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Monday 01 February, 2016

Abu Dhabi Comm Bnk

Annual Financial Report

RNS Number : 5463N
Abu Dhabi Commercial Bank PJSC
31 January 2016
 

 

 

 

 

 

 

 

 

 

 

 

 

Abu Dhabi Commercial Bank PJSC
Consolidated financial statements
For the year ended December 31, 2015
 

 

 

 

 

 

The audited financial statements are subject to adoption by Shareholders at the Annual General Meeting
  

 

 

 

 

 

 

 

 

 

 

 


 

Table of Contents

INDEPENDENT AUDITOR'S REPORT.......................................................................................................................................................................................................................................................... 4

Consolidated statement of financial position...................................................................................................................................................................................................................................... 6

Consolidated income statement...................................................................................................................................................................................................................................................................... 7

Consolidated statement of comprehensive income...................................................................................................................................................................................................................... 8

Consolidated statement of changes in equity.................................................................................................................................................................................................................................... 9

Consolidated statement of cash flows.................................................................................................................................................................................................................................................... 10

1.     Activities and areas of operations.................................................................................................................................................................................................................................................. 11

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

3.     Summary of significant accounting policies.......................................................................................................................................................................................................................... 13

3.1... Basis of preparation............................................................................................................................................................................................................................................................................ 13

3.2... Measurement............................................................................................................................................................................................................................................................................................ 13

3.3... Functional and presentation currency.............................................................................................................................................................................................................................. 14

3.4... Use of estimates and judgements.......................................................................................................................................................................................................................................... 14

3.5... Basis of consolidation......................................................................................................................................................................................................................................................................... 14

3.6... Foreign currencies................................................................................................................................................................................................................................................................................ 17

3.7... Financial instruments........................................................................................................................................................................................................................................................................ 18

3.8... Sale and repurchase agreements........................................................................................................................................................................................................................................... 23

3.9... Securities borrowing and lending.......................................................................................................................................................................................................................................... 23

3.10..Cash and cash equivalents........................................................................................................................................................................................................................................................... 23

3.11..Amortised cost measurement.................................................................................................................................................................................................................................................... 24

3.12.. Fair value measurement............................................................................................................................................................................................................................................................... 24

3.13...Derivatives.................................................................................................................................................................................................................................................................................................. 25

3.14...Hedge accounting................................................................................................................................................................................................................................................................................ 25

3.15...Treasury shares and contracts on own shares........................................................................................................................................................................................................ 27

3.16....Financial guarantees....................................................................................................................................................................................................................................................................... 27

3.17...Acceptances.............................................................................................................................................................................................................................................................................................. 27

3.18....Collateral repossessed................................................................................................................................................................................................................................................................... 27

3.19....Leasing......................................................................................................................................................................................................................................................................................................... 27

3.20....Investment properties.................................................................................................................................................................................................................................................................. 28

3.21....Property and equipment........................................................................................................................................................................................................................................................... 28

3.22....Capital work in progress............................................................................................................................................................................................................................................................. 29

3.23.....Intangible assets............................................................................................................................................................................................................................................................................... 29

3.24.....Borrowing costs.................................................................................................................................................................................................................................................................................. 29

3.25.....Business combinations and goodwill.............................................................................................................................................................................................................................. 30

3.26......Impairment of non-financial assets................................................................................................................................................................................................................................ 30

3.27.... Employee benefits........................................................................................................................................................................................................................................................................... 31

3.28... Provisions and contingent liabilities................................................................................................................................................................................................................................ 32

3.29.... Segment reporting.......................................................................................................................................................................................................................................................................... 33

3.30... Taxation....................................................................................................................................................................................................................................................................................................  33

3.31....Revenue and expense recognition....................................................................................................................................................................................................................................  33

3.32... Islamic financing.................................................................................................................................................................................................................................................................................. 34

4.     Significant accounting judgements, estimates and assumptions...................................................................................................................................................................... 36

5.     Cash and balances with central banks...................................................................................................................................................................................................................................... 37

6.     Deposits and balances due from banks................................................................................................................................................................................................................................... 38

7.     Reverse-repo placements...................................................................................................................................................................................................................................................................... 38

8.     Trading securities......................................................................................................................................................................................................................................................................................... 38

9.     Derivative financial instruments.................................................................................................................................................................................................................................................... 39

10.   Investment securities................................................................................................................................................................................................................................................................................ 42

11.   Loans and advances, net........................................................................................................................................................................................................................................................................ 43

12.   Investment in associate........................................................................................................................................................................................................................................................................... 43

13.   Investment properties............................................................................................................................................................................................................................................................................. 44

14.   Other assets....................................................................................................................................................................................................................................................................................................... 44

15.   Property and equipment, net............................................................................................................................................................................................................................................................ 45

16.   Intangible assets............................................................................................................................................................................................................................................................................................ 46

17.   Due to banks..................................................................................................................................................................................................................................................................................................... 47

18.   Deposits from customers....................................................................................................................................................................................................................................................................... 48

19.   Euro commercial paper........................................................................................................................................................................................................................................................................... 48

20.   Borrowings.......................................................................................................................................................................................................................................................................................................... 49

21.   Other liabilities................................................................................................................................................................................................................................................................................................ 52

22.   Share capital...................................................................................................................................................................................................................................................................................................... 53

23.   Other reserves, net of treasury shares..................................................................................................................................................................................................................................... 54

24.   Islamic financing............................................................................................................................................................................................................................................................................................ 55

25.   Employees' incentive plan shares, net...................................................................................................................................................................................................................................... 56

26.   Capital notes...................................................................................................................................................................................................................................................................................................... 56

27.   Interest income............................................................................................................................................................................................................................................................................................... 57

28.   Interest expense............................................................................................................................................................................................................................................................................................ 57

29.   Net fees and commission income................................................................................................................................................................................................................................................... 57

30.   Net trading income...................................................................................................................................................................................................................................................................................... 57

31.   Other operating income.......................................................................................................................................................................................................................................................................... 57

32.   Operating expenses.................................................................................................................................................................................................................................................................................... 58

33.   Impairment allowances........................................................................................................................................................................................................................................................................... 58

34.   Earnings per share...................................................................................................................................................................................................................................................................................... 58

35.   Operating lease............................................................................................................................................................................................................................................................................................... 59

36.   Cash and cash equivalents................................................................................................................................................................................................................................................................... 59

37.   Related party transactions................................................................................................................................................................................................................................................................... 59

38.   Commitments and contingent liabilities.................................................................................................................................................................................................................................. 61

39.   Operating segments................................................................................................................................................................................................................................................................................... 62

40.   Financial instruments............................................................................................................................................................................................................................................................................... 64

41.   Fair value hierarchy................................................................................................................................................................................................................................................................................... 64

42.   Risk management......................................................................................................................................................................................................................................................................................... 67

43.   Credit risk management......................................................................................................................................................................................................................................................................... 68

43.1 Analysis of maximum exposure to credit risk............................................................................................................................................................................................................ 69

43.2  Concentration of credit risk....................................................................................................................................................................................................................................................... 69

43.3 Credit risk management overview....................................................................................................................................................................................................................................... 71

43.4 Credit risk measurement and mitigation policies................................................................................................................................................................................................... 72

43.5  Portfolio monitoring and identifying credit risk..................................................................................................................................................................................................... 73

43.6  Identification of impairment.................................................................................................................................................................................................................................................... 75

43.7  Renegotiated loans............................................................................................................................................................................................................................................................................ 78

44.   Interest rate risk framework, measurement and monitoring.............................................................................................................................................................................. 78

45.   Liquidity risk framework, measurement and monitoring....................................................................................................................................................................................... 81

46.   Foreign exchange risk framework, measurement and monitoring................................................................................................................................................................. 86

47.   Market risk framework, measurement and management...................................................................................................................................................................................... 88

48.   Operational risk management.......................................................................................................................................................................................................................................................... 91

49.   Foreign currency balances................................................................................................................................................................................................................................................................... 92

50.   Trust activities................................................................................................................................................................................................................................................................................................. 92

51.   Subsidiaries........................................................................................................................................................................................................................................................................................................ 92

52.   Capital adequacy and capital management......................................................................................................................................................................................................................... 93

53.   Disposal of fund subsidiaries............................................................................................................................................................................................................................................................. 97

54.   Social contributions..................................................................................................................................................................................................................................................................................... 98

55.   Legal proceedings......................................................................................................................................................................................................................................................................................... 98

 

 



 

 

 

INDEPENDENT AUDITOR'S REPORT 

 

The Shareholders

Abu Dhabi Commercial Bank PJSC

Abu Dhabi

United Arab Emirates

 

Report on the consolidated financial statements

 

We have audited the accompanying consolidated financial statements of Abu Dhabi Commercial Bank PJSC ("the Bank") which comprise the consolidated statement of financial position as at 31 December 2015 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes.

 

Management's responsibility for the financial statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and its preparation in compliance with the applicable provisions of the UAE Federal Law No. (2) of 2015 and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor's responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Abu Dhabi Commercial Bank PJSC as at 31 December 2015 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

 



 

INDEPENDENT AUDITOR'S REPORT (continued)

 

Other matter

 

The comparative amounts in the consolidated statement of financial position as at 31 December 2014 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows and other explanatory notes were audited by another auditor whose report dated 25 January 2015 expressed an unmodified opinion thereon.

 

Report on other legal and regulatory requirements

 

As required by the UAE Federal Law No. (2) of 2015, we report that:

 

i)      we have obtained all the information we considered necessary for the purposes of our audit;

 

ii)     the consolidated financial statements of the Bank have been prepared and comply, in all material respects, with the applicable provisions of the UAE Federal Law No. (2) of 2015;

 

iii)    the Bank has maintained proper books of account;

 

iv)    the financial information included in the Directors' report is consistent with the Bank's books of account;

 

v)     note 41 to the consolidated financial statements of the Bank discloses purchases or investment in shares during the financial year ended 31 December 2015;

 

vi)    note 37 to the consolidated financial statements of the Bank discloses material related party transactions, the terms under which they were conducted and principles of managing conflict of interests;

 

vii)  based on the information that has been made available to us nothing has come to our attention which causes us to believe that the Bank has contravened during the financial year ended 31 December 2015 any of the applicable provisions of the UAE Federal Law No. (2) of 2015 or of its Articles of Association which would materially affect its activities or its financial position as at 31 December 2015; and

 

viii) note 54 to the consolidated financial statements of the Bank discloses social contributions made during the year ended 31 December 2015.

 

Further, as required by the UAE Union Law No (10) of 1980, as amended, we report that we have obtained all the information and explanations we considered necessary for the purpose of our audit.

 

 

 

 

 

Deloitte & Touche (M.E.)

 

 

 

 

Mutasem M. Dajani

Registration No. 726

31 January 2016

 

 


Consolidated statement of financial position

As at December 31, 2015

 



2015


2014


2015


Notes

 AED'000


AED'000


USD'000

Assets







Cash and balances with central banks

5

20,180,277


15,092,192


5,494,222

Deposits and balances due from banks

6

14,954,997


13,189,412


4,071,603

Reverse-repo placements

7

4,256,277


2,830,049


1,158,801

Trading securities

8

62,261


199,599


16,951

Derivative financial instruments

9

4,001,908


4,288,506


1,089,548

Investment securities

10

20,863,607


21,651,838


5,680,263

Loans and advances, net

11

153,677,386


140,562,498


41,839,746

Investment in associate

12

197,156


195,854


53,677

Investment properties

13

647,647


615,778


176,326

Other assets

14

8,571,640


4,551,844


2,333,689

Property and equipment, net

15

835,145


806,188


227,374

Intangible assets

16

18,800


35,705


5,119

Total assets


228,267,101


204,019,463


62,147,319

Liabilities







Due to banks

17

1,691,793


4,089,019


460,603

Derivative financial instruments

9

4,741,180


5,000,067


1,290,819

Deposits from customers

18

143,526,296


126,011,227


39,076,040

Euro commercial paper

19

5,700,064


6,375,284


1,551,882

Borrowings

20

33,471,731


30,320,121


9,112,913

Other liabilities

21

10,403,234


5,804,912


2,832,354

Total liabilities


199,534,298


177,600,630


54,324,611

Equity







Share capital

22

5,595,597


5,595,597


1,523,441

Share premium


3,848,286


3,848,286


1,047,723

Other reserves, net of treasury shares

23

5,656,564


5,791,798


1,540,040

Retained earnings


9,627,315


7,172,755


2,621,104

Capital notes

26

4,000,000


4,000,000


1,089,028

Equity attributable to equity holders of the Bank

28,727,762


26,408,436


7,821,336

Non-controlling interests

5,041


10,397


1,372

Total equity


28,732,803


26,418,833


7,822,708








Total liabilities and equity


228,267,101


204,019,463


62,147,319

 

These consolidated financial statements were approved by the Board of Directors and authorised for issue on January 31, 2016 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 consolidated financial statements.

Consolidated income statement

For the year ended December 31, 2015

 




2015


2014


2015


Notes


AED'000


AED'000


USD'000









Interest income

27


7,119,968


6,367,955


1,938,461

Interest expense

28


(1,481,601)


(1,288,783)


(403,376)

Net interest income



5,638,367


5,079,172


1,535,085

Income from Islamic financing

24


677,144


617,433


184,357

Islamic profit distribution

24


(109,712)


(112,096)


(29,870)

Net income from Islamic financing



567,432


505,337


154,487









Total net interest and Islamic financing income



6,205,799


5,584,509


1,689,572

Net fees and commission income

29


1,437,577


1,242,948


391,390

Net trading income

30


352,012


406,988


95,838

Revaluation of investment properties

13


192


22,330


52

Other operating income

31


264,906


272,623


72,124

Operating income



8,260,486


7,529,398


2,248,976

Operating expenses

32


(2,826,938)


(2,563,060)


(769,654)

Operating profit before impairment allowances



5,433,548


4,966,338


1,479,322

Impairment allowances

33


(501,548)


(762,247)


(136,550)

Share in profit of associate

12


1,302


-


354

Profit before taxation



4,933,302


4,204,091


1,343,126

Overseas income tax expense



(6,233)


(2,707)


(1,697)

Net profit for the year



4,927,069


4,201,384


1,341,429









Attributed to:








Equity holders of the Bank



4,924,244


4,049,731


1,340,660

Non-controlling interests



2,825


151,653


769

Net profit for the year



4,927,069


4,201,384


1,341,429









Basic earnings per share (AED/USD)

34


0.93


0.74


0.25









Diluted earnings per share (AED/USD)

34


0.92


0.74


0.25

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 



 

Consolidated statement of comprehensive income

For the year ended December 31, 2015

 



2015


2014


2015



AED'000


AED'000


 USD'000








Net profit for the year


4,927,069


4,201,384


1,341,429








Items that may be re-classified subsequently

to the consolidated income statement














Exchange difference arising on translation of foreign operations (Note 23)


(9,875)


(3,699)


(2,689)

Net movement in cash flow hedge reserve (Note 23)

 


14,340


(52,083)


3,904

Net movement in fair value of available-for-sale investments (Note 23)


(351,911)


(99,466)


(95,809)



(347,446)


(155,248)


(94,594)








Items that may not be re-classified subsequently

to the consolidated income statement







Actuarial losses on defined benefit obligation


(10,141)


(25,887)


(2,761)








Total comprehensive income for the year


4,569,482


4,020,249


1,244,074








Attributed to:







Equity holders of the Bank


4,566,657


3,868,596


1,243,305

Non-controlling interests


2,825


151,653


769

Total comprehensive income for the year


4,569,482


4,020,249


1,244,074

                                                                                                                                                   

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

 

 

 


Consolidated statement of changes in equity 

For the year ended December 31, 2015

 


 

 

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, 2015

5,595,597


3,848,286


5,791,798


7,172,755


4,000,000


26,408,436


10,397


26,418,833

Net profit for the year

-


-


-


4,924,244


-


4,924,244


2,825


4,927,069

Other comprehensive loss for the year

-


-


(347,446)


(10,141)


-


(357,587)


-


(357,587)

Other movements (Note 23)

-


-


212,212


(251,391)


-


(39,179)


-


(39,179)

Dividends paid to equity holders of the Bank

-


-


-


(2,079,292)


-


(2,079,292)


-


(2,079,292)

Dividends paid to non-controlling interests

-


-


-


-


-


-


(8,181)


(8,181)

Capital notes coupon paid (Note 26)

-


-


-


(128,860)


-


(128,860)


-


(128,860)

















Balance at December 31, 2015

5,595,597


3,848,286


5,656,564


9,627,315


4,000,000


28,727,762


5,041


28,732,803

















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 year

-


-


-


4,049,731


-


4,049,731


151,653


4,201,384

Other comprehensive loss for the year

-


-


(155,248)


(25,887)


-


(181,135)


-


(181,135)

Other movements (Note 23)

-


-


811,606


(792,635)


-


18,971


-


18,971

Dividends paid to equity holders of the Bank

-


-


-


(1,560,857)


-


(1,560,857)


-


(1,560,857)

Net increase in non-controlling interests

-


-


-


-


-


-


50,527


50,527

Disposal of  fund subsidiaries (Note 53)

-


-


-


-


-


-


(836,495)


(836,495)

Net gains on treasury shares arising on disposal of fund subsidiaries (Note 53)

-


-


-


91,521


-


91,521


-


91,521

Capital notes coupon paid (Note 26)

-


-


-


(186,393)


-


(186,393)


-


(186,393)

















Balance at December 31, 2014

5,595,597


3,848,286


5,791,798


7,172,755


4,000,000


26,408,436


10,397


26,418,833

 

                                                                                                                                                                                                                                                        

For the year ended December 31, 2015, the Board of Directors has proposed to pay cash dividends representing 45% of the paid up capital (Note 22).

 

The accompanying notes are an integral part of these consolidated financial statements.

 



 


Consolidated statement of cash flows

For the year ended December 31, 2015      

 


2015

2014

2015


AED'000

AED'000

USD'000

OPERATING ACTIVITIES




Profit before taxation

4,933,302

4,204,091

1,343,126

Adjustments for:




  Depreciation on property and equipment, net (Note 15)

134,531

132,008

36,627

  Amortisation of intangible assets (Note 16)

16,905

25,990

4,603

  Revaluation of investment properties (Note 13)

(192)

(22,330)

(52)

  Impairment allowance on loans and advances, net (Note 43.6)

752,846

1,040,551

204,968

  Share in profit of associate (Note 12)

(1,302)

-

(354)

  Discount unwind (Note 43.6)

(126,033)

(160,011)

(34,313)

  Net gains from disposal of available-for-sale investments (Note 31)

(17,028)

(22,201)

(4,636)

  Net impairment recoveries on available-for-sale investments and other 

  impairment allowances (Note 33)

1,268

(48,952)

345

  Interest income on available-for-sale investments

(459,694)

(502,839)

(125,155)

  Dividend income on available-for-sale investments

(9,867)

(20,096)

(2,686)

  Interest expense on borrowings and euro commercial paper

548,484

515,088

149,329

  Net losses/(gains) from trading securities (Note 30)

4,237

(98,071)

1,154

  Ineffective portion of hedges - losses (Note 9)

13,720

4,091

3,735

  Employees' incentive plan benefit expense (Note 25)

27,391

29,309

7,457

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

 

5,818,568

 

5,076,628

 

1,584,148

Decrease/(increase) in balances with central banks

755,800

(2,050,000)

205,772

Decrease/(increase) in due from banks

3,487,864

(280,855)

949,595

Decrease/(increase) in reverse-repo placements

485,337

(2,518,189)

132,136

Increase in net trading derivative financial instruments

(20,937)

(19,229)

(5,700)

Net proceeds from disposal of trading securities

133,101

20,026

36,238

Increase in loans and advances, net

(13,777,926)

(10,018,841)

(3,751,137)

Decrease/(increase)  in other assets

222,664

(436,635)

60,622

Increase in due to banks

347,453

65,024

94,597

Increase in deposits from customers

17,492,927

10,571,899

4,762,572

Increase/(decrease) in other liabilities

308,230

(76,437)

83,916

Net cash from operations

15,253,081

333,391

4,152,759

Overseas tax paid, net

(8,905)

(7,554)

(2,424)

Net cash from operating activities

15,244,176

325,837

4,150,335

INVESTING ACTIVITIES




Net impairment recoveries on available-for-sale investments (Note 33)

10,853

48,952

2,955

Overseas tax refund, net

-

3,575

-

Proceeds from redemption/disposal of available-for-sale investments

10,489,183

6,990,331

2,855,754

Net purchase of available-for-sale investments

(10,430,894)

(7,927,384)

(2,839,884)

Interest received on available-for-sale investments

656,729

674,615

178,799

Dividends received on available-for-sale investments

9,867

18,751

2,686

Additions to investment properties (Note 13)

-

(12,091)

-

Cash received on disposal of fund subsidiaries (Note 53)

-

95,112

-

Net purchase of property and equipment, net

(163,488)

(132,874)

(44,511)

Net cash from/(used in) investing activities

572,250

(241,013)

155,799

FINANCING ACTIVITIES




Net (decrease)/increase in euro commercial paper

(801,120)

647,954

(218,111)

Net proceeds from borrowings

31,882,677

27,660,345

8,680,282

Repayment of borrowings

(28,360,056)

(20,967,704)

(7,721,224)

Interest paid on borrowings

(501,331)

(464,732)

(136,491)

Net proceeds from sale of treasury shares by fund subsidiaries

-

1,751

-

Dividends paid to equity holders of the Bank

(2,079,292)

(1,560,857)

(566,102)

Share buyback (Note 22)

(17,005)

(11,691)

(4,630)

Dividends paid to/net movement in non-controlling interests

(8,181)

50,527

(2,227)

Purchase of employees' incentive plan shares (Note 23)

(50,195)

(31,459)

(13,666)

Capital notes coupon paid (Note 26)

(128,860)

(186,393)

(35,083)

Net cash (used in)/from financing activities

(63,363)

5,137,741

(17,252)





Net increase in cash and cash equivalents

15,753,063

5,222,565

4,288,882




                                    

Cash and cash equivalents at the beginning of the year

15,020,506

9,797,941

4,089,438

Cash and cash equivalents at the end of the year (Note 36)

30,773,569

15,020,506

8,378,320

                                                                 

The accompanying notes are an integral part of these consolidated financial statements.


Notes to the consolidated financial statements

December 31, 2015  

  

 

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 forty nine branches and three pay offices in the UAE, two branches in India, one offshore branch in Jersey, its subsidiaries and two representative offices located in London and Singapore.

 

The registered head office of ADCB is at Abu Dhabi Commercial Bank Head Office Building, Sheikh Zayed Bin Sultan 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 Law No. (8) of 1984 (as amended) ("Companies Law"). The UAE Federal Law No. (2) of 2015 which came into effect on July 1, 2015 replaced the existing Companies Law. The Group is currently assessing the impact of the new law and expects to be fully compliant on or before the end of grace period on June 30, 2016.

 

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

 

In the current year, the Group has applied a number of new and revised IFRSs issued by the International Accounting Standards Board ("IASB") that are mandatorily effective for an accounting period that begins on or after 1 January 2015. The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior periods but may affect the accounting for the Group's future transactions or arrangements.

 

§ Annual Improvements to IFRSs 2010 - 2012 Cycle that includes amendments to IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 38 and IAS 24.

§ Annual Improvements to IFRSs 2011 - 2013 Cycle that includes amendments to IFRS 1, IFRS 3, IFRS 13 and IAS 40.

§ Amendments to IAS 19 Employee Benefits clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.

 

Other than the above, there are no other significant IFRSs and amendments that were effective for the first time for the financial year beginning on or after January 1, 2015.

 

Standards and Interpretations in issue but not yet effective

 

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

 

 

New standards and significant amendments to standards applicable to the Group:

Effective for annual periods beginning on or after

Amendments to IFRS 7 - Financial Instruments: Disclosures relating to disclosures about the initial application of IFRS 9.

When IFRS 9 is first applied

IFRS 7 - Financial Instruments: Disclosures additional hedge accounting disclosures (and consequential amendments) resulting from the introduction of the hedge accounting chapter in IFRS 9.

 

When IFRS 9 is first applied

 



 

2.   Application of new and revised International Financial Reporting Standards (IFRSs) (continued)

 

Standards and Interpretations in issue but not yet effective (continued)

 

 

New standards and significant amendments to standards applicable to the Group:

Effective for annual periods beginning on or after

IFRS 9 - Financial Instruments (2009) issued in November 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 Financial Instruments (2010) revised in October 2010 includes the requirements for the classification and measurement of financial liabilities, and carrying over the existing derecognition requirements from IAS 39 Financial Instruments: Recognition and Measurement.

 

IFRS 9 - Financial Instruments (2013) was revised in November 2013 to incorporate a hedge accounting chapter and permit the early application of the requirements for presenting in other comprehensive income the own credit gains or losses on financial liabilities designated under the fair value option without early applying the other requirements of IFRS 9.

 

Finalised version of IFRS 9 (IFRS 9 Financial Instruments (2014)) was issued in July 2014 incorporating requirements for classification and measurement, impairment, general hedge accounting and derecognition.

 

IFRS 9 (2009) and IFRS 9 (2010) were superseded by IFRS 9 (2013) and IFRS 9 (2010) also superseded IFRS 9 (2009). IFRS 9 (2014) supersedes all previous versions of the standard. The various standards also permit various transitional options. Accordingly, entities can effectively choose which parts of IFRS 9 they apply, meaning they can choose to apply: (1) the classification and measurement requirements for financial assets (2) the classification and measurement requirements for both financial assets and financial liabilities (3) the classification and measurement requirements and the hedge accounting requirements provided that the relevant date of the initial application is before February 1, 2015.

 

January 1, 2018

IFRS 15 Revenue from Contracts with Customers provides a single, principles based five-step model to be applied to all contracts with customers.

 

January 1, 2018

IFRS 16 - Leases specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

 

January 1, 2019

Annual Improvements to IFRSs 2012 - 2014 Cycle that include amendments to IFRS 5, IFRS 7, IAS 19 and IAS 34.

 

January 1, 2016

Amendments to IAS 16 and IAS 38 to clarify the acceptable methods of depreciation and amortization.

 

January 1, 2016

Amendments to IFRS 11 to clarify accounting for acquisitions of Interests in Joint Operations.

 

January 1, 2016

Amendments to IFRS 10 and IAS 28 clarify that the recognition of the gain or loss on the sale or contribution of assets between an investor and its associate or joint venture depends on whether the assets sold or contributed constitute a business.

 

January 1, 2016



2.   Application of new and revised International Financial Reporting Standards (IFRSs) (continued)

 

Standards and Interpretations in issue but not yet effective (continued)

 

 

New standards and significant amendments to standards applicable to the Group

Effective for annual periods beginning on or after

Amendments to IAS 27 allow an entity to account for investments in subsidiaries, joint ventures and associates either at cost, in accordance with IAS 39/IFRS 9 or using the equity method in an entity's separate financial statements.

 

January 1, 2016

Amendments to IFRS 10, IFRS 12 and IAS 28 clarifying certain aspects of applying the consolidation exception for investment entities. 

 

January 1, 2016

Amendments to IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their financial reports.

 

January 1, 2016

 

Management anticipates that these IFRSs and amendments will be adopted in the consolidated financial statements in the initial period when they become mandatorily effective. The impact of these standards and amendments are currently being assessed by the management.

 

The application of the finalised version of IFRS 9 may have significant impact on amounts reported and disclosures made in the Group's consolidated financial statements in respect of the Group's financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of effects of the application until the Group performs a detailed review.

 

3.    Summary of significant accounting policies

 

3.1      Basis of preparation

 

The consolidated financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).

 

IFRSs comprise accounting standards issued by the IASB as well as Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

 

As required by the Securities and Commodities Authority of the UAE ("SCA") Notification No. 2624/2008 dated October 12, 2008, the Group's exposure in cash and balances with central banks, deposits and balances due from banks, trading and investment securities outside the UAE have been presented under the respective notes.

 

Certain disclosure notes have been reclassified and rearranged from the Group's prior year consolidated financial statements to conform to the current year's presentation.

 

3.2      Measurement

 

The consolidated financial statements have been prepared under the historical cost convention except as modified by the revaluation of financial assets and liabilities at fair value through profit and loss, available-for-sale financial assets and investment properties.

 



 

3.   Summary of significant accounting policies (continued)

 

3.3      Functional and presentation currency

 

The consolidated financial statements are prepared and presented in United Arab Emirates Dirhams (AED), which is the Group's functional and presentation currency. Except as indicated, financial information presented in AED has been rounded to the nearest thousand.

 

The United States Dollar (USD) amounts in the primary financial statements are presented for the convenience of the reader only by converting the AED balances at the pegged exchange rate of 1 USD = 3.673 AED.

 

3.4      Use of estimates and judgements

 

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of the accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

 

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in Note 4.

 

3.5      Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of Abu Dhabi Commercial Bank PJSC and its subsidiaries (collectively referred to as the "Group").

 

Subsidiaries

 

The consolidated financial statements incorporate the financial statements of the Bank and entities controlled by the Bank and its subsidiaries. Control is achieved when the Bank:

 

§ has power over the investee;

§ is exposed, or has rights, to variable returns from its involvement with the investee; and

§ has the ability to use its power to affect its returns.

 

The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

 

When a company has less than a majority of voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank's voting rights in an investee are sufficient to give it power, including:

 

§    the size of the Bank's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

§      potential voting rights held by the Bank;

§      rights arising from other contractual arrangements; and

§     any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time the decision need to be made, including voting patterns at previous shareholders' meetings.



 

3.   Summary of significant accounting policies (continued)

 

3.5   Basis of consolidation (continued)

 

Subsidiaries (continued)

 

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Income and expenses of subsidiary acquired or disposed of during the year are included in the consolidated income statement and other comprehensive income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary.

 

Profit or loss and each component of other comprehensive income are attributed to owners of the Bank and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Bank and non-controlling interests even if this results in non-controlling interests having a deficit balance.

 

When necessary, adjustments are made to the consolidated financial statements of subsidiaries to align their accounting policies with the Bank's accounting policies.

 

All intragroup balances and income, expenses and cash flows resulting from intragroup transactions are eliminated in full on consolidation.

 

Changes in the Bank's ownership interests in existing subsidiaries

 

Changes in Bank's ownership interests in subsidiaries that do not result in the Bank losing control over the subsidiaries are accounted for as equity transactions. The carrying amount of the Bank's interests is adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the shareholders of the Bank.

 

When the Bank loses control of a subsidiary, a gain or loss is recognised in the consolidated income statement and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Bank had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to income statement or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture.

 

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. A SPE is consolidated if, based on an evaluation of the substance of its relationship with the Bank, the Bank has power over the SPE, is exposed to or has 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 a 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 a SPE.



 

3.   Summary of significant accounting policies (continued)

 

3.5   Basis of consolidation (continued)

 

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 consolidated financial statements except when the Bank controls the entity, as referred to above. Information about the Funds managed by the Bank is set out in Note 50.

 

Investment in associate

 

Associates are those entities in which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

 

Investment in associates are accounted for using the equity method and are recognised initially at cost. The cost of the investments includes transaction costs.

 

The consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of investment in associate, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

 

When the Group's share of losses exceeds its interest in an associate, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

 

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group's investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 - Impairment of Assets as a single asset by comparing the recoverable amount (higher of value in use and fair value less cost of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of the impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

 

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Groups measures the retained interest at fair value at the date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39. The difference between the carrying amount of the associate at the date equity method was discontinued and the fair value of the retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation of that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.



 

3.   Summary of significant accounting policies (continued)

 

3.5   Basis of consolidation (continued)

 

Joint arrangements

 

Joint arrangements are arrangements of which the Group 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:

 

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

 

3.6      Foreign currencies

 

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements of the Group are presented in AED, which is the Group's functional and presentation currency.

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of exchange prevailing at the statement of financial position date. Any resulting exchange differences are included in the consolidated income statement. Non-monetary assets and liabilities are translated at historical exchange rates or year-end exchange rates if held at fair value, as appropriate. The resulting foreign exchange gains or losses are recognised in either consolidated income statement or consolidated other comprehensive income statement depending upon the nature of the asset or liability.

 

In the consolidated financial statements, the assets, including related goodwill where applicable, and liabilities of branches and subsidiaries whose functional currency is not AED, are translated into the Group's presentation currency at the rate of exchange prevailing at the statement of financial position date. The income and expense items of branches and subsidiaries whose functional currency is not AED are translated into AED at the average rates of exchange for the reporting period. Exchange differences arising from the retranslation of opening foreign currency net investments, and exchange differences arising from retranslation of the result for the reporting period from the average rate to the exchange rate prevailing at the period end, are recognised in other comprehensive income and accumulated in equity under 'foreign currency translation reserve' (Note 23).

 

On disposal or partial disposal (i.e. of associates or jointly controlled entities not involving a change of accounting basis) of a foreign operation, exchange differences relating thereto and previously recognised in reserves are recognised in the consolidated income statement on a proportionate basis, except in the case of partial disposal (i.e. no loss of control) of a subsidiary that includes a foreign operation, where the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in the consolidated income statement.



 

3.   Summary of significant accounting policies (continued)

 

3.7      Financial instruments

 

Initial recognition

 

All financial assets and liabilities are initially recognised on the date at which the Group becomes a party to the contractual provision of the instrument except for "regular way" purchases and sales of financial assets which are recognised on settlement date basis (other than derivative contracts). Settlement date is the date that the Group physically receives or transfers the assets. Regular way purchases or sales are those that require delivery of assets within the time frame generally established by regulation or convention in the market place. Any significant change in the fair value of assets which the Group has committed to purchase at the consolidated statement of financial position date is recognised in the consolidated income statement for assets classified as held for trading, in other comprehensive income for assets classified as available-for-sale and no adjustments are recognised for assets carried at cost or amortised cost.

 

Financial assets are classified into the following categories: financial assets at 'fair value through profit or loss' (FVTPL), 'held-to-maturity' investments, 'available-for-sale' financial assets and 'loans and receivables'. Financial liabilities are classified as either financial liabilities at 'FVTPL' or 'other financial liabilities'. The classification of financial instruments at initial recognition depends on the purpose and management's intention for which the financial instruments were acquired or incurred and their characteristics.

 

All financial instruments are measured initially at their fair value, plus transaction costs directly attributable to the acquisition, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss where transaction cost are recognised immediately in profit or loss.

 

Financial assets and liabilities classified as fair value through profit or loss (FVTPL)

 

Financial assets and liabilities are classified as at FVTPL when either held for trading or when designated as at FVTPL.

 

A financial asset or liability is classified as held for trading if:

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

§  on initial recognition it is part of a portfolio of identified financial instruments that the Group 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.

 

A financial asset or liability 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 assets or liabilities on a different basis; or

§  it  forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group'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.

 

Financial assets and liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in consolidated income statement. 



 

3.   Summary of significant accounting policies (continued)

 

3.7  Financial instruments (continued)

 

Held-to-maturity

 

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

 

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 consolidated 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 Group'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 Group establishes fair value by using valuation techniques (e.g. recent arm's 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 other comprehensive income statement 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 consolidated 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 consolidated income statement for the year.

 

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 consolidated income statement is removed from equity and recognised in the consolidated income statement.

 



 

3.   Summary of significant accounting policies (continued)

 

3.7  Financial instruments (continued)

 

Available-for-sale (continued)

 

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:

 

§ For an available-for-sale debt security, a subsequent decline in the fair value of the instrument is recognised in the consolidated 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 consolidated income statement, the impairment loss is reversed through the 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 consolidated 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 consolidated income statement.

 

Loans and receivables

 

Loans and receivables include non-derivative financial assets originated or acquired by the Group with fixed or determinable payments that are not quoted in an active market and it is expected that substantially all of the initial investments will be recovered other than because of credit deterioration. The Group's loans and receivables include deposits and balances due from banks and loans and advances, net. Placements with banks represent time bound term deposits.

 

After initial measurement at fair value plus any directly attributable transaction costs, deposits and balances due from banks and loans and advances, net are subsequently measured at amortised cost using the effective interest rate, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The losses arising from impairment are recognised in the consolidated income statement.

 

Loan impairment

 

Refer to credit risk management section - Note 43.6.

 

Financial liabilities and equity

 

Debt and equity instruments are classified as either financial liability or equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and equity instrument.

 

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

 



 

3.   Summary of significant accounting policies (continued)

 

3.7  Financial instruments (continued)

 

Financial liabilities and equity (continued)

 

A financial instrument is classified as equity if, and only if, both conditions (a) and (b) below are met.

 

(a) The instrument includes no contractual obligation:

§  to deliver cash or another financial asset to another entity; or

§  to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Group.

(b) If the instrument will or may be settled in the Group's own equity instruments, it is:

§  a non-derivative that includes no contractual obligation for the Group to deliver a variable number of its own equity instruments; or

§  a derivative that will be settled only by the Group exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.

 

Debt issued and other borrowed funds

 

Financial instruments issued by the Group are classified as liabilities, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. These are recognised initially at fair value, net of transaction costs.

 

After initial measurement, debt issued and other borrowings are subsequently measured at amortised cost using the effective interest rate. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the effective interest rate.

 

A compound financial instrument which contains both a liability and an equity component is separated at the issue date. A portion of the net proceeds of the instrument is allocated to the debt component on the date of issue based on its fair value (which is generally determined based on the quoted market prices for similar debt instruments). The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the debt component.

 

Mandatory convertible securities

 

The components of mandatory convertible securities issued by the Group are classified separately as equity and financial liability in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the convertible securities as a whole. This is recognised and included as a separate component in the consolidated statement of changes in equity and is not subsequently re-measured.

 

Other financial liabilities

 

Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

 



 

3.   Summary of significant accounting policies (continued)

 

3.7  Financial instruments (continued)

 

Reclassification of financial assets

 

Reclassifications are recorded at fair value at the date of reclassification, which is recognised as the new amortised cost.

 

For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired then the amount recorded in equity is recycled to the consolidated income statement.

 

The Group may in rare circumstances reclassify a non-derivative trading asset out of the held for trading category into the loans and receivables category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the effective interest rate from the date of the change in estimate.

 

Reclassification is at the election of management and is determined on an instrument by instrument basis. The Group does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition.

 

Derecognition of financial assets and financial liabilities

 

Financial assets

 

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

 

§ the rights to receive cash flows from the asset have expired; or

§ the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either:

§ the Group has transferred substantially all the risks and rewards of the asset, or

§ the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

When the Group has neither transferred its rights to receive cash flows from an asset nor has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the B Group's continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

 

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

 



 

3.   Summary of significant accounting policies (continued)

 

3.7  Financial instruments (continued)

 

Derecognition of financial assets and financial liabilities (continued)

 

Financial liabilities

 

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or extinguishment is treated as a derecognition of the original liability and the recognition of a new liability.

 

The difference between the carrying value of the original financial liability and the consideration paid is recognised in the consolidated income statement.

 

Offsetting

 

Financial assets and liabilities are offset and reported net in the consolidated statement of financial position only when there is a legally enforceable right to set off the recognised amounts and when the Group intends to settle either on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Group's trading activity.

 

The Group is party to a number of arrangements, including master netting agreements that give it the right to offset financial assets and financial liabilities but, where it does not intend to settle the amounts net or simultaneously, the assets and liabilities concerned are presented on a gross basis.

 

3.8      Sale and repurchase agreements

 

Securities sold subject to a commitment to repurchase them at a predetermined price at a specified future date (repos) are continued to be recognised in the consolidated statement of financial position and a liability is recorded in respect of the consideration received under borrowings. The difference between sale and repurchase price is treated as interest expense using the effective interest rate yield method over the life of the agreement. Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognised in the consolidated statement of financial position.  Amounts placed under these agreements are included in Reverse-repo placements. The difference between purchase and resale price is treated as interest income using the effective yield method over the life of the agreement.

 

3.9      Securities borrowing and lending

 

Securities borrowing and lending transactions are usually secured by cash or securities advanced by the borrower. Borrowed securities are not recognised in the statement of financial position nor are lent securities derecognised. Cash collateral received or given is treated as a financial asset or liability. However, where securities borrowed are transferred to third parties, a liability for the obligation to return the securities to the stock lending counterparty is recorded. The securities borrowing and lending activity arrangements are generally entered into through repos and reverse repos.

 

3.10   Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, balances held with central banks, deposits and balances due from banks, due to banks, items in the course of collection from or in transmission to other banks and highly liquid assets with original maturities of less than three months from the date of acquisition, which are subject to insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position.

3.   Summary of significant accounting policies (continued)

 

3.11   Amortised cost measurement

 

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

 

3.12   Fair value measurement

 

The Group measures its financial assets and liabilities at market price that it would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market, or in its absence in the most advantageous market for the assets or liabilities. The Group considers principal market as the market with the greatest volume and level of activity for financial assets and liabilities. 

 

The Group measures its non-financial assets at a price that take into account a market participant's ability to generate economic benefits by using the assets for their highest and best use.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Group has access at that date under current market conditions regardless of whether that price is directly observable or estimated using another valuation technique. The fair value of a liability reflects its non-performance risk.

 

When applicable, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability takes place with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

When there is no quoted price in an active market, the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all the factors that market participants would take into account into pricing a transaction.

 

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price, i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or a liability nor based on valuation technique that uses only data from observable markets, the instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, the difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is supported wholly by observable market data or the transaction is closed out.

 

If an asset or a liability measured at fair value has a bid and an ask price, the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price.

 

Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either the market or credit risk, are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.

 

The Group's policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.



 

3.   Summary of significant accounting policies (continued)

 

3.13   Derivatives

 

A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements in the price of one or more underlying financial instrument, reference rate or index.

 

Derivative financial instruments are initially measured at fair value at trade date, and are subsequently re-measured at fair value at the end of each reporting period. All derivatives are carried at their fair values as assets where the fair values are positive and as liabilities where the fair values are negative. Derivative assets and liabilities arising from different transactions are only offset if the transactions are with the same counterparty, a legal right of offset exists and the parties intend to settle the cash flows on a net basis.

 

Derivative fair values are determined from quoted prices in active markets where available. Where there is no active market for an instrument, fair value is derived from prices for the derivative's components using appropriate pricing or valuation models.

 

The method of recognising fair value gains and losses depends on whether derivatives are held for trading or are designated as hedging instruments, and if the latter, the nature of the risks being hedged. All gains and losses from changes in the fair value of derivatives held for trading are recognised in the consolidated income statement under net gain on dealing in derivatives (Note 30).

 

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

 

3.14   Hedge accounting

 

Derivatives designated as hedges are classified as either: (i) hedges of the change in the fair value of recognised assets or liabilities or firm commitments ('fair value hedges'); (ii) hedges of the variability in future cash flows attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction that could affect future reported net income ('cash flow hedges'); or (iii) a hedge of a net investment in a foreign operation ('net investment hedges'). Hedge accounting is applied to derivatives designated in this way provided certain criteria are met.

 

At the inception of a hedging relationship, to qualify for hedge accounting, the Group documents the relationship between the hedging instruments and the hedged items as well as its risk management objective and its strategy for undertaking the hedge. The Group also requires a documented assessment, both at hedge inception and on an ongoing basis, of whether or not the hedging instruments, primarily derivatives, that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in the fair values or cash flows of the hedged items. Interest income and expense on designated qualifying hedge instruments is included in 'Net interest income'.

 

Fair value hedges

 

Where a hedging relationship is designated as a fair value hedge, the hedged item is adjusted for the change in fair value in respect of the risk being hedged. Gains or losses on the changes in fair value of both the derivative and the hedged item attributable to hedged risk are recognised in the consolidated income statement and the carrying amount of the hedged item is adjusted accordingly. If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for fair value hedge accounting or the designation is revoked, hedge accounting is discontinued. Any adjustment up to that point to the carrying value of a hedged item, for which the effective interest method is used, is amortised in the consolidated income statement as part of the recalculated effective interest rate over the period to maturity or derecognition.



 

3.   Summary of significant accounting policies (continued)

 

3.14   Hedge accounting (continued)

 

Cash flow hedges

 

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other comprehensive income and accumulated in equity. The gain or loss relating to the ineffective part is recognised immediately in the consolidated income statement. Amounts accumulated in equity are reclassified from other comprehensive income and transferred to the consolidated income statement in the periods in which the hedged item affects profit or loss, in the same line of the consolidated income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the cumulative gains or losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated or exercised, or when a hedge no longer meets the criteria for hedge accounting.

 

Any cumulative gains or losses recognised in equity remain in equity until the forecast transaction is recognised, in the case of a non-financial asset or a non-financial liability, or until the forecast transaction affects the consolidated income statement. If the forecast transaction is no longer expected to occur, the cumulative gains or losses recognised in equity are immediately transferred to the consolidated income statement from other comprehensive income.

 

Net investment hedge

 

Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. A gain or loss on the effective portion of the hedging instrument is recognised in other comprehensive income and held in the net investment hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement. Gains and losses accumulated in equity are reclassified from other comprehensive income and included in the consolidated income statement on the disposal of the foreign operation.

 

Hedge effectiveness testing

 

To qualify for hedge accounting, the Group requires that at the inception of the hedge and through its life, each hedge must be expected to be highly effective (prospective effectiveness) and demonstrate actual effectiveness (retrospective effectiveness) on an ongoing basis.

 

The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed. The method the Group adopts for assessing hedge effectiveness depends on its risk management strategy.

 

For prospective effectiveness, the hedging instrument must be expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness to be achieved, the changes in fair value or cash flows must offset each other in the range of 80 per cent to 125 per cent. Hedge ineffectiveness is recognised in the consolidated income statement.

 

Derivatives that do not qualify for hedge accounting

 

All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognised immediately in the consolidated income statement in "net gains on dealing in derivatives" under Net trading income (Note 30).

 



 

3.   Summary of significant accounting policies (continued)

 

3.15   Treasury shares and contracts on own shares

 

Own equity instruments of the Group which are acquired by the Group or any of its subsidiaries (treasury shares) are deducted from other reserves and accounted for at weighted average cost. Consideration paid or received on the purchase, sale, issue or cancellation of the Group's own equity instruments is recognised directly in equity.

 

No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue or cancellation of own equity instruments.

 

Contracts on own shares that require physical settlement of a fixed number of own shares for a fixed consideration are classified as equity and added to or deducted from equity. Contracts on own shares that require net cash settlement or provide a choice of settlement are classified as trading instruments and changes in the fair value are reported in the consolidated income statement.

 

3.16   Financial guarantees

 

Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified party fails to meet its obligation when due in accordance with the contractual terms.

 

Financial guarantee contracts are initially recognised at their fair value, which is likely to equal the premium received on issuance. The received premium is amortised over the life of the financial guarantee. The guarantee liability (the notional amount) is subsequently recognised at the higher of this amortised amount and the present value of any expected payments (when a payment under guarantee has become probable). The premium received on these financial guarantees is included within other liabilities.

 

3.17   Acceptances

 

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 in the consolidated statement of financial position with a corresponding contractual right of reimbursement from the customer recognised as a financial asset.

 

Acceptances have been considered within the scope of IAS 39 - Financial Instruments: Recognition and Measurement and are recognised as a financial liability in the consolidated statement of financial position with a contractual right of reimbursement from the customer as a financial asset. Therefore, commitments in respect of acceptances have been accounted for as financial assets and financial liabilities.

 

3.18   Collateral repossessed

 

The Bank acquires collaterals in settlement of certain loans and advances.  These collaterals are recognised at net realisable value on the date of acquisition and are classified as investment properties.  Subsequently, the fair value is determined on a periodic basis by independent professional valuers. Fair value adjustments on these collaterals are included in the consolidated income statement in the period in which these gains or losses arise.

 

3.19   Leasing

 

The determination of whether an arrangement is a lease or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

 

Group as a lessee - Leases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the consolidated income statement on a straight line basis over the lease term. Contingent rentals payable are recognised as an expense in the period in which they are incurred.

 

3.   Summary of significant accounting policies (continued)

 

3.19   Leasing (continued)

 

Group as a lessor - Leases where the Group does not transfer substantially all the risk and benefits of ownership of the asset are classified as operating leases. Rental income are recognised in the consolidated income statement on a straight line basis over the lease term. Contingent rents are recognised as revenue in the period in which they are earned.

 

3.20   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. Refer Note 3.12 for policy on fair valuation.

 

The fair value is determined on a periodic basis by independent professional valuers. Fair value adjustments on investment property are included in the consolidated income statement in the period in which these gains or losses arise.

 

Investment properties under development that are being constructed or developed for future use as investment property are 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 under development are included in the consolidated income statement in the period in which they arise.

 

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between net disposal proceeds and the carrying amount of the asset) in included in profit or loss in the period in which the property is derecognised.

 

3.21   Property and equipment

 

Property and equipment are stated at cost less accumulated depreciation and impairment loss, if any. Cost includes expenditure that is directly attributable to the acquisition of the asset. Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate, and treated as changes in accounting estimates.

 

Depreciation is charged to the consolidated income statement so as to write off the depreciable amount of property and equipment over their estimated useful lives using the straight-line method. The depreciable amount is the cost of an asset less its residual value. Land is not depreciated.

 

Estimated useful lives are as follows:

 

Freehold properties

25 years

Leasehold and freehold improvements

7 to 10 years

Furniture, equipment and vehicles

3 to 5 years

Computer equipment, software and accessories

4 to 10 years

 

Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset at that date and is recognised in the consolidated income statement.

 

 

3.   Summary of significant accounting policies (continued)

 

3.22   Capital work in progress

 

Capital work in progress is stated at cost.  When the asset is ready for use, capital work in progress is transferred to the appropriate property and equipment category and depreciated in accordance with the Group's policies.

 

3.23   Intangible assets

 

The Group's intangible assets other than goodwill include intangible assets acquired in business combinations.

 

An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group. Intangible assets acquired separately are measured on initial recognition at fair value and subsequently at cost less accumulated amortisation and impairment loss.

 

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date which is regarded as their cost.

 

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates and accounted for on a prospective basis. The amortisation expense on intangible assets with finite lives is recognised in the consolidated income statement.

 

Estimated useful lives are as follows:

 

Credit card customer relationships

3 years

Wealth Management customer relationships

4 years

Core deposit intangible

5 years

 

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in consolidated income statement when the asset is derecognised.

 

3.24   Borrowing costs

 

Borrowing costs directly attributable to the acquisition or construction of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

 

All other borrowing costs are recognised in the consolidated income statement in the period in which they are incurred.

 



 

3.   Summary of significant accounting policies (continued)

 

3.25   Business combinations and goodwill

 

The purchase method of accounting is used to account for business acquisitions by the Group. The cost of acquisition is measured at the fair value of the consideration given at the date of exchange. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities of the business acquired, the difference is recognised immediately in the consolidated income statement.

 

Goodwill acquired on business combination is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

 

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash generating units that is expected to benefit from the synergies of the combination. 

 

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss of goodwill is recognised directly in the consolidated income statement. An impairment loss recognised for goodwill is not reversed in subsequent periods.

 

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.

 

3.26   Impairment of non-financial assets

 

At each consolidated statement of financial position date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

 

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount.  An impairment loss is recognised in the consolidated income statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

                                           

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the consolidated income statement, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

 



 

3.   Summary of significant accounting policies (continued)

 

3.27   Employee benefits

 

(i)  Employees' end of service benefits

 

(a) Defined benefit plan

 

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The liability recognised in the statement of financial position in respect of defined benefit gratuity plans is the present value of the defined benefit obligation at the end of the reporting period together with adjustments for unrecognised past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.

 

Past-service costs are recognised immediately in income, unless the changes to the gratuity plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

 

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses are recognised immediately in other comprehensive income. Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial assumptions.

 

The Group provides end of service benefits for its expatriate employees.  The entitlement to these benefits is based upon the employees' length of service and completion of a minimum service period.  The expected costs of these benefits are accrued over the period of employment.

 

(b) Defined contribution plan

 

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in consolidated income statement in the periods during which services are rendered by employees.

 

Pension and national insurance contributions for the UAE and GCC citizens are made by the Group to the Abu Dhabi Retirement Pensions and Benefits Fund in accordance with UAE Federal Law No. 7 of 1999.

 

(ii)   Termination benefits

 

Termination benefits are recognised as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value.



 

3.   Summary of significant accounting policies (continued)

 

3.27   Employee benefits (continued)

 

(iii) Short-term employee benefits

 

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

(iv)  Employees' incentive plan shares

 

The cost of the equity-settled share-based payments is expensed over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in the consolidated income statement over the remaining vesting period, with a corresponding adjustment to the employees' incentive plan reserve.

 

Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for any modification which increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee as measured at the date of modification.

 

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the counterparty are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

 

The dilutive effect of outstanding incentive plan shares is reflected in the computation of diluted earnings per share (Note 34).

 

3.28   Provisions and contingent liabilities

 

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

 

Provisions for onerous contracts are recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligation under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

 

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset only if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

 



 

3.   Summary of significant accounting policies (continued)

 

3.28   Provisions and contingent liabilities (continued)

 

Contingent liabilities, which include certain guarantees and letters of credit, are possible obligations that arise from past events whose existence will be confirmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the Group's control; or are present obligations that have arisen from past events but are not recognised because it is not probable that settlement will require outflow of economic benefits, or because the amount of the obligations cannot be reliably measured. Contingent liabilities are not recognised in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements, unless they are remote.

 

3.29   Segment reporting

 

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Refer to Note 39 on Business Segment reporting.

 

3.30   Taxation

 

Provision is made for taxes at rates enacted or substantively enacted as at statement of financial position date on taxable profits of overseas branches and subsidiaries in accordance with the fiscal regulations of the respective countries in which the Group operates.

 

3.31   Revenue and expense recognition

 

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

 

(i)    Interest income and expense

 

For all financial instruments measured at amortised cost, interest bearing financial assets classified as available-for-sale and financial instruments classified as fair value through profit or loss, interest and similar income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.

 

The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate.

 

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

 

(ii)  Dividend income

 

Dividend income is recognised on the ex-dividend date when the Group's right to receive the payment is established.

3.   Summary of significant accounting policies (continued)

 

3.31   Revenue and expense recognition (continued)

 

(iii) Fee and commission income

 

The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

 

(a)  Fee income earned from services that are provided over a certain period of time

 

Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.

 

Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis.

 

(b)  Fee income from providing transaction services

 

Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

 

3.32   Islamic financing

 

The Group engages in Shari'ah compliant Islamic banking activities through various Islamic instruments such as Murabaha, Ijara, Salam, Mudaraba, Sukuk and Wakala.

 

Murabaha financing

 

A sale contract whereby the Group sells to a customer commodities and other assets at an agreed upon profit mark up on cost. The Group purchases the assets based on a promise received from customer to buy the item purchased according to specific terms and conditions. Profit from Murabaha is quantifiable at the commencement of the transaction. Such income is recognised as it accrues over the period of the contract on effective profit rate method on the balance outstanding. 

 

Ijara financing

 

Ijara financing is an agreement whereby the Group (lessor) leases or constructs an asset based on the customer's (lessee) request and promise to lease the assets for a specific period against certain rent instalments. Ijara could end in transferring the ownership of the asset to the lessee at the end of the lease period. Also, the Group transfers substantially all the risks and rewards related to the ownership of the leased asset to the lessee. Ijara income is recognised on an effective profit rate basis over the lease term.



 

3.   Summary of significant accounting policies (continued)

 

3.32   Islamic financing (continued)

 

Mudaraba

 

A contract between the Group and a customer, whereby one party provides the funds (Rab Al Mal) and the other party (the Mudarib) invests the funds in a project or a particular activity and any  profits generated are distributed between the parties according to the profit shares that were pre-agreed in the contract. The Mudarib would bear the loss in case of default, negligence or violation of any of the terms and conditions of the Mudaraba, otherwise, losses are borne by the Rab Al Mal. Income is recognised based on expected results adjusted for actual results on distribution by the Mudarib, whereas if the Group is the Rab Al Mal the losses are charged to the Group's consolidated income statement when incurred.

 

Salam

 

Bai Al Salam is a sale contract where the customer (seller) undertakes to deliver/supply a specified tangible asset to the Group (buyer) at mutually agreed future date(s) in exchange for an advance price fully paid on the spot by the buyer.

 

Revenue on Salam financing is recognised on the effective profit rate basis over the period of the contract, based on the Salam capital outstanding.

 

Wakala

 

An agreement between the Group and customer whereby one party (Rab Al Mal) provides a certain sum of money to an agent (Wakil), who invests it according to specific conditions in return for a certain fee (a lump sum of money or a percentage of the amount invested). The agent is obliged to guarantee the invested amount in case of default, negligence or violation of any of the terms and conditions of the Wakala. The Group may be Wakil or Rab Al Mal depending on the nature of the transaction.

 

Estimated income from Wakala is recognised on the effective profit rate basis over the period, adjusted by actual income when received. Losses are accounted for when incurred.

 

Sukuk

 

Certificates of equal value representing undivided shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity. It is asset-backed trust certificates evidencing ownership of an asset or its usufruct (earnings or benefits) and complies with the principle of Shari'ah.

 

Sukuk forms part of debts issued and other borrowed funds as mentioned in Note 20.



 

4.    Significant accounting judgements, estimates and assumptions

 

The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of these consolidated financial statements. IFRS requires the management, in preparing the Group's consolidated financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent. In the absence of an applicable standard or interpretation, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, requires management to develop and apply an accounting policy that results in relevant and reliable information in the light of the requirements and guidance in IFRS dealing with similar and related issues and the IASB's Framework for the Preparation and Presentation of Financial Statements. The judgements and assumptions involved in the Group's accounting policies that are considered by the Board of Directors to be the most important to the portrayal of its financial condition are discussed below. The use of estimates, assumptions or models that differ from those adopted by the Group would affect its reported results.

 

Impairment losses on loans and advances

 

Application of the methodology for assessing loan impairment, as set out in Note 43.6, involves considerable judgement and estimation. For individually significant loans, judgement is required in determining first, whether there are indications that an impairment loss may have already been incurred, and then estimating the amount and timing of expected cash flows, which form the basis of the impairment loss that is recorded.

 

For collectively assessed loans, judgement is involved in selecting and applying the criteria for grouping together loans with similar credit characteristics, as well as in selecting and applying the statistical and other models used to estimate the losses incurred for each group of loans in the reporting period. The benchmarking of loss rates, the assessment of the extent to which historical losses are representative of current conditions, and the ongoing refinement of modelling methodologies, provide a means of identifying changes that may be required, but the process is inherently one of estimation.

 

Impairment of available-for-sale investments

 

The Group exercises judgement to consider impairment on the available-for-sale investments.  This includes determination of whether any decline in the fair value below cost of equity instruments is significant or prolonged. In making this judgement, the Group evaluates among other factors, the normal volatility in market price.  In addition, the Group considers impairment to be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance or changes in technology.

 

Valuation of financial instruments

 

The best evidence of fair value is a quoted price for the instrument being measured in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used. The majority of valuation techniques employ only observable market data and so the reliability of the fair value measurement is high. However, certain financial instruments are valued on the basis of valuation techniques that include one or more significant market inputs that are unobservable. Valuation techniques that rely to a greater extent on unobservable inputs require a higher level of management judgement to calculate a fair value than those based wholly on observable inputs.

 

Valuation techniques used to calculate fair values are discussed in Note 41. The main assumptions and estimates which management consider when applying a model with valuation techniques are:

 



 

4.   Significant accounting judgements, estimates and assumptions (continued)

 

Valuation of financial instruments (continued)

 

§ the likelihood and expected timing of future cash flows on the instrument. These cash flows are estimated based on the terms of the instrument, and judgement may be required when the ability of the counterparty to service the instrument in accordance with the contractual terms is in doubt. Future cash flows may be sensitive to changes in market rates;

§ selecting an appropriate discount rate for the instrument. The determination of this rate is based on an assessment of what a market participant would regard as the appropriate spread of the rate for the instrument over the appropriate risk-free rate; and

§ when applying a model with unobservable inputs, estimates are made to reflect uncertainties in fair values resulting from a lack of market data inputs, for example, as a result of illiquidity in the market. For these instruments, the fair value measurement is less reliable. Inputs into valuations based on unobservable data are inherently uncertain because there is little or no current market data available from which to determine the level at which an arm's length transaction would occur under normal business conditions. However, in most cases there is some market data available on which to base a determination of fair value, for example historical data, and the fair values of most financial instruments are based on some market observable inputs even when unobservable inputs are significant.

 

Fair valuation of investment properties

 

The fair values of investment properties is based on the highest and best use of the properties, which is their current use. The fair valuation of the investment properties is carried out by independent valuers based on models whose inputs are observable in an active market such as market conditions, market prices, future rental income etc.

 

The fair value movements on investment properties are disclosed in more detail in Note 13.

 

Consolidation of Funds

 

The changes introduced by IFRS 10 - Consolidated Financial Statements require an investor to consolidate an investee when it controls the investee. The investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The new definition of control requires the Group to exercise significant judgement on an ongoing basis to determine which entities are controlled, and therefore are required to be consolidated.

 

5.    Cash and balances with central banks

 


2015


2014


AED'000


AED'000

Cash on hand

917,855


786,474

Balances with central banks

2,869,993


1,359,247

Reserves maintained with central banks

9,745,626


9,401,659

Certificate of deposits with UAE Central Bank

6,641,250


3,525,000

Reverse-repo with Central Bank

5,553


19,812

Total cash and balances with central banks

20,180,277


15,092,192

The geographical concentration is as follows:




Within the UAE

20,145,189


15,048,413

Outside the UAE

35,088


43,779


20,180,277


15,092,192

 

Reserves maintained with central banks represents deposit 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.

 

6.    Deposits and balances due from banks

 


2015


2014


AED'000


AED'000

Nostro balances

398,773


769,268

Margin deposits

524,324


179,426

Time deposits

13,843,958


10,681,616

Wakala placements

187,942


1,375,546

Certificate of deposits

-


183,556

Total deposits and balances due from banks

14,954,997


13,189,412

The geographical concentration is as follows:




Within the UAE

5,602,428


7,179,030

Outside the UAE

9,352,569


6,010,382


14,954,997


13,189,412

 

The Group hedges its foreign currency time deposits 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 was AED 479 thousand as at December 31, 2015 (December 31, 2014 - net negative fair value of AED 1,153 thousand).

 

7.    Reverse-repo placements

 


2015


2014


 AED'000


AED'000

Banks and financial institutions

2,419,776


2,830,049

Customers

1,836,501


-

Total reverse-repo placements

4,256,277


2,830,049

The geographical concentration is as follows:




Within the UAE

2,762,095


-

Outside the UAE

1,494,182


2,830,049


4,256,277


2,830,049

 

The Group entered into reverse repurchase and collateral swap agreements under which cash of AED 12,158 thousand and bonds with fair value of AED 4,386,217 thousand (December 31, 2014 - AED 2,814,042 thousand) were received as collateral against reverse-repo placements. The risks and rewards relating to these bonds remain with the counter parties. The terms and conditions of these collaterals are governed by Global Master Repurchase Agreements (GMRA).

 

8.    Trading securities

 


2015


2014


AED'000


AED'000





Bonds

62,261


199,599





The geographical concentration is as follows:




Within the UAE

48,416


176,540

Outside the UAE

13,845


23,059


62,261


199,599

 

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

9.    Derivative financial instruments

 

In the ordinary course of business the Group enters into various types of derivative transactions that are affected by variables in the underlying instruments. 

 

A derivative is a financial instrument or other contract with all three of the following characteristics:

(a)   its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the 'underlying');

(b)  it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and

(c)   it is settled at a future date.

 

Derivative financial instruments which the Group enters into includes forward foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest rate swaps and currency and interest rate options.

 

The Group uses the following derivative financial instruments for hedging and trading purposes.

 

Forward and Futures transactions

 

Currency forwards represent commitments to purchase foreign and domestic currencies, including non-deliverable forward transactions (i.e. the transaction is net settled). Foreign currency and interest rate futures are contractual obligations to receive or pay a net amount based on changes in currency rates or interest rates or to buy or sell foreign currency or a financial instrument on a future date at a specified price established in an organised financial market. The credit risk for futures contracts is negligible as they are collateralised by cash or marketable securities and changes in the futures' contract value are settled daily with the exchange. Forward rate agreements are individually negotiated interest rate futures that call for a cash settlement at a future date for the difference between a contracted rate of interest and the current market rate based on a notional principal amount.


Swap transactions

 

Currency and interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rates (for example: fixed rate for floating rate) or a combination of all these (for example: cross-currency interest rate swaps). No exchange of principal takes place except for certain cross currency swaps. The Group's credit risk represents the potential loss if counterparties fail to fulfill their obligation. This risk is monitored on an ongoing basis through market risk limits on exposures and credit risk assessment of counterparties using the same techniques as those of lending activities.

 
Option transactions

 

Foreign currency and interest rate options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of a foreign currency or a specific rate of interest or any financial instrument at a predetermined price. The seller receives a premium from the purchaser in consideration for the assumption of foreign exchange or interest rate risk. Options may be either exchange-traded or negotiated between the Group and a customer over the counter (OTC).

 

Derivative contracts can be exchange traded or OTC. The Group values exchange traded derivatives using inputs at market-clearing levels. OTC derivatives are valued using market based inputs or broker/dealer quotations.  Where models are required, the Group uses a variety of inputs, including contractual terms, market prices, market volatilities, yield curves and other reference market data.  

9.   Derivative financial instruments (continued)

 

Fair value measurement models

 

For OTC derivatives that trade in liquid markets such as generic forwards, swaps and options, model inputs can generally be verified and model selection conforms to market practice. Certain OTC derivatives trade in less liquid markets with limited pricing information and the determination of fair value for these derivatives is inherently more difficult. Subsequent to initial recognition, the Group only updates valuation inputs when corroborated by evidence such as similar market transactions, third-party pricing services and/or broker dealer quotations or other empirical market data. In the absence of such evidence, Management's best estimates are used.

 

Derivatives held or issued for trading purposes

 

The Group's trading activities are predominantly related to offering hedging solutions to customers at competitive prices in order to enable them to transfer, modify or reduce current and expected risks. The Group also manages risk taken as a result of client transactions or initiates positions with the expectation of profiting from favourable movement in prices, rates or indices.

 

Derivatives held or issued for hedging purposes

 

The Group uses derivative financial instruments for hedging purposes as part of its asset and liability management activities in order to reduce its own exposure to fluctuations in exchange and interest rates.  The Group uses forward foreign exchange contracts, cross currency swaps and interest rate swaps to hedge exchange rate and interest rate risks.  In all such cases, the hedging relationship and objectives including details of the hedged item and hedging instrument are formally documented and the transactions are accounted for based on the type of hedge.

 

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

 



                           Fair values



Assets


Liabilities


Notional

December 31, 2015


AED'000


AED'000


AED'000








Derivatives held or issued for trading







 Foreign exchange derivatives


603,776


547,656


83,468,566

 Interest rate and cross currency swaps


2,451,771


2,510,906


126,344,389

 Interest rate and commodity options


188,336


178,628


16,178,025

 Forward rate agreement 


796


397


1,234,013

 Futures (exchange traded)


1,335


1,045


38,970,027

 Commodity and energy swaps


297,824


297,369


1,322,557

 Swaptions


36,062


19,578


6,733,713

Total derivatives held or issued for trading


3,579,900


3,555,579


274,251,290

Derivatives held as fair value hedges







 Interest rate and cross currency swaps


365,361


1,001,934


48,936,487

Derivatives held as cash flow hedges







Interest rate and cross currency swaps


49,271


35,463


3,700,749

Forward foreign exchange contracts


7,376


148,204


15,233,654

Total derivatives held as cash flow hedges


56,647


183,667


18,934,403








Total derivative financial instruments


4,001,908


4,741,180


342,122,180










 

9.   Derivative financial instruments (continued)

 



                           Fair values



Assets


Liabilities


Notional

December 31, 2014


AED'000


AED'000


AED'000








Derivatives held or issued for trading







 Foreign exchange derivatives


824,724


846,365


91,680,329

 Interest rate and cross currency swaps


2,712,682


2,713,225


112,961,746

 Interest rate and commodity options


174,919


228,020


9,875,480

 Forward rate agreement 


447


-


1,000,000

 Futures (exchange traded)


2,536


146


4,582,095

 Commodity and energy swaps


238,527


238,086


1,408,841

 Swaptions


91,370


15,979


5,727,954

Total derivatives held or issued for trading


4,045,205


4,041,821


227,236,445

Derivatives held as fair value hedges







 Interest rate and cross currency swaps


220,978


708,262


53,594,857

Derivatives held as cash flow hedges







Interest rate and cross currency swaps


19,109


29,722


4,950,434

Forward foreign exchange contracts


3,214


220,262


9,188,243

Total derivatives held as cash flow hedges


22,323


249,984


14,138,677








Total derivative financial instruments


4,288,506


5,000,067


294,969,979








 

The notional amounts indicate the volume of transactions and are neither indicative of the market risk nor credit risk.

 

The net hedge ineffectiveness losses recognised in the consolidated income statement are as follows:

 


2015


2014


AED'000


AED'000

Gains/(losses) on the hedged items attributable to risk hedged

136,113


(28,594)

(Losses)/gains on the hedging instruments

(149,289)


25,306

Fair value hedging ineffectiveness

(13,176)


(3,288)

Cash flow hedging ineffectiveness

(544)


(803)


(13,720)


(4,091)

 

 

The table below provides the Group's forecast net cash flows in respect of its cash flow hedges and the periods in which these cash flows are expected to impact consolidated income statement, excluding any hedging adjustment that may be applied.

 

 


Less than 3 months


3 months to less than 1 year


1 year to less than 2 years


2 years to less than 5 years


Total

Forecast net cash flows

AED'000


AED'000


AED'000


AED'000


AED'000











2015

(49,719)


(23,394)


(9,557)


23,131


(59,539)

2014

(81,344)


(145,603)


(15,914)


(26,659)


(269,520)











 

 

As at December 31, 2015, the Group received cash collateral of AED 76,674 thousand (December 31, 2014 - AED 262,370 thousand) against derivative assets from certain counterparties.

 

As at December 31, 2015, the Group placed cash collateral of AED 600,980 thousand (December 31, 2014 - AED 552,202 thousand) and investment securities of AED 1,367,440 thousand (December 31, 2014 - AED 1,787,944 thousand) against the negative fair value of derivative liabilities.  These collaterals are governed by collateral service agreements under International Swaps and Derivatives Association (ISDA) agreements.

 



 

10. Investment securities

 



Other





GCC(*)

Rest of



UAE

countries

the world

Total

December 31, 2015

AED'000

AED'000

AED'000

AED'000

Available-for-sale investments





Quoted:





 Government securities

1,032,722

736,295

3,153,778

4,922,795

 Bonds - Public sector

4,654,165

102,898

1,250,173

6,007,236

 Bonds - Banks and financial institutions

2,612,778

348,164

5,342,028

8,302,970

 Bonds - Corporate

528,172

-

146,130

674,302

 Equity instruments

540

-

448

988

 Mutual funds

66,719

-

76,867

143,586

Total quoted

8,895,096

1,187,357

9,969,424

20,051,877

Unquoted:





 Government securities

-

398,109

-

398,109

 Equity instruments

349,484

-

13,248

362,732

 Mutual funds

50,889

-

-

50,889

 Total unquoted

400,373

398,109

13,248

811,730

Total available-for-sale investments

9,295,469

1,585,466

9,982,672

20,863,607

 

December 31, 2014





Available-for-sale investments





Quoted:





 Government securities

1,528,323

1,678,831

1,523,242

4,730,396

 Bonds - Public sector

4,113,621

45,090

286,869

4,445,580

 Bonds - Banks and financial institutions

2,740,513

757,993

7,026,279

10,524,785

 Bonds - Corporate

409,737

-

42,292

452,029

 Equity instruments

824

-

-

824

 Mutual funds

165,835

-

-

165,835

Total quoted

8,958,853

2,481,914

8,878,682

20,319,449

Unquoted:





 Government securities

-

895,713

-

895,713

 Bonds - Public sector

57,699

-

-

57,699

 Bonds - Corporate

-

-

761

761

 Equity instruments

314,855

-

13,281

328,136

 Mutual funds

50,080

-

-

50,080

 Total unquoted

422,634

895,713

14,042

1,332,389

Total available-for-sale investments

9,381,487

3,377,627

8,892,724

21,651,838

 

(*) Gulf Cooperation Council

                                              

The Group hedges interest rate and foreign currency risks on certain fixed rate and floating rate investments through interest rate and currency swaps and designates these as fair value and cash flow hedges, respectively. The net positive fair value of these interest rate swaps at December 31, 2015 was AED 224,564 thousand (December 31, 2014 - net negative fair value AED 18,271 thousand). The hedge ineffectiveness gains and losses relating to these hedges were included in the consolidated income statement.

 

The Group entered into repurchase agreements whereby bonds were pledged and held by counterparties as collateral. The risks and rewards relating to the investments pledged are with the Group. The bonds placed as collateral are governed under Global Master Repurchase Agreements (GMRA). The following table reflects the carrying value of these bonds and the associated financial liabilities:

 


2015


2014


Carrying value of pledged securities


Carrying value of associated liabilities


Carrying value of pledged securities


 

Carrying value of associated liabilities


AED'000


AED'000


AED'000


AED'000









Repurchase financing

3,304,381


3,152,676


4,765,545


4,589,111









 



 

10.   Investment securities (continued)

 

Further, the Group pledged investment securities with fair value amounting to AED 1,382,197 thousand (December 31, 2014 - AED 1,802,584 thousand) as collateral against margin calls. The risks and rewards on these pledged investments remained with the Group.

 

11. Loans and advances, net

 




2015


2014




AED'000


AED'000







Overdrafts (retail and corporate)



4,487,083


3,691,843

Retail loans



28,400,112


23,638,657

Corporate loans



115,797,708


107,223,733

Credit cards



3,517,946


2,865,852

Other facilities



7,819,424


9,920,156

Gross loans and advances



160,022,273


147,340,241

Less: Allowance for impairment (Note 43.6)



(6,344,887)


(6,777,743)

Total loans and advances, net



153,677,386


140,562,498

 

For Islamic financing assets included in the above table, refer to Note 24.

 

The Group 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 negative fair value of these swaps at December 31, 2015 was AED 481 thousand (December 31, 2014 - net positive fair value of AED 4,152 thousand).

 

The Group entered into structured financing repurchase agreements whereby loans were pledged and held by counterparties as collateral. The risks and rewards relating to the loans pledged are with the Group. The loans placed as collateral are governed under collateral service agreements under International Swaps and Derivatives Association (ISDA) agreements. The following table reflects the carrying value of these loans and the associated financial liabilities:

                          


2015


2014


Carrying value of pledged loans


Carrying value of associated liabilities


 

Carrying value of pledged loans


 

Carrying value of associated liabilities


AED'000


AED'000


AED'000


AED'000









Repurchase financing

2,023,245


1,406,541


-


-









                               

12. Investment in associate

 

Investment in associate includes the Bank's interest in an associate representing 35% equity stake in the entity. The Bank has determined that it exercises significant influence based on the representation in the management of the entity.

 

The investment in associate has been accounted in the consolidated financial statements using the equity method at the net fair value of the identifiable assets and liabilities of the associate on the date of acquisition.

 

Details of the investment in associate are as follows:

 

Name of associate

Ownership interest

Country of incorporation

Principal activities

Four N Property LLC

35%

UAE

Operating labour camps

 

For balances and transactions with associate, refer to Note 37.

13. Investment properties

 



 

 

AED'000





January 1, 2014



560,690

Additions during the year



32,758

Revaluation of investment properties



22,330

January 1, 2015



615,778

Additions during the year



31,677

Revaluation of investment properties



192

December 31, 2015



647,647

 

Included in commitments and contingent liabilities (Note 38) is AED 1,740 thousand (December 31, 2014 - AED 1,740 thousand) being future committed expenditure on investment property.

 

Additions during the year include AED 31,677 thousand (December 31, 2014 - AED 20,667 thousand), being real estate acquired on settlements of certain loans and advances. This being a non-cash transaction has not been reflected in the consolidated statement of cash flows.

 

As approved by the Central Bank of the UAE, the Bank can hold these real estate assets for a maximum period of three years and can extend the holding period with further approval. The Bank is also allowed to rent these properties and earn rental income. 

 

Fair valuations

 

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.

 

In estimating the fair values of the properties, the highest and best use of the properties is their current use.

 

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 Group are located within the UAE.

 

Details of rental income and direct operating expenses relating to investment properties during the year are as follow:

 


2015


2014


AED'000


AED'000

Rental income

41,212


39,917

Direct operating expenses

4,994


6,013

 

14. Other assets

 



2015

2014



AED'000

AED'000

Interest receivable


1,079,214

1,017,819

Advance tax


7,241

21,959

Prepayments


55,083

65,830

Acceptances (Note 21)


7,168,716

2,906,420

Others


261,386

539,816

Total other assets


8,571,640

4,551,844


15. Property and equipment, net

 



 Freehold properties and improvements

 Leasehold improvements

 Furniture, equipment and vehicles

 Computer equipment, software and accessories

 Capital work in progress

 

 Total 



 AED'000 

 AED'000

 AED'000

 AED'000

 AED'000

 AED'000

Cost or valuation








At January 1, 2014


848,982

136,628

166,742

501,223

46,643

1,700,218

Exchange difference


(61)

-

(88)

-

-

(149)

Additions during the year


410

86

2,090

6,164

124,288

133,038

Transfers


5,435

7,611

8,694

109,457

(131,197)

-

Disposals during the year


-

-

(996)

(366)

-

(1,362)

At January 1, 2015


854,766

144,325

176,442

616,478

39,734

1,831,745

Exchange difference


(156)

(1)

(99)

(176)

(37)

(469)

Additions during the year


230

534

2,472

1,884

158,854

163,974

Transfers


15,827

12,230

15,042

83,210

(126,309)

-

Disposals during the year


-

-

(3,446)

(4,548)

-

(7,994)

At December 31, 2015


870,667

157,088

190,411

696,848

72,242

1,987,256









Accumulated depreciation








At January 1, 2014


264,312

91,609

137,802

401,173

-

894,896

Exchange difference


(17)

-

(24)

(53)

-

(94)

Transfers


-

-

(2,539)

2,539

-

-

Charge for the year


37,083

17,288

10,989

66,648

-

132,008

Disposals during the year


-

-

(920)

(333)

-

(1,253)

At January 1, 2015


301,378

108,897

145,308

469,974

-

1,025,557

Exchange difference


(42)

-

(60)

(137)

-

(239)

Charge for the year


37,530

12,494

11,870

72,637

-

134,531

Disposals during the year


-

-

(3,192)

(4,546)

-

(7,738)

At December 31, 2015


338,866

121,391

153,926

537,928

-

1,152,111









Carrying amount








At December 31, 2015


531,801

35,697

36,485

158,920

72,242

835,145

At December 31, 2014


553,388

35,428

31,134

146,504

39,734

806,188

 

                            

 

 


16. Intangible assets

 




Other intangible assets




 

 

 

Goodwill

 

Credit card customer relationships

Wealth management customer relationships

 

 

Core deposit intangible

 

 

 

Total



AED'000

AED'000

AED'000

AED'000

AED'000

Cost or valuation







As at January 1, 2014


           18,800

               12,700

                18,000

        112,700

   162,200








As at December 31, 2015


          18,800

              12,700

               18,000

     112,700

      162,200

Accumulated amortisation







As at January 1, 2014


                     -  

12,700

14,550

73,255

100,505

Amortisation during the year


                     -  

-

3,450

22,540

25,990

As at January 1, 2015


                     -  

12,700

18,000

95,795

126,495

Amortisation during the year


                     -  

-

-

16,905

16,905

As at December 31, 2015


                     -  

12,700

18,000

112,700

143,400








Carrying amount







At December 31, 2015


          18,800

-

-

-

18,800

At December 31, 2014


          18,800

-

-

16,905

35,705

 

On October 1, 2010, the Bank acquired the retail banking, wealth management and small and medium enterprise businesses (the "Business") of The Royal Bank of Scotland ("RBS") in the UAE for a consideration of AED 168,900 thousand. Based on the fair valuation and purchase price allocation exercise performed by an external consultant immediately following the acquisition in 2010, the Bank recognised AED 143,400 thousand as intangible assets and AED 18,800 thousand as goodwill.

 

Goodwill

 

For the purpose of impairment testing, goodwill is allocated to the Group's operating divisions which represent the lowest level within the Group at which goodwill is monitored for internal management purposes, which is not higher than the Group's business segments.

 

The aggregate carrying amounts of goodwill allocated to each unit are as follows:

 

Cash generating unit (CGU)


AED'000

Credit cards


10,784

Loans


5,099

Overdrafts


94

Wealth management business


2,823

Total goodwill


18,800

 

 

 



 

16.  Intangible assets (continued)

 

Other intangible assets

 

Customer relationships

 

 

 

 

Customer relationship intangible assets represent the value attributable to the business expected to be generated from customers that existed as at the acquisition date. In determining the fair value of customer relationships, credit card and wealth management customers were considered separately, given their differing risk profiles, relationships and loyalty. These relationships are expected to generate material recurring income in the form of interest, fees and commission.

 

Core deposit intangible

The value of core deposit intangible asset arises from the fact that the deposit base of the Group represents a cheaper source of funding than wholesale or money market funding. The spread between the cost of deposit funding and the cost of wholesale/money market funding represents the value of the core deposit intangible.

Impairment assessment of goodwill

 

No impairment losses on goodwill were recognised during the year ended December 31, 2015 (2014 - AED Nil).

 

The recoverable amounts for the CGUs have been assessed based on their value in use. Value in use for each unit was determined by discounting the future cash flows expected to be generated from the continuing use of these units. Value in use was based on the following key assumptions:

 

§ Cash flows were projected based on past experience, actual operating results and the business plan in 2015. Cash flows were extrapolated using a rate expected to be realized by these businesses. The forecast period is based on the Group's current perspective with respect to the operation of these units.

 

§ Appropriate discount rates were applied in determining the recoverable amounts for the CGUs. These discount rates were estimated based on capital asset pricing model using data from U.S. bond and UAE capital markets.

 

The key assumptions described above may change as economic and market conditions change. The Group estimates that reasonable changes in these assumptions are not expected to cause the recoverable amount of the units to decline below the carrying amount.

 

17. Due to banks

 


2015


2014


AED'000


AED'000

Vostro balances

282,666


578,213

Margin deposits

88,289


96,200

Time deposits

1,320,838


3,414,606

Total due to banks

1,691,793


4,089,019

 

The Bank hedges certain foreign currency time deposits for foreign currency risk using foreign exchange swap contracts and designates these as cash flow hedges. The net negative fair value of these swaps at December 31, 2015 was AED 1,562 thousand (December 31, 2014 - AED Nil).

 

 

 

 

 

 

18. Deposits from customers

 


2015


2014


AED'000


AED'000

Time deposits

62,189,594


57,075,373

Current account deposits

51,713,778


46,823,595

Savings deposits

10,932,983


8,895,672

Murabaha deposits

17,628,523


12,114,262

Long term government deposits

418,907


425,898

Margin deposits

642,511


676,427

Total deposits from customers

143,526,296


126,011,227





For Islamic deposits (excluding Murabaha deposits) included in the above table, refer to Note 24.

 

The Bank hedges certain foreign currency time deposits for foreign currency and floating interest rate risks using foreign exchange and interest rate swaps and designates these swaps as either cash flow or fair value hedges. The net negative fair value of these swaps at December 31, 2015 was AED 32,953 thousand (December 31, 2014 - net negative fair value of AED 47,920 thousand).

 

19. Euro commercial paper

 

The details of euro commercial paper (ECP) issuances under the Bank's ECP programme are as follows:

 







2015


2014

Currency






AED'000


AED'000

Swiss franc (CHF)






453,223


619,295

Euro (EUR)






2,341,393


1,082,659

GB pound (GBP)






543,636


1,441,410

Australian dollar (AUD)






67,062


-

US dollar (USD)






2,294,750


3,231,920

Total euro commercial paper






5,700,064


6,375,284

 

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 negative fair value of these hedge contracts as at December 31, 2015 was AED 82,811 thousand (December 31, 2014 - net negative fair value of AED 166,883 thousand).

 

ECP are issued at a discount and the discount rate ranges between 0.04% p.a. to 2.17% p.a. and negative discount rate ranges between 0.68% p.a. to 0.85% p.a. (December 31, 2014 - 0.08% p.a. to 0.77% p.a.).

 

For maturity analysis of ECP borrowings, refer to Note 45.


20. Borrowings

 

The details of borrowings as at December 31, 2015 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


Australian dollar (AUD)


                     -  


                     -  


679,758


                     -  


679,758



Chinese renminbi (CNH)


                     -  


167,032


-


                     -  


167,032



Euro (EUR)


                     -  


                     -  


48,314


                     -  


48,314



Malaysian ringgit (MYR)


                     -  


598,227


-


                     -  


598,227



Swiss franc (CHF)


                     -  


388,677


-


                     -  


388,677



Turkish lira (TRY)


46,821


                     -  


-


                     -  


46,821



UAE dirham (AED)


                     -  


504,164


-


                     -  


504,164



Japanese yen (JPY)


130,562


45,896


46,192


                     -  


222,650



Hong Kong dollar (HKD)


                     -  


                     -  


151,181


                     -  


151,181



US dollar (USD)


                     -  


4,586,299


7,988,737


2,014,940


14,589,976


















177,383


6,290,295


8,914,182


2,014,940


17,396,800














Islamic sukuk notes


US dollar (USD)


1,841,406


                     -  


-


                     -  


1,841,406

Bilateral loans - floating rate


US dollar (USD)


550,950


2,751,371


-


                     -  


3,302,321

Syndicated loan - floating rate


US dollar (USD)


                     -  


1,465,125


-


                     -  


1,465,125

Certificate of deposits issued


Great Britain pound (GBP)


636,355


                     -  


-


                     -  


636,355



Hong Kong dollar (HKD)


236,708


                     -  


-


                     -  


236,708

Subordinated notes - fixed rate


US dollar (USD)


                     -  


                     -  


-


3,662,417


3,662,417



Swiss franc (CHF)


                     -  


                     -  


-


371,382


371,382

Borrowings through repurchase agreements


US dollar (USD)


3,284,750


1,274,467


-


                     -  


4,559,217


















6,727,552


11,781,258


8,914,182


6,048,739


33,471,731














 

The Group hedges certain borrowings for foreign currency exchange risk and interest rate risk using either interest rate or cross currency swaps and designates these swaps as either fair value or cash flow hedges. The net negative fair value of these swaps as at December 31, 2015 was AED 870,826 thousand.



 

20. Borrowings (continued)

 

The details of borrowings as at December 31, 2014 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


Australian dollar (AUD)


                     -  


                -  


758,763


                   -  


758,763



Chinese renminbi (CNH)


                     -  


172,950


              -  


                   -  


172,950



Euro (EUR)


                     -  


                -  


              -  


53,905


53,905



Malaysian ringgit (MYR)


784,575


733,731


              -  


                   -  


1,518,306



Swiss franc (CHF)


564,468


     388,677


              -  


                   -  


953,145



Turkish lira (TRY)


                     -  


60,127


              -  


                   -  


60,127



UAE dirham (AED)


                     -  


513,270


              -  


                   -  


513,270



Japanese yen (JPY)


                     -  


176,913


46,189


                   -  


223,102



US dollar (USD)


-


1,889,547


7,651,107


1,631,530


11,172,184


















1,349,043


3,935,215


8,456,059


1,685,435


15,425,752














Islamic sukuk notes


US dollar (USD)


-                      


1,863,609


              -  


                   -  


1,863,609

Bilateral loans - floating rate


US dollar (USD)


      1,469,200


 1,831,011


              -  


                   -  


    3,300,211

Subordinated notes - floating rate


US dollar (USD)


1,058,855


                -


              -  


                   -  


    1,058,855

                                       - fixed rate


US dollar (USD)


-


                -  


              -  


3,709,770


3,709,770



Swiss franc (CHF)


-


                -  


              -  


372,813


372,813

Borrowings through repurchase agreements


US dollar (USD)


      4,589,111


                -  


-


                   -  


    4,589,111














Total borrowings




8,466,209


7,629,835


8,456,059


5,768,018


30,320,121














 

The Group hedges certain borrowings for foreign currency exchange risk and interest rate risk using either interest rate or cross currency swaps and designates these swaps as either fair value or cash flow hedges. The net negative fair value of these swaps as at December 31, 2014 was AED 484,870 thousand.

 

 

 

 

 

 


20. Borrowings (continued)

 

Global medium term notes

 

Interest on Global medium term notes is payable in arrears and the contractual coupon rates as at December 31, 2015 are as follows: 

 

Currency

Within 1 year


1-3 years


3-5 years


Over 5 years

AUD

-


-


Fixed rate of 4.75% p.a.


-

CNH

-


Fixed rate between 3.70% p.a. to 4.125% p.a.


-


-

EUR

-


-


Quarterly coupons with 59 basis points over EURIBOR


-

MYR

-


Fixed rate between 4.30% p.a. to 5.35% p.a.


-


-

CHF

-


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.


Fixed rate of 0.48% p.a.


Fixed rate of 0.68% p.a.


-

HKD

-