1       General information

 

Bank of Sharjah P.J.S.C. (the "Bank"), is a public joint stock company incorporated by an Amiri Decree issued on 22 December 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 26 January 1974. The Bank is engaged in commercial and investment banking activities. 

 

The Bank's registered office is located at Al Khan Road, P.O. Box 1394, Sharjah, United Arab Emirates. The Bank operates through six branches in the United Arab Emirates located in the Emirates of Sharjah, Dubai, Abu Dhabi, and City of Al Ain. The accompanying consolidated financial statements combine the activities of the Bank and its subsidiaries (collectively the "Group"), as listed in Note 31.

 

2.      Basis of preparation

 

2.1    Subsidiary held for sale

 

The Central Bank of the UAE continues to support the Bank's strategic initiative to delink and deconsolidate its Lebanese subsidiary, in line with the Central Bank of the UAE recommendations and Board approval, effective 1 April 2023. This approach aims to reduce accounting volatility and address historical anomalies arising from consolidation. The subsidiary remains classified as an asset held for sale and is measured in accordance with IFRS 5 at the lower of carrying amount and fair value less costs to sell, based on a market-oriented valuation approach.

 

During the year ended 31 December 2025, Lebanon's political and economic environment showed gradual improvement, contributing to a more stable operating landscape and renewed interest in potential transactions within the banking sector. The Bank made tangible progress in advancing the sale process, engaging multiple credible potential buyers who have executed confidentiality agreements and entered structured discussions. As at year-end, transaction materials were finalized and shared to support ongoing due diligence.

 

While completion remains subject to regulatory approvals and market conditions, the improving external environment and continued buyer engagement support management's expectation that the disposal process will continue to advance. Accordingly, the Lebanese subsidiary continues to meet the criteria for classification as held for sale under IFRS 5.

 

The results of the Lebanese subsidiary for the year ended 31 December 2025 and 2024 are considered to be immaterial to the overall financial statements of the Group, accordingly, these have not been included in these consolidated financial statements.

 

The breakdown of the Lebanese subsidiary's net assets as at 1 April 2023 is as follows:

ASSETS		AED'000
Cash and balances with central bank		2,892,460
Deposits and balances due from banks		10,497
Loans and advances, net		1,090,017
Investments measured at fair value		29,567
Investments measured at amortised cost		43,344
Other intangibles		345
Assets acquired in settlement of debt		79,641
Other assets		17,989
Property and equipment		6,040
		------------------------
Total assets		4,169,900
		------------------------
LIABILITIES
Customers' deposits		2,318,968
Deposits and balances due to banks		617,261
Other liabilities		189,728
		------------------------
Total liabilities		3,125,957
		------------------------
Net assets		1,043,943
		==========
Fair value of net assets		844,790
		==========

 

2.      Basis of preparation (continued)

 

2.2    Basis of preparation

 

The consolidated financial statements of the Group have been prepared in accordance with IFRS Accounting Standards as issued by International Accounting Standards Board ("IASB") and applicable requirements of the laws of the United Arab Emirates ("UAE"). Group has also complied with provisions of the UAE Federal Decree Law No. 32 of 2021 ("Companies Law") which was issued on 20 September 2021 and came into effect on 2 January 2022.

 

Basis of measurement - The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments and investment properties that are measured at fair values as explained in the accounting policies below.

 

Functional and presentation currency - The consolidated financial statements are presented in United Arab Emirates Dirham (AED) and all values are rounded to the nearest thousands' dirham, except when otherwise indicated.

 

Basis of consolidation - The consolidated financial statements incorporate the financial statements of the Bank and entities controlled by the Bank. Control is achieved when the Bank has:

 

§  power over the investee,

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

§  the ability to use its power over the investee 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. This includes circumstances in which protective rights (e.g. more from a lending relationship) becomes substantive and lead to the Bank having power over as investee. When the Bank has less than a majority of the 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 holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

§  potential voting rights held by the Bank, other vote holders and other parties;

§  rights raising 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 that decisions need to be made, including voting patterns and previous shareholders' meetings.

 

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss 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 attributable to the owners of the Bank and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributable to the owners of the Group and to the non-controlling interest even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between entities of the Group are eliminated in full on consolidation.

 

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are 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/payable or received/receivable is recognised directly in equity and attributed to owners of the Group. When the Group loses control of a subsidiary, a gain or loss is recognised in the consolidated statement of profit or loss 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) and liabilities of the

2.      Basis of preparation (continued)

 

2.2    Basis of preparation (continued)

 

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 statement of profit or loss 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 IFRS 9 (IFRS 9 Financial instruments) issued in 2010, when applicable, or the cost on initial recognition of an investment in an associate or a joint venture.

 

3        Application of other new and revised International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (IASB)

 

3.1    New and amended IFRS Accounting Standards that are effective for the current period

 

The following new and revised IFRS Accounting Standards, which became effective for annual periods beginning on or after 1 January 2025, have been adopted in consolidated financial statements. Their adoption has not had any material impact on the disclosures or on the amounts reported in these consolidated financial statements.

 

New and revised IFRS Accounting Standard	Summary
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates relating to Lack of Exchangeability	The amendments contain guidance to specify when a currency is exchangeable and how to determine the exchange rate when it is not.

 

Other than the above, there are no other significant IFRS Accounting Standards and amendments that were effective for the first time for the financial year beginning on or after 1 January 2025.

 

 

 

3        Application of other new and revised International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (IASB) (continued)

 

3.2    New and revised IFRS in issue but not yet effective and not early adopted

 

At the date of authorisation of these consolidated financial statements, the Group has not applied the following new and revised IFRS Accounting Standards that have been issued but are not yet effective:

 

New and revised IFRS Accounting Standards	Effective for annual periods beginning on or after
Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures regarding the classification and measurement of financial instruments The amendments address matters identified during the post-implementation review of the classification and measurement requirements of IFRS 9.	1 January 2026
Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures regarding purchase power arrangements The amendments aim at enabling entities to include information in their financial statements that in the IASB's view more faithfully represents contracts referencing nature-dependent electricity.	1 January 2026
Annual improvements to IFRS Accounting Standards - Volume 11 The pronouncement comprises the following amendments: ·      IFRS 1 First-time Adoption of International Financial Reporting Standards: Hedge accounting by a first-time adopter ·      IFRS 7 Financial Instruments - Disclosures: Gain or loss on derecognition ·      IFRS 7 Financial Instruments - Disclosures: Disclosure of deferred difference between fair value and transaction price ·      IFRS 7 Financial Instruments - Disclosures: Introduction and credit risk disclosures ·      IFRS 9 Financial Instruments: Lessee derecognition of lease liabilities ·      IFRS 9 Financial Instruments: Transaction price ·      IFRS 10 Consolidated Financial Statements: Determination of a "de facto agent" ·      IAS 7 Statement of Cash Flows: Cost method	1 January 2026
IFRS 18 Presentation and Disclosures in Financial Statements IFRS 18 includes requirements for all entities applying IFRS for the presentation and disclosure of information in financial statements to help ensure they provide relevant information that faithfully represents an entity's assets, liabilities, equity, income and expenses.	1 January 2027
IFRS 19 Subsidiaries without Public Accountability: Disclosures IFRS 19 specifies the disclosure requirements an eligible subsidiary is permitted to apply instead of the disclosure requirements in other IFRS Accounting Standards.	1 January 2027
Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures The amendments cover new or amended IFRS Accounting Standards issued between 28 February 2021 and 1 May 2024 that were not considered when IFRS 19 was first issued.	1 January 2027

 

 

 

3        Application of other new and revised International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (IASB) (continued)

 

3.2    New and revised IFRS in issue but not yet effective and not early adopted (continued)

 

New and revised IFRS Accounting Standards	Effective for annual periods beginning on or after
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates relating to Translation to a Hyperinflationary Presentation Currency The amendments clarify how companies should translate financial statements from a non-hyperinflationary currency into a hyperinflationary one.	1 January 2027
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) The amendments relate to the treatment of the sale or contribution of assets from an investor to its associate or joint venture	Effective date deferred indefinitely. Adoption is still permitted.

 

The Group anticipates that these new standards, interpretations and amendments will be adopted in the Group's consolidated financial statements as and when they are applicable and adoption of these new standards, interpretations and amendments may have no material impact on the consolidated financial statements of Group in the period of initial application.

 

4       Material accounting policies

 

4.1    Financial instruments

 

Recognition and Initial Measurement

 

A financial instrument is any contract that gives rise to both a financial asset for the Group and a financial liability or equity instrument for another party or vice versa. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Recognised financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities respectively, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in consolidated statement of profit or loss.

 

Classification of financial assets

 

Balances with central bank, due from banks and financial institutions, financial assets and certain items in receivables and other assets that meet the following conditions are subsequently measured at amortised cost less impairment loss and deferred income, if any (except for those assets that are designated as at fair value through profit or loss on initial recognition). IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). On initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL.

 

 

 

 

 

 

 

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Classification of financial assets (continued)

 

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

 

·      the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

·      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:

                            

·      the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

·      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis. In addition, on initial recognition the Bank may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

 

Financial assets measured at amortised cost

 

The effective interest rate method is a method of calculating the amortised cost of those financial instruments measured at amortised cost and of allocating income over the relevant period. The effective interest rate is the rate that is used to calculate the present value of the estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instruments, or, where appropriate, a shorter period, to arrive at the net carrying amount on initial recognition. Income is recognised in the consolidated statement of profit or loss on an effective interest rate basis for financing and investing instruments measured subsequently at amortised cost.

 

Financial assets measured at FVTPL

 

Investments in equity instruments are classified as financial assets measured at FVTPL, unless the Group designates fair value through other comprehensive income (FVTOCI) at initial recognition. Financial assets that do not meet the amortised cost criteria described above, or that meet the criteria but the Group has chosen to designate it as at FVTPL at initial recognition, are measured at FVTPL. Financial assets (other than equity instruments) may be designated at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities or recognizing the gains or losses on them on different basis. Financial assets are reclassified from amortised cost to FVTPL when the business model is changed such that the amortised cost criteria are no longer met. Reclassification of financial assets (other than equity instruments) designated as at FVTPL at initial recognition is not permitted. Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognised in the consolidated statement of profit or loss at the end of each reporting period. The net gain or loss recognised in the consolidated statement of profit or loss. Fair value is determined in the manner described in note 37.

 

Financial assets measured at FVTOCI

 

On initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for trading. A financial asset is held for trading if:

 

 

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Financial assets measured at FVTOCI (continued)

 

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

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

·      it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.

 

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.

 

Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments fair value reserve. Where the asset is disposed of, the cumulative gain or loss previously accumulated in the investments fair value reserve is not transferred to consolidated statement of profit or loss.

 

Business model assessment

 

The Bank assesses the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

·      the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;

·      how the performance of the portfolio is evaluated and reported to the Bank 's management;

·      the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

·      how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

·      the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Bank's stated objective for managing the financial assets is achieved and how cash flows are realised.

 

Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

 

Assessments whether contractual cash flows are solely payments of principal and interest

 

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Bank considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Bank considers:

 

·      contingent events that would change the amount and timing of cash flows;

·      leverage features;

·      prepayment and extension terms;

·      terms that limit the Group's claim to cash from specified assets; and

·      features that modify consideration of the time value of money (e.g. periodical reset of interest rates).

 

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Assessments whether contractual cash flows are solely payments of principal and interest (continued)

 

The Group holds a portfolio of long-term fixed-rate loans for which the Group has the option to propose to revise the interest rate at periodic reset dates. These reset rights are limited to the market rate at the time of revision. The borrowers have an option to either accept the revised rate or redeem the loan at par without penalty.

 

The Group has determined that the contractual cash flows of these loans are SPPI because the option varies the interest rate in a way that is consideration for the time value of money, credit risk, other basic lending risks and costs associated with the principal amount outstanding.

 

Restructured financial assets

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and ECLs are measured as follows:

 

·     If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset;

·     If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset.

Derecognition

 

Financial assets

 

The Group derecognises a financial asset only when the contractual rights to the asset's cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Group neither transfers nor retains substantially all their risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

In the case where the financial asset is derecognised, the loss allowance for ECL is remeasured at the date of derecognition to determine the net carrying amount of the asset at that date. The difference between this revised carrying amount and the fair value of the new financial asset with the new terms will lead to a gain or loss on derecognition. The new financial asset will have a loss allowance measured based on 12-month ECL except in the rare occasions where the new loan is considered to be originated credit impaired. This applies only in the case where the fair value of the new loan is recognised at a significant discount to its revised par amount because there remains a high risk of default which has not been reduced by the modification. The Group monitors credit risk of modified financial assets by evaluating qualitative and quantitative information, such as if the borrower is in past due status under the new terms.

 

 

 

 

 

 

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Financial assets (continued)

 

Any cumulative gain or loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability.

The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. Examples of such transactions are securities lending and sale-and-repurchase transactions.

Financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the statement of profit or loss.

When the Group exchanges with the existing lender one debt instrument into another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.

 

Non-recourse loans

 

In some cases, loans made by the Group that are secured by collateral of the borrower limit the Group's claim to cash flows of the underlying collateral (non-recourse loans). The group applies judgment in assessing whether the non-recourse loans meet the SPPI criterion.

 

The Group typically considers the following information when making this judgement:

 

·      whether the contractual arrangement specifically defines the amounts and dates of the cash payments of the loan;

·      the fair value of the collateral relative to the amount of the secured financial asset;

·      the ability and willingness of the borrower to make contractual payments, notwithstanding a decline in the value of collateral;

·      whether the borrower is an individual or a substantive operating entity or is a special-purpose entity;

·      the Group's risk of loss on the asset relative to a full-recourse loan; and

·      the extent to which the collateral represents all or a substantial portion of the borrower's assets; and whether the Group will benefit from any upside from the underlying assets.

 

Measurement of ECL

 

Credit loss allowances are measured using a three-stage approach based on the extent of credit deterioration since origination:

 

•      Stage 1 - Where there has not been a significant increase in credit risk (SICR) since initial recognition of a financial instrument, an amount equal to 12 months expected credit loss is recorded. The expected credit loss is computed using a probability of default occurring over the next 12 months. For those instruments with a remaining maturity of less than 12 months, a probability of default corresponding to remaining term to maturity is used.

 

•      Stage 2 - When a financial instrument experiences a SICR subsequent to origination but is not considered to be in default, it is included in Stage 2. This requires the computation of expected credit loss based on the probability of default over the remaining estimated life of the financial instrument.

 

•      Stage 3 - Financial instruments that are considered to be in default are included in this stage. Similar to Stage 2, the allowance for credit losses captures the lifetime expected credit losses.

 

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Measurement of ECL (continued)

 

ECLs are an unbiased probability‐weighted estimate of the present value of credit losses that is determined by evaluating a range of possible outcomes. For funded exposures, ECL is measured as follows:

·     for financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive arising from the weighting of multiple future economic scenarios, discounted at the asset's coupon rate as a proxy for effective interest rate (EIR);

 

·     financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;

 

However, for unfunded exposures, ECL is measured as follows:

 

For undrawn loan commitments, as the present value of the difference between the contractual cash flows that are due to the Group if the holder of the commitment draws down the loan and the cash flows that the Group expects to receive if the loan is drawn down; and for financial guarantee contracts, the expected payments to reimburse the holder of the guaranteed debt instrument less any amounts that the Group expects to receive from the holder, the debtor or any other party. The Group measures ECL on an individual basis, or on a collective basis for portfolios of loans that share similar economic and credit risk characteristics. The measurement of the loss allowance is based on the present value of the asset's expected cash flows using the asset's coupon rate, regardless of whether it is measured on an individual basis or a collective basis.

 

The key inputs into the measurement of ECL are the term structure of the following variables:

·      Probability of default (PD) - PD estimates are estimates at a certain date, which are calculated based on statistical rating models currently used by the Group, and assessed using rating tools tailored to the various categories and sizes of counterparties.

·      Exposure at default (EAD) - EAD represents the expected exposure upon default of an obligor. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. The EAD of a financial asset is its gross carrying amount at the time of default. For lending commitments, the EADs are potential future amounts that may be drawn under the contract, which are estimated based on historical observations and forward-looking forecasts. For financial guarantees, the EAD represents the amount of the guaranteed exposure when the financial guarantee becomes payable.

EAD is calculated as below:

-      For Loans and other Direct Facilities: EAD reflects only the drawn exposure. Since all facilities show 100% drawn, no CCF is applied to undrawn amounts

-      For Indirect Facilities: EAD is derived by applying UGD to the outstanding exposure.

 

·      Loss given default (LGD) - LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, considering cash flows from the proceeds from liquidation of any collateral.

      LGD is derived as below:

-     Senior Unsecured: 45%

-     Eligible Securities as per Basel lower LGD, taking into consideration applicable Basel haircuts on collateral as well as LGD floors to certain collateral

 

Forward-looking information

 

The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk considers information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information requires significant judgement. The group formulates three economic scenarios: a base case with a 40% weight, upside scenario with a 30% weight and a downside scenario with 30% weight.

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Macroeconomic factors

 

In its models, the Group relies on a broad range of forward-looking information as economic inputs, such as: GDP (Gross Domestic Product) growth and oil prices. The inputs and models used for calculating expected credit losses may not always capture all characteristics of the market at the date of the financial statements. To reflect this, qualitative adjustments or overlays are made as temporary adjustments using expert credit judgement. The economic scenarios used as at 31 December 2025 included the following key indicators for the years ending 31 December 2026 to 2030.

 

	Macro Variable	Scenario	2026	2027	2028	2029	2030
UAE	Oil Price	Base	(6%)	2%	3%	2%	2%
		Upside	2%	(0%)	(1%)	2%	2%
		Downside	(33%)	9%	27%	5%	2%
	GDP	Base	5%	4%	4%	4%	4%
		Upside	7%	6%	4%	4%	4%
		Downside	2%	(0%)	5%	6%	4%

 

Assessment of significant increase in credit risk

 

The assessment of a significant increase in credit risk is done on a relative basis. To assess whether the credit risk on a financial asset has increased significantly since origination, the Group compares the risk of default occurring over the expected life of the financial asset at the reporting date to the corresponding risk of default at origination, using key risk indicators that are used in the Group's existing risk management processes. At each reporting date, the assessment of a change in credit risk will be individually assessed for those considered individually significant.  This assessment is symmetrical in nature, allowing credit risk of financial assets to move back to Stage 1, if certain criteria are met, if the increase in credit risk since origination has reduced and is no longer deemed to be significant.

 

The group assesses whether credit risk has increased significantly since initial recognition at each reporting date. Determining whether an increase in credit risk is significant depends on the characteristics of the financial instrument and the borrower, and the geographical region. What is considered significant differs for different types of lending, in particular between wholesale and retail. The credit risk may be deemed to have increased significantly since initial recognition based on qualitative factors linked to the Group's credit risk management process that may not otherwise be fully reflected in its quantitative analysis on a timely basis. This will be the case for exposures that meet certain heightened risk criteria, such as placement on a watch list. Such qualitative factors are based on its expert judgement and relevant historical experiences. As a backstop, the group considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower. If there is evidence that there is no longer a significant increase in credit risk relative to the initial recognition, then the loss allowance on an instrument returns to being measured as 12-month ECL. Some qualitative indicators of an increase in credit risk, such as delinquency or forbearance, may be indicative of an increased risk of default that persists after the indicator itself has ceased to exist. In these cases, the Group determines a probation period during which the financial asset is required to demonstrate good behaviour to provide evidence that its credit risk has declined sufficiently. When contractual terms of a loan have been modified, evidence that the criteria for recognising lifetime ECL are no longer met includes a history of up-to-date payment performance against the modified contractual terms.  

 

 

 

 

 

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Assessment of significant increase in credit risk (continued)

 

The group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that:

 

·      the criteria are capable of identifying significant increases in credit risk before an exposure is in default;

·      the criteria do not align with the point in time when an asset becomes 30 days past due;

·      the average time between the identification of a significant increase in credit risk and default appears reasonable;

·      exposures are not generally transferred directly from 12-month ECL measurement to credit impaired; and

·      there is no unwarranted volatility in loss allowance from transfers between 12-month PD [stage 1] and lifetime PD [stage 2].

 

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and expert credit assessment and including forward-looking information. The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by comparing:

·      The remaining lifetime probability of default (PD) as at the reporting date; with

·      The remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted where relevant for changes in prepayment expectations)

 

The Group uses three criteria for determining whether there has been a significant increase in credit risk:

·      quantitative test based on movement in PD;

·      qualitative indicators

·      a backstop of 30 days past due.

 

Improvement in credit risk profile

 

If there is evidence that there is no longer a significant increase in credit risk relative to initial recognition, then the loss allowance on an instrument returns to being measured as 12-month ECL.

 

The Group has defined below criteria in accordance with regulatory guidelines to assess any improvement in the credit risk profile which will result into upgrading of customers moving from Stage 3 to Stage 2 and from Stage 2 to Stage 1.

 

For Wholesale Obligors, moving from Stage 3 to Stage 2 is done when at least 3 instalments have been made for monthly repayment schedule, and at least 1 instalment for any other repayment schedule for longer intervals.

 

For Wholesale Obligors, moving from Stage 2 to Stage 1 is done when at least 6 instalments have been made in case of monthly repayment, 2 instalments in case of quarterly repayment, 2 instalments in case of half yearly repayment, 2 instalments in case of yearly repayment and 12 months minimum in the case of any other frequency.

 

Definition of default

 

The Bank considers a financial asset to be in default when:

·      the borrower is unlikely to pay its credit obligations to the Bank in full without recourse by the Bank to actions such as realising security (if any is held);

·      the borrower is past due more than 90 days on any material credit obligation to the Bank; or

·      it is becoming probable that the borrower will restructure the asset as a result of bankruptcy due to the borrower's inability to pay its credit obligations.

 

Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than the current amount outstanding.

 

In assessing whether a borrower is in default, the Bank considers indicators that are:

·      qualitative - e.g. breaches of covenant;

·      quantitative - e.g. overdue status and non-payment on another obligation of the same issuer to the Bank; and

·      based on data developed internally and obtained from external sources.

 

Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances.

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Presentation of allowance for ECL in the statement of financial position

 

Loss allowances for ECL are presented in the statement of financial position as follows:

 

·      financial assets measured at amortised cost: (as a deduction from the gross carrying amount of the assets);

·      where a financial instrument includes both a drawn and an undrawn component, and the Group cannot identify the ECL on the loan commitment component separately from those on the drawn component: The Group presents a combined loss allowance for both components. The combined amount is presented as deduction from the gross carrying amount of the drawn component.

·      debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the statement of profit or loss.

 

Restructured financial assets

 

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and ECL are measured as follows.

 

·      If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset.

·      If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. The amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset.

 

Derecognition of financial assets

 

The Group derecognises a financial asset only when the contractual rights to the asset's cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. In the case where the financial asset is derecognised, the loss allowances for ECL is remeasured at the date of derecognition to determine the net carrying amount of the asset at that date. The difference between this revised carrying amount and the fair value of the new financial asset with the new terms will lead to a gain or loss on derecognition. The new financial asset will have a loss allowance measured based on 12-month ECL except in the rare occasions where the new loan is considered to be originated credit impaired. This applies only in the case where the fair value of the new loan is recognised at a significant discount to its revised par amount because there remains a high risk of default which has not been reduced by the modification. The Group monitors credit risk of modified financial assets by evaluating qualitative and quantitative information, such as if the borrower is in past due status under the new terms. On derecognition of a financial asset in its entirety, the difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain / loss allocated to it that had been recognised in OCI is recognised in consolidated statement of profit or loss. Any cumulative gain / loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in the consolidated statement of profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability.

 

Financial liabilities

 

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'amortised cost'. The Group initially recognises financial liabilities such as deposits and debt securities issued on the date at which they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes party to the contractual provision of the instrument.

4       Material accounting policies (continued)

 

4.1    Financial instruments (continued)

 

Financial liabilities at amortized cost

 

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.

 

Derecognition of financial liabilities

 

Financial liabilities are derecognised when they are extinguished - that is when the obligation specified in the contract is discharged, cancelled or expired.

 

Offsetting

 

Financial assets and liabilities are offset and reported net in the consolidated 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 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.

 

4.2     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 Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including forward foreign exchange contracts, interest rate swaps and currency swaps. 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.

 

Hedge Accounting - The Bank may designate a recognised asset or liability, a firm commitment, highly probable forecast transaction or net investment of a foreign operation into a formal hedge accounting relationship with a derivative that has been entered to manage interest rate and/or foreign exchange risks present in the hedged item. The Bank continues to apply the hedge accounting requirements of IAS 39 Financial Instruments: Recognition and Measurement. For the purpose of hedge accounting, the Group 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 Group 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 at 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 statement of profit or loss. Fair value adjustments relating to the hedging instrument are allocated to the same consolidated statement of profit or loss category as the related hedged item. Any ineffectiveness is also recognised in the same consolidated statement of profit or loss category as the related hedged item. If the derivative is expired, sold, terminated, exercised, it 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 statement of profit or loss as part of the recalculated effective interest rate over the period to maturity.

 

4        Material accounting policies (continued)

 

4.2     Derivative financial instruments (continued)

 

Cash flow hedges - The effective portion of changes in the fair value of derivatives that are designated and qualified 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 statement of profit or loss as trading revenue/loss. Amounts accumulated in equity are transferred to the consolidated statement of profit or loss 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 is expired or 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 statement of profit or loss. 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 statement of profit or loss 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 statement of profit or loss 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 statement of profit or loss.

 

4.3    Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, unrestricted balances held with Central Bank, deposits and balances due from 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 consolidated statement of financial position.

 

4.4    Reverse-repo placements

 

Assets purchased with a simultaneous commitment to resell at a fixed price on a specified future date are not recognised. The amount paid to the counterparty under these agreements is shown as reverse repurchase agreements in the consolidated statement of financial position. The difference between purchase and resale price is treated as interest income and accrued over the life of the reverse repurchase agreement and charged to the consolidated statement of profit or loss using the effective interest rate method and recognized initially at amortised cost.

 

4.5    Investment properties

 

Investment properties are held to earn rental income and/or capital appreciation. Investment properties include cost of initial purchase, developments transferred from property under development, subsequent cost of development, and fair value adjustments. Investment properties are reported at valuation based on fair value at the end of the reporting period. The fair value is determined on a periodic basis by independent professional valuers. Fair value adjustments on investment property are included in the consolidated statement of profit or loss in the period in which these gains or losses arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in the consolidated statement of profit or loss in the period of derecognition. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

 

4       Material accounting policies (continued)

 

4.6    Assets acquired in settlement of debt

 

The Group often acquires real estate and other collateral in settlement of certain loans and advances Properties acquired in settlement of debt are held as inventory and are stated at lower of cost or net realizable value at the date of acquisition.

Subsequently, the real estate are measured at lower of carrying amount or fair value, less impairment losses, if any.  Gains or losses on disposal and unrealized losses on revaluation are recognized in the consolidated statement of profit or loss. Directly attributable costs incurred in the acquisition of inventory is included as part of cost of the inventory. Net realizable value is the estimated selling price in the ordinary course of the business, based on market prices at the reporting date.

 

4.7    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

Leasehold improvements                                                                                                            5 - 10

Motor vehicles                                                                                                                                  3

 

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated statement of profit or loss statement when incurred. 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 statement of profit or loss. Capital work-in-progress is carried at cost, less any accumulated impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy. Depreciation of these assets commences when the assets are ready for their intended use.

 

4.8    Impairment of tangible

 
At the end of each reporting period, the Group reviews the carrying amounts of its tangible 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. The 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 it's 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 statement of profit or loss, 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 statement of profit or loss, 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.

 

4.9    Customers' deposits

 

Customers' deposits 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.

 

4.10  Acceptances

 

Acceptances arise when the Group 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.

4       Material accounting policies (continued)

 

4.10  Acceptances (continued)

 

After acceptance, the instrument becomes an unconditional liability (time draft) of the Group and is therefore recognized as a financial liability in the consolidated statement of financial position with a corresponding contractual right of reimbursement from the customer recognized as a financial asset. Acceptances have been considered within the scope of IFRS 9 ‐ Financial Instruments and continued to be recognized 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 with respect to acceptances have been accounted for as financial assets and financial liabilities.

 

4.11  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 fair value, generally equal to the premium received. After initial recognition, financial guarantees are measured at the higher of (i) the loss allowance determined in accordance with IFRS 9 (based on 12‑month or lifetime expected credit losses), and (ii) the amount initially recognised, less the cumulative income recognised over the life of the guarantee in line with IFRS 15. Guarantee fee income is recognised in profit or loss over the term of the guarantee.

 

4.12   Employees' end-of-service benefits

 

The Group provides end of service benefits for its expatriate employees in accordance with U.A.E. Labour Law. 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 Group in accordance with Federal Law No. 2 of 2000.

 

4.13  Provisions and contingent liabilities

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, considering the risks and uncertainties surrounding the obligation. When 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. 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 if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 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 Group's control. Contingent liabilities are not recognised in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements.

 

4.14  Leasing

 

The Group has applied IFRS 16 using the modified retrospective approach. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.

                   

Group acting as a lessee   

                                                           

At commencement or on modification of a contract that contains a lease component, the Group allocates consideration in the contract to each lease component on the basis of its relative standalone price. However, for leases of branches and office premises the Group has elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease component. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove any improvements made to branches or office premises. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

4       Material accounting policies (continued)

 

4.14  Leasing (continued)

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The weighted average lessee's incremental borrowing rate applied to lease liabilities recognised in the statement of financial position is 6,45%. The Group determines its incremental borrowing rate by analysing its borrowings from various external sources and makes certain adjustments to reflect the terms of the lease and type of asset leased.

 

Lease payments included in the measurement of the lease liability comprise the following:

 

-       fixed payments, including in-substance fixed payments; variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; amounts expected to be payable under a residual value guarantee; and the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

                                 

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.  The Group presents right-of-use assets in 'property and equipment' and lease liabilities in 'other liabilities' in the statement of financial position.

                                                                   

Short-term leases and leases of low-value assets - The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including leases of IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

                         

Group acting as a lessor

 

At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone selling prices. When the Group acts as a lessor, it determines at lease inception whether the lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

 

Rent receivables 

 

Rent receivables are recognised at their original invoiced value except where the time value of money is material, in which case rent receivables are recognised at fair value and subsequently measured at amortised cost. Refer to the accounting policies on financial assets for more details.

 

4.15  Revenue and expense recognition 

 

Interest income and expense

 

Interest income and interest expense are recognised in consolidated statement of profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates the future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

4       Material accounting policies (continued)

 

4.15  Revenue and expense recognition (continued)

 

Interest income and expense (continued)

 

The calculation of the effective interest rate includes transactions costs, fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

 

Effective interest rate

 

Interest income and expense are recognised in profit or loss using the effective interest method. The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

 

-       the gross carrying amount of the financial asset; or

-       the amortised cost of the financial liability

 

When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not ECL. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including ECL. The calculation of the effective interest rate includes transaction cost and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issuance of a financial asset or financial liability.

 

Calculation of interest income and expense

 

The effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial asset or a financial liability. In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit impaired) or to the amortised cost of the liability. The effective interest rate is revised as a result of periodic re-estimation of cash flows of floating rate instruments to reflect movements in market rates of interest. The effective interest rate is also revised for fair value hedge adjustments at the date amortisation of the hedge adjustment begins. However, for financial assets that have become credit impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit impaired, then the calculation of interest income reverts to the gross basis. For financial assets that were credit impaired on initial recognition, interest income is calculated by applying the credit-adjusted effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves.

 

Fee and commission

 

Fee income, which is not an integral part of the effective interest rate of a financial instrument, is earned from a diverse range of services provided by the Group to its customers, and are accounted for in accordance with IFRS 15 'Revenue from Contracts with Customers'. Under the IFRS 15, fee income is measured by the Group based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control over a product or service to a customer. A contract with a customer that results in a recognised financial instrument in the Group's financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual.

        

Fee income is accounted for as follows:

-       income earned on the execution of a significant act is recognised as revenue when the act is completed (for example, fees arising from negotiating, or participating in the negotiation of a transaction for a third-party, such as an arrangement for the acquisition of shares or other securities);

-       income earned from the provision of services is recognised as revenue as the services are provided (for example, asset management, portfolio and other management advisory and service fees); and

-       other fees and commission income and expense are recognised as the related services are performed or received.                              

Fee income which forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective interest rate (for example, certain loan commitment fees) and recorded in 'Interest income'.

4       Material accounting policies (continued)

 

4.15  Revenue and expense recognition (continued)

 

Dividend income

 

Dividend income is recognized in the consolidated statement of profit or loss when the Group's right to receive such income is established. Usually this is the ex-dividend date for equity securities.

 

Rental income

 

The Group earns revenue from acting as a lessor in operating leases which do not transfer substantially all of the risks and rewards incidental to ownership of an investment properties or assets acquired in settlement of debts.

 

Rental income arising from operating leases on investment properties or assets acquired in settlement of debts is accounted for on a straight-line basis over the lease term and is included in revenue in the consolidated statement of profit or loss due to its operating nature, except for contingent rental income which is recognised when it arises. Initial direct costs incurred in negotiating and arranging an operating lease are recognised as an expense over the lease term on the same basis as the lease income.

 

Presentation

 

Interest income calculated using the effective interest method presented in the statement of profit or loss and OCI includes:

 

·      Interest on financial assets measured at amortised cost;

·      Interest on debt instruments measured at FVOCI;

 

Interest expense presented in the statement of profit or loss and OCI includes:

 

·      Financial liabilities measured at amortised cost; and

·      The effective portion of fair value changes in qualifying hedging derivatives designated as cash flows hedges of variability in interest cash flows; in the same period as the hedged cash flows affect interest income/ expense

 

Interest income and expenses on all trading assets and liabilities were considered to be incidental to the Groups trading operations and were presented together with all other changes in the fair value of trading assets and liabilities in net trading income. Interest income and expense on other financial assets and financial liabilities carried at FVTPL were presented in net income from other financial instruments at FVTPL.

 

 

4.16  Foreign currency transactions

                           

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 consolidated statement of financial position date. 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. Foreign currency differences are generally recognised in the statement of profit or loss.

 

For financial assets measured at FVTPL, the foreign exchange component is recognised in the consolidated statement of profit or loss. For financial assets measured at FVTOCI any foreign exchange component is recognised in other comprehensive income. For foreign currency denominated debt instruments measured at amortised cost, the foreign exchange gains and losses are determined based on the amortised cost of the asset and are recognised in the consolidated statement of profit or loss.

 

 

 

 

4       Material accounting policies (continued)

 

4.17  Foreign operations

 

Group companies

 

The results and financial position of foreign operations that have a functional currency that is different from the group's presentation currency are translated into the group's presentation currency as follows:

 

•       assets and liabilities (including goodwill, intangible assets and fair value adjustments arising on acquisition) are translated at the closing rate at the reporting date

•          income and expenses are translated at average exchange rates for each month; and

•       all resulting foreign exchange differences are accounted for directly in a separate component of OCI, being the group's FCTR.

 

Transactions and balances

 

Foreign currency transactions are translated into the respective group entities' functional currencies at exchange rates prevailing at the date of the transactions (in certain instances a rate that approximates the actual rate at the date of the transactions is utilised, for example an average rate for a month). Foreign exchange gains and losses resulting from the settlement of such transaction and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in profit or loss (except when recognised in OCI as part of qualifying cash flow hedges and net investment hedges). Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the transaction date, and those measured at fair value are translated at the exchange rate at the date that the fair value was determined. Exchange rate differences on non-monetary items are accounted for based on the classification of the underlying items. Foreign exchange gains and losses on equities (debt) classified as fair value through OCI are recognised in the fair value through OCI reserve in OCI (trading revenue) whereas the exchange differences on equities (debt) that are classified as held at fair value through profit or loss are reported as part of the other revenue (trading revenue) in profit or loss. Foreign currency gains and losses on intragroup loans are recognised in profit or loss except where the settlement of the loan is neither planned nor likely to occur in the foreseeable future. In these cases, the foreign currency gains and losses are recognised in the group's FCTR. The results, cash flows and financial position of group entities which are accounted for as entities operating in hyperinflationary economies and that have functional currencies different from the presentation currency of the group are translated into the presentation currency of its parent at the exchange rate at the reporting date. These foreign exchange gains and losses on a hyperinflationary foreign operation are presented in OCI.

 

4.18  Fiduciary activities

 

The Group acts as trustee/manager and in other capacities that result in holding or placing of assets in a fiduciary capacity on behalf of trusts or other institutions. Such assets and income arising thereon are not included in the Group's consolidated financial statements as they are not assets of the Group.

 

4.19 Taxation

 

The income tax expense represents the sum of current and deferred income tax expense.

 

Current tax

 

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

 

A provision is recognised for those matters for which the tax determination is uncertain, but it is considered probable that there will be a future outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable. The assessment is based on the judgement of tax professionals within the group supported by previous experience in respect of such activities and in certain cases based on specialist independent tax advice.

4       Material accounting policies (continued)

 

4.19 Taxation (continued)

 

Deferred tax

 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination or for transactions that give rise to equal taxable and deductible temporary differences) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, a deferred tax liability is not recognised if the temporary difference arises from the initial recognition of goodwill.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the reporting date.

 

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

 

5       Critical accounting judgements

 

In the application of the Group's accounting policies, which are described in Note 4, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The 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 if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Significant areas where management has used estimates, assumptions or exercised judgements are as follows:

 

5.1    Subsidiary held for sale

 

The Central Bank of the UAE continues to support the Bank's strategic initiative to delink and deconsolidate its Lebanese subsidiary, in line with the Central Bank of the UAE recommendations and Board approval, effective 1 April 2023. This approach aims to reduce accounting volatility and address historical anomalies arising from consolidation. The subsidiary remains classified as an asset held for sale and is measured in accordance with IFRS 5 at the lower of carrying amount and fair value less costs to sell, based on a market-oriented valuation approach.

 

When the Group classifies the Lebanese subsidiary as an "asset held for sale" involving loss of control and the sale is highly probable within 12 months, all the assets and liabilities of that subsidiary are classified as held for sale. Once classified in this category, the group of assets and liabilities are measured at the lower of carrying amount or fair value less costs to sell. If the group of assets and liabilities becomes impaired, an impairment loss is recognised in the consolidated statement of profit and loss. Impairment losses may be reversed. The fair value less cost to sell estimate is a significant judgement and it is determined based on the market offer approach.

 

5       Critical accounting judgements (continued)

 

5.2    Measurement of the expected credit loss allowance

 

The measurement of the expected credit loss allowance for financial assets measured at amortised cost and FVTOCI is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behavior (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring Expected Credit Loss (ECL) is further detailed in note 35.

 

A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:

 

·      Determining the criteria for significant increase in credit risk;

·      Determining the criteria and definition of default;

·      Choosing appropriate models and assumptions for the measurement of ECL, including measurement of ECL for default exposures;

·      Determining the fair values of underlying collaterals values, if any, for each financial asset;

·      Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL; and

·      Establishing groups of similar financial assets for the purposes of measuring ECL.

 

5.3    Valuation of investment properties and assets acquired in settlement of debts

 

The fair values of investment properties and assets acquired in settlement of debts are determined by real estate valuation experts using recognised valuation techniques and the principles of IFRS 13 Fair Value Measurement. Investment properties and assets acquired in settlement of debts are measured based on estimates prepared by independent real estate valuation experts, except where such values cannot be reliably determined and on the basis of price offerings from potential buyers.

 

In one case, the fair value of the investment properties under development could not be reliably determined because it is situated in an area in which there is considerable political uncertainty and economic instability. Therefore, the circumstances do allow for an expert adjustment to the fair values' estimate; based on certain haircut that is suitable in the market. The significant methods and assumptions used by valuers in estimating the fair value of investment property are set out in notes 10 and 11.

 

5.4    Fair value of financial instruments

 

Where the fair values of financial assets and financial liabilities recorded on the consolidated statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. These include comparison with similar instruments where market observable prices exist, discounted cash flow analysis and other valuation techniques commonly used by market participants.

 

5.5     Determination of fair value of restructured loans

 

Loan modifications that are not identified as renegotiated are considered to be commercial restructuring. Where a commercial restructuring results in a modification such that the Group rights to the cash flows under the original contract have expired, the old loan is derecognised and a new financial asset is recognised at fair value.

In order to determine the fair value of loans and advances to customers, loans are segregated, as far as possible, into portfolios of similar characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated using valuation models incorporating a range of input assumptions.

 

These assumptions may include: forward-looking discounted cash flow models, taking account of expected customer prepayment rates, using assumptions that the Group believes are consistent with those that would be used by market participants in valuing such loans; and new business rates estimates for similar loans. The fair value of loans reflects expected credit losses at the balance sheet date and the fair value effect of repricing between origination and the balance sheet date. For credit impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.

6       Cash and balances with central bank

 

(a)  The analysis of the Group's cash and balances with central bank is as follows:

	2025 AED'000		2024 AED'000
Cash on hand		40,991	44,843
Statutory deposits*		513,672	70,022
Current accounts		2,690,464	4,524,710
		3,245,127	4,639,575

 

*As per the CBUAE regulations, the Bank is allowed to draw their balances held in the UAE reserve account, while ensuring that they meet the reserve requirements over a 14-day period.

 

Cash and cash equivalents

 

For the statement of consolidated statement of cash flows, cash and cash equivalents includes:

 

	2025	2024
	AED'000	AED'000
Cash and balances with central bank (Note 6)	3,245,127	4,639,575
Deposits and balances due from banks (Note 7)	1,051,488	728,654
Deposits and balances due to banks (Note 16)	(3,654,192)	(2,822,812)
Repo borrowings (Note 17) *	(1,994,572)	(1,620,284)
	----------------------------	----------------------------
	(1,352,149)	925,133
Less:  Deposits with central bank and balances due from banks - original maturity more than three month	(455,452)	(369,081)
Less:  Statutory deposits with central bank (Note 6)	(513,672)	(70,022)
Add: Deposits and balances due to banks - original maturity more than three month	3,151,677	1,372,622
Add: Repo borrowings - original maturity more than three month	1,871,178	959,753
	----------------------------	----------------------------
	2,701,582	2,818,405
	=============	=============

 

*No Repo borrowing have been deducted from cash and cash equivalents as at 31 December 2025 (2024: AED 0.8 billion). Considering the underlying substance of the borrowing and nature of the underlying collateral, the Group has classified the proceeds/ repayments from the Repo borrowing as a cash inflow/ outflow from financing activities. (Note 17)

 

7       Deposits and balances due from banks

 

(a)     The analysis of the Group's deposits and balances due from banks is as follows:

	2025 AED'000		2024 AED'000
Demand		596,036	352,848
Time		455,452	375,806
		1,051,488	728,654
Expected credit losses (Note 28)		(133,535)	(132,682)
		917,953	595,972

 

 

 

 

 

7       Deposits and balances due from banks (continued)

 

(b)     The geographical analysis of the deposits and balances due from banks is as follows:

	2025 AED'000		2024 AED'000
Banks abroad		828,972	697,204
Banks in the U.A.E.		222,516	31,450
		1,051,488	728,654
Expected credit losses (Note 28)		(133,535)	(132,682)
		917,953	595,972

 

8       Loans and advances, net

 

(a)  The analysis of the Group's loans and advances measured at amortised cost is as follows:

	2025 AED'000		2024 AED'000
Overdrafts		7,446,315	6,511,448
Commercial loans		20,083,900	16,665,417
Bills discounted		2,506,218	1,180,987
Other advances		2,249,678	1,731,476
Gross amount of loans and advances		32,286,111	26,089,328
Expected credit losses (Note 28)		(1,845,667)	(1,786,570)
Net loans and advances		30,440,444	24,302,758

(b)     Impairment reserve

 

The CBUAE issued its IFRS 9 guidance addressing various implementation challenges and practical implications for banks adopting IFRS 9 in the UAE.

Banks must ensure that the total provision corresponding to all Stage 1 and Stage 2 exposures is not less than 1.50% of the credit risk weighted assets as calculated under the CBUAE capital regulations. Where the collective provisions held are lower, the shortfall may be held in a dedicated non-distributable balance sheet reserve called "the impairment reserve- general". The amount held in the impairment reserve-general must be deducted from the capital base (Tier 1 capital for banks) when computing the regulatory capital.

		2025 AED'000	2024 AED'000
Non-distributable impairment reserve- General
Minimum provision for stage 1& 2 as per CBUAE requirements	413,874		384,985
Less: Stage 1 and Stage 2 impairment provision taken against income*	625,678		194,669
Shortfall in stage 1 & 2 provision to meet minimum CBUAE requirements	-		190,316
Excess provision held	226,946		-

*For the purpose of calculation, the movement in impairment reserve provisions under IFRS 9 are determined based on CB UAE classification of loans and advances, only for the purpose of this disclosure.

        

(c) The geographic analysis of the gross loans and advances of the Group is as follows:

	2025 AED'000		2024 AED'000
Loans and advances resident in the U.A.E.		27,817,991	24,313,793
Loans and advances non-resident		4,468,120	1,775,535
		32,286,111	26,089,328

 

 

8       Loans and advances, net (continued)

 

(d)     The Group monitors concentration of credit risk by economic sector which is as follows:

 

 

	2025	2024
	AED'000	AED'000
Economic sector
Services	12,066,010	8,204,969
Government	5,813,946	851,433
Trading	3,774,092	3,783,964
Manufacturing	3,578,614	3,270,766
Financial institutions	3,210,514	1,685,173
Personal loans	1,519,418	3,738,521
Construction	991,757	542,450
Government related entities	849,279	2,762,518
Mining and quarrying	275,475	435,817
Transport and communication	161,086	178,339
Other	45,920	635,378
	32,286,111	26,089,328
Expected credit losses (Note 28)	(1,845,667)	(1,786,570)
	30,440,444	24,302,758

 

(e)     The composition of the non-performing loans and advances portfolio by economic sector is as follows:

	2025	2024
	AED'000	AED'000
Economic sector
Trading	1,893,258	1,204,504
Services	694,142	653,713
Manufacturing	146,116	132,815
Personal loans	84,659	88,924
Construction	26,787	24,337
Others	8	95
Total non-performing loans and advances	2,844,970	2,104,388

 

9       Investment securities, net

 

(a)      The analysis of the Group's investments measured at fair value is as follows:

	2025		2024
	AED'000		AED'000
Investments measured at fair value
Investments measured at FVTPL
Quoted debt securities		336,871	423,181
		336,871	423,181
Investments measured at FVTOCI
Quoted equity securities		902,562	400,844
Unquoted equity securities		80,812	76,173
Quoted debt securities		1,236,686	1,319,444
		2,220,060	1,796,461
Total investments measured at fair value		2,556,931	2,219,642
Investments measured at amortised cost
Quoted debt securities		3,862,456	883,579
Unquoted debt securities		4,501,206	7,001,400
Expected credit losses (Note 28)		(6,997)	(3,051)
Total investments measured at amortised cost		8,356,665	7,881,928
Total investments		10,913,596	10,101,570

 

9       Investment securities, net (continued)

 

All of the quoted equity securities are listed on the securities exchanges in the U.A.E. (Abu Dhabi Securities Exchange and Dubai Financial Market).  Included in the debt securities are bonds and sukuk with the fair value of AED 2.23 billion (2024: AED 2.72 billion) given as collateral against borrowings under repo agreements (Note 17). Included in the quoted equity securities are investments in perpetual bonds amounting to AED 614 million (2024: AED 186 million).

 

(b)     The composition of investments by geography is as follows:

 

	2025		2024
	AED'000		AED'000
United Arab Emirates		7,836,878	8,454,142
Other MENA (including G.C.C. countries)		2,400,405	1,593,071
Rest of the world		683,310	57,408
		10,920,593	10,104,621
Expected credit losses (Note 28)		(6,997)	(3,051)
		10,913,596	10,101,570

 

Investments measured at FVTOCI are not held to benefit from changes in their fair value and are not held for trading. The management believes therefore that designating these investments as at FVTOCI provides a more meaningful presentation of its medium to long-term interest in its investments rather than fair valuing through profit or loss.

 

During the year ended 31 December 2025, dividends from financial assets measured at FVTOCI amounting to AED 16 million (2024: AED 1 million) have been recognised as investment income in the consolidated statement of profit or loss.

 

10     Investment properties

 

Details of investment properties are as follows:

	AED'000
Opening balance at 1 January 2024	1,102,753
Increase in fair value during the year	54,700
Balance at 31 December 2024	1,157,453
Increase in fair value during the year	111,886
Transfer from properties and equipment during the year	10,826
Other movement during the year	(7,797)
Disposals during the year	(25,300)
Fair value at 31 December 2025	1,247,068

 

The fair value of the Group's investment properties is estimated using sales comparison, income capitalisation, residual approach and discounted cash flow method, considering the property being valued. In estimating the fair value of the properties, the highest and best use of the properties is their current use. The valuations, where applicable were carried out by RICS certified professional valuers not related to the Group who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment properties being valued. The fair values have been determined based on varying valuation models depending on the intended use of the investment properties; in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation Standards. The valuation of investment properties performed by external valuer is based on the information available to them at the time of the valuation and relies on several inputs.

 

Nature of property	Country	Valuation technique	Significant unobservable inputs
Office Units	UAE	Income capitalisation	Capitalization rate of 6.5%
Residential buildings	UAE	Income capitalisation	Capitalization rate of 6.75% and 8.0% on Term & 7.0% and 8.0% on Reversion
Land	UAE	Direct comparison approach	Comparable transactions
Land	Lebanon	Direct comparison approach	Comparable transactions
Residential buildings	Lebanon	Direct comparison approach	Comparable transactions
Villa	UAE	Direct comparison approach	Comparable transactions

                                          

 

 

11     Assets acquired in settlement of debts

	Real estate properties	Investment securities	Total
	AED'000	AED'000	AED'000
Balance at 1 January 2024	1,072,257	5,827	1,078,084
Reversal of impairment during the year	5,526	480	6,006
Disposals during the year	(14,000)	-	(14,000)
	------------------------	------------------------	------------------------
Balance at 31 December 2024	1,063,783	6,307	1,070,090
Reversal of impairment during the year	18,636	319	18,955
Disposals during the year	(13,400)	-	(13,400)
Transfer to loans during the year *	(952,770)	-	(952,770)
	------------------------	------------------------	------------------------
Balance at 31 December 2025	116,249	6,626	122,875
	===========	===========	===========

 

*The transfer to loans during the year is related to certain properties acquired by the Bank in settlement of specific credit exposures. As at the reporting date, legal matters at the respective client level prevented the Bank from executing the disposal of these properties within the regulatory stipulated period. Accordingly, and in line with a prudent and well-established risk management approach, management elected to reclassify these balances to the respective client credit exposures, a portion of which was classified as non-performing at the reporting date. This treatment ensures appropriate alignment between the legal enforceability of the assets, regulatory requirements, and their presentation in the consolidated financial statements.

 

Real estate properties represent properties and plots of lands acquired in settlement of debt. During the year, net unrealised profit of AED 19 million (2024: net unrealised profit of AED 6 million) are recognised in the consolidated statement of profit or loss on real estate properties. The realisable values of the properties and plots of land were carried out by RICS certified independent valuers having appropriate professional qualifications and are based on recent experience in the location and category of the properties and plots of land being valued. The fair value of these properties and plots of land as at 31 December 2025 amounted to AED 128 million (2024: AED 1,245 million), out of which AED 116 million (2024: AED 1,064 million) was reflected in the statement of financial position as at year end.

 

Description of valuation techniques and key inputs used to determine the realisable values of real estate properties acquired in settlement of debt as at 31 December 2025:

 

 

Nature of property	Country	Valuation technique	Significant unobservable inputs
Land	UAE	Direct comparison approach	Comparable transactions
Residential buildings	UAE	Income capitalization	Capitalization rate of 7.50% on Term & 8.50% on Reversion
Office buildings	UAE	Income capitalization	Capitalization rate of 7.50% on Term & 8.00% on Reversion

 

The assessment of realisable values performed by external valuer at 31 October 2025 is based on the information available to them at the time of assessment and relies on several inputs. No material change has been in the market since then.

 

 

12     Other assets

	2025	2024
	AED'000	AED'000
Acceptances - contra (Note 18)	200,638	349,408
Interest receivable	150,530	98,793
Prepayments	11,660	12,492
Others	119,544	247,103
	482,372	707,796
Expected credit losses (Note 28)	-	(27,964)
Total	482,372	679,832

13     Derivative financial instruments

 

In the ordinary course of business, the Group enters into various types of transactions that involve 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 instruments, reference rate, or index. Derivative financial instruments which the Group enters into include forwards and swaps. The Group uses the following derivative financial instruments for both hedging and non-hedging purposes.

 

Forward currency transactions - Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions.

 

Swap transactions - Interest rate (IRS) and cross currency interest rate swaps (CCIRS) - are commitments to exchange one set of cash flows for another. CCIRS result in an economic exchange of currency cash flows. Exchange of principal may or may not take place. Under interest rate swaps, the Bank agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional amount. The Group's credit risk represents the potential cost to replace the swap contracts if counterparties fail to fulfil their obligation. This risk is monitored on an ongoing basis with reference to the current fair value. To control the level of credit risk taken, the Group assesses counterparties using the same techniques as for its lending activities, and applies cash margining with market counterparties to mitigate the credit risk involved.

 

Derivative related credit risk - Credit risk with respect to derivative financial instruments arises from the potential for a counterparty to default on its contractual obligations and is limited to the positive fair value of instruments that are favourable to the Group.  The Group enters into derivative contracts with a number of financial institutions of good credit rating.

 

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 interest rates and exchange rates. In all such cases the hedging relationship and objective, including details of the hedged item and hedging instrument, are formally documented and the transactions are accounted for as fair value hedges.

 

 

	Notional amounts by term to maturity
	Positive fair value AED'000	Negative fair value AED'000	Notional amount AED'000	Within 3 months AED'000	3-12 months AED'000	1-5 years AED'000
2025
Currency swaps	41	(3,017)	692,180	692,180	-	-
Total	41	(3,017)	692,180	692,180	-	-
2024
Currency swaps	1,144	(1,432)	4,535,782	4,515,128	20,654	-
Total	1,144	(1,432)	4,535,782	4,515,128	20,654	-

 

 

 

 

14     Properties and equipment

	Land & buildings	Right of use assets	Furniture, office equipment and software	Leasehold improvements	Motor vehicles	Total
	AED'000	AED'000	AED'000	AED'000	AED'000	AED'000
Cost
At 1 January 2024	194,357	116,731	62,247	9,611	5,579	388,525
Additions	-	1,730	5,432	-	93	7,255
Disposals	(5,720)	(3,887)	(1,623)	-	(1,148)	(12,378)
Others	818	-	-	-	-	818
At 31 December 2024	189,455	114,574	66,056	9,611	4,524	384,220
Additions	-	-	4,612	-	-	4,612
Disposals	(19,775)	-	-	-	(276)	(20,051)
Transfer to investment properties	(24,604)	-	-	-	-	(24,604)
Others	438	-	-	-	-	438
At 31 December 2025	145,514	114,574	70,668	9,611	4,248	344,615
Accumulated depreciation
At 1 January 2024	42,102	79,260	48,678	5,253	3,718	179,011
Charge for the year	2,651	12,159	4,960	755	543	21,068
Disposals	(1,219)	(3,923)	(1,358)	-	(420)	(6,920)
Others	-	36	-	-	93	129
At 31 December 2024	43,534	87,532	52,280	6,008	3,934	193,288
Charge for the year	3,647	12,207	4,750	755	380	21,739
Disposals	(13,779)	-	-	-	(276)	(14,055)
Transfer to investment properties	(13,778)	-	-	-	-	(13,778)
Others	233	-	-	-	-	233
At 31 December 2025	19,857	99,739	57,030	6,763	4,038	187,427
Net book value:
At 31 December 2025	125,657	14,835	13,638	2,848	210	157,188
At 31 December 2024	145,921	27,042	13,776	3,603	590	190,932

 

15     Customers' deposits

 

The analysis of customers' deposits is as follows:

	2025	2024
	AED'000	AED'000
Current and other accounts	7,041,927	6,324,769
Saving accounts	116,174	95,283
Time deposits	24,348,947	23,284,890
	31,507,048	29,704,942

 

16     Deposits and balances due to banks

 

The analysis of deposits and balances due to banks is as follows:

 

	2025	2024
	AED'000	AED'000
Demand	38,564	1,469
Time	3,615,628	2,821,343
	3,654,192	2,822,812

16     Deposits and balances due to banks (continued)

 

Due to banks represent due to:

	2025	2024
	AED'000	AED'000
Banks in the U.A.E.	2,191,842	1,887,387
Banks abroad	1,462,350	935,425
	3,654,192	2,822,812

17     Repo borrowings

 

The analysis of the repo borrowing agreements is as follows:	2025	2024
	AED'000	AED'000
Banks in the U.A.E.	1,260,956	2,420,284
Banks abroad	733,616	-
	1,994,572	2,420,284

 

The Group entered into repo agreements under which bonds with fair value of AED 2.23 billion (2024: AED 2.72 billion) were given as collateral against borrowings. The risks and rewards relating to these bonds remain with the Group.

 

Repo borrowings include a nil amount in 31 December 2025 (2024: AED 0.8 billion) which is represented as part of the group's financing activities in the consolidated statement of cashflows. (Note 6)

 

18     Other liabilities

	2025		2024
	AED'000		AED'000
Interest payable		572,540	561,938
Acceptances - contra (Note 12)		200,638	349,408
Unearned income		128,058	53,025
Tax liability		71,877	31,670
Provision for employees' end of service benefits (Note 18.1)		50,880	50,165
Lease liabilities		33,094	55,106
Managers' cheques		28,489	31,044
Accrued expenses		2,531	3,755
ECL on unfunded exposure (Note 28)		1,431	18,104
Clearing balances		-	52,714
Others		51,605	38,113
		1,141,143	1,245,042

 

18.1  The movement in the provision for employees' end of service benefits is as follows:

	2025		2024
	AED'000		AED'000
At 1 January	50,165	62,236
Charged during the year	7,407	(1,793)
Payments during the year	(6,692)	(10,278)
At 31 December	50,880	50,165

 

 

 

19     Issued bonds

				2025			2024
Issue date	Maturity	Currency	Face value	Carrying value			Carrying value
			Million	AED' 000			AED' 000
14 March 2023	Mar 2028	USD	500		1,812,305		1,809,280
12 September 2024	Sep 2029	USD	500		1,811,418		1,753,790
19 November 2025	Nov 2030	USD	500		1,816,592		-
					5,440,315		3,563,070

 

On 14 March 2023, the Bank issued Senior Unsecured Fixed Rate Notes, totalling USD 500 million (equivalent to AED 1,836.5 million) for a five-year maturity at a coupon of 7%, classified at amortized cost. The Notes were issued under the Bank's EMTN Programme which is listed on the Irish Stock Exchange.

 

On 12 September 2024, the Bank issued Senior Unsecured Fixed Rate Notes, totalling USD 500 million (equivalent to AED 1,836.5 million) for a five-year maturity at a coupon of 5.25%, classified at amortized cost. The Notes were issued under the Bank's EMTN Programme which is listed on the London Stock Exchange's International Securities Market.

 

On 19 November 2025, the Bank issued Senior Unsecured Fixed Rate Notes, totalling USD 500 million (equivalent to AED 1,836.5 million) for a five-year maturity at a coupon of 4.8750%, classified at amortized cost. The Notes were issued under the Bank's EMTN Programme which is listed on the London Stock Exchange's International Securities Market.

 

The fair value and the change in that fair value that can be ascribed to changes in underlying credit risk are set out below:

		2025	2024
		AED'000	AED'000
Fair value of issued bonds		5,549,279	3,686,719
Difference between carrying amount and amount contractually required to be paid at maturity		(69,185)	(109,930)

 

The Group estimates changes in fair value due to credit risk by estimating the amount of change in fair value that is not due to changes in market conditions that give rise to market risk.

 

20     Capital and reserves

 

Issued and paid-up capital

	2025			2024
	Number of shares	AED'000		Number of shares		AED'000
Issued capital	3,000,000,000	3,000,000		3,000,000,000	3,000,000
	3,000,000,000	3,000,000		3,000,000,000	3,000,000

 

Statutory reserve - In accordance with the Bank's Articles of Association, and in compliance with Decretal Federal Law No. (14) of 2018, a minimum of 10% of profit should be transferred to a non-distributable statutory reserve until such time as this reserve equals 50% of the Bank's issued capital. During the year ended 31 December 2025, AED 72.9 million were transferred from retained earnings to statutory reserve (2024: AED 38.5 million).

 

At the forthcoming annual general meeting, the Group is proposing a cash dividend of 6.5% of share capital for the year (2024: nil) amounting to AED 195 million (2024: nil).

 

 

 

21     Profit per share

 

Profit per share are computed by dividing the profit for the year by the average number of shares outstanding during the year as follows:

Basic and diluted profit per share	2025	2024
Profit attributable to owners of the Bank for the year (AED'000)	729,404	384,474
Weighted average number of ordinary shares:
Ordinary shares at the beginning of the year (in thousands shares)	3,000,000	3,000,000
Weighted average number of shares outstanding       during the year (in thousands shares)	3,000,000	3,000,000
Basic and diluted profit per share (AED)	0.24	0.13

 

As at the reporting date, the diluted profit per share is equal to the basic profit per share as the Group has not issued any financial instruments that should be taken into consideration when the diluted profit per share is calculated.

 

22     Commitments and contingent liabilities

	2025	2024
	AED'000	AED'000
Financial guarantees for loans	207,829	207,829
Other guarantees	1,820,963	1,540,525
Letters of credit	227,417	292,343
	2,256,209	2,040,697
Irrevocable commitments to extend credit	872,321	545,953
	3,128,530	2,586,650

 

These contingent liabilities have off-balance sheet credit risk as only the related fees and accruals for probable losses are recognised in the statement of financial position until the commitments are fulfilled or expired. Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash-flows.

 

Credit-related commitments include commitments to extend credit, standby letters of credit, and guarantees which are designed to meet the requirements of the Group's customers. Commitments to extend credit represent contractual commitments to make loans and advances and revolving credits. Commitments generally have fixed expiry dates, or other termination clauses.  Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. Letters of credit and guarantees commit the Group to make payments on behalf of customers contingent upon the failure of the customer to perform under the terms of the contract.  The bank and its subsidiaries are party to legal proceedings, including regulatory investigations, in the ordinary course of business. While there is inherent difficulty in predicting the outcome of these proceedings, management does not expect the outcome of any of these proceedings, individually or in the aggregate, to have a material adverse effect on the consolidated financial position or the results of operations of the bank.

 

23     Fiduciary assets

 

The Group holds investments amounting to AED 789 million (2024: AED 284 million) which are held on behalf of customers and not treated as assets in the consolidated statement of financial position.

 

 

 

 

 

 

24     Interest income

	2025	2024
	AED'000	AED'000
Loans and advances to customers	1,722,216	1,455,747
Investment securities	572,380	484,419
Loans and advances to banks	78,568	144,914
	2,373,164	2,085,080

 25    Interest expense

	2025	2024
	AED'000	AED'000
Deposits from customers	1,182,062	1,222,734
Borrowings from banks	268,603	207,202
Issued bonds	244,330	226,135
	1,694,995	1,656,071

26     Net fee and commission income

	2025	2024
	AED'000	AED'000
Management & commitment fees	87,972	75,689
Corporate banking credit related fees	56,734	41,957
Letters of guarantee	21,310	19,448
Trade finance activities	8,835	15,923
Others	1,690	1,650
	176,541	154,667

27     Income on investments

	2025	2024
	AED'000	AED'000
Realized gain on investments	23,456	4,269
Dividends	16,261	1,129
Unrealized gain on investments	5,745	5,766
	45,462	11,164

28     Net impairment loss on financial assets

2025	Opening balance	Net charge/ (reversal) during the year	Closing balance
	AED'000	AED'000	AED'000
Deposits and balances due from banks	132,682	853	133,535
Loans and advances	1,786,570	59,097	1,845,667
Investments	3,051	3,946	6,997
Unfunded exposure	18,104	(16,673)	1,431
Other assets	27,964	(27,964)	-
Total	1,968,371	19,259	1,987,630

 

 

Charge on FVOCI Bonds					(868)
Other adjustments					31,254
Net impairment loss on financial assets					49,645
28     Net impairment loss on financial assets (continued)
2024		Opening balance		Net charge/ (reversal) during the year			Write off during the year			Closing balance
		AED'000		AED'000			AED'000			AED'000
Deposits and balances due from banks		132,582		100			-			132,682
Loans and advances		1,731,369		55,239			(38)			1,786,570
Investments		3,599		(548)			-			3,051
Unfunded exposure		30,263		(12,159)			-			18,104
Other assets		27,964		-			-			27,964
Total		1,925,777		42,632			(38)			1,968,371

 

 

Charge on FVOCI Bonds			6,217
Other adjustments			(4,465)
Net impairment loss on financial assets			44,384

 

 

29     General and administrative expenses

	2025	2024
	AED'000	AED'000
Personnel expenses	159,490	136,944
Depreciation (Note 14)	21,739	21,068
Other expenses*	112,877	107,760
	294,106	265,772

 

*Other expenses include an amount of AED 1.6 million (2024: AED 2.3 million) representing social contributions made during the year ended 31 December 2025.

 

30     Taxation

 

On 9 December 2022, the UAE Ministry of Finance released Federal Decree-Law No 47 of 2022 on the Taxation of Corporations and Businesses, Corporate Tax Law ('CT Law') to enact a new CT regime in the UAE. The new CT regime has become effective for accounting periods beginning on or after 1 June 2023.

 

Income tax expense relating to Profit and Loss

 

Income tax expense recorded in the statement of profit or loss comprises of the following:

	2025 AED'000		2024 AED'000
Current Tax
Current tax on profits for the year	72,252		32,934
Adjustments for current tax of prior periods	2,744		-
Total current tax expense	74,996		32,934
Deferred income tax
Increase in deferred tax assets	(980)		(1,264)
Total deferred tax expense	(980)		(1,264)
Income Tax	74,016		31,670

 

 

 

30     Taxation (continued)

Reconciliation of tax expense and the accounting profit multiplied by applicable tax rate for 2025 and 2024

 

The Group's consolidated effective tax rate in the year ended 31 December 2025 is 9.22% (2024: 7.61%). The reconciliation of profit before tax is presented below:

	2025		2024
	AED'000		AED'000
Net Profit for the year before income tax expense	802,798		416,360
Tax at the company domestic rate of 9% (FY 2024: 9%)	72,252		37,473
Tax effect of income not taxable in determining taxable profit	(1,464)		(102)
Tax effect on OCI that will not be reclassified subsequently to consolidated statement of profit or loss	(3)		(6,134)
Tax effect of expenses that are not deductible in determining taxable profit	507		467
Tax effect of prior periods	2,787		-
Other adjustments	(63)		(34)
Tax expense for the year	74,016		31,670
Effective Tax Rate	9.22%		7.61%

 

31     Subsidiaries

 

The Bank's interests, held directly or indirectly, in the subsidiaries are as follows:

 

Name of Subsidiary	Proportion of ownership interest		Year of incorporation	Year of acquisition	Country of incorporation	Principal activities
	2025	2024
Emirates Lebanon Bank S.A.L.	100%	100%	1965	2008	Lebanon	Financial institution
El Capital FZC	100%	100%	2007	2017	U.A.E.	Investment in a financial institution
BOS Real Estate FZC	100%	100%	2007	2007	U.A.E.	Real estate development activities
BOS Capital FZC	100%	100%	2007	2007	U.A.E.	Investment
Polyco General Trading L.L.C.	100%	100%	2008	2008	U.A.E.	General trading
Borealis Gulf FZC	100%	100%	2010	2010	U.A.E.	Investment & Real estate development activities
Muwaileh Capital FZC	90%	90%	2010	2017	U.A.E.	Developing of real estate & related activities
BOS Funding Limited	100%	100%	2015	2015	Cayman Islands	Financing activities
BOS Repos Limited	100%	100%	2018	2018	Cayman Islands	Financing activities
BOS Derivatives Limited	100%	100%	2018	2018	Cayman Islands	Financing activities
GTW Holding LTD	100%	100%	2022	2022	U.A.E. (ADGM)	Facilitate the sale of real estate assets
GDLR Holding LTD	100%	100%	2022	2022	U.A.E. (ADGM)	Facilitate the sale of real estate assets
BOS Real Estate Egypt	100%	100%	2023	2023	Egypt	Real estate development activities

 

32     Related party balances and transactions

 

The Group enters into transactions with companies and entities that fall within the definition of a related party as contained in IAS 24 Related Party Disclosures. Related parties comprise companies under common ownership and/or common management and control, their shareholders and key management personnel. Transactions with associate and other related parties are made on substantially the same terms, as those prevailing at the same time for comparable transactions with external customers and parties. Transactions within the Group and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. The related parties' balances included in the consolidated statement of financial position and the significant transactions with related parties are as follows:

 

Balances at the end of the reporting year
		2025		2024
		AED'000		AED'000
Loans and advances, net		5,111,987		1,634,507
Letters of credit, guarantee and acceptances		230,670		213,565
Total		5,342,657		1,848,072
Cash deposits		(8,750,925)		(7,262,848)
Net exposure		(3,408,268)		(5,414,776)
Investment in securities		4,862,721		7,174,847

 

 

 

	2025		2024
Transactions during the reporting year	AED'000		AED'000
Interest income		556,769	491,459
Interest expense		500,074	480,412
Rent expense		8,500	8,500

                                                                                                     

Compensation of Directors and key management personnel

	2025		2024
	AED'000		AED'000
Short term benefits		18,942	15,904
End of service benefits		385	244
Total compensation		19,327	16,148

 

No impairment loss has been recognised against balances outstanding with key management personnel and other related parties.

 

 

33     Segmental information

 

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. Information reported to the Group's chief operating decision maker for the purposes of resource allocation and assessment of segment performance is specifically focused on the type of business activities undertaken as a Group. For operating purposes, the Group is organised into two major business segments:

 

(i)      Commercial, which principally provides loans and other credit facilities, deposits and current accounts for corporate, government, institutional and individual customers; and

(ii)     Investment and treasury, which involves the management of the Group's investment portfolio.

 

 

 

 

 

33     Segmental information (continued)

 

The following table presents information regarding the Group's operating segments for the year ended 31 December 2025:

 

		Investment
	Commercial	and treasury	Unallocated*	Total
	AED'000	AED'000	AED'000	AED'000
Operating income
- Net interest income	406,235	271,934	-	678,169
- Net fee and commission income	176,541	-	-	176,541
- Exchange profit	34,814	-	-	34,814
- Income on investments	-	45,462	-	45,462
-   - Net income on properties	-	210,626	-	210,626
- Other income	937	-	-	937
Total operating income	618,527	528,022	-	1,146,549
Other material non-cash items
- Net impairment charge on financial assets	(53,591)	3,946	-	(49,645)
- Depreciation	-	-	(21,739)	(21,739)
- General and administrative expenses	(231,512)	(40,855)	-	(272,367)
- Income tax expense	-	-	(74,016)	(74,016)
Net profit for the year	333,424	491,113	(95,755)	728,782
Segment assets	34,804,161	13,005,454	561,798	48,371,413
Segment liabilities	37,356,450	5,440,315	940,505	43,737,270

 

The following table presents information regarding the Group's operating segments for the year ended 31 December 2024:

 

		Investment
	Commercial	and treasury	Unallocated*	Total
	AED'000	AED'000	AED'000	AED'000
Operating income
- Net interest income	176,938	252,071	-	429,009
- Net fee and commission income	154,667	-	-	154,667
- Exchange profit	25,771	-	-	25,771
- Income on investments	-	11,164	-	11,164
-   - Net income on properties	-	104,431	-	104,431
- Other income	1,474	-	-	1,474
Total operating income	358,850	367,666	-	726,516
Other material non-cash items
- Net impairment charge on financial assets	(43,836)	(548)	-	(44,384)
- Depreciation	-	-	(21,068)	(21,068)
- General and administrative expenses	(208,000)	(36,704)	-	(244,704)
- Income tax expense	-	-	(31,670)	(31,670)
Net profit for the year	107,014	330,414	(52,738)	384,690
Segment assets	29,887,713	12,103,812	1,591,447	43,582,972
Segment liabilities	35,297,446	3,563,070	895,634	39,756,150

 

* Unallocated items comprise mainly head office expenses and tax assets.

 

Revenue reported above represents revenue generated from external customers. There were no inter-segment sales during the year (2024: Nil). Transactions between segments, inter-segment cost of funds and allocation of expenses are not determined by management for resource allocation purpose. The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 4. For the purposes of monitoring segment performance and allocating resources between segments:

 

·      All assets are allocated to reportable segments except for property and equipment, goodwill and other intangibles and certain amounts included in other assets; and

·      All liabilities are allocated to reportable segments except for certain amounts included in other liabilities.

33     Segmental information (continued)

 

33.1  Geographical information

 

The Group currently operates in one principal geographical area - United Arab Emirates. The Group's operating income and information about its non-current assets by geographical location are detailed below:

 

	Country of domicile	Foreign	Total
2025	AED'000	AED'000	AED'000
Operating income	1,146,549	-	1,146,549
Non-Current Assets	1,077,557	373,367	1,450,924
2024
Operating income	726,516	-	726,516
Non-Current Assets	1,013,914	373,367	1,387,281

 

34     Classification of financial assets and financial liabilities

 

(a)     The table below sets out the Group's classification of each class of financial assets and liabilities and their carrying amounts as at 31 December 2025:

	FVTPL	FVTOCI	Amortised cost	Total
	AED'000	AED'000	AED'000	AED'000
Financial assets:
Cash and balances with central bank	-	-	3,245,127	3,245,127
Deposits and balances due from banks	-	-	917,953	917,953
Loans and advances, net	-	-	30,440,444	30,440,444
Investment securities, net	336,871	2,220,060	8,356,665	10,913,596
Other assets	-	-	470,712	470,712
Total	336,871	2,220,060	43,430,901	45,987,832
Financial liabilities:
Customers' deposits	-	-	31,507,048	31,507,048
Deposits and balances due to banks	-	-	3,654,192	3,654,192
Repo borrowings	-	-	1,994,572	1,994,572
Other liabilities	-	-	962,205	962,205
Issued Bonds	-	-	5,440,315	5,440,315
Total	-	-	43,558,332	43,558,332

 

(b)     The table below sets out the Group's classification of each class of financial assets and liabilities and their carrying amounts as at 31 December 2024:

	FVTPL	FVTOCI	Amortised cost	Total
	AED'000	AED'000	AED'000	AED'000
Financial assets:
Cash and balances with central bank	-	-	4,639,575	4,639,575
Deposits and balances due from banks	-	-	595,972	595,972
Loans and advances, net	-	-	24,302,758	24,302,758
Investment securities, net	423,181	1,796,461	7,881,928	10,101,570
Other assets	1,144	-	666,196	667,340
Total	424,325	1,796,461	38,086,429	40,307,215
Financial liabilities:
Customers' deposits	-	-	29,704,942	29,704,942
Deposits and balances due to banks	-	-	2,822,812	2,822,812
Repo borrowings	-	-	2,420,284	2,420,284
Other liabilities	-	-	1,141,852	1,141,852
Issued Bonds	-	-	3,563,070	3,563,070
Total	-	-	39,652,960	39,652,960

35     Financial risk management

 

The Group has Senior Management committees to oversee the risk management. The Board of Directors' Executives define policies, processes, and systems to manage and monitor credit risk. It also sets policies, system and limits for interest rate risk, market risk, foreign exchange risk, and liquidity risk. This is also overseen by the Board Risk Committee and the Board Credit and Investment Committee. The Group also has a Credit Risk function which independently reviews adherence to all risk management policies and processes. The Group's internal audit function, which is part of risk review, primarily evaluates the effectiveness of the controls addressing operational risk.  

 

Credit risk management

 

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counter-parties, and continually assessing the creditworthiness of counter-parties. In addition to monitoring credit limits, the Group manages the credit exposure relating to its trading activities by entering into master netting agreements and collateral arrangements with counter-parties in appropriate circumstances, and by limiting the duration of exposure.  In certain cases, the Group may also close out transactions or assign them to other counter-parties to mitigate credit risk. Concentrations of credit risk arise when a number of counter-parties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political, or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Group's performance to developments affecting a particular industry or geographic location.

 

Policies relating to credit are reviewed and approved by the Board of Directors.  All credit lines are approved in accordance with the Group's credit policy set out in the Credit Policy Manual and delegated authority as issued by the Board of Directors. Credit and business underwriting functions are segregated. In addition, whenever possible, loans are secured by acceptable forms of collateral in order to mitigate credit risk.  The Group further limits risk through diversification of its assets by economic and industry sectors. All credit facilities are administered and monitored by the Credit Administration Department. Periodic reviews are conducted by Credit Risk and facilities are risk graded based on criterion established in the Credit Policy Manual. Cross border exposure and financial institutions exposure limits for money market and treasury activities are approved as per guidelines established by the Board of Directors and are monitored by the Senior Management on a daily basis. The Board or its delegated committee's also establishes industry caps, approves policy exceptions, and conducts periodic portfolio reviews to ascertain portfolio quality.

 

Commercial/Institutional lending underwriting - All credit applications for Commercial and Institutional lending are subject to the Group's credit policies, underwriting standards and industry caps (if any) and to regulatory requirements, as applicable from time to time. The Group does not lend to companies operating in industries that are considered by the Group inherently risky and where industry knowledge specialisation is required.  In addition, the Group sets credit limits for all customers based on their creditworthiness.  All credit facilities extended by the Group are made subject to a delegated authority system, including a Board Credit and Investment Committee and Management Credit and Investment Committee, under the ultimate authority of the Board of Directors.

 

Credit review procedures and loan classification - The Group's Credit Risk department subjects the Group's risk assets to an independent quality evaluation on a regular basis in conformity with the guidelines of the Central Bank of the U.A.E. and the Group's internal policies in order to assist in the early identification of accrual and potential performance problems.  The Credit Risk department validates the risk ratings of all commercial clients, provides an assessment of portfolio risk by product and industry and monitors observance of all approved credit policies, guidelines and operating procedures across the Group.  All commercial/institutional loan facilities of the Group are assigned one of ten risk ratings (1-10) where 1 is being excellent and 10 being loss with no reimbursement capacity and total provisioning.  If a Loan is impaired, interest will be suspended and not be credited to the consolidated statement of profit or loss. Specific allowance for impairment of classified assets is made based on recoverability of outstanding and risk ratings of the assets. The Group also measures its exposure to credit risk by reference to the gross carrying amount of financial assets less amounts offset, interest suspended and impairment losses, if any. The carrying amount of financial assets represents the maximum credit exposure.