders do not have a right to claim the coupon and an election by the Bank not to service the coupon is not considered an event of default. In addition, there are certain circumstances under which the Bank is prohibited from making a coupon payment on a relevant coupon payment date (Non-Payment Event). 

 

If the Bank makes a non-payment election or a non-payment event occurs, then the Bank will not (a) declare or pay any distribution or dividend or (b) redeem, purchase, cancel, reduce or otherwise acquire any of the share capital or any securities of the Bank ranking pari passu with or junior to the Notes except securities, the term of which stipulate a mandatory redemption or conversion into equity, in each case unless or until two consecutive coupon payments have been paid in full.

 

19.   Interest income (unaudited)

 


3 months ended March 31


2014

AED'000


2013

AED'000

Loans and advances to banks

47,334


50,965

Loans and advances to customers

1,410,594


1,478,334

Investment securities

131,216


128,535

Total  interest income

1,589,144


1,657,834

 

20.   Interest expense (unaudited)

 


3 months ended March 31


2014

AED'000


2013

AED'000

Deposits from banks

2,072


5,431

Deposits from customers and euro commercial paper

210,245


301,032

Borrowings

120,779


184,882 

Total  interest expense

333,096


491,345

 

21.   Net fees and commission income (unaudited)

 


3 months ended March 31


2014

AED'000


2013

AED'000

Fees and commission income




Retail banking fees

194,366


172,838

Corporate banking fees

107,235


72,551

Brokerage fees

12,114


2,047

Fees from trust and other fiduciary activities

25,889


23,641

Other fees

18,856


10,230

Total fees and commission income

358,460


281,307

Fees and commission expenses

(73,710)


(66,414)

Net fees and commission income

284,750


214,893

                               



 

22.   Net trading income (unaudited)

 


3 months ended March 31


2014

AED'000


2013

AED'000

Net gains on dealing in derivatives

15,946


5,486

Net gains from dealing in foreign currencies

62,840


44,349

Net gains from trading securities

95,783


76,036

Net trading income

174,569


125,871

 

23.   Other operating income (unaudited)

 


3 months ended March 31


2014

AED'000


2013

AED'000

Gains arising from retirement of hedges

-


97,280

Net losses from available-for-sale investments

(59)


-

Property management income

31,431


28,558

Rental income

10,596


4,495

Income from retirement of long term debt

-


1,973

Dividends income

14,348


11,958

Others

4,767


5

Total other operating income

61,083


144,269

 

24.   Operating expenses (unaudited)

 


3 months ended March 31


2014

AED'000


2013

AED'000

Staff expenses

365,762


301,251

Depreciation

30,494


31,959

Amortisation of intangible assets

6,785


7,882

Others

221,868


176,300

Total operating expenses

624,909


517,392

 

25.   Impairment allowances (unaudited)

 


3 months ended March 31


2014

AED'000


2013

AED'000

Impairment allowance on loans and advances, net (Note 8)

187,692


329,767 

Recoveries on written off available-for-sale investments

(14,126)


(8,088)

Total impairment allowances

173,566


321,679

 

26.   Earnings per share (unaudited)

 

Basic and diluted earnings per share

 

The calculation of basic earnings per share is based on the net profit attributable to equity holders of the Bank and the weighted average number of equity shares outstanding. Diluted earnings per share is calculated by adjusting the weighted average number of equity  shares outstanding for the dilutive effects of potential equity shares held on account of employees' incentive plan and treasury shares arising on consolidation of fund subsidiaries.



 

26.   Earnings per share (unaudited) (continued)

 



3 months ended March 31



2014

AED'000


2013

AED'000

Net profit for the period attributable to the equity holders of the Bank


953,172


829,499  

Less: Coupons paid on capital notes


(120,000)


(120,000)

Net adjusted profit for the period attributable to the equity holders of the Bank (a)


833,172


709,499 








Number of shares in thousands

Weighted average number of shares in issue throughout the period


5,595,597


5,595,597

Less: Weighted average number of treasury shares arising on buy back


(392,742)


(898)

Less: Weighted average number of treasury shares arising on consolidation of funds


(7,503)


(9,335)

Less: Weighted average number of shares resulting from Employees' incentive

plan shares


(15,445)


       

 (34,256)

Weighted average number of equity shares in issue during the period for basic earnings per share (b)


5,179,907


     

5,551,108






Add: Weighted average number of treasury shares arising on consolidation of funds


7,503


9,335

Add: Weighted average number of shares  resulting from Employees' incentive  plan

shares


15,445


         

34,256

Weighted average number of equity shares in issue during the period for diluted  earnings per share (c)


5,202,855


  

5,594,699






Basic earnings per share (AED) (a)/(b)


0.16


0.13






Diluted earnings per share (AED) (a)/(c)


0.16


0.13

 

27.   Commitments and contingent liabilities

 

The Bank had the following commitments and contingent liabilities:

 



As at


As at



March 31


December 31



2014


2013



unaudited


audited



AED'000


AED'000






Letters of credit


7,254,042


8,677,520

Guarantees


14,868,041


14,249,313

Commitments to extend credit - Revocable


8,892,850


8,293,471

Commitments to extend credit - Irrevocable


7,733,236


3,262,963

Total commitments on behalf of customers


38,748,169


34,483,267

Commitments for future capital expenditure


176,600


189,007

Commitments to invest in investment securities


132,185


132,185

Total commitments and contingent liabilities


39,056,954


34,804,459

               

28.   Operating segments

 

The Bank has four reportable segments, as described below, which are the Bank's strategic divisions. The strategic divisions offer different products and services and are managed separately based on the Bank's management and internal reporting structure. For each of the strategic divisions, the Bank's Performance Management Committee reviews internal management reports on at least a quarterly basis.

 

The following summary describes the operations in each of the Bank's reportable segments

 

Consumer banking - comprises of retail, wealth management and Islamic financing. It includes loans, deposits and other transactions and balances with retail customers and corporate and private accounts of high net worth individuals and funds management activities.



 

28.   Operating segments (continued)

 

Wholesale banking - comprises of business banking, cash management, trade finance, corporate finance, small and medium enterprise financing, investment banking, Indian operations, Islamic financing, infrastructure and asset finance, government and public enterprises. It includes loans, deposits and other transactions and balances with corporate customers.

 

Investments and treasury - comprises of central treasury operations, management of the Bank's investment portfolio and interest rate, currency and commodity derivative portfolio and Islamic financing.

 

Investments and treasury undertakes the Bank's funding and centralized risk management activities through borrowings, issue of debt securities and use of derivatives for risk management. It also undertakes trading and corporate finance activities and investing in liquid assets such as short-term placements, corporate and government debt securities.

 

Property management - comprises of real estate management and engineering service operations of subsidiaries - Abu Dhabi Commercial Properties LLC, Abu Dhabi Commercial Engineering Services LLC, and rental income of ADCB.

 

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Performance Management Committee. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis.

 

The following is an analysis of the Bank's revenue and results by operating segment for the three month period ended March 31, 2014 (unaudited):

 


 

Consumer banking

 

Wholesale banking

Investments and

treasury

 

Property management

 

 

Total


AED'000

AED'000

AED'000

AED'000

AED'000

Net interest and Islamic financing income

577,058

314,143

461,488

27,557

1,380,246

Non-interest income

340,996

128,359

4,995

46,052

520,402

Operating expenses

(387,674)

(173,344)

(38,276)

(25,615)

(624,909)

Operating profit before impairment

allowances

530,380

269,158

428,207

47,994

1,275,739

Impairment (allowances)/recoveries

(251,619)

63,927

14,126

-

(173,566)

Profit before taxation

278,761

333,085

442,333

47,994

1,102,173

Overseas income tax credit

-

1,106

-

-

1,106

Net profit for the period

278,761

334,191

442,333

47,994

1,103,279







Capital expenditure





33,838







As at March 31, 2014 (unaudited)






Segment assets

60,823,329

78,114,216

46,595,545

569,647

186,102,737

Segment liabilities

35,926,015

49,492,127

77,028,936

10,814

162,457,892







       



 

28.   Operating segments (continued)

 

The following is an analysis of the Bank's revenue and results by operating segment for the three month period ended March 31, 2013 (unaudited):

 


 

Consumer banking

 

Wholesale banking

Investments and

treasury

 

Property management

 

 

Total


AED'000

AED'000

AED'000

AED'000

AED'000

Net interest and Islamic financing income

 

520,705

 

337,646

 

369,404

 

 31,297

 

1,259,052

Non-interest income

217,022

97,128

132,418

38,465

485,033 

Operating expenses

(306,823)

(141,609)

(50,055)

(18,905)

(517,392)

Operating profit before impairment

allowances

 

430,904

 

293,165

 

451,767

 

50,857

 

1,226,693

Impairment (allowances)/recoveries

(329,424)

(343)

8,088

-

(321,679)

Profit before taxation

101,480 

292,822

459,855

50,857

905,014 

Overseas income tax expense

-

(2,030)

-

-

(2,030)

Net profit for the period

101,480

290,792

459,855

50,857

902,984







Capital expenditure





33,570







As at December 31, 2013 (audited)






Segment assets

61,382,901

76,113,146

45,078,609

567,880

183,142,536

Segment liabilities

32,165,627

43,746,149

82,370,825

38,625

158,321,226

 

For the purpose of monitoring segment performance and allocating resources between segments, all assets and liabilities are allocated to reportable segments.

 

Other disclosures

 

The following is the analysis of the total operating income of each segment between income from external parties and inter-segment.

 


External (unaudited)



3 months ended March 31


3 months ended March 31


2014

2013


2014

2013


AED'000

AED'000


AED'000

AED'000

Consumer banking

1,207,105

1,062,384


(289,051)

(324,657)

Wholesale banking

707,537

679,213


(265,035)

(244,439)

Investments and treasury

(60,046)

(35,976)


526,529

537,798

Property management

46,052

38,464


27,557

31,298

Total

1,900,648

1,744,085


-

                    -  

 

Geographical information

 

The Bank operates in two principal geographic areas i.e. Domestic and International. The United Arab Emirates is designated as Domestic area which represents the operations of the Bank that originates from the UAE branches and subsidiaries. International area represents the operations of the Bank that originates from its branches in India, Jersey and through its subsidiaries outside UAE. The Bank's operations and information about its segment non-current assets by geographical location are detailed as follows:



 

28.   Operating segments (continued)

 

Geographical information (continued)

 


Domestic (unaudited)



3 months ended March 31


3 months ended March 31


2014

2013


2014

2013


AED'000

AED'000


AED'000

AED'000

Income






Net interest and Islamic financing income

1,370,847

1,251,107


9,399

7,945

Non-interest income

519,122

480,699


1,280

4,334

 


Domestic


International


As at

 March 31

2014

unaudited

As at

December 31 2013

audited


As at

 March 31

2014

unaudited

As at

December 31 2013

audited


AED'000

AED'000


AED'000

AED'000

Non-current assets






Investment properties

560,942

560,690


-

-

Property and equipment, net

804,387

801,295


4,027

4,027

Intangible assets

54,910

61,695


-

-

 

29.     Capital adequacy ratio

 

The ratio calculated in accordance with Basel II is as follows:

 


As at


As at


March 31


December 31


2014


2013


unaudited


audited


AED'000


AED'000

Tier 1 capital




Share capital (Note 16)

5,595,597


5,595,597

Share premium

3,848,286


3,848,286

Other reserves, net of treasury shares (Note 17)

4,807,694


4,784,282

Retained earnings

4,972,656


5,597,275

Non-controlling interests in equity of subsidiaries

8,851


644,712

Capital notes (Note 18)

4,000,000


4,000,000

Less: Intangible assets

(54,910)


              (61,695)

Total tier 1 capital

23,178,174


24,408,457

Tier 2 capital




Collective impairment allowance on loans and advances

1,727,105


1,684,495

Cumulative changes in fair value (Note 17)

185,292


158,021

Subordinated notes (Note 14)

4,907,780


4,904,727

Total tier 2 capital

6,820,177


6,747,243





Total regulatory capital

29,998,351


31,155,700





Risk-weighted assets




Credit risk

138,168,436


134,759,561

Market risk

2,785,018


4,890,071

Operational risk

7,890,391


7,216,753

Total risk-weighted assets

148,843,845


146,866,385





Capital adequacy ratio

20.15%


21.21%

Tier 1 ratio

15.57%


16.62%

Tier 2 ratio

4.58%


4.59%

 

The capital adequacy ratio was above the minimum requirement of 12% for March 31, 2014 (December 31, 2013 - 12%) stipulated by the Central Bank of the UAE.

 



 

30.    Disposal of fund subsidiaries (unaudited)

 

On March 31, 2014, the Bank redeemed substantial units in Al Nokhitha Investments Feeder Fund, MSCI UAE Index Feeder Fund and Arabian Index Feeder Fund which resulted in reduction of its indirect stake in Al Nokhitha Fund, ADCB MSCI UAE Index Fund and ADCB Arabian Index Fund (the "Funds") and consequently its exposure to variable returns from its involvement in these Funds reduced considerably to a level that led the Bank to conclude that there is a loss of control over these subsidiaries.  The residual interest in these funds is classified as available-for-sale investments as per IAS 39.

 

Analysis of net assets over which control was lost:

 










AED'000






Bank balances




226,121

Trading securities




867,792

Other assets




11,888

Total assets




1,105,801











Other liabilities




4,218

Non-controlling interests




836,495

Total liabilities




840,713






Net assets over which control was lost




265,088

 

Sales consideration                           










AED'000






Cash consideration received




95,112

Fair value of residual interest classified as available-for-sale investments




169,976

Total sales consideration




265,088






Less: Fair value of net assets over which control was lost




265,088






Gain on disposal of fund subsidiaries




-

 

Net cash inflow on disposal of fund subsidiaries










AED'000






Consideration received in cash and cash equivalents




95,112

 

Fair value of residual interest has been booked as transfer to available-for-sale investments and this being a non-cash transaction has not been reflected in the condensed consolidated interim statement of cash flows.

 

Net gains amounting to AED 91,521 thousand on treasury shares held by fund subsidiaries pertaining to previous periods have now been recognised.



 

31.   Fair value hierarchy

 

The fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows: 

 

Quoted market prices - Level 1

 

Financial instruments are classified as Level 1 if their values are observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions.  

 

Valuation techniques using observable inputs - Level 2

 

Financial instruments and investment properties classified as Level 2 have been valued using models whose inputs are observable in an active market. Valuation based on observable inputs include financial instruments such as swaps and forwards which are valued using market standard pricing techniques and options that are commonly traded in markets where all the inputs to the market standard pricing models are observable.

 

The category includes derivative financial instruments as certain OTC derivatives, commodity derivatives, foreign exchange spot and forward contracts and non derivative financial instruments such as investment properties.

 

These instruments are valued using the inputs observable in an active market.  Valuation of the derivative financial instruments is made through discounted cash flow method using the applicable yield curve for the duration of the instruments for non optional derivatives and standard option pricing models such as Black-Scholes and other valuation models for optional derivatives. 

 

Level 2 investment properties include buildings completed and under development. Refer Note 9 in respect of the valuation techniques used.

 

Valuation techniques using significant unobservable inputs - Level 3

 

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market.

 

Unobservable input levels are generally determined based on observable inputs of a similar nature, historical observations or other analytical techniques. 

 

This category mainly includes private equity instruments and private funds. The carrying values of these investments are adjusted as follows:

 

a)    Private equity instruments - using the latest available net book value; and

b)   Private funds - based on the net asset value provided by the fund manager.

 

Other assets and liabilities not measured at fair value

 

The majority of the Bank's assets and liabilities measured at amortised cost, including loans and advances and deposits from customers, are Level 3 assets and liabilities, as there is no active market for such assets and liabilities. The Bank considers these to have a fair value approximately equivalent to their net carrying value, based on discounted cash flow calculations performed for a sample of loans, the majority of which carry variable interest rates, and given the relatively short tenor of most deposits from customers.



 

31.   Fair value hierarchy (continued)

 

This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible. The table below analyses recurring fair value measurements for assets and liabilities.

 



Level 1

Level 2

Level 3



 

 

 

 

Quoted market prices

 

Observable inputs

Significant unobservable inputs

 

 

Total

As at March 31, 2014 (unaudited)

Notes

AED'000

AED'000

AED'000

AED'000

Assets at fair value 






Trading securities 

5

59,675

-

-

59,675

Derivative financial instruments

6

4,695

3,447,438

-

3,452,133

Investment securities 

7





     - Quoted 


21,384,198

-

-

21,384,198

     - Unquoted 


-

126,654

325,595

452,249

Investment properties 

9

-

560,942

-

560,942

Total assets at fair value 

21,448,568

4,135,034

325,595

25,909,197

Liabilities at fair value 






Derivative financial instruments

6

5,448

3,913,930

-

3,919,378

Total liabilities at fair value 

5,448

3,913,930

-

3,919,378







As at December 31, 2013 (audited)






Assets at fair value 






Trading securities 

5

884,640

-

-

884,640  

Derivative financial instruments

6

1,767

3,614,436

-

3,616,203                         

Investment securities 

7





     - Quoted 


20,480,037

-

-

20,480,037

     - Unquoted 


-

58,147

316,588               

            374,735  

Investment properties 

9

-

560,690

-

560,690

Total assets at fair value 

21,366,444

4,233,273

316,588

25,916,305

Liabilities at fair value 






Derivative financial instruments

6

-

3,965,587

-

3,965,587

Total liabilities at fair value 

                       -  

3,965,587

                       -  

        3,965,587      







The Bank's OTC derivatives in the Trading Book are classified as Level 2 as they are valued using inputs that can be observed in the market. 

 

Reconciliation showing the movement in fair values of Level 3 available-for-sale investments is as follows:

 


As at


As at


March 31


December 31


2014


2013


unaudited


audited


AED'000


AED'000

At January 1,

316,588 


               278,436

Acquisitions during the period/ year

-


                  49,217

Matured/disposals during the period/ year

-


                 (9,726)

Fair value adjustments

9,007


(2,502)

Transfer from Level 1

-


 1,163

Balance at

325,595


316,588

 

There were no significant transfer between Level 1 and Level 2 during the period.

 

There is no change in valuation techniques during the period.

 

32.   Legal proceedings

 

The Bank is involved in various legal proceedings and claims arising in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, management does not believe that these matters will have a material adverse effect on the Bank's condensed consolidated interim financial information if disposed unfavourably.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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