| NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 |
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New Page 4
1 General information
Bank of Sharjah P.J.S.C. (the
“Bank”), is a public joint stock company incorporated by an Emiri Decree
issued on
December 22, 1973 by His
Highness The Ruler of Sharjah and was registered in February 1993 under the
Commercial Companies
Law Number 8 of 1984 (as
amended). The Bank commenced its operations under a banking license issued
by
the United Arab Emirates
Central Bank dated January 26, 1974. The Bank is engaged in commercial and
investment banking activities.
The Bank’s registered office
is located at Al Hosn Avenue, P.O. Box 1394, Sharjah, United Arab Emirates.
The Bank operates through
four branches in the United Arab Emirates situated in the Emirates of
Sharjah, Dubai, Abu Dhabi,
and the city of Al Ain.
The
consolidated financial statements are prepared and presented in United Arab
Emirates Dirhams (AED),
which
is the Bank’s functional and presentation currency.
2 Adoption of new and revised
International Financial Reporting Standards (IFRSs)
2.1 Standards affecting
presentation and disclosure
The following new and revised
Standards have been adopted in the current year in these consolidated
financial statements.
Details of other Standards
and Interpretations adopted but that have had no effect on the consolidated
financial statements
are set out in section 2.2.
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IAS 1 (as revised in
2007) Presentation of Financial Statements |
IAS 1 (2007) has
introduced terminology changes (including revised titles for the
financial statements) and changes in the format and content of the
consolidated financial statements. |
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Improving
disclosures about Financial Instruments (Amendments to IFRS 7
Financial Instruments: Disclosures) |
The amendments to
IFRS 7 expand the disclosures required in respect of fair value
measurements and liquidity risk. The Bank has elected not to provide
comparative information for these expanded disclosures in the
current year in accordance with the transitional reliefs offered in
these amendments. |
2.2 Standards and
Interpretations adopted with no effect on the financial statements
The following new and revised
Standards and Interpretations have also been adopted in these consolidated
financial statements. Their adoption has not had any significant impact on
the amounts reported in these consolidated financial statements but may
affect the accounting for future transactions or arrangements.
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IFRS 8 Operating Segments |
IFRS 8 is a
disclosure Standard that requires re-designation of the Entity’s
reportable segments based on the segments used by the Chief
Operating Decision Maker to allocate resources and assess
performance. There was no material impact of this Standard on the
previous disclosures and reported results or the financial position
of the Bank since the business segments reported earlier as per the
requirements of IAS 14 Segment Reporting are also used by the
General Manager to allocate resources to the segments and to assess
its performance.
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The following new and revised
Standards and Interpretations have also been adopted in these consolidated
financial statements. Their adoption has not had any significant impact on
the amounts reported in these consolidated financial statements but may
affect the accounting for future transactions or arrangements.
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Amendments to IFRS 2 Share-based Payment - Vesting
Conditions and Cancellations |
The amendments
clarify the definition of vesting conditions for the purposes of
IFRS 2, introduce the concept of ‘non-vesting’ conditions, and
clarify the accounting treatment for cancellations. |
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IAS 23 (as revised in 2007)
Borrowing Costs
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The principal change
to the Standard was to eliminate the option to expense all borrowing
costs when incurred. This change has had no impact on these
financial statements because it has always been the Bank’s
accounting policy to capitalise borrowing costs incurred on
qualifying assets.
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Amendments to IAS 32 Financial Instruments:
Presentation and IAS 1 Presentation of
Financial Statements – Puttable Financial Instruments and
Obligations Arising on Liquidation |
The revisions to IAS
32 amend the criteria for debt/equity classification by permitting
certain puttable financial instruments and instruments (or
components of instruments) that impose on an entity an obligation to
deliver to another party a pro-rata share of the net assets of the
entity only on liquidation, to be classified as equity, subject to
specified criteria being met. |
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IFRIC 13 Customer Loyalty
Programmes |
The Interpretation
provides guidance on how entities should account for customer
loyalty programmes by allocating revenue on sale to possible future
award attached to the sale.
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IFRIC 15 Agreements for the Construction of Real
Estate |
The Interpretation addresses how entities should determine whether
an agreement for the construction of real estate is within the scope
of IAS 11 Construction Contracts or IAS 18 Revenue and
when revenue from the construction of real estate should be
recognised.
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IFRIC 16 Hedges of a Net Investment in a Foreign
Operation |
The Interpretation provides guidance on the detailed requirements
for net investment hedging for certain hedge accounting
designations.
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IFRIC 18 Transfers of Assets from Customers
(adopted in advance of effective date of transfers of assets from
customers received on or after 1 July 2009) |
The Interpretation addresses the accounting by recipients for
transfers of property, plant and equipment from ‘customers’ and
concludes that when the item of property, plant and equipment
transferred meets the definition of an asset from the perspective of
the recipient, the recipient should recognise the asset at its fair
value on the date of the transfer, with the credit recognised as
revenue in accordance with IAS 18 Revenue.
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Improvements to IFRSs (2008) |
Amendments to IFRS 5, IAS 1, IAS 16, IAS 19, IAS 20, IAS 23, IAS 27,
IAS 28, IAS 29, IAS 31, IAS 36, IAS 38, IAS 39, IAS 40 and IAS 41
resulting from the May and October 2008 Annual Improvements to
IFRSs majority of which are effective for annual periods
beginning on or after 1 January 2009. |
2.3 Standards and
Interpretations in issue not yet effective
At the date of authorisation of these
consolidated financial statements, the following new and revised Standards
and Interpretations were in issue but not yet effective:
New Standards and amendments to Standards:
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Effective for
annual periods
beginning on or after
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IFRS 1 (revised)
First time Adoption of IFRS and IAS 27 (revised) Consolidated
and Separate Financial Statements – Amendment relating to Cost
of an Investment in a Subsidiary, Jointly Controlled Entity or
Associate |
1 July 2009 |
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IFRS 3 (revised)
Business Combinations – Comprehensive revision on applying the
acquisition method and consequential amendments to IAS 27 (revised)
Consolidated and Separate Financial Statements, IAS 28
(revised) Investments in Associates and IAS 31 (revised)
Interests in Joint Ventures |
1 July 2009 |
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IAS 39 (revised)
Financial Instruments: Recognition and Measurement – Amendments
relating to Eligible Hedged Items(such as hedging Inflation risk and
Hedging with options) |
1 July 2009 |
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Effective for
annual periods
beginning on or after
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IFRS 1 (revised)
First time Adoption of IFRS – Amendment on additional exemptions
for First-time Adopters |
1 January 2010 |
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IFRS 2 (revised)
Share-based payment – Amendment relating to Group cash-settled
Share-based payments |
1 January 2010 |
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IAS 32 (revised)
Financial Instruments: Presentation – Amendments relating to
classification of Rights Issue |
1 February 2010 |
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IAS 24 Related
Party Disclosures – Amendment on disclosure requirements for
entities that are controlled, jointly controlled or significantly
influenced by a Government |
1 January 2011 |
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IFRS 9 Financial
Instruments: Classification and Measurement (intended as
complete replacement for IAS 39 and IFRS 7) |
1 January 2013 |
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Amendments to IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7,
IAS 17, IAS 18, IAS 36, IAS 38 and IAS 39 resulting from April 2009
Annual Improvements to IFRSs. |
Majority effective for annual periods beginning on or after 1
January 2010 |
New Interpretations and amendments to
Interpretations:
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Effective for
annual periods
beginning on or after
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IFRIC 17:
Distributions of Non-cash Assets to Owners |
1 July 2009 |
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IFRIC 19:
Extinguishing Financial Liabilities with Equity
Instruments |
1 July 2010 |
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Amendment to IFRIC
14: IAS 19: The limit on a defined Benefit
Asset, Minimum Funding Requirement and their interaction |
1 January 2011 |
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Amendment to IFRIC
16: Hedges of a Net Investment in a Foreign
Operation |
1 July 2009 |
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Amendment to IFRIC 9
(revised): Reassessment of Embedded Derivatives relating to
assessment of embedded derivatives in case of reclassification of a
financial asset out of the ‘FVTPL’ category |
1 July 2009 |
Management anticipates that
these amendments will be adopted in the Bank’s consolidated financial
statements for the initial period when they become effective. Management
have not yet had an opportunity to consider the potential impact of the
adoption of these amendments.
3 Significant accounting policies
Statement of compliance
The consolidated financial
statements have been prepared on going concern basis and in accordance with
International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB), interpretations issued by
the International Financial Reporting Interpretations Committee (IFRIC) and
applicable requirements of the Laws of the U.A.E.
As required by the Securities
and Commodities Authority of the U.A.E. (“SCA”) Notification No. 2624/2008
dated October 12, 2008, the Bank’s exposure in Cash and balances with
Central banks, Due from banks and Investment securities outside the U.A.E.
have been presented under the respective notes.
Basis of preparation
The consolidated financial statements have been
prepared on the historical cost basis except for certain financial
instruments and investment properties which are carried at fair value. In
addition, as explained below, assets and liabilities that are hedged are
carried at fair value to the extent of the risk being hedged.
Restatement of prior year
balances
During the year, the balance
of retained earnings as at 1 January 2008 has been restated to reverse the
accrual of Directors’ remuneration of AED 6 million and Charity donations of
AED 2.5 million relating to the year 2007. The accruals have been made
during 2008 to ensure comparability of the comprehensive income/charge. The
restatement has no effect on the reported earnings per share of the prior
years.
Basis of consolidation
The consolidated financial statements
incorporate the financial statements of Bank of Sharjah PJSC and its
subsidiaries (collectively referred to as “the Bank”) as set out below. The
entities controlled by the Bank have been treated as subsidiaries. Control
is achieved when the Bank has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. The financial statements of the subsidiaries are prepared for
the same reporting period as that of the Bank, using consistent accounting
policies. All significant inter-company balances, income and expense items
are eliminated on consolidation.
Non-controlling interest represents the portion
of profit or loss for the year and net assets of consolidated subsidiaries
not owned directly or indirectly by the Bank and are identified separately
from the Bank’s equity therein. Non-controlling interest consists of
non-controlling shareholders’ share in the net equity of the subsidiaries.
The Bank’s interest, held directly or
indirectly, in the subsidiaries is as follows:
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Name of Subsidiary |
Proportion of
ownership interest |
Year of
incorporation |
Country
of incorporation |
Principal activities |
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Emirates Lebanon Bank S.A.L |
81% |
1965 |
Lebanon |
Financial institution |
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Wifco Financial
Brokerage L.L.C. |
100% |
1998 |
U.A.E. |
Agent in trading of financial instruments and stocks. |
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Ginco Steel L.L.C. |
100% |
1975 |
U.A.E. |
Manufacturing of metallic building structures |
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Polyco L.L.C. |
100% |
1981 |
U.A.E. |
Manufacturing storage tanks |
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BOS Real Estate FZC |
100% |
2009 |
U.A.E. |
Real estate development activities |
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BOS Capital FZC |
100% |
2009 |
U.A.E. |
Investment of own financial resources |
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Cash and cash equivalents
Cash and cash equivalents disclosed in the cash
flow statement consist of cash and balances with central banks, due from
banks and due to banks which are maturing within three months.
Due from banks
Due from banks are stated at cost less any
amounts written off and allowance for impairment, if any.
Investments
Trading securities
Investments are considered as
held for trading if they have been acquired principally for the purpose of
selling in the near term, or if they form part of an identified portfolio of
financial instruments that are managed together and for which there is
evidence of a recent pattern of short-term profit-taking. Trading
securities are initially recognised and subsequently measured at fair value
with any unrealised gain or loss arising from the change in fair value and
realised gains and losses taken to the consolidated income statement.
Interest income and dividend income are recorded in the consolidated income
statement according to the terms of the contracts, or when the right to the
payment has been established.
Held for trading securities
have been reclassified to available for sale investments in accordance with
the amendments made to International Accounting Standards (IAS) 39 issued on
October 13, 2008.
Investment securities
These are classified as follows:
·
Held to maturity
·
Available for sale
All investments are initially recognised at
cost, being the fair value of consideration paid plus transaction costs that
are directly attributable to the acquisition.
Held to maturity
Investments which have fixed or determinable
payments with fixed maturities which the Bank has the intention and ability
to hold to maturity, are classified as held to maturity investments. Held to
maturity investments are carried at amortised cost, using effective interest
rate method less any impairment. Amortised cost is calculated by taking
into account any discount or premium on acquisition using an effective
interest rate method.
Any gain or loss on such investments is
recognised in the consolidated income statement when the investment is
derecognised or impaired.
Investments classified as held to maturity and
not close to their maturity, cannot ordinarily be sold or reclassified
without impacting the Bank’s ability to use this classification and cannot
be designated as a hedged item with respect to interest rate or prepayment
risk, reflecting the longer-term nature of these investments.
Available for sale
Investments not classified as either “held for
trading” or “held to maturity” are classified as “available for sale”.
After initial recognition, investments which are
classified as “available for sale” are remeasured at fair value. Gains and
losses arising from changes in fair value are recognised in other
comprehensive income in the 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 other comprehensive income
in the cumulative changes in fair value is included in the consolidated
income statement for the year.
Dividends on available for sale equity instruments are recognised in the
consolidated income statement when the Bank’s right to receive the dividends
is established.
Fair values
All financial instruments are recognised
initially at fair value. The fair value of a financial instrument on initial
recognition is normally the transaction price, i.e. the fair value of the
consideration given or received.
§
The fair value of financial
assets and financial liabilities with standard terms and conditions and
traded on active liquid markets is determined with reference to quoted
market prices;
§
The fair value of other
financial assets and financial liabilities (excluding derivative
instruments) is determined in accordance with generally accepted pricing
models based on discounted cash flow analysis using prices from observable
current market transactions and dealer quotes for similar instruments;
§
The fair value of derivative
instruments is calculated using quoted prices. Where such prices are not
available, use is made of discounted cash flow analysis using the applicable
yield curve for the duration of the instruments for non-optional
derivatives, and option pricing models for optional derivatives.
Investments in associates
An associate is an entity over which the Bank
has significant influence and that is neither a subsidiary nor an interest
in a joint venture. 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.
The results and assets and liabilities of
associates are incorporated in these financial statements using the equity
method of accounting, except when the investment is classified as held for
sale, in which case it is accounted for in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations. Under the
equity method, investments in associates are carried in the consolidated
statement of financial position at cost as adjusted for post-acquisition
changes in the Bank’s share of the net assets of the associate, less any
impairment in the value of individual investments and share of changes in
the statement of changes in equity. Losses of an associate in excess of the
Bank’s interest in that associate (which includes any long-term interests
that, in substance, form part of the Bank’s net investment in the associate)
are recognised only to the extent that the Bank has incurred legal or
constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the
Bank’s share of the net fair value of the identifiable assets, liabilities
and contingent liabilities of the associate recognised at the date of
acquisition is recognised as goodwill. The goodwill is included within the
carrying amount of the investment and is assessed for impairment as part of
that investment. Any excess of the Bank’s share of the net fair value of the
identifiable assets, liabilities and contingent liabilities over the cost of
acquisition, after reassessment, is recognised immediately in profit or
loss.
Where a Bank’s subsidiary or other associate
transacts with an associate of the Bank, profits and losses are eliminated
to the extent of the Bank’s interest in the relevant associate.
Loans and advances
Loans and advances are non-derivative financial
assets originated or acquired by the Bank with fixed or determinable
payments.
Loans and advances are stated at amortised cost
less any amounts written off and allowance for doubtful accounts. The
carrying values of loans and advances which are being effectively hedged for
changes in fair value are adjusted to the extent of the changes in fair
value being hedged with the resultant adjustment recognised in the
consolidated income statement.
Allowance for impairment is made against loans
and advances when their recovery is in doubt taking into consideration IFRS
requirements for fair value measurement. Loans and advances are written off
only when all possible courses of action to achieve recovery have proved
unsuccessful.
Investment properties are
held to earn rental income and/or capital appreciation. Investment property
includes cost of initial purchase, developments transferred from property
under development, subsequent cost of development and fair value
adjustments. Investment property is reflected at valuation based on fair
value at the end of the reporting period. The fair values are the estimated
amounts for which a property could be exchanged on the date of valuation
between a willing buyer and a willing seller in an arm’s length transaction.
The fair value is determined on 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.
Property and equipment
Property and equipment are stated at historical
cost less accumulated depreciation and impairment loss, if any. Historical
cost includes expenditure that is directly attributable to the acquisition
of the asset.
Depreciation is charged so as to write off the
cost or valuation of assets, over their estimated useful lives using the
straight-line method as follows:
Years
Buildings
20 - 40
Furniture and office
equipment
2 - 6
Installation, partitions and
decorations 3 - 4
Motor
vehicles
3
Leasehold
improvements
5 - 10
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.
Intangible assets acquired
separately
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).
Subsequent to initial recognition, intangible
assets acquired in a business combination are reported at cost less
accumulated amortisation and accumulated impairment losses. Amortisation is
recognised on a straight-line basis over their estimated useful lives. The
estimated useful life and amortisation method are reviewed at the end of
each annual reporting period, with the effect of any changes in estimate
being accounted for on a prospective basis.
Amortisation is charged so as to write off the
cost of intangible assets, over their estimated useful lives using the
straight-line method as follows:
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Years |
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Banking license |
Infinite |
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Legal corporate setup in Lebanon |
10 |
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Customer base |
10 |
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Branch network |
10 |
Impairment of tangible and intangibles
At the end of each
reporting period, the Bank reviews the carrying amounts of its tangible and
intangibles 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 Bank 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.
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.
Impairment of financial assets
Financial assets, other than those that are held
for trading, are assessed for indicators of impairment at the end of each
reporting period. Financial assets are impaired where there is objective
evidence that, as a result of one or more events that occurred after the
initial recognition of the financial asset, the estimated future cash flows
of the investment have been impacted. For financial assets carried at
amortised cost, the amount of the impairment is the difference between the
asset’s carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate.
The carrying amount of the financial asset is
reduced by the impairment loss directly for all financial assets. When an
advance receivable is uncollectible, it is written off against the allowance
account. Subsequent recoveries of amounts previously written off are
credited against the allowance account. Changes in the carrying amount of
the allowance account are recognised in profit or loss.
With the exception of available for sale equity instruments, if, in a
subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the
impairment was recognised, the previously recognised impairment loss is
reversed through the income statement to the extent that the carrying amount
of the investment at the date the impairment is reversed does not exceed
what the amortised cost would have been had the impairment not been
recognised.
Any subsequent increase in the fair value of an equity instrument against
which an impairment loss was previously recognised cannot be reversed
through the consolidated income statement, rather can be recognised in other
comprehensive income.
Loan impairment
Individually assessed loans
Individually assessed loans
mainly represent corporate and commercial loans which are assessed
individually in order to determine whether there exists any objective
evidence that a loan is impaired. Loans are classified as impaired as soon
as there is doubt about the borrower’s ability to meet payment obligations
to the Bank in accordance with the original contractual terms. Doubt about
the borrower’s ability to meet payment obligations generally arises when:
a)
Principal and interest are
not serviced as per contractual terms; and
b)
When there is significant
deterioration in the borrower’s financial condition and the amount expected
to be realised from disposal of collaterals if any are not likely to cover
the present carrying value of the loan.
Impaired loans are measured on the basis of the
present value of expected future cash flows discounted at the loan’s
effective interest rate or, as a practical expedient, at the loan’s
observable market price or fair value of the collateral if the loan is
collateral dependent.
Impairment loss is calculated as the difference
between the loan’s carrying value and its present impaired value.
Collectively assessed loans
Impairment losses of collectively assessed loans
include the allowances calculated on:
a)
Performing loans
b)
Retail loans with common
features and which are not individually significant.
Performing loans
Where individually assessed loans are evaluated
and no evidence of loss has been identified, these loans are classified as
performing loans portfolios with common credit risk characteristics based on
industry, product or loan rating. Impairment covers losses which may arise
from individual performing loans that are impaired at the end of the
reporting period but were not specifically identified as such until some
time in the future. The estimated impairment is calculated by the Bank’s
management for each identified portfolio based on historical experience and
the assessed inherent losses which are reflected by the economic and credit
conditions.
Retail loans with common features and which are
not individually significant
Impairment of retail loans is calculated by
applying a formulaic approach which allocates progressively higher loss
rates in line with the overdue instalment date.
Renegotiated loans
Retail loans, which are subject to collective
impairment review and whose terms have been renegotiated, are no longer
considered to be past due and consequently impaired only when the minimum
required number of payments under the new arrangements has not been received
and the borrower has not complied with the revised terms and conditions.
Loans subject to individual impairment
assessment, whose terms have been renegotiated, are subject to continuous
review to determine whether they remain impaired or are considered to be
past due depending upon the borrower complying with the revised terms and
conditions and making the minimum required payments for the loans to be
moved to performing category.
Loans that are either subject to collective impairment assessment or are
individually significant and whose terms have been renegotiated are no
longer considered to be past due but are treated as new loans. In subsequent
years, the asset is considered to be past due and disclosed only if
renegotiated.
Collateral pending sale
The Bank occasionally acquires real estate and
other collaterals in settlement of certain loans and advances. Such real
estate and other collaterals are stated at the lower of the net realisable
value of the loans and advances and the current fair value of such assets at
the date of acquisition. Gains or losses on disposal and unrealised losses
on revaluation are recognised in the consolidated income statement.
Derivative financial instruments
A
derivative is a financial instrument whose value changes in response to an
underlying variable, that requires little or no initial investment and that
is settled at a future date.
The Bank enters into a variety of derivative
financial instruments to manage the exposure to foreign exchange rate risks,
including forward foreign exchange contracts and currency swaps.
Derivative financial instruments are initially
measured at cost, being the fair value at contract date, and are
subsequently re-measured at fair value. 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.
Fair values are generally obtained by reference
to quoted market prices, discounted cash flow models and recognised pricing
models as appropriate.
For the purpose of hedge accounting, the Bank
classifies hedges into two categories: (a) fair value hedges, which hedge
the exposure to changes in the fair value of a recognised asset or
liability; and (b) cash flow hedges, which hedge exposure to variability in
cash flows that are either attributable to a particular risk associated with
a recognised asset or liability, or a highly probable forecasted transaction
that will affect future reported net income.
In order to qualify for hedge accounting, it is
required that the hedge should be expected to be highly effective, i.e. the
changes in fair value or cash flows of the hedging instrument should
effectively offset corresponding changes in the hedged item and should be
reliably measurable. At inception of the hedge, the risk management
objectives and strategies are documented including the identification of the
hedging instrument, the related hedged item, the nature of risk being
hedged, and how the Bank will assess the effectiveness of the hedging
relationship. Subsequently, the hedge is required to be assessed and
determined to be an effective hedge on an ongoing basis.
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 re-measurement of both the derivative and the hedged
item are recognised in the consolidated income statement. Fair value
adjustments relating to the hedging instrument are allocated to the same
consolidated income statement category as the related hedged item. Any
ineffectiveness is also recognised in the same consolidated income statement
category as the related hedged item. 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 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.
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 the cash flow
hedging reserve in equity. The ineffective part of any gain or loss is
recognised immediately in the consolidated income statement as trading
revenue/loss. Amounts accumulated in equity are transferred to the
consolidated income statement in the periods in which the hedged item
affects profit or loss. 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 asset or liability. When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, the cumulative gains or losses recognised in other comprehensive
income 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 other comprehensive income are immediately transferred
to the consolidated income statement and classified as trading revenue/loss.
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 as trading revenue/loss. However, the gains and losses
arising from changes in the fair values of derivatives that are managed in
conjunction with financial instruments designated at fair value are included
in net income from financial instruments designated at fair value under
other non-interest revenue/loss.
Derivatives embedded in other financial
instruments or other non-financial host contracts are treated as separate
derivatives when their risks and characteristics are not closely related to
those of the host contract and the host contract is not carried at fair
value with unrealised gains or losses reported in the consolidated income
statement.
Other financial liabilities
Other financial liabilities, including
borrowings, 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.
The effective interest method is a method of
calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. 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.
Customers’ deposits and syndicated loan
Customers’ deposits and syndicated loan are
initially measured at fair value which is normally consideration received
net of directly attributable transaction costs incurred, and subsequently
measured at their amortised cost using the effective interest method.
Convertible bonds
The equity component of the convertible bond is
recognised as equity in the statement of financial position. On issuance of
the convertible bond, the fair value of the liability component is
determined using a market rate for an equivalent non convertible bond; and
this amount is carried as a liability using the amortised cost basis until
extinguished on conversion or redemption.
The remainder of the proceeds is allocated to
the conversion option that is recognised and included in Equity. The
carrying amount of the convertible option is not re-measured in subsequent
years and is allocated to share premium or reserves upon conversion or
redemption.
Business Combinations
Acquisitions of subsidiaries and businesses are
accounted for using the purchase method. The cost of the business
combination is measured at the aggregated of the fair values, at the date of
exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Bank in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The acquiree’s
identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 Business Combinations are
recognised at their fair values at the acquisition date, except for
non-current assets (or disposal groups) that are classified as held for sale
in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, which are recognised and measured at fair value
less costs to sell.
Goodwill arising on
acquisition is recognised as an asset and initially measured at cost, being
the excess of the cost of the business combination over the Bank’s interest
in the net fair value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Bank’s interest in the
net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities exceeds the cost of the business combination, the
excess is recognised immediately in income statement.
The interest of non-controlling shareholders in
the acquiree is initially measured at the non-controlling shareholder’s
proportion of the net fair value of the assets, liabilities and contingent
liabilities recognised.
Goodwill
Goodwill is initially recognised as an asset at
cost and is subsequently measured at cost less any accumulated impairment
losses.
For the purpose of impairment testing, goodwill
is allocated to each of the Bank’s cash-generating units expected to benefit
from the synergies of the combination. Cash-generating units to which
goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than the carrying
amount of the unit, 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 on the basis of the carrying amount of each
asset in the unit. An impairment loss recognised for goodwill is not
reversed in a subsequent period.
Employees’ end of service benefits
The Bank 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.
Pension and national insurance contributions for
the U.A.E. citizens are made by the Bank in accordance with Federal Law No.
7 of 1999.
Provisions and contingent liabilities
Provisions are recognised
when the Bank 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.
Contingent liabilities, which include certain
guarantees and letters of credit pledged as collateral security, 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 Bank’s control. 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.
Acceptances
Acceptances have been considered within the
scope of IAS 39 (Financial Instruments: Recognition and Measurement)
and are recognised as 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.
Financial guarantees
Financial guarantees are contracts that require
the Bank 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 guarantees are initially recognised at
their fair value, which is 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.
Recognition and de-recognition of financial
instruments
The Bank recognises a
financial asset or liability in its consolidated statement of financial
position only when it becomes party to the contractual provisions of that
instrument. Financial assets are derecognised when the right to receive cash
flows from the assets has expired or when the Bank has transferred its
contractual right to receive the cash flows of the financial assets, and
substantially all the risks and rewards of ownership, or where control is
not retained. Financial liabilities are derecognised when they are
extinguished - that is when the obligation specified in the contract is
discharged, cancelled or expired.
Offsetting of financial assets and liabilities
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 Bank intends to settle either on a net basis, or to realise the
asset and settle the liability simultaneously.
Revenue and expense recognition
Interest income and expense and loan commitment
fees are recognised on a time proportion basis, taking into account the
principal outstanding and the rate applicable. Commission and fee income
are generally accounted for on the date the transaction arises. Interest
accruing on loans and advances considered doubtful is excluded from income
until received. Subsequently, notional interest is recognised on doubtful
loans and advances and other financial assets based on the rate used to
discount the net present value of future cash flows. Other fees receivable
or payable are recognised when earned.
Gain or loss on trading and investment
securities comprises all gains and losses from changes in the fair value of
held for trading securities and gains or losses on disposal of investment
securities. Gain or loss on disposal of trading investments represents the
difference between the sale proceeds and the carrying value of such
investments on the date of sale less any associated selling costs. Gain or
loss on disposal of available for sale investments represents the difference
between sale proceeds and their original cost less associated selling costs.
Dividend revenue from investments is recognised
when the Bank’s right to receive payments has been established.
Payments made under operating
leases are recognised in profit or loss on a straight-line basis over the
term of the lease. Lease incentives received are recognised as an integral
part of the total lease expense, over the term of the lease.
Foreign currencies
Items included in the financial statements of
each of the Bank’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 Bank are presented
in AED, which is the Bank’s presentation currency.
Transactions in foreign currencies are recorded
in the functional currency at the rate of exchange prevailing on the date 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 income statement.
Non-monetary assets and liabilities that are measured at historical cost in
a foreign currency are translated into the functional currency using rate of
exchange at the date of initial transaction. Non-monetary assets and
liabilities measured at fair value in a foreign currency are translated into
the functional currency using the rate of exchange at the date the fair
value was determined. Any exchange component of a gain or loss on a
non-monetary item is recognised directly in equity if the gain or loss on
the non-monetary item is recognised directly in equity. Any exchange
component of a gain or loss on the non-monetary is recognised directly in
the consolidated income statement if the gain or loss on the non-monetary
item is recognised in the income statement.
In the consolidated financial statements, the
assets, including related goodwill where applicable, and liabilities of
branches, subsidiaries, joint ventures and associates whose functional
currency is not AED, are translated into the Bank’s presentation currency at
the rate of exchange ruling at the statement of financial position date. The
results of branches, subsidiaries, joint ventures and associates 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
in the ‘foreign exchange reserve’.
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 proportionate basis except in the case of
partial disposal (i.e. no loss of control) of a subsidiary that includes a
foreign operation, the proportionate share of accumulated exchange
differences are re-attributed to non-controlling interests and are not
recognised in consolidated income statement.
Goodwill and fair value
adjustments arising on the acquisition of a foreign operation are treated as
assets and liabilities of the foreign operation and translated at the
closing rate.
Trade and settlement date accounting
The
“regular way” purchases and sales of financial assets are recognised on the
trade date basis i.e. the date that the Bank commits to purchase or sell the
asset. 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 Bank has committed to purchase at the end of the reporting
period is recognised in the consolidated income statement for assets
classified as held for trading and in the consolidated statement of changes
in equity for assets classified as available for sale.
Dividends
Dividends are recognised
outside profit or loss in equity in the year in which they are declared.
Dividends declared after end of the reporting period are disclosed as
proposed dividends.
While applying the accounting policies as stated
in Note 3, the management of the Bank has made certain judgments. These
judgments mainly have a significant effect on the carrying amounts of loans
and advances, investment securities and the fair values of derivative
financial instruments. The significant judgments made by the management in
arriving at the carrying amounts of loans and advances, investment
securities, Investment in an associate and fair values of derivative
financial instruments are summarised as follows:
Loans and advances
The impairment allowance for loan losses is
established through charges to the consolidated income statement in the form
of an impairment allowance for doubtful loans and advances.
Individually assessed loans
Impairment losses for individually assessed
loans are determined by an evaluation of exposure on a case-by-case basis.
This procedure is applied to all classified corporate loans and advances
which are individually significant accounts or are not subject to the
portfolio-based-approach.
The following factors are considered by
management when determining allowance for impairment on individual loans and
advances which are significant:
·
The amount expected to be
realised on disposals of collaterals.
·
The Bank’s ability to
enforce its claim on the collaterals and associated cost of litigation.
·
The expected time frame to
complete legal formalities and disposals of collaterals.
The Bank’s policy requires quarterly review of
the level of impairment allowances on individual facilities and regular
valuation of the collateral and its enforceability.
Impaired loans continue to be classified as
impaired unless they are brought fully current and the collection of
scheduled interest and principal is considered probable.
Collectively assessed loans
Collective assessment of allowance for
impairment is made for overdue retail loans with common features which are
not individually significant and performing loans which are not found to be
individually impaired.
The following factors are considered by
management when determining allowance for impairment for such loans:
Retail loans – All the loans falling under
similar overdue category are assumed to carry similar credit risk and
allowance for impairment is taken on a gross basis.
Other performing loans – The management of the
Bank assesses, based on historical experience and the prevailing economic
and credit conditions, the magnitude of loans which may be impaired but not
identified as of the end of the reporting period.
Fair value of unquoted
financial instruments
The fair values of financial instruments that
are not quoted in active markets are determined by using valuation
techniques. Where valuation techniques (for example) are used to determine
fair values, they are validated and periodically reviewed by qualified
personnel independent of the area that created them. All models are
certified before they are used, and models are calibrated to ensure that
outputs reflect actual data and comparative market prices. To the extent,
practical models use only observable data, however; areas such as credit
risk (both own and counterparty), volatilities and correlations require
management to make estimates. Changes in assumptions about these factors
could affect the reported fair value of financial instruments.
Impairment of available
for sale investments
The Bank exercises judgment to consider
impairment on the available for sale investments. This includes
determination of a significant or prolonged decline in the fair value below
its cost. In making this judgment, the Bank evaluates among other factors,
the normal volatility in market price. In addition, the Bank 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.
Impairment of investments in associates
After application of equity method of
accounting, the Bank determines whether it is necessary to recognise for any
additional impairment loss on the carrying value of the investment in
associate by comparing its recoverable amount with the higher of value in
use or fair value less costs to sell with its carrying amount.
In
determining the value in use of the investment, the Bank estimates:
i)
its share of the
present value of the estimated future cash flows expected to be generated by
the associates, including the cash flows from the operations of the
associates and the proceeds on the ultimate disposal of the investment; or
ii)
the present value of
the estimated future cash flows expected to arise from dividends to be
received from the investment and from its ultimate disposal.
Derivative financial instruments
Subsequent to initial
recognition, the fair values of derivative financial instruments measured at
fair value are generally obtained by
reference to quoted market prices, discounted cash flow models and
recognised pricing models as appropriate. When independent prices are
not available, fair values are determined by using valuation techniques
which refer to observable market data. These include comparison with similar
instruments where market observable prices exist, discounted cash flow
analysis, option pricing models and other valuation techniques commonly used
by market participants. The main factors which management considers when
applying a model are:
a) The likelihood and
expected timing of future cash flows on the instrument. These cash flows are
usually governed by the terms of the instrument, although management
judgement may be required in situations where the ability of the
counterparty to service the instrument in accordance with the contractual
terms is in doubt; and
b) An appropriate discount
rate for the instrument. Management determines this rate, based on its
assessment of the appropriate spread of the rate for the instrument over the
risk-free rate. When valuing instruments by reference to comparable
instruments, management takes into account the maturity, structure and
rating of the instrument with which the position held is being compared.
When valuing instruments on a model basis using the fair value of underlying
components, management considers, in addition, the need for adjustments to
take account of a number of factors such as bid-offer spread, credit
profile, servicing costs of portfolios and model uncertainty.
5 Cash and balances with Central Banks
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Cash on hand |
52,737 |
54,865 |
|
Statutory deposit with Central Banks |
802,955 |
877,671 |
|
Current account with Central Banks |
24,708 |
87,373 |
|
Certificates of deposit with Central Banks |
302,356 |
153,021 |
|
|
|
|
|
|
|
|
|
|
1,182,756 |
1,172,930 |
|
|
|
|
|
Cash and balances with Central banks are due from: |
|
|
|
|
|
|
|
Banks abroad |
834,160 |
709,950 |
|
Banks in the U.A.E. |
348,596 |
462,980 |
|
|
|
|
|
|
|
|
|
|
1,182,756 |
1,172,930 |
|
|
|
|
The statutory deposits with the Central Banks
are not available to finance the day to day operations of the Bank. However,
as per notice 4310/2008, the Central Bank of the U.A.E. has allowed banks to
borrow up to 100% of their AED and US$ reserve requirement limit.
6 Deposits and balances due from banks
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Demand |
448,052 |
439,198 |
|
Time |
1,784,692 |
974,090 |
|
|
|
|
|
|
|
|
|
|
2,232,744 |
1,413,288 |
|
|
|
|
|
|
|
|
|
Deposits and balances due from banks are due from: |
|
|
|
|
|
|
|
Banks abroad |
959,496 |
764,339 |
|
Banks in the U.A.E. |
1,273,248 |
648,949 |
|
|
|
|
|
|
|
|
|
|
2,232,744 |
1,413,288 |
|
|
|
|
7 Loans and advances, net
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Overdrafts |
5,869,024 |
6,810,009 |
|
Commercial loans |
4,949,290 |
2,885,566 |
|
Bills receivable |
774,940 |
678,415 |
|
Other advances |
214,524 |
230,474 |
|
|
|
|
|
|
|
|
|
|
11,807,778 |
10,604,464 |
|
Less: Allowance for doubtful loans and advances |
(275,502) |
(183,802) |
|
Less: Interest in suspense |
(81,794) |
(80,295) |
|
|
|
|
|
|
|
|
|
|
11,450,482 |
10,340,367 |
|
|
|
|
|
|
|
|
The loans and advances of the Bank are as
follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Loans and advances in the U.A.E. |
9,254,594 |
8,856,816 |
|
Loans and advances outside the U.A.E. |
2,553,184 |
1,747,648 |
|
|
|
|
|
|
|
|
|
|
11,807,778 |
10,604,464 |
|
|
|
|
The risk classification of
loans and advances are as follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Performing loans |
10,392,006 |
9,199,636 |
|
Other loans
exceptionally monitored |
1,156,076 |
1,140,922 |
|
Non performing loans
|
259,696 |
263,906 |
|
|
|
|
|
|
11,807,778 |
10,604,464 |
|
Less: Allowance for doubtful loans and advances |
(275,502) |
(183,802) |
|
Less: Interest in suspense |
(81,794) |
(80,295) |
|
|
|
|
|
|
11,450,482 |
10,340,367 |
|
|
|
|
|
|
|
|
Loans and advances are stated net of allowance
for doubtful loans and advances. The movement in the allowance during the
year was as follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
At 1 January |
183,802 |
47,817 |
|
Balance from acquisition of a subsidiary |
- |
82,206 |
|
Additions during the year (Note 30) |
100,733 |
70,373 |
|
Write offs |
(9,033) |
(16,594) |
|
|
|
|
|
|
|
|
|
At 31
December |
275,502 |
183,802 |
|
|
|
|
The movement in the interest in suspense account
during the year was as follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
At 1 January |
80,295 |
25,818 |
|
Balance from acquisition of a subsidiary |
- |
48,785 |
|
Additions during the year |
12,736 |
5,692 |
|
Write offs during the year |
(11,237) |
- |
|
|
|
|
|
|
|
|
|
At 31
December |
81,794 |
80,295 |
|
|
|
|
At 31 December 2009, the gross amount of loans
and advances on which interest is not being accrued, or is suspended,
amounted to AED 274,597 thousand (2008: AED 263,906 thousand). Unrecognised
interest for the year relating to such loans amounted to AED 12,736 thousand
(2008: AED 5,692 thousand).
The composition of the loans and advances
portfolio by industry is as follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
Economic sector |
|
|
|
|
|
|
|
Trading |
3,688,034 |
3,894,787 |
|
Personal loans for commercial purposes |
2,251,281 |
1,640,721 |
|
Services |
1,377,052 |
1,227,298 |
|
Manufacturing |
1,341,763 |
1,086,027 |
|
Construction |
914,367 |
820,972 |
|
Government |
463,934 |
538,005 |
|
Public utilities |
547,111 |
404,668 |
|
Mining and quarrying |
504,811 |
393,461 |
|
Transport and communication |
208,413 |
167,160 |
|
Personal loans for individual purposes |
115,707 |
96,760 |
|
Agriculture |
46,084 |
41,847 |
|
Financial Institution |
34,280 |
13,450 |
|
Others |
314,941 |
279,308 |
|
|
|
|
|
|
|
|
|
|
11,807,778 |
10,604,464 |
|
|
|
|
|
Less: Allowance for doubtful loans and advances |
(275,502) |
(183,802) |
|
Less: Interest in suspense |
(81,794) |
(80,295) |
|
|
|
|
|
|
|
|
|
|
11,450,482 |
10,340,367 |
|
|
|
|
8 Investment in securities
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Available for sale investments |
|
|
|
Quoted equity |
190,960 |
140,630 |
|
Unquoted equity |
592,757 |
612,338 |
|
Quoted debt instruments |
597,389 |
164,786 |
|
|
|
|
|
|
|
|
|
|
1,381,106 |
917,754 |
|
|
|
|
|
|
|
|
|
Held to maturity
investments |
|
|
|
Quoted debt instruments |
10,115 |
42,250 |
|
|
|
|
|
Investments carried at fair value
through
profit and loss |
|
|
|
Quoted equity |
85,184 |
67,722 |
|
Quoted debt instruments |
162,691 |
160,843 |
|
|
|
|
|
|
|
|
|
|
247,875 |
228,565 |
|
|
|
|
|
|
|
|
|
Total investment in
securities |
1,639,096 |
1,188,569 |
|
|
|
|
|
|
|
|
The majority of the quoted investments are
listed on the securities exchanges in the U.A.E. (Abu Dhabi Securities
Exchange and Dubai Financial Market).
The composition of the investments portfolio by
geography is as follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
United Arab Emirates |
448,811 |
395,394 |
|
G.C.C. countries (other than U.A.E.) |
11,146 |
11,972 |
|
Middle East and Africa (other than G.C.C. countries) |
1,174,128 |
765,128 |
|
United States |
651 |
13,017 |
|
Europe |
4,360 |
3,058 |
|
|
|
|
|
|
|
|
|
|
1,639,096 |
1,188,569 |
|
|
|
|
The movement in the investment in securities is
summarised as follows:
|
|
Fair value through
profit and loss |
Available
for sale |
Held to maturity |
Total |
|
|
AED’000 |
AED’000 |
AED’000 |
AED’000 |
|
|
|
|
|
|
|
At 1 January 2009 |
228,565 |
917,754 |
42,250 |
1,188,569 |
|
Additions |
108 |
485,189 |
- |
485,297 |
|
Disposals |
(11,115) |
(82,449) |
- |
(93,564) |
|
Matured during the year |
- |
- |
(32,042) |
(32,042) |
|
Fair value
adjustments, net |
30,317 |
47,434 |
- |
77,751 |
|
Premium amortisation |
- |
13,178 |
(93) |
13,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009 |
247,875 |
1,381,106 |
10,115 |
1,639,096 |
|
|
|
|
|
|
|
|
|
|
|
|
The Bank had no exposure to the U.S. sub-prime
and structured credit, or to any of the failed financial institutions.
In 2008 certain trading
securities were reclassified to available for sale investments in accordance
with the amendments to IAS 39 issued on 13 October 2008 with respect to
reclassification of financial assets. The fair value of the trading
securities at the date of reclassification was AED 184,500 thousand and at
31 December 2009 was AED 83,700 thousand (31 December 2008: AED 51,300
thousand). The fair value gain on these securities for the year ended 31
December 2009 amounting to AED 32,400 thousand have been recognised under
cumulative changes in fair values in the consolidated statement of changes
in equity. The fair value loss on these securities from the date of
reclassification to 31 December 2008 amounting to AED 93,600 thousand was
recognised under cumulative changes in fair values in the consolidated
statement of changes in equity and AED 39,600 thousand was recognised as
impairment loss in the consolidated income statement for the year ended 31
December 2008.
During the year, the Federal Government had
decided to merge Emirates Industrial Bank (“EIB”), of which the Bank is a
shareholder and ‘Real Estate Bank’ into ‘Emirates Development Bank’.
Pursuant to a decision made by the shareholders of EIB in their Annual
General Meeting, the Bank was invited to sell its shares to EIB at a price
of AED 1,560 per share. As of 31 December 2009, the bank had accepted the
offered price and derecognised it’s investment in EIB by recognising a loss
of AED 9,400 thousand in the profit or loss.
Management reviewed its available for sale
investment for impairments based on criteria that include the extent to
which carrying value exceeds market value, the duration of the market
decline, management’s intent and ability to hold the investment up to
recovery and the financial health and specific prospects for the issuer. As
a result, Management recognised impairment on available for sale investments
for the amount of AED Nil (2008: AED 98,400 thousand).
Investments carried at fair
value through profit and loss includes investment in a U.A.E. Government
debt security, which will mature in April 2013 and carry an interest rate of
3 months EIBOR plus 50 basis points. Management has classified this
investment as a part of trading portfolio based on management intention.
9 Investment in an associate
In 2008, the Bank invested in 35% of the equity
of Muweilah fund. The principal business activity of this associate is land
development in prime industrial areas within the U.A.E.
|
|
|
2009 |
2008 |
|
|
|
AED’000 |
AED’000 |
|
|
|
|
|
|
Cost of acquisition |
|
80,074 |
80,074 |
|
Bank’s share of post acquisition profit |
|
- |
- |
|
|
|
|
|
|
|
|
|
|
|
Carrying value at 31 December |
|
80,074 |
80,074 |
|
|
|
|
|
The latest available management accounts in
respect of the Bank’s associate are as of 31 December 2009 and summarised as
follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Total assets |
465,609 |
461,567 |
|
Total liabilities |
(236,826) |
(232,784) |
|
|
|
|
|
|
|
|
|
Net assets |
228,783 |
228,783 |
|
|
|
|
|
|
|
|
|
Total profit for the
year |
- |
- |
|
|
|
|
|
|
|
|
The fund is still in the development stage and
all qualifying borrowing costs are being capitalised.
10 Investment property
|
|
31 December 2008 |
Additions |
Changes in fair value |
31 December 2009 |
|
|
AED’000 |
AED’000 |
AED’000 |
AED’000 |
|
|
|
|
|
|
|
Plots of land in the U.A.E. |
91,723 |
- |
(12,108) |
79,615 |
|
Daman building flats |
6,096 |
- |
- |
6,096 |
|
Opus building |
29,785 |
3,955 |
- |
33,740 |
|
Tamani Arts offices |
48,367 |
4,583 |
- |
52,950 |
|
The Octavian |
12,396 |
- |
- |
12,396 |
|
|
|
|
|
|
|
Carrying value at
31 December |
188,367 |
8,538 |
(12,108) |
184,797 |
|
|
|
|
|
|
Investment properties represent plots of land
and properties under development held by the Bank for undetermined future
use. The fair value of investment properties is estimated periodically by
considering recent prices for similar properties in the same location and
similar conditions, with adjustments to reflect any changes in the nature,
location or economic conditions since the date of the transactions that
occurred at these prices. The effective date of the valuation is 31 December
2009.
11 Goodwill and other intangibles
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
Goodwill |
184,733 |
279,830 |
|
Other intangibles |
|
|
|
Banking license |
18,365 |
- |
|
Legal corporate
setup in Lebanon |
42,945 |
- |
|
Customer base |
31,221 |
- |
|
Branch network |
3,673 |
- |
|
|
|
|
|
|
|
|
|
Total |
280,937 |
279,830 |
|
|
|
|
|
|
|
|
In
2007 the Bank acquired all the outstanding shares of Banque de la Bekaa SAL,
a Lebanese bank. During 2008, The Bank had recapitalised Banque de la Bekaa
SAL by increasing its capital to US$ 50 million plus a cash contribution of
US$ 100 million in order to reach a total initial equity of US$ 150 million.
Also the Bank had changed its name to Emirates Lebanon Bank SAL (“ELBank”)
which then acquired the assets and liabilities of BNPI in Lebanon as
explained below.
On 29 September 2008, the
Bank, through its fully owned subsidiary EL Bank, obtained the final
approval from the Central Bank of Lebanon on the acquisition of the assets
and liabilities (operations) of BNPI in Lebanon. In accordance with the sale
and purchase agreement, EL Bank was 81% owned by the Bank and 19% owned by
BNPI France (a fully owned subsidiary of BNP Paribas).
During the current year, the Bank’s management
has completed the ongoing due diligence and made a final determination of
the net assets fair value which resulted in an adjustment of AED 1,107
thousand on the carrying amount of goodwill. Also, the fair value of the
intangibles acquired in the above stated transactions was determined and
separated from the carrying value of goodwill, to be amortised as per the
Bank’s accounting policy on intangibles stated in note 3.
The provisional and final
fair values of net assets acquired were as follows:
|
|
Provisional |
Final |
|
|
AED’000 |
AED’000 |
|
Assets |
|
|
|
Cash and deposits with Central banks |
459,429 |
459,429 |
|
Deposits and balances due from banks |
533,007 |
533,007 |
|
Loans and advances, net |
1,590,163 |
1,590,163 |
|
Investment in securities |
467,839 |
467,839 |
|
Other assets |
84,206 |
83,099 |
|
Property and equipment |
60,998 |
60,998 |
|
Intangibles |
- |
96,204 |
|
|
|
|
|
|
|
|
|
|
3,195,642 |
3,290,739 |
|
|
|
|
|
Liabilities |
|
|
|
Customers' deposits |
(2,586,673) |
(2,586,673) |
|
Due to banks |
(229,976) |
(229,976) |
|
Other liabilities |
(190,902) |
(190,902) |
|
|
|
|
|
|
|
|
|
|
(3,007,551) |
(3,007,551) |
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired |
188,091 |
283,188 |
|
Goodwill |
279,830 |
184,733 |
|
|
|
|
|
|
|
|
|
Total acquisition
cost |
467,921 |
467,921 |
|
|
|
|
|
|
|
|
|
Cash outflow on consideration: |
|
|
|
Consideration paid in cash and cash equivalents |
461,405 |
461,405 |
|
Transaction costs incurred |
6,516 |
6,516 |
|
|
|
|
|
|
|
|
|
Total acquisition
cost |
467,921 |
467,921 |
|
|
|
|
|
|
|
|
The movement in Goodwill
during the year was as follows:
|
|
2009 |
2008 |
|
|
AED’000 |
AED’000 |
|
|
|
|
|
At 1 January |
279,830 |
54,036 |
|
Additions during the year |
- |
225,794 |
|
Adjustment to
provisional net assets fair value on final determination |
1,107 |
- |
|
Recognised separately as other intangibles- |
|
|
|
- Banking license |
(18,365) |
- |
|
- Legal corporate
setup in Lebanon |
(42,945) |
- |
|
- Customer base |
(31,221) |
- |
|
- Branch network |
(3,673) |
- |
|
|
|
|
|
|
|
|
|
At 31 December
|
184,733 |
279,830 |
|
|
|
|
|
|
|
|
12 Other assets
| |