ADIB Annual Report 2021 - En

BUILDING THE WORLD’S MOST INNOVATIVE ISLAMIC BANK ANNUAL REPORT 2021

The late Sheikh Zayed bin Sultan Al Nahyan

His Highness Sheikh Khalifa Bin Zayed Al Nahyan President of the United Arab Emirates Ruler of Abu Dhabi Supreme Commander of the UAE Armed Forces

His Highness Sheikh Mohammed Bin Zayed Al Nahyan Crown Prince of Abu Dhabi Deputy Supreme Commander of the UAE Armed Forces

CONTENTS ADIB profile

ESG and corporate governance

At a glance

05

ESG summary report

54

Group strategy

10

Corporate governance report

58

ADIB business model

12

ADIB Subsidiaries, associates and joint ventures

13

Financial statements

ADIB board members

14

Board of directors report

72

ADIB executive management

16

Audit report

74

Sharia report

80

Financial statement

82

Financial review Financial highlights

20

Chairman’s statement

22

Group CEO’s report

26

Business and financial review

30

Financial and non financial service business review

36

Basel III pillar III disclosure

158

Operational review

4

Retail banking group

42

Wholesale banking group

44

Treasury

45

International banking group

46

Digital

47

Our people

50

ADIB Annual Report 2021

CREATING THE WORLD’S MOST INNOVATIVE ISLAMIC BANK Abu Dhabi Islamic Bank (ADIB) is a leading bank in the UAE and the fourth largest Islamic bank globally by assets. Headquartered and listed in Abu Dhabi, ADIB was incorporated in 1997 to serve as the first Islamic bank in the Emirate of Abu Dhabi. The bank currently serves more than 1 million customers through a comprehensive range of products and services that combine a highly personalised customer experience with world-class digital banking services. ADIB is committed to being a responsible corporate citizen and to managing its business in a way that creates value for customers, shareholders, employees and the communities in which it operates.

Since its foundation, ADIB’s market position has been the go-to bank for UAE nationals. ADIB’s national presence, innovation, relevance, and Sharia compliant business model means that ADIB provides the right banking solutions for its customers , with a deep understanding of their needs and ambitions, their lives and plans.

Vision To be the World’s Most Innovative Islamic Bank

Mission Every day, simple banking empowered by people–centric innovation

Purpose To serve as a lifelong partner for customers, colleagues and community

Our Values • We keep it Simple and Sensible • We are Transparent • We work for Mutual Benefit • We nurture Hospitality & Tolerance • We are Shari’a inspired

ADIB Annual Report 2021

5

A LEADER IN ISLAMIC BANKING

6

Islamic Leader

Award Winning

4th largest Islamic Bank

Best Islamic Bank in MENA

National Champion

Digital Focus

Serves 1 million customers

75% digitally active customers

ADIB Annual Report 2021

AWARDS AND RECOGNITION Islamic leadership BEST ISLAMIC BANK IN THE UAE

BEST ISLAMIC BANK IN EGYPT

BEST ISLAMIC BANK IN IRAQ

BEST ISLAMIC PRIVATE BANK

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BEST ISLAMIC BANK FOR TREASURY MANAGEMENT

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BEST ISLAMIC BANK

BEST ISLAMIC RETAIL BANK 2021

Asiamoney

Islamic Retail Banking Awards

Digital and innovation BEST DIGITAL TRANSFORMATION Gulf Customer Experience Awards

OUTSTANDING ACHIEVEMENT CYBER SECURITY MIDDLE EAST

BEST FINTECH COLLABORATION

BEST ISLAMIC DIGITAL BANK UAE

OUTSTANDING CRISIS FINANCE INNOVATIONS

The Digital Banker

The Digital Banker

Global Finance

Global Finance

STRATEGIC TRANSFORMATION CIRCLE OF EXCELLENCE The Blue Prism

BEST DIGITAL BANK AND DIGITAL FINANCE INSTITUTION ME The Asian Banker

MEBIS+ BANK AWARDS 2021

BEST DIGITAL BANK IN THE MIDDLE EAST

BEST DIGITAL PLATFORM FOR CORPORATES

BEST DIGITAL TRANSFORMATION PROGRAM

Middle East Banking Innovation Summit

Asiamoney

The Asian Banker

The Digital Banker

Product leadership COMMODITY MURABAHAH & TAWARRUQ DEAL OF THE YEAR

HYBRID DEAL OF THE YEAR

PROJECT & INFRASTRUCTURE FINANCE DEAL OF THE YEAR

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BEST CORPORATE HYBRID SUKUK & DOTY

EGYPT DEAL OF THE YEAR

MUDARABAH DOTY & PERPETUAL DOTY & UAE DOTY

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The Asset Triple A Islamic Finance Awards

Sustainability award GOLD LEED CERTIFICATE US Green Building Council

MOST EFFECTIVE RECOVERY The Business Continuity Institute Awards

BEST CONTINUITY AND RESILIENCE TEAM

RESILIENCE AND RESPONSIVENESS EXCELLENCE AWARDS

ISO 22301: 2019 CONTINUITY AND RESILIENCE CERTIFICATION

ISO18788: 2015 PRIVATE SECURITY OPERATIONS

The Business Continuity Institute Awards

Expo Trade

ISO

ISO

Customer service and excellence

ADIB Annual Report 2021

Subsidiaries

NUMBER ONE BANK

BY FORBES

5 STARS BROKERS RATING

Forbes Magazine

DFM

7

THE ADIB GROUP STRUCTURE Board of Directors

Financial Services Group

Non-Financial Services

Banking:

Real Estate:

Abu Dhabi Islamic Bank PJSC

Burooj Properties LLC MPM Properties LLC

Subsidiaries:

Manpower:

Abu Dhabi Islamic Securities Company LLC ADIB (UK) Limited

Kawader Services LLC

Associates and Joint Ventures: Abu Dhabi Islamic Bank – Egypt (S.A.E.) Abu Dhabi National Takaful Company PJSC Bosna Bank International D.D. Saudi Finance Company CSJC Abu Dhabi Islamic Merchant Acquiring Company LLC

International Branches: Qatar (QFC) Iraq Sudan

8

ADIB Annual Report 2021

BANK BRANCHES’ NETWORK

Sharjah NE Area 7 Branches

Dubai (Deira Area) 5 Branches

Abu Dhabi (Central Area) 11 Branches

Dubai (Bur Dubai Area) 5 Branches East Coast Area 9 Branches AI Ain 9 Branches

Abu Dhabi (East & West Area) 16 Branches

Abu Dhabi Central

Abu Dhabi West Area

Dubai (Bur Dubai Area)

East Coast Area

1. Najda Branch 2. Al Wahda Mall – Abu Dhabi 3. Abu Dhabi Police GHQ 4. Sheikh Zayed Main branch 5. AD Chamber of Commerce Cash Office 6. Sheikh Khalifa Energy Complex 7. ADIA Cash Office 8. Al Bateen 9. Marina Mall 10. Nation Towers 11. Abu Dhabi Judicial Department Branch

20. Madinat Zayed 21. Mad. Zayed Immigration 22. Al Sila 23. Al Marfaa 24. Delma Island 25. Liwa 26. Gayathi 27. Ruwais Mall

37. Sh. Zayed Road 38. Arenco-DIC 39. Dubai Mall 40. Second of December 41. Al Barsha

54. Fujairah 55. Ras Al Khaimah 56. Dibba 57. Khorfakkan 58. Al Dhaid 59. RAK Airport Road 60. Kalba 61. Al Hamra Mall 62. Fujairah City Centre

Abu Dhabi East Area 12. Baniyas 13. Mussafah 14. AD Airport 15. Dalma Mall 16. Khalifa A City 17. Bawabat Al Sharq Mall 18. Shahama 19. Yas Mall

ADIB Annual Report 2021

Al Ain 28. Al Ain 29. Al Jimi 30. Al Yahar 31. Al Murabbaa 32. Al Wagan 33. Oud Al Tobba Ladies 34. Al Bawadi Mall 35. Makani Mall 36. Al Tawaam

Dubai (Deira Area) 42. Nad Al Hamar 43. Al Muhaisnah 44. Al Qusais 45. Nad Al Sheba 46. Deira

Sharjah and NE Area 47. Sharjah 48. Ajman 49. Zawaya Walk 50. Umm Al Qaiwain 51. Al Rahmania Mall 52. Al Buhairah 53. Al Juraina

9

GROUP STRATEGY Strategy Overview In October 2021, the Board of Directors formally approved a new strategy for the bank which will drive our business to 2025.

The strategy has four pillars:

These four pillars will guide and direct all the bank’s activities and efforts for the next four years. When combined, these pillars will deliver a bank that is differentiated, profitable, sustainable and efficient. These qualities will lead to growing customer satisfaction, will prove to be a magnet for talent, and will deliver long-term, high-quality shareholder returns. At the same time, the strategy will ensure the bank’s contribution to a future that is sustainable for the environment, for society and for the business.

The results of this new strategic focus began to be seen and to make a material impact on 202 1’s full year performance.

10

•

Launch of Turbo the first integrated, digital ecosystem introduced by the Bank. A one-stop solution bringing together several auto industry partners on one digital platform

•

ADIB was the first bank in the UAE to perform instant and highly secure face recognition verification for account opening using the Ministry of Interior’s Facial Recognition verification system

•

Launch of remote sales platform allowing customers to interact with ADIB and apply for personal finance, covered cards, takaful, and other banking products without having to leave their homes

•

ADIB raised over AED 587 million ($160 million) through its new flagship fund, the ADIB Global Sukuk Fund which was launched in October 2021. The Fund offers investors an opportunity to invest in a diversified portfolio of regional and international Sukuk instruments

•

Launch of Amwali as the world’s first Islamic digital proposition targeting youth between the ages of 8 to 18. Amwali is a ground-breaking proposition that brings together an entire suite of banking products and innovative technology to enable young customers to enjoy a whole new way of banking that is paperless, signatureless and branchless

•

Partnering with Fintechs to drive further innovation and technology advances

ADIB Annual Report 2021

•

ADIB continues to build on its existing strength of the Emirati retail segment adding 35000 new UAE national retail customers in 2021

•

A deliberate focus on government-related entities (GREs), resulted in 10% growth in assets in wholesale baking

•

We have been investing heavily in building the capability to target large- and mid-sized corporate clients in the UAE. This segment will be the focus of our growth efforts in 2022

•

Trade finance: we have identified a market opportunity in trade finance and have moved rapidly to build our capability in this field, resulting in a doubling of trade-related income year on year

•

In 2021, ADIB saw a 11% rise in digitally active customers

•

75% of customers are digitally active

•

40% of new customers open their accounts digitally through the facial recognition feature

•

30% of customers obtain instant and digital personal finance through the bank’s application

•

Heavy investment in digitising our processes has resulted in material cost savings as 95% of the bank’s processes are now digitised

•

Robotic processes adopted for payment systems resulted in a reduction in waiting time for customers, no matter what time they transact

•

Upgrade of safeguards against financial crime, including adoption of AI solutions for Anti Money Laundering, Customer Due Diligence and Know Your Customer controls

•

ADIB is rated A by MSCI ESG index

•

ADIB participated in 11 green financing transactions

•

ADIB received 4 LEED certificates for green building in 2021

•

The widespread move to digital operations and process automation results in lower emissions and drives energy efficiency

•

Al ghaf project to deliver paperless branches and offices resulted in saving two million sheets of paper in 2021

•

92% of staff underwent training in 2021

•

Providing subsidized childcare to enable parents to come to work and care for their families. The “Kids Fantasy” nursery has proved very popular with our colleagues and will be expanded in 2022

ADIB Annual Report 2021

11

ADIB BUSINESS MODEL ADIB is the fourth largest Islamic bank in the world with total assets of AED 137 billion. ADIB is a Universal Bank that offers banking solutions for individuals, corporates, government institutions and affluent customers. In addition, the wider ADIB Group provides brokerage, real estate and property management, payment solutions and insurance services. ADIB has a significant distribution network in the UAE of more than 60 branches and 500 ATMs. Internationally, the bank has a presence in six strategic markets - Egypt, where it has 70 branches, the Kingdom of Saudi Arabia, the United Kingdom, Qatar, Sudan and Iraq.

Capabilities and Offerings ADIB offers the full suite of retail banking products, from current accounts to cards and home finance, from auto finance to savings and investments. Retail banking group is the engine that drives ADIB. Our retail business reflects the strength and trustworthiness of the ADIB brand and its market positioning. This is reflected in the popularity of our value-added services such as the #hereforyou campaign, launched in 2021, which supports customers and individuals to plan their finances and build financial security for their long-term futures. #hereforyou gives a hands-on, practical introduction to personal finance and focuses on earning money, spending money wisely through budgeting, saving and investing money, using finance cautiously and protecting for the future. ADIB has one of the most digitally advanced retail offerings in the market: 71% of our customers were digitally active in 2021, and 99% of all money transfers were made digitally.

ADIB provides the complete range of banking services for corporates. From corporate finance and capital raising to transaction banking and payments, ADIB is the chosen partner for many of the UAE’s leading companies and government-related entities.

Our Financial Institutions and Trade Finance divisions operate a network of correspondent banking relationships around the world.

Project Finance supports the financing of long-term infrastructure of the region, with a focus on water and renewable energy.

ADIB’s payments and cash management solutions are delivered through ADIB Direct, a digital-first, state of the art service that covers all working capital needs locally, regionally and globally.

ADIB’s Treasury business offers risk management solutions to corporate treasurers and government entities.

With expertise in FX, rates, hedging, money markets, equity and debt execution, Treasury also manages ADIB’s balance sheet and asset/liability mix. ADIB’s Treasury business is also a major and active investor in the global sukuk market, offering investment opportunities to customers and using debt assets to manage the bank’s balance sheet.

DIB has businesses in the following countries: UK, Egypt, Iraq, Sudan, Qatar and Bosnia. Our business in each A country is tailored to deliver optimum returns for the group by providing the most appropriate local products and services, while mitigating risk and ensuring synergies.

12

ADIB Annual Report 2021

ADIB SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

ADIB (Egypt) SAE

Saudi Finance Company, ADIB Saudi Arabia

ADIB UK

Abu Dhabi Islamic Merchant Acquiring Company LLC

Abu Dhabi National Takaful Company PJSC

ADIB Securities

MPM Properties

Bosna Bank International D.D.

Burooj Properties

ADIB Annual Report 2021

13

A STRONG AND EXPERIENCED BOARD

HE Jawaan Awaidha Suhail Awaidha Al Khaili Chairman

Mr Dhaen Mohamed Dhaen Mahasoon Alhameli Board Member

14

Mr Khalifa Matar Khalifa Qaroona Almheiri Board Member

ADIB Annual Report 2021

Mr Najib Youssef Fayyad Board Member

Mr Abdulla Ali Musleh Jumhour Al Ahbabi Board Member

Mr Faisal Sultan Naser Salem Al Shuaibi Board Member

ADIB Annual Report 2021

15

ADIB EXECUTIVE MANAGEMENT

Mr Nasser Al Awadhi Group Chief Executive Officer

Mr Abdulla Al Shehhi

Mr Abdul Qadir Khanani

Ms Bushra Alshehhi

Mr Eduardo Rangel

Global Head International Business Group

Group Treasurer

Head of Human Resources - UAE & Chairman of Kawader Services Company

Global Head of Compliance

Ms Lamia Khaled Hariz

Mr Maher Mustafa Al Ruz

Ms Metha Al Hashmi

Mr Michael Gregory Davis

Group Head of Public Affairs and Corporate Communications

Group Chief Customer Officer

Group Chief Credit Officer

Global Head of Wholesale Banking Group

Mr Sandeep Chouhan

Mr Suliman AlRaeei

Group Chief Operating Officer

Head of Internal Shari’a Audit Division

16

ADIB Annual Report 2021

ADIB’s management team is vastly experienced and together represents many years of banking expertise gained through academic qualifications and careers with highly-respected financial institutions.

Mr Faisal Saleem Abushaar

Dr Ghaith Mismar

Mr Kenneth Tan

Mr Khalid Ali Almansoori

Group Chief Risk Officer

General Counsel

Group Head of Audit

Executive Chairman, MPM Properties

Mr Mohammed Abdelbary

Mr Mohammed Ali AL Fahim

Dr Osaid M. A. Kailani

Mr Samih Awadhalla

Group Chief Financial Officer

Region Head, Corporate Banking Abu Dhabi

Global Head, Shari’a

Acting Global Head of Reatil Banking Group

ADIB Annual Report 2021

17

FINANCIAL REVIEW

Financial highlights

20

Chairman’s statement

22

Group CEO’s report

26

Business and financial review

30

Financial and non-financial service business review

36

18

ADIB Annual Report 2021

ADIB Annual Report 2021

19

FINANCIAL HIGHLIGHTS Strong set of results for FY 2021 driven by positive momentum across our businesses

2.3bn

137bn

18.6%

+45%

+7%

-23bps

5.6bn Revenues

93bn

Gross Customer Financing

14.3%

+4%

+7%

+463bps

2.3bn

110bn

40.7%

-8%

+8%

-507bps

Net Income

Expenses

Total Assets

CAR

Return on Equity

Deposits

Cost to Income Ratio

ADIB Group 2021 AED mn

2020 AED mn

2019 AED mn

2018 AED mn

2017 AED mn

Net revenue from funding Fees, Commissions and Foreign Exchange Income Investment and Other Revenues

3,344.6 1,206.6 1,008.3

3,324.5 1,215.5 818.2

3,818.3 1,400.8 696.1

3,906.7 1,315.7 547.1

3,769.6 1,300.6 562.1

Total Revenues

5,559.6

5,358.2

5,915.2

5,769.5

5,632.3

Operating Profit (Margin) Credit Provisions and Impairment Charge

3,299.5 954.4

2,908.2 1,314.1

3,262.2 658.1

3,125.7 620.1

3,123.1 790.4

Net Profit after zakat & tax

2,330.1

1,604.0

2,601.1

2,500.8

2,300.1

Summary Balance Sheet

AED bn

AED bn

AED bn

AED bn

AED bn

136.9 88.3 109.6

127.8 83.4 101.3

126.0 81.1 101.4

125.2 78.7 100.4

123.3 76.5 100.0

80.51% 18.57% 40.65%

82.36% 18.80% 45.72%

79.98% 17.92% 44.85%

78.36% 17.18% 45.82%

76.53% 16.09% 44.55%

Summary Income Statement

Total Assets Customer Financing Customer Deposits Financial Ratios Customer Financing to Deposit Ratio Capital Adequacy Ratio - (CAR %) - Basel III Cost Efficiency Ratio

20

ADIB Annual Report 2021

13.5%

3.8%

Operating Profit (Margin) (AED mn)

Total Revenues (AED mn) 2021 2020

5,560

2021 2020

5,358

2019

5,915

2018

5,769

2017

5,632

109,611

2020

101,276

2019

101,404

2018

100,404 100,004

Customer Financing to Deposit Ratio 2021 2020

2017

Credit Ratings Moody’s Investors Service

Fitch Ratings

ADIB Annual Report 2021

3,126 3,123

Total Customer Financing (AED mn)

2021

2018

3,262

2018

5.8%

Total Customer Deposits (AED mn)

2019

2019 2017

8.2% 2017

3,300 2,908

2021

88,252

2020

83,409

2019

81,108

2018

78,677

2017

76,530

Capital Adequacy Ratio - Basel III 80.51% 82.36%

79.98%

2021

18.57%

2020

18.80%

2019

78.36%

17.92%

2018

76.53%

17.18%

2017

16.09%

Long term

Short term

A2 A+

P1 F1

Outlook

Stable Stable

21

CHAIRMAN’S STATEMENT

22

ADIB Annual Report 2021

45%

Growth in Net Profit Growth in net profit reached AED 2,330 million

Dear Shareholders On behalf of the Board of Directors, I am pleased to present Abu Dhabi Islamic Bank’s Annual Report for 2021.

Our 2021 financial results tell the story of a bank that has not just survived the Covid pandemic, but which has seized the opportunity to recover back better and stronger. The response of the UAE government and the UAE Central Bank to the Covid pandemic was large scale and decisive. Against this determined backdrop, ADIB took the decision not merely to shore up its existing business but to seize the moment and deliver sustainable growth with a renewed long-term strategy.

I would like to express my thanks to the management and staff of ADIB for delivering sustained growth and profitability during this period, and to extend my appreciation to the Internal Shari’a Supervisory Committee for their support and guidance.

By the middle of 2021, the vaccination programme was proven to be the best weapon to defeat Covid, and the UAE authorities acted with commendable swiftness and determination to ensure that our nation quickly became one of the most vaccinated in the world.

With the success of the vaccination programme, we saw a benign macro-economic environment develop: the oil price recovered from its 2020 lows; confidence returned to the capital markets; business and trade resumed a normalised trajectory. Against this backdrop, the UAE has once again demonstrated great vision and leadership, leading the way towards recovery, regionally and globally, on the back of its monetary and fiscal stimulus measures including the UAE Central Bank TESS programme, structural reforms and plans to drive long-term economic growth and prosperity.

ADIB Annual Report 2021

Revenue

Revenue for 2021 improved 4% to AED 5,560 million compared to AED 5,358 million last year

Following a landmark year for the UAE, when the country celebrated its Golden Jubilee and launched a new vision to guide progress over the coming 50 years, ADIB ensured its commitment to play an integral role in furthering economic prosperity in the markets we serve.

ADIB responded to the uptick in commercial activity well, delivering a strong financial performance. The prudent provisions we had taken in 2020 were able to be revised downwards by some 27%. We ended 2021 with a regulatory capital position which is strong and resilient, with a Capital Adequacy Ratio of 18.6%, comfortably exceeding Central Bank guidance.

A Strong and Successful 2021 I am pleased to be able to report a strong and successful performance by ADIB in 2021: •

We grew the balance sheet by 7% to AED 137 billion and increased deposits by 8% to AED 110 billion. This foundation delivered a return on equity of 14.3%, an increase of 463 basis points compared to 2020.

•

ADIB’s net income grew by 45% to AED 2.3 billion after the deduction of the Shareholders’ contributions to the depositors, an outstanding performance that was principally driven by revenue growth and prudent control of cost. The positive income growth rate that exceeds the expenses growth rate delivered by the combination of revenue growth and costs efficiency is a key objective of the bank.

Improving Macro-economic Conditions We must not forget that 2021 began amid deep uncertainty. The pandemic continued to rage around the world; the first vaccinations had just been administered, but there was no evidence of their efficacy, and business confidence remained fragile.

4%

Our strong performance in 2021 has allowed ADIB’s Board of Directors to recommend an increase in its cash dividend payout by 51.2% representing 48.5% of the year’s net profit, in line with our commitment to driving long-term value for our shareholders.

23

CHAIRMAN’S STATEMENT CONTINUED

Looking Forward with a New Strategy

Recognition

In 2021, the bank positioned itself for future growth with the agreement of a new strategy to take us to 2025. ADIB’s strategy has four pillars, and each of them has begun to deliver concrete and tangible results in 2021:

I am exceptionally proud that ADIB succeeded in winning several important international and regional awards in 2021. ADIB has been named the no. 1 Bank in UAE on the Forbes list of World’s Best Banks 2021. ADIB’s ranking was based on customer satisfaction and feedback where ADIB received high scores across the different dimensions of the survey including satisfaction, customer service, financial advice, and digital services. This was a clear testament to the success of our customer-centric approach, digital transformation, and the hard work and dedication of all our employees. ADIB continues to be recognised for its success in the Islamic banking sector, receiving numerous awards including ‘Best Islamic Digital Bank’ and ‘Innovator in Islamic Finance’ awards by Global Finance.

• Continuous Innovation has been proven by the successful launch of new products and services, and the continuing strong adoption of digital technology by the bank and by our customers.

• Segment Focused has been demonstrated by the investment we have made to ensure leadership in our historic strengths: Emirati retail customers and UAE Government Related Entities; but the new strategic vision has also driven a new focus and impetus to segments such as Large and Medium Corporates, asset management, infrastructure, trade finance and project finance.

• Digital Excellence: this pillar of the strategy is an enabler for every aspect of our business, from the 75% of customers active on digital to the 95% fully automated payment process that are to the two million papers saved through digitisation. This last achievement also contributes to the fourth pillar: • Sustainable Future: We have fully committed to building a sustainable bank, and to addressing the achievement of goals relating to the environment, society and governance (ESG). This is where an Islamic bank like ADIB enjoys a natural competitive advantage: the principles of Sharia are not only compatible with ESG, they are indistinguishable.

We are building a bank for the future, and I am delighted to report that the story told by our results supports the strategic logic of our action and provides strong indications that our strategy for the future is the right one.

Conclusion On behalf of the Board and the entire ADIB team, I would like to extend our gratitude to the leaders of the United Arab Emirates and, in particular, to His Highness Sheikh Khalifa bin Zayed Al Nahyan, the President of the UAE and Ruler of Abu Dhabi, may God protect him, and to His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces.

I would also like to take this opportunity to thank the entire ADIB family: our Board of Directors, management, and hardworking staff across the bank who have worked in difficult circumstances. Their loyalty and commitment are recognised and appreciated.

I also wish to extend thanks to our customers, shareholders, the Central Bank of the UAE for their support and trust, and the esteemed members of the Internal Shari’a Supervisory Committee for their supervision.

Thank you, HE Jawaan Awaidha Suhail Awaidha Al Khaili Chairman

24

ADIB Annual Report 2021

GROUP CEO’S REPORT

We have made tangible progress in 2021 against our strategic initiatives to drive business growth. Over the last twelve months, we continued to accelerate investments in products, services, and technology.

26

ADIB Annual Report 2021

A glance at the financials shows that 2021 was a positive year in terms of net profits, revenues, capital and returns. This was achieved through a combination of revenue growth and an effective cost control strategy, coupled with an improving macro environment.

Dear Shareholders

Strategic update

It was a great privilege to be joining ADIB at a time when the bank is achieving strong momentum, and as it sets out to deliver its 2025 growth strategy. ADIB has many attributes with a proud history and a bright future.

This outstanding performance not only reflects solid momentum across our core businesses and an improved macroeconomic backdrop but also was the outcome of our strategic review that was conducted to unlock value, drive growth, and prepare the Bank for the future.

Strong Financial performance A glance at the financials shows that 2021 was a positive year in terms of net profits, revenues, capital and returns. This was achieved through a combination of revenue growth and an effective cost control strategy, coupled with an improving macro environment. We delivered a revenue growth of 4% in 2021, driven by higher income from financing and growth in investment income. In combination with improved operating efficiency and normalizing risk cost, this revenue growth has resulted in a substantial 45% year-on-year increase in our net profit, which led to a healthy return on equity of 14.3%. We have demonstrated strong expense discipline across the bank and successfully implemented a number of optimization initiatives, resulting in a reduction of 5.1 percentage points in our Cost to Income ratio to 40.7%.

Despite a low-rate environment, our net profit margin ‘NPM’ remained market-leading at 3.25% for the period, aided by the low cost of funding that the bank enjoys by virtue of its higher Current and Savings account (CASA) balances. The balance sheet grew sturdily during the year, with growth of 7% in financing and 8% in deposits, meaning that ADIB enjoys a stable, robust, and scalable capital position with a CET1 ratio of 12.9%.

ADIB Annual Report 2021

We have made tangible progress in 2021 against our strategic initiatives to drive business growth. Over the last twelve months, we continued to accelerate investments in products, services, and technology. For example, we became the first UAE bank to use facial recognition for instant and secure account opening. This was done in partnership with the Ministry of Interior (MOI) to allow the opening of accounts remotely and digitally. In addition, we unveiled “Amwali” digital bank, the world’s first Islamic digital bank targeting youth between the age of 8 to 18 which is a ground-breaking proposition that brings together an entire suite of banking products and innovateve technology, enabling young customers to enjoy a whole new way of banking that is paperless, signatureless and branchless. We have seen a 70% increase in youth account acquisitions to date. We also broadened our commitment to digital with the launch of the first integrated, digital ecosystem related to CAR introduced by the Bank, and we are planning to launch other ecosystems in the near future.

27

GROUP CEO’S REPORT CONTINUED

ADIB’s emphasis on building long-term customer relationships and the delivery of superior customer service has allowed us to grow our customer base and to attract approximately 116,000 new customers during the last 12 months period. We deepened our overall relationships with customers, taking our cross-sell ratio to 1.51 products per customer. We have grown our market share within our main segment, we now serve over 400,000 UAE national customers with a dedicated proposition to enhance our presence within this segment.

On digital, we worked on leveraging data, technology, and innovation to elevate the customer experience, enhance efficiency and increase productivity. Our vision to be the world’s most innovative Islamic bank is well on track as we are working on adopting innovative ideas to create value for all our stakeholders.

Our major focus was to automate our processes with 95% of payments now received through our mobile app and online channels. Our mobile app is being used by more than 700,000 users and is rated over 4.5 in both AppStore and Google Play.

Another focus for us in our strategy is to strengthen our environmental, social, and corporate governance (ESG) practices. We will work on embedding ESG principles across the Bank. Building a sustainable future is now part of our Group-wide strategy with a clear commitment to support the government’s sustainability agenda.

While the achievement of financial targets is always satisfying and is to be celebrated, it is equally important for the bank and for its stakeholders to continue to lay the foundations for a long-term successful future.

We have set out our targets for 2025 as follows:

ADIB Strategy 2025 Strategic Targets A commitment to driving value ROE

Net Profit

C/I Ratio

NPS

STP

20%

2x

<36%

#1

>85%

Looking forward, we will continue to drive growth in our key business areas, create efficiencies, and strengthen our market position. We will continuously innovate to enhance our value proposition and accelerate our speed to market. Our targets are ambitious, but they are achievable. After the success of 2021, I am confident that ADIB has the right strategy in place, and that we are making excellent progress in its execution.

Our achievements in 2021 are a testament to the dedication and professionalism of colleagues, whose efforts, experience, and customer focus continues to drive our results. Today, we are a dynamic, modern bank with a culture of innovation and determination that ensures we capture opportunities in the market and meet customers’ needs and expectations. To this end, we will continue to invest in the future.

I would like to express my thanks to all our customers for their commitment to ADIB. I would also like to thank our Board Members whose guidance and support underpins our business strategy. And finally, to our shareholders, I would like to reiterate our focus on delivering high sustainable earnings growth and moving with a clear purpose in 2022 and beyond.

Nasser Al Awadhi Group Chief Executive Officer

28

ADIB Annual Report 2021

Guidance Achieved ADIB met or exceeded all its performance guidance targets in 2021: Management Guidance

FY 2021 Reported

FY 2021 Guidance

+7%

3% to 5%

Net Profit Margin

3.25%

3.00% to 3.20%

Cost of Risk

0.99%

0.80% to 0.90%

Cost to Income Ratio

40.7%

42% to 44%

Net Income Growth

+45%

30% to 50%

Gross Financing Growth

ADIB offers guidance to the market around several key measures. In 2021, this guidance was achieved or exceeded.

In terms of gross financing, the portfolio grew by 7% in 2021. This was above our guidance range as several corporate transactions that were in the pipeline crystalized during the fourth quarter.

The net profit margin was 3.25% for 2021, slightly above the guidance range of 3.0-3.2%. This was achieved despite a highly competitive environment and continuing low central bank rates.

Reported cost of risk stood at 0.99% for the year, although on an underlying basis it was closer to [0.85%] which was in line with expectations.

Net income growth for 2021 was 45%, also in line with our guidance. While this result benefitted from a lower base effect in 2020, it nevertheless represents an important achievement for the bank.

The cost to income ratio was 40.7%, comfortably better than the guidance range. ADIB made significant progress during 2021 in reducing the absolute level of costs, while at the same time improving revenue performance.

ADIB Annual Report 2021

29

BUSINESS AND FINANCIAL REVIEW Operating Environment and Macro Economic Overview 2021 was a year of rebound and recovery with a GDP growth of 5.7% in 2021 in a return to normalized economic conditions following the disruption caused by the Covid pandemic in 2020.. The success of the vaccination programme and strong macro and monetary actions mean that economic activity rose, despite concerns about new variants of the COVID-19 virus.

After recovering to an estimated 5.5 percent in 2021, global growth is now expected to moderate in 2022 to 4.4 %, reflecting continued COVID-19 risk, geopolitical tensions, rising energy prices and supply disruptions which will result into higher inflation than anticipated.

This is expected to result in rising rates as monetary policy is tightened around the world. For the GCC countries and other regional oil exporters, economies look set to enjoy both higher oil prices and increased oil production that should drive real GDP growth. The region will continue to benefit from the ongoing recovery from the Covid-19 pandemic, despite rising case numbers, but the sense remains that the worst of pandemic may starting to be over. As such, economies with significant tourism sectors should see visitor numbers rise once more, in a positive development for employment and foreign capital inflows. With two major events happening – Dubai’s Expo 2020 (Q1) and the FIFA World Cup in Qatar (Q4) should further support the tourism recovery in the region, while continuing economic reforms across the GCC will also drive economic expansion.

While the outlook is broadly positive, however geopolitical tension and slower global growth still present some headwinds to growth in the MENA region while the Covid-19 pandemic still poses a key risk.

The UAE has enjoyed a strong final quarter of 2021, with Expo 2020 and rebounding tourism levels boosting domestic demand, while the UAE’s high vaccination rate helped the country to face the current wave of infections without needing to reimpose the strict measures implemented in 2020. We have seen good performance in the property and tourism market in 2021 and a return to normal levels for the oil price has offered support to government balance sheets.

Oil prices recovered sharply in 2021, rising more than 60% on average to $70pb compared with 2020, boosting sentiment and allowing GCC governments to narrow their budget deficits significantly. The expected oil price increase in 2022 will lead to an increase in public sector investment and growth in strategic sectors. With OPEC+ expected to continue to sanction increased oil production, the hydrocarbon sector should contribute positively to the UAE’s economic progress in 2022 with an expectation for GDP growth to accelerate to around 4% this year from an estimated 2.4% in 2021.

The UAE banking sector is expected to return to pre-pandemic levels of profitability in 2022 on the back of stronger income from financing activities and increasing business momentum, as the economy rebounds from the Covid-19 pandemic. Profitability will be driven by growth in profit margin, underpinned by rising rates expectations and strong business momentum supporting non-financing income, while cost of credit will normalize.

In 2021, the profitability of the UAE banks rebounded to near pre-pandemic levels, largely reflecting robust non-financing income and softening provisions. Banks in the UAE are well capitalized thanks to strong profit generation and overall modest growth in risk-weighted assets (RWAs).

Higher rates could impact the growth in the UAE in 2022, but the structural reforms implemented by the government in the last two years will boost investment and drive growth. These reforms include the expansion of longer-term residency visas, changes in personal and labour laws, allowing 100% foreign ownership of onshore companies and the decision to align the UAE’s working week with that of larger developed economies. These measures will attract both human and financial capital to the UAE.

30

ADIB Annual Report 2021

Real GDP Growth (%) and Nominal GDP (AEDbn) %20

1,551

200 0

1,532 1,318

1,491

1,568

180 0

160 0

140 0

%20

200 0

%10

1,551 1.2%

13,.543%2 1,318

12,.49%1

13,.586%8

120 0 180 0

100 0 160 0

800 140 0

%10 %0

600

%5-

1.2%

3.4%

-6.1%

2.4%

3.8%

120 0

400 100 0

200 800

%0 %10-

0

2018

2019

2020

-6.1%

2021

2022

600

400

%5-

UAE Nominal GDP

Real GDP growth

200

%10-

0

2018 UAE Nominal GDP

71.0

Brent Price / Barrel (Avg) (USD)

71.0

2019

2020

Real GDP growth

64.0

64.0

42.3

2021

2022

70.0

67.0

70.0

67.0

42.3

2018

2019

2020

2021

2022

2018

2019

2020

2021

2022

ADIB Annual Report 2021

31

BUSINESS AND FINANCIAL REVIEW CONTINUED

Income Statement Discussion ADIB is pleased to report a strong set of financial results for 2021.

Net profits for the period grew 45% year-on-year to AED 2.3 billion, translating to a return on equity of 14.3%, up from 9.7% in 2020.

This was achieved through 4% revenue growth, driven by a 9% increase in non-funded income and a 27% decline in the impairment charge. Our effective cost control strategy led to a reduction of 5 percentage points in the cost to income ratio.

The balance sheet grew robustly during the year, with growth of 7% registered in financing and 8% in deposits. ADIB enjoys a stable and scalable capital position with a CET1 of 12.93%.

This strong financial performance was broad-based, with all parts of the bank contributing, and leading to a positive “jaws” measurement during the period, which were 12% and resulted in 13% growth in pre-impairment operating profits.

ADIB was focused on growing the business in line with its strategy, but at the same time the focus was on the asset quality as well as generating operational efficiencies. It is the combination of these factors that has contributed to profit growth.

The improved financial performance in 2021 was broad-based, with most business segments contributing positively to the bottom-line.

Income statement AED (mn) Gross revenue from funds Distribution to depositors Funded income Investment income Fees, commissions income, net Foreign exchange income Other income Non-funded income Revenues Operating expenses Provision for impairment Net income before zakat and income tax Zakat and tax Net income after zakat and tax Non-controllable interest Net income attributable to equity holders of the bank EPS Net profit margin Cost to income ratio Cost of risk ROE ROA

32

FY 2021

FY 2020

%

4Q 2021

4Q 2020

%

3,675 (330) 3,345 994 958 248 14 2,215 5,560 (2,260) (954) 2,345 (15) 2,330 (1) 2,329

3,827 (502) 3,324 791 992 223 27 2,034 5,358 (2,450) (1,314) 1,594 10 1,604 (1) 1,603

-4% -34% +1% +26% -3% +11% -48% +9% +4% -8% -27% +47% -252% +45% +20% +45%

882 (82) 800 328 269 65 6 667 1,467 (531) (203) 733 (4) 728 (1) 727

922 (95) 828 233 274 77 13 598 1,426 (578) (360) 487 (5) 483 (0) 482

-4% -13% -3% +40% -2% -15% -58% +12% +3% -8% -44% +50% -14% +51% +156% +51%

0.57 3.25% 40.7% 0.99% 14.3% 1.76%

0.36 3.51% 45.7% 1.28% 9.6% 1.26%

+57% -27bps -5.1ppts -29bps +463bps +50bps

ADIB Annual Report 2021

Funded Income Funded income grew 1% year-on-year to AED 3.3 billion, as 9% growth in average profit earning assets was partly offset by a 27 basis point moderation in the net profit margin to 3.25%. This margin decline mainly resulted from the lower rate environment which reduced financing yields and the benefit of our low-cost funding base. We are, however, pleased that the reduction in financing yields was in line with the market and that funding costs improved from an already low level to only 31 bps. Despite the lower year-on-year net profit margin, ADIB preserves one of the highest margins in the market, supported by one of the lowest cost of funds in the market.

In addition, the quarterly net profit margin was relatively stable sequentially from the first quarter of the year, which puts the bank in a good position as market rates start rising again.

Non-Funded Income A key driver of profit growth was a solid 9% Year-on-year rise in non-funded income from higher investment, foreign exchange and cards income.

Investment income grew 26% or AED 203 million year-on-year. This was mainly due to an increase in our share of results from our Egyptian joint venture, which benefited by AED 135 million from a one-off transaction regularization. Foreign exchange income rose 11% year-on-year reflecting the resumption of international travel following the lifting of most Covid-related restrictions. This was partly offset by a 3% decline in fee and commission income. The successful management of the pandemic also led to an improvement in consumer confidence and spending, which resulted in 40% growth in net cards income.

Operating Expenses Operating expenses declined 8% year-on-year to AED 2.3 billion, with the cost-to-income ratio declining to 40.7% for the year.

This was the second year in succession that ADIB delivered an 8% reduction in costs, testament to the cost efficiency strategy that the Bank has put together The cost reduction was broad-based across employee, general, administrative and other. There are two key factors driving this improvement in efficiency: Firstly, we implemented several cost initiatives including the rationalization of the branch footprint, by renegotiation of premises leases, careful management of natural staff attrition.

Secondly, the bank has continued to invest in digital which was maintained at similar levels to last year. This underpins the bank’s strategy by not just improving customer journeys and experiences, but also enabling efficiencies through straight-through-processing.

Impairments The net impairment charge decreased by 27% year-on-year to AED 954 million, lowering the cost of risk by 29 basis points to 0.99%. This reflected improvements in the micro- and macro-economic environment which led to lower impairment charges in Retail, Wholesale, Private and Treasury.

Overall, ADIB delivered a healthy financial performance in 2021, and is well placed to capitalise on the economic growth and rate normalisation that we expect to see in 2022 and beyond. The management team is very satisfied with the quality of earnings, growing in a sustainable and consistent way.

This strong 2021 performance as led to the Board proposing a dividend distribution for 2021 of 48.5% of net profit. This marks a record dividend payout for the bank, which reflects its strong balance sheet and financial strength.

Together with our strong digital capability, focused and determined strategy and exceptional management team, ADIB is looking to 2022 with confidence.

ADIB Annual Report 2021

33

BUSINESS AND FINANCIAL REVIEW CONTINUED

Balance Sheet Trends The bank reported solid 7% balance sheet growth during the year to AED 136.9 billion.

Balance sheet growth was driven by 6% growth in net financing and 11% growth in cash and balances with the Central Bank of the UAE and with financial institutions. This growth in liquid assets arose from solid deposit growth and gives us options for profitable redeployment or further funding optimization.

Balance Sheet Dec 2021

Dec 2020

%

Cash and balances with central banks Due from financial institutions Customer financing Investments Investment in associates Investment and development properties Other assets Total assets Due to financial institutions Total deposits Other liabilities Total liabilities Share capital Retained earnings Other reserves Equity attributable to shareholders of the bank Tier 1 sukuk Non - controllable interest Equity attributable to equity holders of the bank

21,699 4,530 88,252 13,691 1,604 2,003 5,089 136,868 3,536 109,611 3,162 116,309 3,632 6,741 5,420 15,793 4,754 12 20,559

19,580 2,420 83,409 13,809 1,302 2,024 5,273 127,816 3,773 101,276 3,605 108,654 3,632 5,671 5,093 14,396 4,754 11 19,162

+11% +87% +6% -1% +23% -1% -3% +7% -6% +8% -12% +7% +19% +6% +10% +3% +7%

Customer financing, gross Non-performing financing (NPA) NPA ratio NPA coverage ratio NPA coverage ratio with collaterals Risk Wieghted Assets CET1 Ratio Tier 1 Ratio Capital Adequacy Ratio (CAR) Finance to Deposits ratio Advances to stable fund ratio (AFR) Eligible Liquid Asset Ratio (ELAR)

93,129 8,286 8.9% 66.8% 120.0% 104,443 12.93% 17.48% 18.57% 80.5% 84.1% 19.7%

87,407 7,689 8.8% 57.9% 110.7% 99,574 12.94% 17.71% 18.80% 82.4% 85.8% 20.7%

+7% +8% +10bps +8.8ppts +9.3ppts +5% -1bps -23bps -23bps -1.8ppts -1.7ppts -1.0ppts

AED (mn)

34

ADIB Annual Report 2021

Financing Gross customer financing grew by 7% to AED 93.1 billion. As a result, funded income grew 1% year-on-year to AED 3.3 billion, as 9% growth in average profit earning assets was partly offset by a 27 basis point moderation in the net profit margin to 3.25%.

Retail financing grew 3%, Government and public sector grew by 20%, corporate increased 6% and private rose 14%.

Deposits Customer deposits rose 8% in 2021 to AED 109.6 billion, from strong CASA and STI generation. This deposit growth arose mainly from the Retail franchise, though Wholesale also contributed meaningfully and Private Bank deposits grew by 5%.

The contribution of deposit growth was primarily driven by an excellent sales performance from the retail branch network - in line with our strategy - as well as higher growth in corporate.

The CASA growth allowed further optimization of our funding base with a 36% reduction in more expensive time and Wakala deposits.

CASA now represent 76% of total deposits compared to 76% at the start of 2020 which is the main driver of our efficient and improving cost of funds.

Asset Quality The 8% growth in Non-Performing Assets in 2021 was closely matched by financing growth resulting in the NPA ratio remaining broadly stable at 8.9%.

NPA coverage stood at 66.8% improving from around 57.9% a year ago. This is a significant improvement, and we aim to continue the same trajectory moving forward. Including collaterals, which are of high-quality and include prudent valuations, NPA coverage was 120.0%, again a marked improvement from 111% at the same time last year.

Capital and Liquidity ADIB maintained robust and stable capitalization and liquidity positions during the year. Capital ratios have remained broadly stable relative to the beginning of the year at very healthy and market-leading levels. The bank grew absolute capital by 4% this year by virtue of strong profit generation, even after distributions. This is testament to our strategic focus on growing non-funded income and generating more diverse income from financing relationships, while at the same time improving operating efficiency.

RWA growth stood at 5% during 2021, and was slightly elevated due to the new Central Bank regulations introduced this year. On a like-for-like basis, RWA growth was low single-digit.

Our liquidity position is healthy, with the Advances to Stable Funds (AFR) ratio broadly stable at 84.1% and the Financing to Deposits (FTD) ratio similarly stable at 80.5%

ADIB Annual Report 2021

35

FINANCIAL SERVICES BUSINESS REVIEW

ADIB Securities Our stock-brokerage subsidiary, ADIB Securities, accounted for 8% of the overall number of transactions executed in the UAE markets. Furthermore, 45% of the overall executed transactions on Dubai Financial Market via mobile channel were channeled by ADIB Securities mobile application.

thus setting the stage to offer its clients a diversified access to trade outside the UAE. ADIB Securities continues to be a market leader in sharia compliant equities trading thus ranking 1st in UAE in terms of Islamic brokerage volumes.

ADIB Securities registered a net profit of AED 27.2 million in 2021, a 20% growth from prior year . ADIB Securities continued to attract new customers winning their trust through its state-ofart trading platforms and superb client services. It had also added Saudi Tadawal and all major US exchanges to its trading platform

Abridged Balance Sheet

Abridged Income Statement

31 December 2020 AED Million

Bank balances and cash Account recievables and prepayments Property and equipment Total Assets LIABILITIES Accounts payable and accruals

2020 AED Million

2021 AED Million

Commission Income Other revenues

20.8 16.3

31.8 10.9

Total Revenues

37.1

42.7

Total expenses

(14.4)

(15.6)

22.7

27.2

2021 AED Million

ASSETS 729.1 109.2 1.4 839.7

644.2 194.0 1.2 839.4

42.1 42.1

40.5 40.5

EQUITY Share capital Unconditional shareholder advance Retained earnings and other reserves

30.0 600.0 167.6

30.0 600.0 168.9

Total Liabilities and Equity

797.6 839.7

798.9 839.4

For the year ended 31 December

Profit for the year

The above financial results are consoldiated line by line in the Abu Dhabi Islamic Bank’s consolidated financial statements as required by IFRS10-Consolidated Financial Statements

36

ADIB Annual Report 2021

NON-FINANCIAL SERVICES BUSINESS REVIEW

Burooj Properties LLC The repositioning of ADIB’s Real Estate subsidiary, Burooj Properties, to better reflect the Group’s investment and development property portfolio, continued in 2021. While we have noticed some improvement in the real estate market in the UAE, the company has continued enhancing its portfolio performance and kept a competitive occupancy rate. The combination of market recovery signs and internal monitoring has resulted in not taking any provision for impairment for 2021.

Abridged Balance Sheet

Abridged Income Statement

31 December 2020 AED Million

Bank balances and cash Investment in properties Investments in equities Property and equipment Other receiavbles Total Assets LIABILITIES Murabaha payable Other payables EQUITY Share capital Accumulated losses, retained earnings and other reserves Total Liabilities and Equity

159.2 1,676.7 13.4 143.2 7.9 2,000.4

122.2 1,671.4 15.4 145.1 9.9 1,964.1

1,996.6 726.8 2,723.4

1,081.9 365.7 1,447.6

500.0

500.0

(1,223.0) (723.0) 2,000.4

2020 AED Million

2021 AED Million

Investment revenues Other revenues

24.8 1.6

16.0 1.5

Total Revenues

26.4

17.5

Total expenses Provision for impairment

(17.5) (31.8)

(15.8) -

(Loss) / Profit for the year

(22.9)

1.6

2021 AED Million

ASSETS

For the year ended 31 December

16.5 516.5 1,964.1

The above financial results are consoldiated line by line in the Abu Dhabi Islamic Bank’s consolidated financial statements as required by IFRS10-Consolidated Financial Statements ADIB Annual Report 2021

37

NON-FINANCIAL SERVICES BUSINESS REVIEW CONTINUED

MPM Properties LLC MPM Properties became a stand-alone subsidiary of the Bank in 2014. The primary focus is on bringing MPM’s customer service levels up to the same standards as those of the Bank in the UAE. MPM’s new business model as an integrated real estate services company focused on property management, project management valuations, sales and leasing and real estate advisory has continued to contribute positively, despite a tough property market across the UAE in 2021. MPM continues to manage significant portfolios and through an ongoing focus on developing the skill sets and capabilities of the teams within, continues to expand its business, most recently in the Property Advisory sector, beyond Abu Dhabi into Dubai and the Northern Emirates.

Abridged Balance Sheet

Abridged Income Statement

31 December 2020 AED Million

Bank balances and cash Property and equipment Accounts receivables and prepayments Total Assets LIABILITIES Accounts payables and accruals EQUITY Share capital Retained earnings and other reserves Total Liabilities and Equity

2020 AED Million

2021 AED Million

Fees and commissions Other income

45.1 -

45.4 0.3

Total Revenues

45.1

45.7

Total expenses

(48.9)

(44.0)

(3.8)

1.8

2021 AED Million

ASSETS 69.7 2.5

45.0 1.3

62.8 135.0

58.9 105.2

95.4 95.4

63.9 63.9

1.0 38.6

1.0 40.4

39.6 135.0

41.4 105.2

For the year ended 31 December

(Loss) / Profit for the year

The above financial results are consoldiated line by line in the Abu Dhabi Islamic Bank’s consolidated financial statements as required by IFRS10-Consolidated Financial Statements

38

ADIB Annual Report 2021

OPERATIONAL REVIEW

Retail banking group

42

Wholesale banking group

44

Treasury

45

International banking group

46

Digital

47

Our people

50

40

ADIB Annual Report 2021

ADIB Annual Report 2021

41

RETAIL BANKING GROUP Retail Banking delivered a solid performance in 2021. The steps taken to manage the business through the pandemic in 2020 delivered a firm foundation in 2021 that allowed the business to grow.

Consequently, the Retail Bank saw 4% growth in total assets and a 7% growth in deposits, with 96% of the deposits comprising Current and Savings Accounts (CASA). This latter metric was a reflection of our focus on growing low-cost liabilities, which in turn delivered an improved cost of funding for the bank.

Operating costs dropped by 2% in retail banking on the back of a rigorous programme of cost savings and a drive to achieve additional efficiencies from process enhancements and digital enablement, in keeping with the Bank-wide digitalisation strategy.

Despite this encouraging financing growth, reported revenue for Retail Banking declined 6% year-on-year to AED 3,056 million. This was due to lower profit margins resulting from the prevailing lower rate environment.

While the worst of the Covid disruption was being successfully managed in 2021, some of the measures introduced at the peak of the crisis in 2020 made a material contribution to growth in 2021. Among these, the introduction of a digital remote sales platform meant that customers could transact, open accounts and take out products with approval in principle from their devices at home. This platform is complemented by “Chat Banking”, an AI-driven bot that can perform most of the tasks of a call centre operative. These innovations, introduced to manage a remote working environment, proved their value and popularity in more normalized times.

In 2021, ADIB retail banking maintained their strategic focus on growing their UAE customer base while meeting their customer service (NPS) targets. ADIB continued to gain retail market share in a shrinking and highly competitive marketplace. ADIB grew its customer numbers in 2021, highlighting the attractions of our propositions and market positioning.

Business Banking also showed a strong performance in FX revenue, since many business owners had to transact from overseas locations.

Business banking clients also benefited from the digital remote sales platform, meaning they could continue their banking from anywhere in the world.

Turning to specific product performance, we saw a 13% increase in home finance revenue and a 2% growth in the home finance balance sheet. This good financing growth was accompanied by the strong credit quality of our book, resulting in a non-performing asset rate of only 20 basis points.

AED (mn) Total assets Financing, gross Total liabilities Depositor’ accounts

4Q 2021

3Q 2021

“%

4Q 2020

“%

55,761 48,853 76,549 75,279

55,547 48,071 75,798 74,337

+0% +2% +1% +1%

53,560 47,497 71,403 70,074

+4% +3% +7% +7%

AED (mn)

FY 2021

FY 2020

“%

4Q 2021

4Q 2020

“%

Funded income Non-funded income Total operating income Operating expenses excluding impairments Impairment charge Profit before tax and zakat Tax and Zakat Profit after and zakat Cost income ratio Cost of risk

2,482 574 3,056 (1,805) (46) 1,206 0 1,206 59.1% 0.09%

2,654 585 3,239 (1,848) (117) 1,273 18 1,291 57.1% 0.25%

-6% -2% -6% -2% -61% -5% -100% -7% +2.0ppts -15bps

620 151 771 (439) (11) 321 0 321 57.0% 0.09%

668 150 817 (429) 36 424 18 442 52.5% -0.30%

-7% +1% -6% +2% -130% -24% -100% -27% +4.5ppts +39bps

42

ADIB Annual Report 2021

Our share of new cards issued grew substantially, driven by strong share of as the economy emerged from the lockdown, demonstrating the strength of our retail franchise. The improvement in consumer confidence and spending resulted in 21% growth in cards income. This comprised a 24% increase in covered card revenue and a 6% growth in the cards balance sheet. Debit card revenue delivered an 19% increase. ADIB is now in the top two UAE banks for debit card usage. This cards growth contributed to a 6% growth in personal financing.

International travel remained below normal levels, with a resulting negative impact on international spend and interchange income. This was however partially mitigated as the domestic economy recovered, which is illustrated by the strong increase in debit card transactions, and by the continuing growth of online digital banking.

In terms of innovation, 2021 saw the creation of the “ADIB Rise” offering, a suite of personalized products and services for customers with an income of AED40k to 80k. Rise has a customer base of 139,000, and the segment contributes 24% of the asset book and 23% of the deposit book. The Retail Bank is focused on cross-selling asset products to this segment and achieved a 30% increase in Auto finance revenue in 2021 through enhanced onboarding careful yield management.

Private Bank delivered a pleasing performance in 2021, with a 72% growth in fee income, meaning we realized an improvement in fee to income ratio from 14% in 2020 to 25% in 2021. ADIB will continue its focus to expand the Private Bank customer base in 2022.

A key aspect of our success in retail is to maintain our position as the number one bank in customer service. In 2021, we established the Customer Excellence Group which is responsible of driving a customer-centric culture in the bank. The group is mandated to modernize processes to be even more customer-focused and speed oriented. They will analyze data and provide us with reports that will help us become more effective in predicting and understanding our customers’ needs. Also they are working on enhancing our customer complaint handling, in order to provide 24/7 availability, faster complaint resolution, improved first call resolution (FCR) and turnaround time (TAT), and better complaint tracking.

For 2021, we remain focused on delivering a unique customer experience across our all our channels, growing our leading market position whilst creating value for our shareholders as we continue to deliver initiatives to retain and deepen our customer relationships. We will be supporting the UAE economy as we look forward to a potential uptick in the business environment in 2022.

We will also work on enhancing our cost by continuing to migrate services to digital platforms, increasing the volume of transactions performed digitally, and growing the number of customers and products acquired through digital channels.

Above all, we will continue to put customers at the heart of everything we do, providing a personalized banking proposition throughout their Lifecyle.

ADIB Annual Report 2021

43

WHOLESALE BANKING GROUP ADIB enjoyed a strong 2021 in its Wholesale Banking business, with the business contributing materially to the Group’s increase in profitability. Wholesale Banking delivered a rise in net profit of 102%. This was driven by a gradual return to normal economic conditions.

Gross customer financing grew by 12% to AED 36.9 billion, illustrating a strong momentum in deal execution, particularly in the fourth quarter. Behind this headline number is a story of focused growth on areas of strength, coupled with very positive foundations being laid for diversification of future growth.

Wholesale Banking’s impairment charge for the period amounted to AED 578 million, a 41% improvement relative to the corresponding 12 months of 2020.

2021 saw a 20% increase in revenue from Government-related entities, as ADIB benefited from these organisations diversifying their funding into Islamic finance, an area they have historically been less exposed to. With this trend, ADIB was able to grow faster than the market, and to cement its role as core bank to important government institutions.

In addition, Wholesale banking trade finance income increased by 18% to AED 37.2 million and added thirty new financing corporate customers in 2021. Wholesale Banking also participated in a number of project finance transactions, focusing on renewable energy and water developments.

In a highly successful new product initiative, Wholesale Banking successfully launched a global sukuk fund, attracting customer investment of over AED 587 million.

AED (mn)

4Q 2021

3Q 2021

“%

4Q 2020

“%

40,325 36,884 25,707 23,139

36,832 33,559 23,439 20,855

-9% +10% +10% +11%

36,017 33,055 22,788 19,508

+12% +12% +13% +19%

FY 2021

FY 2020

“%

4Q 2021

4Q 2020

“%

598 277 875 (279) (578) 17 (10) 8 31.9% 1.57%

641 297 938 (322) (982) (366) (9) (374) 34.3% 2.97%

-7% -7% -7% -13% -41% +105% +12% +102% -2.4ppts -140bps

152 93 245 (73) (164) 8 (2) 6 29.8% 1.78%

173 93 265 (77) (366) (178) (23) (201) 29.2% 4.42%

-12% +1% -8% -6% -55% +105% +90% +103% +0.6ppts -265bps

Total assets Financing, gross Total liabilities Depositor’ accounts

AED (mn) Funded income Non-funded income Total operating income Operating expenses excluding impairments Impairment charge Profit before tax and zakat Tax and Zakat Profit after and zakat Cost income ratio Cost of risk

44

ADIB Annual Report 2021

TREASURY The Treasury business enjoyed a highly satisfactory 2021, contributing 32% of group net income, and increasing revenues by 30% year on year.

Treasury performed well in all business areas in 2021, with FX revenues of AED 317 million, and similar strong performances from structured products and investments. In total, Treasury delivered a return on assets of 2.8%.

The strong performance of Treasury reflected several business-driving initiatives and actions. These included successful cross-selling initiatives and a strong and active management of the sukuk portfolio. ADIB runs one of the most active and dynamic sukuk portfolios in the region.

Another important element in the success of the Treasury business is the strength of its control environment. As an Islamic operator, Treasury is always seeking mutual benefit with its customers: this attribute – fully in line with ADIB’s purpose of being a lifelong partner for customers, colleagues and community.

This control environment contributes to the stability of the management team in the business. The average length of service is over a decade, and the business has continued to be a steadily growing contributor to the group over the long term.

AED (mn)

4Q 2021

3Q 2021

“%

4Q 2020

“%

27,231 13,691 4,600 2,926

27,304 13,420 4,306 3,106

-0% +2% +5% -6%

24,885 13,809 4,701 3,672

+9% -1% -2% -20%

FY 2021

FY 2020

“%

4Q 2021

4Q 2020

“%

(123) 901 779 (41) 3 740 740 5.3% 4.68%

(359) 958 599 (43) (10) 547 547 7.1% 5.29%

-66% -6% +30% -3% +131% +35% +35% -1.8ppts -60bps

(26) 207 181 (11) 3 173 173 6.0% 4.0%

(96) 316 220 (11) 209 209 5.1% 6.95%

+73% -34% -18% -3% +2130% -17%

Total assets Investments Total liabilities Depositor’ accounts

AED (mn) Funded income Non-funded income Total operating income Operating expenses excluding impairments Impairment charge Profit before tax and zakat Tax and Zakat Profit after and zakat Cost income ratio Investment Yield

ADIB Annual Report 2021

-17% +0.9ppts -295bps

45

INTERNATIONAL BANKING GROUP The International Banking business was given a new strategic direction in 2018, and this was refined and reinforced in 2021. The business is now highly focused, specialized and shaped to deliver in each market.

International Banking delivered revenues of AED 264 million in 2021, up from AED 246 million in 2020. Costs were reduced from AED 104 million to AED 96 million, delivering a 15% increase in net profit before tax and zakat.

UK Following a strategic transformation in 2020, ADIB UK is now focusing entirely on facilitating Middle East investments into the commercial and industrial real estate asset class in the UK. This focus has paid dividends, with the business achieving revenues of AED44 million in 2021, an increase of 49% over 2020. ADIB UK has a strong track record in offering bespoke and competitive Sharia-compliant property financing solutions for its clients. In 2021 alone, it has closed over AED 750 million (£150m) in senior financing transactions.

Iraq In Iraq, ADIB focuses on providing payments, trade finance, and cash management services to large Iraqi corporates, government entities and international subsidiaries. This niche role has proved to be highly successful, with Iraq revenues growing by 37% in 2021. In 2021, ADIB revealed that it will strengthen its presence in Iraqi market by launching “ADIB Direct”, a digital platform that meets the growing business demands in Iraq. ADIB believes in playing an important role in supporting Iraq’s local economy by providing businesses the banking services they need to help them thrive and achieve their financial goals. ADIB is the first UAE bank to have a presence in Iraq in 2012. The bank offers a full range of Shari’a compliant corporate banking products and services. ADIB’s broad banking expertise covers government and public sector entities, and a diversified private sector base of financial institutions, trading, contracting, oil & gas, power & energy, manufacturing, and other industries.

Saudi Arabia Saudi Finance Company, our operating business in Saudi Arabia, focuses on providing finance to small and medium sized companies. 2021 saw substantial revenue growth of 108% as this element of the Kingdom’s Vision 2030 national strategy continued to roll out.

Sudan and Qatar ADIB plays a pivotal role in providing finance for corporate companies in both Sudan and Qatar. The bank deploys this network to support multinationals operating across the Middle East, as well as regional banks and companies that are looking to access global markets, providing correspondent banking services, as well as trade finance.

Egypt - a Joint Venture ADIB Egypt delivered a very strong performance in 2021 with net profit increasing by 21% year-on-year (YoY) to reach EGP 1,451 million.

The bank’s most prominent financial indicators also revealed a revenue growth of 13%. Total assets increased by 23% to reach EGP73.5 billion in 2020, compared to EGP 90 billion in 2021 driven by a growth in customers’ finance of 21% . The bank succeeded in attracting new deposits, as its balance of deposits increased by 21%.

The strong performance of 2021 demonstrated the bank’s ability to benefit from the economic recovery that is happening in Egypt.

Throughout the years, ADIB Egypt has demonstrated both flexibility and adaptability, and how quickly they can adjust to market dynamics and developments in the working environment. The bank has been focusing extensively on growing its business whilst continuing to focus on implementing the digital transformation strategy.

46

ADIB Annual Report 2021

DIGITAL

99.7% %99.8 99.5% 99.5% 99.5% %99.6 99.3% %99.4 99.1% 99.7% %99.8 %99.2 99.0% 99.5% 99.5% 99.5% %99.6 %99.0 99.3% %99.4 %98.8 99.1% %99.2 %98.6 98.4% 99.0% %99.0 %98.4 %98.8 %98.2 %98.6 %98.0 98.4% %98.4 %97.8 %98.2 %97.6 %98.0 1Q 20 2Q 20 3Q 20 4Q 20 1Q 21 2Q 21 3Q 21 4Q 21 %97.8 In 2021, ADIB invested heavily in areas that will help the bank achieve%97.6 further growth in the future, including launching new products 20 innovative 2Q 20 3QIslamic 20 4Q bank.

20 1Q 21 2Q 21 3Q 21 4Q 21 and advancing digital capabilities in line with its vision to become the%100 world’s 1Q most 95% serve 95%our95% Capitalizing on the investments we made in 2020 to transition more of our services to digital channels in order 94%to better customers, we accelerated our digitalisation transformation throughout %95 the year. We rolled out new digital initiatives in 2021 while being %100 91% 91% recognized as “best digital Islamic bank” by Global Finance.

89% %90 94% 95% 95% 95% %95 This ongoing transition and automation of our services saw a further migration of volumes to digital channels and a reduction in 1%digital 91% teller-transactions in our branches with 75% of ADIB’s customers digitally active. Around 40%9of account opening are taking place %85 82% 89% %90 digital channels with high levels of STP, while financial on our digital channels with 30% of personal finance application sold through transactions are at 97.8% STP. %80 %85

2% In addition to this and as part of our ongoing transformation of processes and 8procedures to achieve additional internal efficiencies, ADIB employed 66 robotics process automation to automate certain services.%75 1Q 20 2Q 20 3Q 20 4Q 20 1Q 21 2Q 21 3Q 21 4Q 21 %80 %75

Digital Transfers (%)

Digitally1Q Active Customers 20 2Q 20 3Q 20(%) 4Q 20 1Q 21 2Q 21 3Q 21 4Q 21

99.7% %99.8 99.5% 99.5% 99.5% %99.6 99.3% %99.4 99.1% 99.7% %99.8 %99.2 99.0% 99.5% 99.5% 99.5% %99.6 %99.0 99.3% %99.4 %98.8 99.1% %99.2 %98.6 98.4% 99.0% %99.0 %98.4 %98.8 %98.2 %98.6 %98.0 98.4% %98.4 %97.8 %98.2 %97.6 %98.0 1Q 20 2Q 20 3Q 20 4Q 20 1Q 21 2Q 21 3Q 21 4Q 21 %97.8 %97.6 1Q 20 2Q 20 3Q 20 4Q 20 1Q 21 2Q 21 3Q 21 4Q 21 %100 Straight Through Processing (%) %95 %100

89%

%90 %95

94% 95% 95% 95%

91% 91% 94% 95% 95% 95% 91% 91%

%85 %90

82% 89%

%80 %85

82%

%75 %80

1Q 20 2Q 20 3Q 20 4Q 20 1Q 21 2Q 21 3Q 21 4Q 21

%75

1Q 20 2Q 20 3Q 20 4Q 20 1Q 21 2Q 21 3Q 21 4Q 21

%80 %70 %60 %80 %50 %70 %40 %60

57% 57%

70%

70%

71%

70%

70%

71%

1Q 21

2Q 21

3Q 21

4Q 21

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

51%

51%

62%

63%

64%

60%

62%

63%

64%

2Q 20

3Q 20

4Q 20

3Q 20

60%

%80 %70 %60 %80 %50 %70 %40 %60

63%

64%

70%

70%

71%

70%

70%

71%

57%

60%

62% 62%

63%

64%

57%

60%

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

51%

51% 40%

42%

40%

42%

%30 %50 %20 %40 %10 %30 %0 %20 %10 %0 %60

54% Digital Sales (% of Total) 46% %50 %60 %40 %50 %30 %40 %20 %30 %10 %20 %0 %10 %0

54% 31%

46%

44% 51%

51% 44%

31%

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

1Q 20

2Q 20

3Q 20

4Q 20

1Q 21

2Q 21

3Q 21

4Q 21

%30 %50 %20 %40 %10 %30 %0 %20

1Q 20

%10 ADIB%0 Annual Report 2021

%60

1Q 20

2Q 20

54%

47

DIGITAL CONTINUED

ADIB was honored to take the lead in the UAE banking sector by launching new digital and innovative initiatives Remote sales platform ADIB launched UAE’s first virtual banking sales platform, a pioneering remote sales platform allowing customers to converse with ADIB and apply for personal finance, covered cards, takaful, and other banking products without having to leave their homes. A first of its kind in the UAE, the platform is equipped with virtual banking tools, including online application and electronic signature services, providing customers with a seamless and convenient banking experience.

ADIB Chat Banking ADIB launched ADIB Chat Banking, the UAE’s first Emirati customer care chatbot. The service is equipped with the unique ability to understand and respond to the Emirati Arabic dialect, in addition to classical Arabic. ADIB Chat Banking, which is accessible through WhatsApp, will support customers with general requests, offering instant access to key information about their account and finances. This includes providing customers with guidance on locating the nearest ATM or ADIB branch, updates on their account balances, existing card features and offers, or even issuing commands such as activating or freezing debit and covered cards. This is all achieved through a simple interface integrated with Artificial Intelligence.

Digital Smart Tellers ADIB has introduced new integrated digital kiosks – branded ‘Smart Tellers’ by ADIB – across key UAE branches. The Smart Tellers offer the services of a mini-branch and are available all days of the week, allowing customers to access a wide variety of banking services and products that are not typically available through traditional ATMs, such as: instantly obtaining a personalised card and updating account details. The Smart Tellers will enable customers to speak directly to an ADIB advisor through a video link, transforming the customer journey into a faster and more convenient experience which is available 24 hours a day. Customers will be able to conduct all routine teller services such as cash deposit and withdrawal, cheque encashment including coins, cheque deposits and internal fund transfers.

Amwali ADIB Launched Amwali, the world’s first Islamic Digital proposition targeting GenZ. Amwali is a ground-breaking proposition that brings together an entire suite of banking products and innovative technology to enable young customers to enjoy a whole new way of banking that is paperless, signatureless and branchless. . Parents can open an Amwali account from their mobile phones through the ADIB mobile app. Upon activation, the child will simply download the Amwali app and activate their access to their bank account. They will also pick a debit card design that can be used for regular and online shopping as well as through Apple Pay and other mobile wallets.

Facial Recognition ADIB was the first bank in the UAE to provide customers with convenient remote account opening services through a government-linked facial recognition system. Through its partnership with the UAE Ministry of Interior, ADIB can perform instant and highly secure identity verification through direct access to the Ministry’s database. The verification process is seamless, time-efficient, and enhances security against fraud and other forms of identity theft. The technology will enable UAE citizens and Residents to open a new ADIB account from their homes without the need of any personal verification, with instant access to their bank accounts and banking services. Facial recognition is currently available on the ADIB mobile banking app for account opening with plans to progressively expand the solution to other banking channels.

48

ADIB Annual Report 2021

Analytics Center of Excellence (‘ACE’) ADIB launched its new Analytics Center of Excellence (‘ACE’), a fully integrated, real-time data analysis & visualization center. ACE will enable ADIB to driver greater efficiencies, optimize performance and respond to complex market dynamics with agility and speed. ACE is a core part of the journey, especially as it serves to aggregate real-time information across all business units and uses smart analytical models, AI and big data to generate operational insights and recommendations. ADIB will continue to advance projects for the next phase of its digital journey, including expanding its solution and products and rolling out new capabilities on its app.

Turbo ADIB has become the world’s first Islamic bank and the first bank in the region to launch a digital ecosystem for autorelated needs “Turbo”. Turbo launched in collaboration with Drive Ninja, a fintech company, brings together several auto- industry partners on one digital platform to facilitate and centralize all consumers’ car-related needs including buying and selling cars, takaful car insurance, car finance, car maintenance and accessories, export and import of cars, fuel and car ride, traffic payment and car registration . The launch of Turbo will mark UAE’s first online consumer ecosystem helmed by a bank that combines several service providers on one platform to deliver their services to match customer auto-related needs.

Al Ghaf Paperless Programme

GO GREEN, GO PAPERLESS

GO ALGHAF

ADIB launched Al Ghaf Paperless Programme, an initiative aimed at eliminating paper usage at branches through digital banking solutions. Al Ghaf programme is part of ADIB’s environmental and sustainable business strategy and reinforces our commitment to reduce carbon footprint as well as enhance our customer experience and ensure further security and efficiency in banking operations. Set to conclude by the end of 2022, the first phase of implementing Al Ghaf paperless strategy saw ADIB minimizing the consumption of more than 2 million sheets of paper across ADIB’s branches by the end of 2021.

ADIB Annual Report 2021

‫ﻛﻦ ﺻﺪﻳﻘ ﻟﻠﺒﻴﺌﺔ‬ ‫…وﻟﻴﻜﻦ ﺧﻴﺎرك اﻟﻐﺎف‬

49

OUR PEOPLE In 2021, we continued our commitment to prioritize the safety and wellbeing of our staff, putting in place the right measures in response to the COVID-19 pandemic, while continuing to attract, engage, develop and retain our talents.

During the pandemic, ADIB has undertook several initiatives to ensure the safety and wellbeing of our employees, without causing any disruption in business amid the increase in Covid cases. The bank has led a COVID-19 vaccination programme that resulted in the vaccination of 95% of employees. The vaccine campaigns have been led from ADIB’s Head Office and were also rolled out to other key premises across the UAE. As for Emiratization initiative, the bank has been focusing on hiring, developing and retaining Emirati talents. With one of the highest Emiratization ratios of approximately 40%, ADIB currently is one of the leading banks in recruiting, developing and promoting of local talents. We run distinct training programs dedicated to supporting UAE nationals within the bank, two of these programs were launched in partnership with Harvard University, the first one “Qiyadat”, it is a training program tailored to high-performing UAE national in managerial level, the other one “Tamkeen” is a training program for high-performing UAE nationals who have completed 2 years in the bank.

In 2021, ADIB Human Resources department worked to enhance its talent management and skills development capabilities as part of a wider contribution to nurturing talents for the long-term benefit of business. The ADIB approach is to provide inclusive opportunities for personal development that equips employees with the skills and attributes they need to deliver superior customer services and to become the leaders of the future.

ADIB delivered on overage 6 days of training hours per employee and continued to develop training development curriculums with top learning and development institutions to help employees upskill and gain the knowledge required for key roles at ADIB. The bank has partnered with LinkedIn, the world’s largest professional network, to bring the LinkedIn Learning platform to its 5,000 employees in support of their learning and development journey.

ADIB ensures to build a workforce while creating a safe and inclusive environment. Diversity and inclusion are embedded within our codes and policies, such as our Employee Code of Conduct and Directors Code of Conduct.

Key achievements in 2021 In 2021 the ratio of females holding managerial positions increased from 4.8% to

40% Emiratization rate

ADIB Start Award ADIB launched an employee recognition program to recognize our highly performing people

35%

53

Continued to diversify our workforce with different nationalities

female representation of our total workforce

92% 5.9 of our people underwent some training, learning and development courses in 2021

50

The average number of days training delivered to each employee

Staff Survey Engagement Score

78%

which places ADIB high among its peers as a desirable place to work

ADIB Annual Report 2021

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ESG AND CORPORATE GOVERNANCE

ESG summary report

54

Corporate governance report

58

52

ADIB Annual Report 2021

ADIB Annual Report 2021

53

ESG SUMMARY REPORT About this summary This is an Executive Summary of our 2021 Environmental, Social and Governance Report, which covers our ESG activities and performance for the calendar year 2021. This summary and the full report highlight how we bring our mission and value proposition to life through our business.

Our commitment to ESG We are proud to present this summary highlighting our progress in cultivating good environmental, social and governance practices. This report reaffirms our commitment to sustainability and monitoring our practice, which despite the challenges imposed by the COVID-19 pandemic, remains a priority.

At ADIB, we believe that Shari’a-led Islamic finance has much in common with environmental, social, and governance (ESG) considerations and the broader aim of sustainable finance. For example, Islamic Banks do not participate in any investments that fail to meet Shari’a guidelines – including alcohol, gambling, and tobacco products. With zero exposure to such industries, Islamic banks including ADIB remain protected from sectors that are considered at “high risk” of failing to meet ESG criteria. Through Shari’a guidelines, Islamic banks perform a culturally distinct form of ethical investing or ESG investment. By following Shari’a rules, ADIB has always integrated a range of ESG matters in its decision-making, including how it evaluates risks and opportunities.

Our commitment to a sustainable future is now embedded in our 5-year strategy and plan. We are developing the right framework that will help us to be a force of good in the societies we operate in. Whether it’s by developing new sustainability-linked financing solutions, offering the support our customers need or financially empowering our younger generation, we will constantly innovate and expand our capabilities to accelerate our ESG agenda.

A renewed purpose Two years into the pandemic, the impact of this global crisis is a reminder that ADIB’s purpose of being lifelong partner for colleagues, customers and communities is taken very seriously at ADIB and is brough to life through our day-to-day work in all parts of our business.

ADIB was able to use its resources, talents, experience, and capabilities to face the challenges imposed by the pandemic with a solutionoriented approach, relying on our strong foundations, Shari’a values and guided by our experienced leaders.

Responsible customer relations In 2021, the physical and financial safety and wellbeing of our customers and employees were of utmost importance to us. We have mobilized our resources to meet all customers’ needs and initiated a wide range of financial relief programs that helped our customers navigate the pandemic. As an example, we have committed over 160 million in support of COVID-19 related relief and economic recovery efforts.

Bank policies such as the employee code of conduct, customer service charter and consumer protection principles, outline our commitment to conducting business responsibly and ethically. The Bank is also committed to being professional, fair, and transparent in its dealings and communication with customers and worked on improving financial literacy within the UAE, especially among youth.

In 2021, ADIB achieved its target of being the most recommended bank. ADIB’s NPS has increased, reaching nearly 70%. In addition to that, we invested heavily in areas that will help us achieve further growth in the future, including launching new products and advancing our digital capabilities in line with our ambition to become the world’s most innovative Islamic bank. We were also honored that ADIB once again has taken the lead in the UAE banking sector by launching new digital initiatives, including the launch of the world’s first Islamic car ecosystem Turbo and the launch of Amwali, the first Islamic bank for young people. ADIB also was the first bank in the UAE to provide customers with convenient remote account opening services through a government-linked facial recognition system. In 2021, digitally active customers increased 11% compared to the same period last year. Currently, the bank has 70.7% of its customers digitally active with 50% of financial transactions are happening through digital.

Information security and cyber-crime are two of the top risks with a number of actions being taken during the year are under review to mitigate the same. For example, ADIB periodically conducts vulnerability assessment and penetration testing. We have a dedicated Cyber Security team responsible for monitoring and analyzing the Bank’s security position on an ongoing basis. The Bank also employs advanced security controls and solutions, including centralised identity management, to ensure effective protection of infrastructure and customer information.

54

ADIB Annual Report 2021

Financial Inclusion ADIB offers a range of products and services that provide social and economic benefits to consumers. The Bank’s digital leadership is also opening doors for underserved segments such as youth to better access the banking and financial services system. For example, Amwali the world’s first Islamic digital proposition targeting youth between the age of 8 to 18, a ground-breaking proposition that brings together an entire suite of banking products and innovative technology offering young customers a whole new way of banking that is paperless, signatureless and branchless. It was designed to empower young customers with a dedicated digital banking experience, access to financial knowledge, and personalised offers that fit their lifestyle, all under the parental control.

ADIB has been building up its youth banking segment over the last decade. Now, we have over 100,000 customers under the age of 24 banking with us. Our goal is to expand youth access to personalized and safe financial products and services as well as to empower them to establish a disciplined culture with regards to managing their finances.

The Bank’s digital banking facilities also furthered financial inclusion, by providing customers easy access to conduct their banking needs.

ADIB’s- wide branch network, which extends to remote areas, is another contributor towards the financial inclusion of normally underbanked communities.

ADIB also introduced new integrated digital kiosks – branded ‘Smart Tellers’ by ADIB. The Smart Tellers offer the services of a mini-branch and are available all days of the week, allowing customers to access a wide variety of banking services and products that are not typically available through traditional ATMs, such as: instantly obtaining a personalised card and updating account details. In addition, ADIB was among the first banks in the UAE to launch an ATM that served the needs of differently-abled customers including those who are deaf, or visually challenged.

Social Impact In 2021, through our Sustainability Council, we address some of society’s greatest challenges. We provided financial support to our charitable partners, which enabled them to focus on serving people rather than raising funds. We made a positive impact in our communities through employee volunteerism program where over 1,140 volunteer engagements took place.

ADIB has sponsored so many activities including mass weddings which are a very important aspect of the UAE’s culture. Initiated and supported by the leadership of the UAE, this tradition aims to create a more cohesive and prosperous society through motivating and supporting young people to get married. Also, the Bank has launched activities related to People of Determination and Senior Citizens. The Bank also distributed Iftar boxes during Ramadan.

Employer of choice Underpinning all of this work is a commitment to a culture that embraces the diversity of our people. We are absolutely committed to being a firm that welcomes everyone and allows all voices to be heard. The bank strives to nurture an engaged workforce using a range of initiatives such as recognition awards, promotions, and volunteering opportunities that allow them to make a difference in the community. A number of strategic employee policies are in place to safeguard employee health, safety and well-being with special steps taken during the pandemic to keep people safe. The Bank also promotes a culture of open communication with all employees to assess engagement levels and identify areas that require further attention. In addition, the Bank introduced reduced working hours on Friday to allow staff to conduct their Friday prayers and spend more time with their families.

ADIB has an Employee Engagement Index of 70%. This reflects the Bank’s strong commitment to maintaining recognised standards, employee wellbeing and occupational health and safety. While providing avenues for employees to improve their skills and experience levels and progress further in their careers, ADIB is also committed to gender diversity with 36% of its total workforce being ladies.

ADIB Annual Report 2021

55

ESG SUMMARY REPORT CONTINUED

Responsible procurement The Bank continued to create strong partnerships with many local and international organizations. Supporting local suppliers remains a priority with more than 60% of procurement spend going towards UAE businesses.

Corporate governance Mutual benefit and transparency are core values at the Bank, with employees at every level dedicated to being transparent while maintaining the highest standards of ethics. The bank has put the right corporate governance structure to ensure roles and responsibilities are distributed among the Board, Management and Committees with clear reporting lines. ADIB managed to adapt its operations to potential risks caused by the pandemic through our risk management framework and expertise.

All employees, including senior management as well as the Board of Directors, received governance and AML training. Over the last few years, the Bank has expended considerable effort to deliver employee training and awareness programmes relating to these areas.

The Bank has developed an effective Anti-Fraud Policy and an Anti-Fraud Framework, which covers all Bank functions, processes, and products. The policy articulates the key requirements for ensuring financial fraud threats are effectively identified, assessed, and mitigated.

Continuous ESG Focus Our environmental, social and governance (ESG) agenda is not a separate layer in the Bank. It is embedded in what we do, and we have concrete examples of the empathy we see in our firm every day as we work to serve our clients, customers and communities.

Going forward and as part of our five-year strategy, we will be committing to finance, invest, and facilitate business activities focused on environmental and socially responsible solutions. We will be driving innovation in banking and expanding access to financial services for the disadvantaged people.

Although ESG and sustainability has long been a key element of ADIB’s success, our new strategy is designed to accelerate our growth in areas that are most related to sustainability, in line with current market conditions and stakeholder expectations. We will have clear targets defining short, medium, and long-term goals that are aligned with the long-term economic interests of our stakeholders and the communities we operate in.

At the heart of our strategy lies our commitment towards the transition to a net-zero economy aligned with The UAE Net Zero 2050 strategic initiative . As part of this commitment, we will assist our clients to transition towards a climate-neutral economy through innovative financing and advisory services. Working with our customers, we can fund sustainable growth that will accelerate the net -zero transition and expand financial services for all while fostering diversity, accountability, and transparency within the organisation. We will also work on incorporating an ESG assessment into our risk management procedures to ensure that appropriate mitigation measures are in place to safeguard against ADIB’s emerging ESG risks.

56

ADIB Annual Report 2021

Our Highlights ADIB proudly presents its fifth sustainability report disclosing its Environmental, Social, and Governance performance for 2021. Our ESG report is conducted in accordance with the Global Reporting Initiative (GRI) disclosure guidelines.

In this summary, we share highlights of our quantitative and qualitative Environmental, Social, and Governance performance. This will be followed by our full ESG report detailing our progress and achievements in 2021

2021 Key Achievements ADIB receives a rating on its ESG performance of “A” from MSCI

ADIB launches 2025 Strategy with “Sustainable Future” as one of the main pillars, and renews the bank’s purpose and vision

ADIB achieves 45% increase in net profit with ROE improving to 14.3%

ADIB is an employer of choice with 78% Employee engagement index

ADIB is the Best bank in Customer Experience with 78% NPS

ADIB achieves 2.3 billion Net Income

ADIB provides an average of approximately 6 days of training for all employees

ADIB saves 2M sheets of paper through its digital innovations

ADIB achieves 20% growth in total UAE market share

ADIB is a diverse workplace with a workforce of 36% Women, 40% Nationals, and Expats from more than 53 countries

ADIB enabled 11 Green Financing deals

ADIB Estidama Council enables 14 charity organizations and engaged 1,144 volunteers

ADIB saves 329 trees, absorbs 2,194 Kg of Carbon Dioxide, saves 3,756 gallons of oil and 135,506 gallons of water, and 77,432 kWh of energy through its recycling efforts

ADIB Annual Report 2021

57

CORPORATE GOVERNANCE REPORT ADIB’s overarching objective is to be “world’s most innovative Islamic financial institution” and have committed to the following corporate values.

The corporate governance framework is aligned with the principles prescribed by the Basel Committee on Banking Supervision (BCBS), the Central Bank of UAE (CBUAE) Corporate Governance Regulations and Standards for Banks 83/2020 and the Standards of Institutional Discipline and Governance of Public Shareholding Companies issued by the Securities and Commodities Authority (SCA).

Strong governance underpins ADIB’s integrity, protects our customers and reinforces the trust and confidence that our investors place in us to deliver on our long-term strategic objectives. ADIB has an established corporate governance framework that is regularly reviewed to reflect changes in our business model, regulation and the rapidly changing external environment. Our approach to corporate governance seeks to promote greater transparency in line with our values and enhance our reputation with our multiple stakeholders.

ADIB’s overarching objective is to be “world’s most innovative Islamic financial institution” and have committed to the following corporate values: • • • • •

Our values are timeless and universal, driven by the spirit of Sharia Mutual benefit Transparency Simplicity & sensibility Hospitality & tolerance

Corporate Governance Framework The corporate governance framework is aligned with the principles prescribed by the Basel Committee on Banking Supervision (BCBS), the Central Bank of UAE (CBUAE) Corporate Governance Regulations and Standards for Banks 83/2019 and the Standards of Institutional Discipline and Governance of Public Shareholding Companies issued by the Securities and Commodities Authority (SCA).

The Board derives its authority to act from the Bank’s Memorandum and Articles of Association and other laws governing companies and Banks in UAE and Emirate of Abu Dhabi. Its responsibilities include supervision of the management of the business affairs of ADIB; providing leadership in the development and implementation of the group’s vision and mission, both within the UAE and as the Group expands abroad; and establishment and oversight of the Bank’s Risk Governance Framework, as well as approving the Bank’s overall risk appetite and ensuring that business is conducted within this framework.

58

ADIB Annual Report 2021

The Board Membership, Committees and Meetings During 2021 the Board comprised of the Chairman and five other members. Majority of the Board members are UAE nationals, as required by the Federal Commercial Companies Law and the Bank’s Articles of Association. The Board Committees comprise Directors and external independent subject matter experts. Directors come from a diversity of backgrounds aimed at ensuring that no undue reliance is placed on any one individual. Currently, there is no female representation, however, ADIB has established a policy to require that at least 20 per cent of candidates for consideration to the Board to be female.

The Board regularly received management information and updates about the activities of the Board committees, subject matter experts, Management Committees, and developments in the Group’s businesses. The Board invited Senior Executive Management to those meetings to demonstrate the Board’s close engagement, and to enhance the oversight of the business and the execution of the long-term strategy.

Board Agenda The Board held seven (7) meetings during 2021 to deliberate on a variety of agenda items primarily related to management of ADIB’s principal risks, challenges faced by the Group’s businesses, staff, and key stakeholders during the pandemic and how this impacted the execution and delivery of the long - term strategic objectives across the Group. A summary of the Board’s meetings during 2021 is as follows: Name

HE Jawaan Awaidha Suhail Awaidha Al Khaili Mr Khalifa Matar Khalifa Qaroona Almheiri Mr Najib Youssef Fayyad Mr Abdulla Ali Musleh Jumhour Al Ahbabi Mr Dhaen Mohamed Dhaen Mahasoon Alhameli Mr Faisal Sultan Naser Salem Al Shuaibi

Position

Status

No. of meetings attended

Chairman Member Member Member Member Member

Non-Executive Independent Non-Executive Independent Independent Independent

7 7 7 7 6 7

Board Committees During 2021 the Board discharged its responsibilities and duties either directly or through its standing committees: Strategy Committee; Audit Committee (BAC); Governance and Risk Policy Committee (GRPC); Risk and Investment Approval Committee; and Nomination and Remuneration Committee.

Directors’ Independence and Management Reporting Independence is integral in our ability to serve in a transparent fashion and to deliver in the best interest of ADIB on behalf of all our stakeholders. Therefore, majority of our directors are considered independent in line with best practice and regulatory requirements.

In terms of management, the roles of the Chairman and the Group Chief Executive Officer are distinct and separate, with a clear division of responsibilities. The Chairman leads the Board and ensures the effective engagement and contribution of all directors. The Group Chief Executive Officer has responsibility for all ADIB Group businesses, including their strategy, policy and operational management, and he acts in accordance with the authority delegated by the Board.

The Group Chief Risk Officer (GCRO) and Group Chief Credit Officer (GCCO) have direct access to the GRPC, the Group Chief Internal Auditor reports to the BAC, the Group Chief Financial Officer (GCFO) and Head of Compliance have access to the BAC and the Board Secretary reports to the Board.

ADIB Annual Report 2021

59

CORPORATE GOVERNANCE REPORT CONTINUED

Performance Evaluation During 2021 the Board appointed Ernst & Young (EY) to perform an independent assessment of the performance of the Board and its Committees with a view to proactively identifying areas in line or exceeding benchmarks as well as areas which may require improvements. In addition, the Chairman and Committees’ chairs perform self-assessments on an annual basis. Any areas highlighted for improvement are presented to the Board with action plans and implementation is rigorously monitored by the Board.

Board Oversight of Risk Management Effective risk management is critical part of the ADIB corporate governance framework. Responsibility for setting ADIB’s risk appetite and for the effective management of principal risks rests with the Board. Under the delegated authority of the Board, the Governance and Risk Policy Committee (GRPC) has oversight responsibilities for monitoring, review for the principal risk types. The GRPC also guides senior management on risk appetite across the Group businesses, considering key factors such as customer segments, geographies, technologies, and the regulatory environment.

The GRPC also obtains reports from Senior Management to demonstrate alignment with the requirements of the CBUAE in line with the Board’s role in fostering a culture of compliance. The Board sets the tone from the top by means of an articulated risk culture, principles, and risk appetite. ADIB’s risk management framework is managed by the Group Chief Risk Officer (GCRO) who reports to the Board’s Group Governance and Risk Policy Committee. He is also a member of the Enterprise Risk Committee (ERC) and responsible for the management of all risks including Market and Operational risks. Additional details of ADIB’s approach to risk management are provided in the Financial Statements.

The Board has created an environment where ADIB staff are empowered to highlight any behaviours which are not in line with the ADIB Values.

Board Oversight of Financial Reporting, Internal Controls Framework and Regulatory Compliance The Board performs a key role in its oversight of ADIB’s financial reporting, the transparency and integrity of the ADIB’s financial disclosures and the adequacy of Internal Controls Framework and Compliance function. This is performed through the Audit Committee which reviews and assesses International Financial Reporting Standards (IFRS) governance, coverage of the Internal Audit Plan and the performance of the Compliance function.

Group Internal Audit (GIA) and External Auditors presented to the Group Audit Committee a series of reports that included details of any significant internal control matters which they identified during 2021. The system of internal controls of the Group is also subject to regulatory oversight by the UAE Central Bank (CBUAE).

Statement on ADIB’s approach to Disclosure and Transparency During 2021 ADIB demonstrated the highest standards of transparency with timely disclosures and communication to all our stakeholders through various channels on relevant financial and non-financial information. We also ensured that our employees were kept informed of all relevant matters including our risk management policies and procedures, values, long-term strategic objectives, financial performance and how we managed during the pandemic.

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ADIB Annual Report 2021

The Corporate Governance structure of ADIB and the Three Lines of Defence system of Internal Controls is outlined as follows: Shareholders

Board of Directors Internal Shari’a Supervisory Committee

External Auditor

Strategy Committee

Risk & Investment Approval Committee

Audit Committee

Board Level

Nomination & Remuneration Committee

Governance & Risk Policy Committee

Executive Level

Group CEO

IT Steering Committee

Enterprise Risk Committee

Business Risk Management

Information Security Steering Committee

Steering Committee

ALCO

Risk Oversight & Control

Control & Compliance Committee

Other Committees

Independent Assurance

Wholesale Banking

Private Banking

Operations

Finance & Strategy

Internal Audit

Community Banking

Treasury

International Banking Group

IT

Compliance

Internal Shari’a Audit

Legal Division

Governance

Human Resource Division

Internal Shari’a Control

Risk Management

Shari’a Compliance

Business Units undertake risks within assigned limits of risk exposure and are responsible and accountable for identifying, assessing and controlling the risks of their business.

First Line of Defence

ADIB Annual Report 2021

Vendor Management and Centralized Procurement & Sustainability Council.

Support and Control functions, in close relationship with business units, ensure that the risk in the business units have been appropriately identified and managed.

Second Line of Defence

Functions

Retail Banking

Internal Audit function independently assesses the effectiveness of the processes created in the first and second lines of defence and provide assurance to these processes. Shari’a Audit function conducts an independent review to provide assurance with respect to specific types of risks applicable to Islamic financial services.

Third Line of Defence

61

CORPORATE GOVERNANCE REPORT CONTINUED

General Role of Strategy Committee (SC) The Group Strategy Committee guides ADIB’s Executive Management in the execution of the Group’s strategic objectives and business strategy, conducts periodic reviews in the achievement thereof and directs corrective actions wherever required. In addition, this Committee also acts as a conduit between the Board and Senior Management on business issues. The Committee has following major responsibilities: •

Review, consider, discuss, and challenge the recommendations submitted by the executive management regarding business strategy, budgets and annual plans

•

Work with management to make recommendations to the Board on the business strategy and long-term strategic objectives of ADIB, including all subsidiaries and affiliates

•

Review the financial performance of each business group on a quarterly basis and make recommendations should action be required

•

Review and recommend capital allocation within the ADIB Group to the Board

•

Review the organisational structure of ADIB and make recommendations to the Board on any changes deemed necessary; and

•

Review proposals from management for the establishment or disposal of branches, subsidiaries and new joint ventures, referring them to the Risk and Investment Approval Committee for final decision.

The Strategy Committee held four (4) meetings during 2021. The details of membership and their attendance is as below: Name

Mr Faisal Sultan Naser Salem Al Shuaibi Mr Khalifa Matar Khalifa Qaroona Almheiri Mr Najib Youssef Fayyad Mr Abdulla Ali Musleh Jumhour Al Ahbabi Mr Dhaen Mohamed Dhaen Mahasoon Alhameli

Position

Status

No. of meetings attended

Chairman Vice Chairman Member Member Member

Independent Independent Non-Executive Independent Independent

4 4 4 3 2

General Role of Audit Committee (BAC) The Board Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to auditing and financial reporting.

Internal Audit, Compliance and Governance functions of the Group functionally report to the Committee. The Committee has the following major responsibilities: •

Assist the Board in fulfilling its oversight responsibility relating to the integrity of Group’s consolidated financial statements and financial reporting process

•

Review the financial and internal control systems, quality assurance and risk management framework

•

Review the performance of the Internal Audit function

•

Review the internal controls over financial reporting and annual independent audit of the Group’s consolidated financial statements

•

Recommend to the Board the engagement of the external auditors and evaluation of their qualifications, independence and performance and

•

Ensure compliance by the Group with legal and regulatory requirements as pertaining to its business activities.

The Audit Committee held five (5) meetings during 2021. The details of membership and their attendance is as below: Name

Mr Najib Youssef Fayyad Mr Dhaen Mohamed Dhaen Mahasoon Alhameli Mr Abdulla Ali Musleh Jumhour Al Ahbabi

62

Position

Status

No. of meetings attended

Chairman Member Member

Non-Executive Independent Independent

5 4 5

ADIB Annual Report 2021

General Role of Governance and Risk Policy Committee (GRPC) The Group Governance and Risk Policy Committee assists the Board in fulfilling its oversight responsibilities include: •

Review of the risk profile of the Group at the enterprise level and recommendations on appropriate calibration of this profile, in line with the applicable regulatory standards, rating consideration and business strategy; and

•

Review of the corporate governance and risk management frameworks for the Group and recommend the same to the Board, in alignment with the requirements of the Basel Committee on Banking Supervision, and in compliance with all local regulatory requirements.

•

Review the Risk Strategy covering Risk appetite, Risk management framework encapsulating risk infrastructure, framework for risk policies and procedures, adequacy of risk staffing and implementation plan. In addition, any major changes in the risk rating approaches followed by the Group will also be reviewed and recommended to the Board.

•

Review of portfolio limits relating to the key risk exposures undertaken by the Bank.

•

Monitor the alignment of ADIB’s risk profile with its approved risk strategy and risk appetite.

•

Receive regular reports from the Group Chief Risk Officer on the Group’s major risk exposures, monitor significant financial and other risk exposures; and review the steps taken by the management to control such risks within the approved risk appetite of the Group.

•

Review annual Internal Capital Adequacy Assessment Process (ICAAP) plan and recommend its approval to the Board.

•

Review and recommend Corporate Governance Framework encapsulating the structure of the Board committees, roles and responsibilities of Board and Board committees.

•

Review and recommend key risk policies including credit risk, market risk, trading risk, liquidity risk, and operational risk.

•

Review reports from regulatory agencies or internal audit relating to risk issues, and monitor management’s responses.

The Committee received regular updates and reports from the Group Risk Management function and the Enterprise Risk Committee (ERC). The ERC ensures that the Bank’s enterprise risk management framework, related policies, systems and practices are fully aligned with the Board approved strategy and risk appetite. The ERC also ensures that risk governance of the Bank is sufficiently robust to meet the needs of the business.

The GRPC held five (5) meetings during 2021. The details of membership and their attendance is as below: Name

Mr Khalifa Matar Khalifa Qaroona Almheiri Mr Dhaen Mohamed Dhaen Mahasoon Alhameli Mr Faisal Sultan Naser Salem Al Shuaib Mr Najib Youssef Fayyad

ADIB Annual Report 2021

Position

Status

No. of meetings attended

Chairman Member Member Member

Independent Independent Independent Non-Executive

5 4 4 5

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CORPORATE GOVERNANCE REPORT CONTINUED

General Role of Risk and Investment Approval Committee (RIAC) The Group Risk and Investment Approval Committee considers and approves ADIB’s risk exposures, high value transactions and major items of capital expenditure. In addition, this Committee is also responsible for monitoring credit portfolio quality and provisions. The Committee has the following major responsibilities: •

Review and approve credit and other risk exposures

•

Review the credit portfolio on a periodic basis to assess alignment with the approved credit strategy and risk appetite of the Group

•

Review actions undertaken by management regarding remedial activities

•

Monitor general and specific provisions

•

Approve significant and high value transactions regarding acquisitions and divestures, new business initiatives and proprietary investments, international business and merger and acquisitions

•

Review and recommend to the Board approval for those investment proposals requiring such approval due to regulations

•

Approve high value transactions in respect of capital expenditure, IT projects and procurement of equipment and materials for the Bank’s operations.

•

Review and make recommendations to the Board on any material non-credit related party transactions.

The Risk and Investment Approval Committee held 26 meetings during 2021. The details of membership and their attendance is as below: Name

HE Jawaan Awaidha Suhail Awaidha Al Khaili Mr Khalifa Matar Khalifa Qaroona Almheiri Mr Dhaen Mohamed Dhaen Mahasoon Alhameli Mr Abdulla Ali Musleh Jumhour Al Ahbabi Mr Najib Youssef Fayyad

Position

Status

No. of meetings attended

Chairman Member Member Member Member

Independent Independent Independent Independent Non-Executive

26 15 24 26

General Role of Nomination and Remuneration Committee (NRC) The Nomination and Remuneration Committee (NRC) assists the Board in fulfilling its oversight responsibilities in respect of the following for the Group: •

Review the selection criteria and number of executive and employee positions required by ADIB; approve the overall manpower of ADIB based on reports submitted by the Group Chief Executive Officer, taking into consideration the advice of an independent and recognized consulting firm

•

Review on an annual basis the policy for the remuneration, benefits, incentives and salaries of all ADIB employees, including Bank and non-Bank subsidiaries and affiliates, as submitted by the Group Chief Executive Officer, taking into consideration the advice of an independent and recognized consulting firm

•

Identify and nominate, for approval of the Board, candidates for appointment to the Board

•

Recommend on succession plans for Directors

•

Input on renewal of the terms of office of non-executive Directors

•

Assist with membership of Board committees, in consultation with the Board’s Chairman and the Chairmen of such committees

•

Guide on matters relating to the continuation in office of any Director at any time

•

Recommend on appointments and re-appointments to the Boards of major subsidiaries and controlled affiliated companies

•

Ensure the independence of the independent directors and any qualified subject matter expert appointed to a Board committee; and

•

Regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board and make recommendations to the Board regarding any changes.

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ADIB Annual Report 2021

General Role of Nomination and Remuneration Committee (NRC) continued The Nomination and Remuneration Committee held eight (8) meetings during 2021. The details of membership and their attendance is as below: Name

HE Jawaan Awaidha Suhail Awaidha Al Khaili Mr Khalifa Matar Khalifa Qaroona Almheiri Mr Najib Youssef Fayyad

Position

Status

No. of meetings attended

Chairman Member Member

Non-Executive Independent Non-Executive

8 8 8

Board Oversight of the Group Structure The Board ensures that the Group’s legal structures are appropriate for objectives. During 2021 the Board ensured ADIB’s representation on the governance forums of its subsidiaries in line with local and UAE requirements, proper functioning of supervisory committees in International Branches and oversight mechanisms for its affiliates.

Board Oversight of Related Party Transactions and Compensation of Key Management Personnel In the ordinary course of its activities, the Bank enters transactions with related parties, comprising associates, directors, major shareholder, key management and their related concerns. The Bank obtains collateral, including charges over real estate properties and securities, the extent of which is dependent on the Bank’s assessment of the credit risk of the related party.

Significant transactions with related parties during the year 2021 and compensation of key senior management personnel were included in the consolidated income statement and are provided in the Financial Statements.

Board Directors’ Remuneration and Interests in the Group’s Shares During 2021, AED 7.350 Mn was paid to Board of Directors as directors’ remuneration pertaining to the year ended 31 December 2020, after it was approved by shareholders in the Annual General Assembly held on 4 April 2021. In addition, Board members also received by way of an attendance fee of AED 3,000 for every Board Committee meeting attended.

Directors’ interests in the Group’s shares are as follows: Board Members

HE Jawaan Awaidha Suhail Awaidha Al Khaili Mr Khalifa Matar Khalifa Qaroona Almheiri Mr Najib Youssef Fayyad Mr Abdulla Ali Musleh Jumhour Al Ahbabi Mr Dhaen Mohamed Dhaen Mahasoon Alhameli Mr Faisal Sultan Naser Salem Al Shuaibi

Shareholding as at 1 Jan- 2021

Shareholding as at 31 Dec-2021

Changes in shareholding

64,158,605 252,222 25,000 -

64,158,605 252,222 -

25,000 -

Major share ownership of more than 5% and their voting rights ADIB has an authorised share capital of 4,000,000 thousand ordinary shares of AED 1 each, issued and fully paid share capital is 3,632,000 thousand ordinary shares of AED 1 each. All of the shares in the company are nominal of which (60%) shall be fully owned by nationals of United Arab Emirate, while non-nationals are permitted to own shares of the company to the extent, but not exceeding (40%), and maximum limit per shareholder is (5%).

ADIB Annual Report 2021

65

CORPORATE GOVERNANCE REPORT CONTINUED

Major share ownership of more than 5% and their voting rights

continued

As of 31 December 2021, the major owners that holds directly more than (5%) as published by the Company via the electronic publishing platform of Abu Dhabi Exchange (ADX) and ADIB website and their voting rights were as follows: Significant Shareholders

Emirates International Investment Company LLC Mamoura Diversified Global Holding PJSC Other Investors * Total ADIB shares

Number of Shares

% of Holdings and Voting Rights

1,431,110,701 276,594,630 1,924,294,669 3,632,000,000

39.4% 7.62% 52.98% 100.00%

*Note: No other investors hold directly more than (5%) apart from those named above.

Relations with Shareholders In line with its values, ADIB applies high standards of transparency and disclosure. Relevant financial and non-financial information is communicated to shareholders, customers, regulators, employees and other stakeholders in a timely fashion through ADIB’s website, via Abu Dhabi Securities Market (ADX) and various other mechanisms.

ADIB also communicates with shareholders through the Annual Report and by providing information at the General Assembly Meeting where shareholders were given the opportunity to ask questions.

Executive management also holds regular meetings with and makes presentations to institutional investors. In addition to this, individual shareholders can raise matters relating to their shareholdings and the business of ADIB at any time during the year.

ADIB maintains an Investor Relations section on its website that provides extensive information about the Group’s financial performance, Corporate Governance Framework and other related information.

Special Resolutions Pursuant to Article 152/2 of the UAE Federal Commercial Company Law No. (2), the General Assembly’s endorsement was sought to approve the transactions that exceeded 5% of ADIB capital, concluded in the past with the National Holdings Group in its capacity as a related party in ADIB.

Islamic Banking Governance - Internal Shari’ah Supervisory Committee (ISSC) of ADIB The CBUAE Shari’ah Standards comprehensively provide the roles and responsibilities of the Board of Directors of ADIB (‘Board’), senior management and certain committees and departments of ADIB including: •

The Board of Directors has the ultimate responsibility for ensuring that a comprehensive ADIB Governance Framework is put in place and that ADIB complies with the ADIB Governance Framework and Islamic Shari’ah (i.e., resolutions, fatwas, regulations and standards issued by CBUAE Higher Shari’ah Authority (HSA) and resolutions and fatwas issued by the ADIB’s Internal Shari’ah Supervisory Committee (’ISSC’), in relation to licensed activities and businesses of the ADIB rests with the Board.

•

Board Governance and Risk Policy Committee (GRPC) is generally responsible for supervising and monitoring the management of Shari’ah non-compliance risk, setting controls in relation to each type of risk and overseeing the implementation of the Shari’ah non-compliance risk framework.

•

Board’s Audit Committee (BAC) is generally responsible for evaluating the effectiveness of the policies approved by ISSC, assessing the effectiveness and adequacy of internal and external Shari’ah audits, and reviewing and checking compliance with reports prepared by the Internal Shari’ah Audit Group and external Shari’ah auditors.

•

Senior management is generally responsible for executing and managing ADIB’s activities and business in compliance with Islamic Shari’ah.

•

Internal Shari’ah Control Group supports the ISSC in its duties and carries out the following functions: ISSC Secretariat Unit, Shari’ah Consultations Department, Shari’ah Research Department, Shari’ah Compliance Department; and Shari’ah Training Department.

•

Internal Shari’ah Audit Group is generally responsible for undertaking Shari’ah audits and monitoring ADIB’s compliance with Islamic Shari’ah.

•

The Internal Shari’ah Supervisory Committee (ISSC) of ADIB is a scholarly board independent from the Bank’s Board of Directors and the administrative structure of the Bank. The ISSC is composed of “Fiqh” scholars specialized in the jurisprudence of Islamic financial and banking transactions and mandated to supervise and monitor the activities and businesses and operations of the Bank and its operative charters to ensure compliance with the rules and principles of the Islamic Shari’ah and to ensure that the implementation of such activities, businesses and charters is in compliance with the rules and principles of the Islamic Shari’ah through reviewing and approving all charters, policies and procedures of the Bank.

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ADIB Annual Report 2021

Islamic Banking Governance - Internal Shari’ah Supervisory Committee (ISSC) of ADIB continued The members of the Internal Shari’a Supervisory Committee (ISSC) of ADIB were appointed in the General Assembly Meeting held on 04/04/2021 in compliance with the Decretal Federal Law No. (14) of 2018, CBUAE Shari’ah Governance Standards and Bank’s Article of Association. The role and responsibilities of ADIB ISSC include: 1.

Undertake Shari’ah supervision of all businesses, activities, products, services, contracts, documents, and code of conducts of the Bank.

2.

Issue Shari’ah fatwas and resolutions that are binding upon the Bank

3.

Monitor through internal Shari’ah Control Group and Internal Shari’ah Audit Group, the Bank’s compliance with Islamic Shari’ah

4.

Review and approve corrective measures, remediation required by the Islamic Shari’ah regarding the consequences arising from Shari’ah non-compliance issues and recommend preventive measures to avoid reoccurrence of any such issues.

5.

Review and approve from Shari’ah perspective the method for calculation and distribution of profits, allocation of expenditures and costs and their division between holders of investment accounts and shareholders; and final annual accounts before presenting them to the Central Bank.

6.

Issue an annual report stating the extent of Bank’s compliance with Islamic Shari’ah that is published within the financial statement in the Bank’s disclosures.

Name

Position

No. of Meetings Attended

Professor Dr. Mohammad Abdul Rahim Sultan Al Olama

Chairman of the Committee and its Executive Committee (the Executive Member)

(3) for the Committee (2) for the Executive Committee

Prof. Dr. Jassim Ali Salem Al Shamsi

Vice Chairman of the Committee and its Executive Committee (the second Executive Member)

(6) for the Committee (2) for the Executive Committee

Prof. Dr. Ashraf Md Hashim

Member of the Committee and Its Executive Committee

(2) for the Committee (2) for the Executive Committee

Sheikh Esam Mohamed Ishaq

Member of the Committee

(6) for the Committee

Executive Management and Management Committees The Group Chief Executive Officer is supported by executive management team including Group Chief Risk Officer, Group Chief Financial Officer, Group Chief Operating Officer, Group Chief Credit Officer, the Global Heads of Internal Audit, Shari’ah, Legal and Compliance. In addition, during 2021, the following management committees functioned and were formally established: Sr. No.

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Management Committee

Steering Committee (SteerCo) Enterprise Risk Committee (ERC) Control & Compliance Committee (3C) Asset Liability Committee (ALCO) GSAM Management Credit Committee (GSAM MCC) Outsourcing Governance Committee (OGC) IT Steering Committee (ITSC) Charity Account Committee (CAC) Wealth Management Product and Investment Committee (WMPIC) Grievance Committee (GC) Information Security Steering Committee Sustainability Council (SC) Early Alert Committee (EAC) Management Credit Committee (MCC)

ADIB Annual Report 2021

Number of Meetings

8 6 5 9 New 3 5 4 4 8 4 16 New New

67

CORPORATE GOVERNANCE REPORT CONTINUED

External Auditors The Group Audit Committee (BAC) undertakes an annual evaluation to assess the independence and objectivity of the external auditors and the effectiveness of the external audit process. The Group Audit Committee is also responsible for making recommendations to the Board on the appointment, reappointment, remuneration and removal of the external auditors. The Group Audit Committee also carries out a review of all non-audit services provided by the external auditors, in line with ADIB’s policy to ensure external auditor independence.

The shareholders approved the appointment of Deloitte as the external auditors of ADIB for 2021 at the General Assembly Meeting held on 4 April 2021. The BAC reviews the quality, performance and independence of Deloitte annually and recommends reappointment to the Board after considering whether this is in the best interest of ADIB.

Remuneration and Reward Guiding Principles and Structures ADIB aims to attract and retain the best talent particularly during the challenging recent times of the pandemic. To achieve this, we have designed a remuneration framework that is within the risk appetite set by the Board to promote the right behaviours and responsible business conduct. Our remuneration schemes are designed to be fair, equitable and linked to mutual employee and Group performance.

Our rewards are based on the result of an annual performance appraisal system with input from line management and employees. The rewards structure also embeds effective risk management by balancing the interests of our customers, shareholders and other stakeholders including the Consumer Protection Standards of the CBUAE.

Total Reward – Key Components Fixed Pay comprise of basic salary allowances based on market rates which are benchmarked for each role and are subject to review based on the achievement of SMART objectives and market movement. Fixed pay also includes other allowances in line with best practice and this is also benchmarked against ADIB peers.

A Variable Pay component is a discretionary pay which is performance-based dependent on individual, functional and overall ADIB performance. Retention Scheme and High Potential Emolument scheme is deployed in selected cases to retain key employees and also maintain a cadre of professional UAE Nationals with high potential and in line with CBUAE Emiratisation objectives.

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ADIB Annual Report 2021

OPEN YOUR ACCOUNT EASILY AND SECURELY WITH FACIAL RECOGNITION SERVICE

First of its kind in the UAE

CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021

Board of directors’ report

72

Independent auditors’ report

74

Sharia report

80

Consolidated income statement

82

Consolidated statement of comprehensive income

83

Consolidated statement of financial position

84

Consolidated statement of changes in equity

85

Consolidated statement of cash flows

86

Notes to the consolidated financial statements

87

Basel III pillar III disclosure 70

158 ADIB Annual Report 2021

ADIB Annual Report 2021

71

BOARD OF DIRECTORS’ REPORT YEAR ENDED 31 DECEMBER 2021

The Board of Directors have pleasure in submitting their report together with the consolidated financial statements of Abu Dhabi Islamic Bank PJSC (“the Bank”) and its subsidiaries (collectively known as the “the Group”) for the year ended 31 December 2021.

Incorporation and registered office The Bank was incorporated in the Emirate of Abu Dhabi, United Arab Emirates (UAE), as a public joint stock company with limited liability, in accordance with the provisions and applicable requirements of the laws of the UAE and the Amiri Decree No. 9 of 1997.

Principal activity The activities of the Bank are conducted in accordance with Islamic Shari’a, which prohibits usury as determined by the Internal Shari’a Supervisory Committee of the Bank, and within the provisions of the Articles and Memorandum of Association of the respective entities within the Group.

Basis of preparation of consolidated financial statements The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), general principles of the Shari’a as determined by the Group’s Internal Shari’a Supervisory Committee and applicable requirements of the laws of the UAE.

Financial commentary The Group net profit reached a record AED 2,330.1 million (2020: AED 1,604.0 million) for 2021 up by 45.3%. The financial highlights of the full year results are as follows: •

Group net revenue (total operating income net of distribution to depositors) for 2021 was AED 5,559.6 million (2020: AED 5,358.2 million) increased by 3.8%.

•

Group operating profit (“margin”) for 2021 increased by 13.5% to reach at AED 3,299.5 million (2020: AED 2,908.2 million).

•

Total provisions for impairment for 2021 were AED 954.4 million (2020: AED 1,314.1 million).

•

Group net profit for 2021 was AED 2,330.1 million (2020: AED 1,604.0 million) up by 45.3%.

•

Group earnings per share increased to AED 0.571 compared to AED 0.364 in 2020.

•

Total assets as of 31 December 2021 were AED 136.9 billion (2020: AED 127.8 billion).

•

Net customer financing (murabaha, ijara and other Islamic financing) as of 31 December 2021 was AED 88.3 billion (2020: AED 83.4 billion).

•

Customer deposits as of 31 December 2021 were AED 109.6 billion (2020: AED 101.3 billion).

Proposed appropriations The Board of Directors has recommended the following appropriations from retained earnings: AED ‘000 • • •

72

Transfer to general reserves Profit paid on Tier 1 sukuk – Listed (second issue) during the year Profit paid on Tier 1 sukuk – Government of Abu Dhabi during the year

(226,918) (196,250) (58,221)

ADIB Annual Report 2021

BOARD OF DIRECTORS’ REPORT continued Year ended 31 December 2021

Board of Directors The directors during the year were as follows: 1. H.E. Jawaan Awaidha Suhail Al Khaili

Chairman

2. Faisal Sultan Naser Salem Al Shuaibi

Vice Chairman

3. Khalifa Matar Al Mheiri

Board Member

4. Najib Youssef Fayyad

Board Member

5. Abdulla Ali Musleh Jumhour Al Ahbabi

Board Member

6. Dhaen Mohamed Dhaen Mahasoon Alhameli

Board Member

7. Khamis Mohamed Buharoon

Board Member (Resigned on 04 March 2021)

On behalf of the Board of Directors H.E. Jawaan Awaidha Suhail Al Khaili Chairman 07 February 2022 Abu Dhabi

ADIB Annual Report 2021

73

Deloitte & Touche (M.E.) Level 11, Al Sila Tower Abu Dhabi Global Market Square Al Maryah Island P.O. Box 990, Abu Dhabi United Arab Emirates Tel: +971 (0) 2 408 2424 Tel: +971 (0) 2 408 2525 www.deloitte.com

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF ABU DHABI ISLAMIC BANK PJSC Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Abu Dhabi Islamic Bank PJSC (the “Bank”) which comprise the consolidated statement of financial position as at 31 December 2021, and he consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Bank as at 31 December 2021, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’).

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the other ethical requirements that are relevant to our audit of the Bank’s consolidated financial statements in the United Arab Emirates, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment for financing assets measured at amortised cost – Estimation uncertainty with respect to impairment allowances for financing assets measured at amortised cost Area of focus The assessment of the Bank’s determination of impairment allowances for financing assets measured at amortised cost requires management to make significant judgements over the staging and measurement of the Expected Credit Loss (ECL). The audit was focused on this matter due to the materiality and the complexity of the judgements applied and assumptions and estimates used in the ECL models. As at 31 December 2021, gross financing assets measured at amortised cost amounted to AED 93.1 billion against which an allowance for impairment of AED 4.9 billion was recorded.

Refer to Notes 17 and 18 to the consolidated financial statements for financing assets, Note 3 for the accounting policy, Note 3.4 for critical judgements and estimations used by management and Note 42 for the credit risk disclosure.

ECLs are a probability-weighted estimate of the present value of credit losses. These are measured as the present value of the difference between the cash flows due to the Bank under the contract and the cash flows that the Bank expects to receive arising from the weighting of multiple future economic scenarios, discounted at the asset’s effective profit rate. The Bank employs statistical models for ECL calculations and the key variables used in these calculations are probability of default (PD), loss given default (LGD); and exposure at default (EAD), which are defined in Note 42.2 to the consolidated financial statements.

The material portion of the non-retail portfolio of financing assets measured at amortised cost is assessed individually for the significant increase in credit risk (SICR) or credit impairment and the related measurement of ECL. There is the risk that management does not capture all qualitative and quantitative reasonable and supportable forward-looking information while assessing SICR, or while assessing credit-impaired criteria for the exposure. Management bias may also be involved in manual staging override in accordance with the Bank’s policies and in line with the requirements of IFRS 9 Financial Instruments. There is also the risk that judgements, assumptions, estimates, proxies and practical expedients implemented previously, are not consistently applied throughout the current reporting period or there are any unjustified movements in management overlays.

The measurement of ECL amounts for retail and non-retail exposures classified as Stage 1 and Stage 2 are carried out by the models with limited manual intervention, however, it is important that models (PD, LGD, EAD and macroeconomic adjustments) are valid throughout the reporting period and went through a validation process.

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Deloitte & Touche (M.E.) Level 11, Al Sila Tower Abu Dhabi Global Market Square Al Maryah Island P.O. Box 990, Abu Dhabi United Arab Emirates Tel: +971 (0) 2 408 2424 Tel: +971 (0) 2 408 2525 www.deloitte.com

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF ABU DHABI ISLAMIC BANK PJSC continued Report on the Audit of the Consolidated Financial Statements continued Key audit matters continued

Impairment for financial assets measured at amortised cost – Estimation uncertainty with respect to impairment allowances for financial assets measured at amortised cost continued Our audit approach We have obtained a detailed understanding of the financing origination process, credit risk management process and the estimation process of determining impairment allowances for financial assets measured at amortised cost and tested the design, implementation and operating effectiveness of relevant controls within these processes, which included testing: •

System-based and manual controls over the timely recognition of impaired financing assets;

•

Controls over the ECL calculation models;

•

Controls over collateral valuation estimates; and

•

Controls over governance and approval process related to impairment provisions and ECL Models including continuous reassessment by the management.

We understood and evaluated the theoretical soundness of the ECL models by involving our internal experts to ensure its compliance with the requirements of IFRSs. We tested the mathematical integrity of the ECL model by performing recalculations on a sample of the financing assets measured at amortised cost and assessed the consistency of the various inputs and assumptions used by management to determine impairment.

On a sample basis, we selected individual samples and performed a detailed review of these exposures and challenged the Banks’s identification of SICR (Stage 2), the assessment of credit-impaired classification (Stage 3) and whether relevant impairment events had been identified in a timely manner. We challenged the assumptions, such as estimated future cash flows, collateral valuations and estimates of recovery, underlying the impairment allowance calculation. We evaluated controls over approval, accuracy and completeness of impairment allowances and governance controls, including assessing key management and committee meetings that form part of the approval process for the computation of impairment allowances for the financing assets measured at amortised cost.

For financing assets measured at amortised cost not tested individually, we evaluated controls over the modelling process, including model monitoring, validation and approval. We tested controls over model outputs. We challenged key assumptions, inspected the calculation methodology and traced a sample back to source data. We evaluated key assumptions such as thresholds used to determine SICR and forward looking macroeconomic scenarios.

We tested the IT application used in the credit impairment process and verified the integrity of data used as input to the models including the transfer of data between source systems and the impairment models. We evaluated system-based and manual controls over the recognition and measurement of impairment allowances.

We evaluated post model adjustments and management overlays in order to assess the reasonableness of these adjustments. We further assessed the reasonableness of forward looking information incorporated into the impairment calculations by using our specialists.

For forward looking assumptions used by the Group’s management in its ECL calculations, we held discussions with management and corroborated the assumptions using publicly available information.

We have evaluated methodology and framework designed and implemented by the Bank as to whether the impairment models outcomes and stage allocations appear reasonable and reflective of the Bank’s forecasts of future economic conditions at the reporting date.

We assessed the disclosures in the consolidated financial statements to determine that they were in compliance with IFRSs.

Risk of inappropriate access or changes to information technology systems Area of focus The Bank is vitally dependent on its complex information technology environment for the reliability and continuity of its operations and financial reporting process due to the extensive volume and variety of transactions which are processed daily across the Bank’s businesses; this includes cyber risks.

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Deloitte & Touche (M.E.) Level 11, Al Sila Tower Abu Dhabi Global Market Square Al Maryah Island P.O. Box 990, Abu Dhabi United Arab Emirates Tel: +971 (0) 2 408 2424 Tel: +971 (0) 2 408 2525 www.deloitte.com

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF ABU DHABI ISLAMIC BANK PJSC continued Report on the Audit of the Consolidated Financial Statements continued Key audit matters continued

Risk of inappropriate access or changes to information technology systems continued Area of focus continued Inappropriate granting of or ineffective monitoring of access rights to IT systems therefore presents a risk to the accuracy of financial accounting and reporting. Appropriate IT controls are required to protect the Bank’s IT infrastructure, data and applications, ensure transactions are processed correctly and limit the potential for fraud and error as a result of change to an application or underlying data.

Unauthorised or extensive access rights cause a risk of intended or unintended manipulation of data that could have a material effect on the completeness and accuracy of financial statements. Therefore, we considered this area as key audit matter.

For further information on this key audit matter refer to Note 42.

Our audit approach Our audit approach depends to a large extent on the effectiveness of automated and IT-dependent manual controls and therefore we updated our understanding of the Bank’s IT-related control environment and identified IT applications, databases and operating systems that are relevant for the financial reporting process and to our audit.

For relevant IT-dependent controls within the financial reporting process we identified, with the involvement of our internal IT specialists, supporting general IT controls and evaluated their design, implementation and operating effectiveness. We updated our understanding of applications relevant for financial reporting and tested key controls particularly in the area of access protection, integrity of system interfaces and linkage of such controls to the reliability, completeness and accuracy of financial reporting including computer-generated reports used in financial reporting. Our audit procedures covered, but were not limited to, the following areas relevant for financial reporting: •

IT general controls relevant to automated controls and computer-generated information covering access security, program changes, data centre and network operations;

•

Controls regarding initial access granted to IT systems for new employees or employees changing roles, whether that access was subject to appropriate screening and it was approved by authorised persons;

•

Controls regarding removal of employee or former employee access rights within an appropriate period of time after having changed roles or leaving the Bank;

•

Controls regarding the appropriateness of system access rights for privileged or administrative authorisations (superuser) being subject to a restrictive authorisation assignment procedure and regular review thereof;

•

Password protection, security settings regarding modification of applications, databases and operating systems, the segregation of department and IT users and segregation of employees responsible for program development and those responsible for system operations;

•

Program developers approval rights in the modification process and their capability to carry out any modifications in the productive versions of applications, databases and operating systems; and

•

We performed journal entry testing as stipulated by the International Standards on Auditing.

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Deloitte & Touche (M.E.) Level 11, Al Sila Tower Abu Dhabi Global Market Square Al Maryah Island P.O. Box 990, Abu Dhabi United Arab Emirates Tel: +971 (0) 2 408 2424 Tel: +971 (0) 2 408 2525 www.deloitte.com

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF ABU DHABI ISLAMIC BANK PJSC continued Other Information The Board of Directors and management are responsible for the other information. The other information comprises the annual report of the Bank but does not include the consolidated financial statements and our auditor’s report thereon. The annual report is expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

When we read the annual report of the Bank, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs and their preparation in compliance with the applicable provisions of the UAE Federal Law No. (2) of 2015, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also: •

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

•

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

•

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

•

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities of the Bank to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit.

We remain solely responsible for our audit opinion.

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Deloitte & Touche (M.E.) Level 11, Al Sila Tower Abu Dhabi Global Market Square Al Maryah Island P.O. Box 990, Abu Dhabi United Arab Emirates Tel: +971 (0) 2 408 2424 Tel: +971 (0) 2 408 2525 www.deloitte.com

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF ABU DHABI ISLAMIC BANK PJSC continued Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements continued We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements As required by the UAE Federal Law No. (2) of 2015 for the year ended 31 December 2021, we report that: •

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

•

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

•

The Bank has maintained proper books of account;

•

The financial information included in the Directors’ report is consistent with the Bank’s books of account;

•

Note 20 to the consolidated financial statements of the Bank discloses purchased or investment in shares during the financial year ended 31 December 2021;

•

Note 40 to the consolidated financial statements of the Bank discloses material related party transactions, the terms under which these were conducted and principles of managing conflict of interests;

•

Based on the information that has been made available to us nothing has come to our attention which causes us to believe that the Bank has contravened during the financial year ended 31 December 2021 any of the applicable provisions of the UAE Federal Law No. (2) of 2015 (as amended) or of its Articles of Association which would materially affect its activities or its financial position as at 31 December 2021; and

•

Note 44 to the consolidated financial statements of the Bank discloses social contributions made during the financial year ended 31 December 2021.

Further, as required by the UAE Federal Law No. (14) of 2018, we report that we have obtained all the information and explanations we considered necessary for the purpose of our audit.

Deloitte & Touche (M.E.)

Mohammad Khamees Al Tah Registration No. 717 7 February 2022 Abu Dhabi United Arab Emirates

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ANNUAL REPORT OF THE INTERNAL SHARI’A SUPERVISORY COMMITTEE OF ABU DHABI ISLAMIC BANK GROUP In the name of Allah, the most Beneficent, the most Merciful All Praises are due to Allah, Lord of all the worlds and may peace and blessings be upon our Messenger Mohammed, his Family and his Companions.

Issued on: 15/02/22

To Shareholders of Abu Dhabi Islamic Bank (the “Institution”) May the peace, mercy and blessings of Allah be upon you, Pursuant to the requirements stipulated in the relevant laws, regulations and standards (“Regulatory Requirements”), the Internal Shari’a Supervisory Committee of the Institution (“ISSC”) presents to you the ISSC’s Annual Report for the financial year ending on 31 December 2021 (“Financial Year”).

1. Responsibility of the ISSC In accordance with the Regulatory Requirements and the ISSC’s charter, the ISSC’s responsibility is stipulated as to undertake Shari’a supervision of all businesses, activities, products, services, contracts, documents and business charters of the Institution; and the Institution’s policies, accounting standards, operations and activities in general, memorandum of association, charter, financial statements, allocation of expenditures and costs, and distribution of profits between holders of investment accounts and shareholders (“Institution’s Activities”) and issue Shari’a resolutions in this regard.

The ISSC’s other responsibility is to determine Shari’a parameters necessary for the Institution’s Activities, and the Institution compliance with Islamic Shari’a within the framework of the rules, principles, and standards set by the Higher Shari’a Authority (“HSA”) to ascertain compliance of the Institution with Islamic Shari’a.

The senior management is responsible for assuring compliance of the Institution with Islamic Shari’a in accordance with the HSA’s resolutions, fatwas, and opinions, and the ISSC’s resolutions within the framework of the rules, principles, and standards set by the HSA (“Compliance with Islamic Shari’a”) regarding the Institution’s Activities, and the Board of Directors (“Board”) bears the ultimate responsibility in this regard.

2. Shari’a Standards In accordance with the HSA’s resolution (No. 18/3/2018), the ISSC has abided by the Shari’a standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) as minimum Shari’a requirements, in all fatwas, approvals, endorsements and recommendations, relating to the Institution’s Activities without exception within the Financial Year.

3. Works Undertaken by the ISSC during the Financial Year The ISSC undertook Shari’a supervision of the Institution’s Activities, on Group level (except ADIB Egypt and Saudi Finance Company, as each one of them has its own Shari’a board and internal Shari’a supervisory department), through Internal Shari’a Control Group and Internal Shari’a Audit Group, in accordance with the ISSC’s authorities and responsibilities, and pursuant to the Regulatory Requirements in this regard. Works of the ISSC included the following:

a. Convening 6 meetings during the year and (2) meetings for its Executive Committee. b. Providing fatwas, opinions and resolutions on matters presented to the ISSC (or its Executive Committee or its Executive Member) in relation to the Institution’s Activities. c. Monitoring compliance of policies, procedures, accounting standards, product structures, contracts, documentation, business charters, and other documentation submitted by the Institution to the ISSC for approval. d. Ascertaining the level of compliance of allocation of expenditures and costs, and distribution of profits between holders of investment accounts and shareholders and between holders of investment accounts themselves with parameters set by the ISSC. e. Supervision through Internal Shari’a Control Group and Internal Shari’a Audit Group of the Institution’s Activities including executed transactions, adopted procedures on the basis of samples selected from executed transactions, and reviewing reports submitted in this regard. f. Providing directives to relevant parties of the Institution to rectify (where possible) findings cited in the Shari’a audit reports submitted by Internal Shari’a Audit Group, and issuing resolutions to set aside revenue derived from transactions in which non-compliance were identified to be disposed towards charitable purposes. g. Approving remedial rectification and preventive measures related to identified errors to prevent their reoccurrence in the future. h. Specifying the amount of Zakat due on each of the Institution’s share, the amount of Zakat due on ADIB Tier 1 Sukuk holders.

i. Liaising, as required, with the Board of Directors, its committees and the senior management of the Institution in relation to the Institution’s Compliance with Islamic Shari’a.

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j. Monitoring the execution of the Approved Internal Shari’a Audit Plan for the Financial Year and approving the Internal Shari’a Audit Plan for the financial year ending on 31/12/2022. k. Issuing the Shari’a Reports required for the external branches of the Institution, duly signed by the Deputy Chairman of the ISSC. l. Approving the segregation of the Internal Shari’a Audit Group from Internal Shari’a Control Group in compliance with the requirements of the Shari’a Governance Standard for Islamic Financial Institutions in addition to approving the Head of each group. m. Insisting on the necessity of compliance with what is stated in the Report issued by the CBUAE Examiners on 08/11/2021 which has been presented to us.

The ISSC sought to obtain all information and interpretations deemed necessary in order to reach a reasonable degree of certainty that the Institution is compliant with Islamic Shari’a.

4. Independence of the ISSC The ISSC acknowledges that it has carried out all of its duties independently and with the support and cooperation of the senior management and the Board of the Institution and the ISSC received the required assistance to access all documents and data, and to discuss all amendments and Shari’a requirements.

5. The ISSC’s Opinion on the Shari’a Compliance Status of the Institution Premised on information and explanations that were provided to us with the aim of ascertaining compliance with Islamic Shari’a, the ISSC has concluded with a reasonable level of confidence, that the Institution’s Activities in the Financial Year are in compliance with Islamic Shari’a, and the incidents of non-compliance observed were highlighted in the relevant reports, and the ISSC issued the corrective or preventative actions to take appropriate measures in this regard.

The ISSC formed its opinion, as outlined above, exclusively on the basis of information perused by the ISSC during the Financial Year.

We ask Allah, the Most High and Capable, that He guides the Bank and those responsible for it with that which is right and that which is good.

May the peace, mercy and blessings of Allah be upon you,

Signatures of the members of ADIB’s Internal Shari’a Supervisory Committee

Dr Jasem Ali Salem Al Shamsi Vice Chairman of the Committee, Vice Chairman of its Executive Committee and the 2nd member of its Executive Committee

On behalf of Esam Mohammed Ishaaq Member of the Committee

Dr. Mohammed Abdurahim Sultan Al Ulama Chairman of the Committee, Chairman of its Executive Committee and the Executive Member of the Committee

Dr. Ashraf Mohammed Hashim Member of the Committee and its Executive Committee

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CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2021

2021 AED ‘000

2020 AED ‘000

38,703 3,635,864 463,889 177,492 315,898 958,210 248,405 37,031 14,018

61,015 3,765,824 565,632 164,647 10,781 992,163 223,366 50,325 26,770

5,889,510

5,860,523

(1,438,767) (526,100) (240,416) (54,752) (954,399)

(1,508,212) (619,846) (267,190) (54,752) (1,314,112)

(3,214,434)

(3,764,112)

2,675,076 (329,959) 2,345,117 (15,028)

2,096,411 (502,358) 1,594,053 9,908

PROFIT FOR THE YEAR AFTER ZAKAT AND TAX

2,330,089

1,603,961

Attributable to: Equity holders of the Bank Non-controlling interest

2,328,731 1,358

1,602,828 1,133

2,330,089

1,603,961

0.571

0.364

Notes

OPERATING INCOME Income from murabaha, mudaraba and wakala with financial institutions Income from murabaha, mudaraba, ijara and other Islamic financing from customers Income from sukuk measured at amortised cost Income from investments measured at fair value Share of results of associates and joint ventures Fees and commission income, net Foreign exchange income Income from investment properties Other income

OPERATING EXPENSES Employees’ costs General and administrative expenses Depreciation Amortisation of intangibles Provision for impairment, net

PROFIT FROM OPERATIONS, BEFORE DISTRIBUTION TO DEPOSITORS Distribution to depositors PROFIT FOR THE YEAR BEFORE ZAKAT AND TAX Zakat and tax

Basic and diluted earnings per share attributable to ordinary shares (AED)

5 6 21 7 8

9 10 22 & 25 26 11

12

13

The attached notes 1 to 44 form part of these consolidated financial statements.

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ADIB Annual Report 2021

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED 31 DECEMBER 2021

Notes

PROFIT FOR THE YEAR AFTER ZAKAT AND TAX Other comprehensive loss Items that will not be reclassified to consolidated income statement Net loss on valuation of equity investments carried at fair value through other comprehensive income Directors' remuneration paid Loss on revaluation of land

2021 AED ‘000

2020 AED ‘000

2,330,089

1,603,961

33 40 25

(153) (7,350) (55,300)

(12,148) (7,350) -

33 33 33 33

(41,126) (4,857) 5,825 (846)

37,504 (53,232) (16,990) (2,336)

(103,807)

(54,552)

Items that may subsequently be reclassified to consolidated income statement Net movement in valuation of investments in sukuk carried at fair value through other comprehensive income Exchange differences arising on translation of foreign operations Gain (loss) on hedge of foreign operations Fair value loss on cash flow hedges OTHER COMPREHENSIVE LOSS FOR THE YEAR TOTAL COMPREHENSIVE INCOME FOR THE YEAR

2,226,282

1,549,409

Attributable to: Equity holders of the Bank Non-controlling interest

2,224,924 1,358

1,548,276 1,133

2,226,282

1,549,409

The attached notes 1 to 44 form part of these consolidated financial statements.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2021

2021 AED ‘000

2020 AED ‘000

21,699,249 3,739,683 790,456 43,165,461 45,086,882 9,633,426 4,057,488 1,604,378 1,288,988 713,701 2,631,431 2,310,871 146,335

19,579,524 2,287,134 132,864 35,978,091 47,431,270 10,350,377 3,458,194 1,301,662 1,310,347 713,701 2,820,609 2,251,278 201,087

136,868,349

127,816,138

27 3,535,952 28 109,611,103 29 3,162,234

3,773,245 101,276,128 3,604,881

116,309,289

108,654,254

Notes

ASSETS Cash and balances with central banks Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investment in sukuk measured at amortised cost Investments measured at fair value Investment in associates and joint ventures Investment properties Development properties Other assets Property and equipment Goodwill and intangibles

14 15 16 17 18 19 20 21 22 23 24 25 26

TOTAL ASSETS LIABILITIES Due to financial institutions Depositors’ accounts Other liabilities Total liabilities EQUITY Share capital Legal reserve General reserve Credit risk reserve Retained earnings Other reserves Tier 1 sukuk

30 31 31 31 33 34

Equity attributable to the equity and Tier 1 sukuk holders of the Bank Non-controlling interest

35

Total equity TOTAL LIABILITIES AND EQUITY 36

CONTINGENT LIABILITIES AND COMMITMENTS

3,632,000 2,640,705 2,633,934 400,000 6,741,105 (254,626) 4,754,375

3,632,000 2,640,705 2,407,016 400,000 5,671,295 (354,766) 4,754,375

20,547,493 11,567

19,150,625 11,259

20,559,060

19,161,884

136,868,349

127,816,138

11,690,694

13,913,242

To the best of our knowledge, the consolidated financial statements present fairly in all material respects the financial condition, results of operation and cash flows of the Group as of, and for, the periods presented therein.

H.E. Jawaan Awaidha Suhail Al Khaili Chairman

Nasser Abdullah Al Awadhi Group Chief Executive Officer

Mohamed Abdelbary Group Chief Financial Officer

The attached notes 1 to 44 form part of these consolidated financial statements.

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31

Transfer to reserves

The attached notes 1 to 44 form part of these consolidated financial statements.

Balance at 31 December 2021

33 33

34 32

34

38 33 33 31

34 32

34

Transfer to Impairment reserve – General Transfer to Impairment reserve – Specific

Balance at 1 January 2021 Profit for the year Other comprehensive loss Profit paid on Tier 1 sukuk – Listed (second issue) Profit paid on Tier 1 sukuk – Government of Abu Dhabi Dividends paid Dividends paid to charity Zakat payable

Balance at 1 January 2020 Profit for the year Other comprehensive loss Profit paid on Tier 1 sukuk – Listed (second issue) Profit paid on Tier 1 sukuk – Government of Abu Dhabi Dividends paid Dividends paid to charity Zakat payable Transfer to Impairment reserve – General Transfer to Impairment reserve – Specific Transfer to reserves

Notes

YEAR ENDED 31 DECEMBER 2021

3,632,000

-

2,640,705

-

-

-

2,640,705 -

3,632,000 -

-

2,640,705 -

3,632,000 -

Legal reserve AED ’000

Share capital AED ’000

2,633,934

226,918

-

-

2,407,016 -

156,983

2,250,033 -

General reserve AED ’000

400,000

-

-

-

400,000 -

-

400,000 -

Credit risk reserve AED ’000

6,741,105

(226,918)

(2,420) (194,177)

(58,221) (747,343) (20,000) 193,758

5,671,295 2,328,731 (7,350) (196,250)

(85,646) (994,313) (20,000) (193,758) 7,451 (61,662) (156,983)

5,776,978 1,602,828 (7,350) (196,250)

Retained earnings AED ’000

(254,626)

-

2,420 194,177

-

(354,766) (96,457) -

(7,451) 61,662 -

(361,775) (47,202) -

Other reserves AED ’000

Attributable to the equity and Tier 1 sukuk holders of the Bank

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

4,754,375

-

-

-

4,754,375 -

-

4,754,375 -

Tier 1 sukuk AED ’000

20,547,493

-

-

(58,221) (747,343) (20,000) 193,758

19,150,625 2,328,731 (103,807) (196,250)

(85,646) (994,313) (20,000) (193,758) -

19,092,316 1,602,828 (54,552) (196,250)

Total AED ’000

11,567

-

-

(1,050) -

11,259 1,358 -

(975) -

11,101 1,133 -

Noncontrolling interest AED ’000

20,559,060

-

-

(58,221) (748,393) (20,000) 193,758

19,161,884 2,330,089 (103,807) (196,250)

(85,646) (995,288) (20,000) (193,758) -

19,103,417 1,603,961 (54,552) (196,250)

Total equity AED ’000

CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED 31 DECEMBER 2021

Notes

OPERATING ACTIVITIES Profit for the year Adjustments for: Depreciation on investment properties Depreciation on property and equipment Depreciation on right-of-use assets Amortisation of intangibles Share of results of associates and joint ventures Dividend income Realised (gain)/loss on investments carried at fair value through profit or loss Unrealised loss/(gain) on investments carried at fair value through profit or loss Realised gain on sukuk carried at fair value through other comprehensive income Loss on disposal of property and equipment Finance cost on lease liabilities Provision for impairment, net Provision for end of service benefits Gain on sale of investment properties Operating profit before changes in operating assets and liabilities Decrease in balances with central banks (Increase)/decrease in balances and wakala deposits with Islamic banks and other financial institutions (Increase)/decrease murabaha and mudaraba with financial institutions Increase in murabaha and other Islamic financing Decrease/(increase) in ijara financing Net movement in investments carried at fair value through profit or loss Decrease/(increase) in other assets (Decrease)/increase in due to financial institutions Increase/(decrease) in depositors’ accounts (Decrease)/increase in other liabilities Cash from operations End of service benefits paid Directors' remuneration paid Net cash from operating activities INVESTING ACTIVITIES Dividend received Net movement in investments carried at fair value through other comprehensive income Net movement in investments carried at amortised cost Dividends received from associates and joint ventures Proceeds from sale of investment properties Purchase of property and equipment Net cash from/(used in) investing activities FINANCING ACTIVITIES Finance cost on lease liability Profit paid on Tier 1 sukuk – Listed (second issue) Profit paid on Tier 1 sukuk to Government of Abu Dhabi Dividends paid Net cash used in financing activities INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January CASH AND CASH EQUIVALENTS AT 31 DECEMBER

22 26 6 6 6 6 11 8

40

6

25

10 34 34

39

2021 AED ‘000

2020 AED ‘000

2,330,089

1,603,961

10,462 159,060 70,894 54,752 (315,898) (4,762) (22,610) 11,893 (28,114) 2,525 10,511 954,399 38,248 3,271,449 5,090,581

16,859 186,056 64,275 54,752 (10,781) (495) 4,004 (30,207) (32,092) 2,040 9,629 1,314,112 36,697 (12,295) 3,206,515 1,509,238

(324,911) (657,758) (7,567,930) 1,807,234 (470,351) 179,687 (470,490) 8,340,800 (302,134) 8,896,177 (34,673) (7,350) 8,854,154

736,194 282,558 (1,776,550) (1,647,375) (638,878) (40,985) 382,455 (134,724) 304,564 2,183,012 (36,121) (7,350 2,139,541

4,762 (130,609) 696,019 8,333 (313,511) 264,994

495 (460,354) 249,232 10,416 25,900 (256,679) (430,990)

(10,511) (196,250) (58,221) (749,875) (1,014,857) 8,104,291 6,929,656 15,033,947

(9,629) (196,250) (85,646) (1,002,787) (1,294,312) 414,239 6,515,417 6,929,656

Operating cash flows from profit on balances and wakala deposits with Islamic banks and other financial institutions, murabaha and mudaraba with financial institutions, customer financing, sukuk and customer deposits are as follows:

Profit received Profit paid to depositors

4,167,784 313,453

3,980,834 532,353

The attached notes 1 to 44 form part of these consolidated financial statements.

86

ADIB Annual Report 2021

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ADIB Annual Report 2021

87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

1 LEGAL STATUS AND PRINCIPAL ACTIVITIES Abu Dhabi Islamic Bank PJSC (“the Bank”) was incorporated in the Emirate of Abu Dhabi, United Arab Emirates (UAE), as a public joint stock company with limited liability, in accordance with the provisions of the UAE Federal Commercial Companies Law No. (8) of 1984 (as amended) and the Amiri Decree No. 9 of 1997. The Federal Law No. 2 of 2015, concerning Commercial Companies has replaced the existing Federal Law No. 8 of 1984. Federal Law No. 32 of 2021 on Commercial Companies (the “New Companies Law”) was issued on 20 September 2021 and will come into effect on 2 January 2022, to entirely replace Federal Law No. 2 of 2015 on Commercial Companies, as amended (the “2015 Law”). The Bank is in the process of reviewing the new provisions and will apply the requirements thereof no later than one year from the date on which the amendments came into effect.

On 23 September 2018, a new Decretal Federal Law No 14 of 2018 regarding the Central Bank and Organization of Financial Institutions and Activities was issued. As per the transitional provisions of the new law, financial institutions are to ensure compliance within 3 years from the date of issuance of the decretal law. The Bank is in the process of adopting the new decretal federal law and will be fully compliant before the transitional provisions deadline.

The Bank and its subsidiaries (“the Group”) carry out full banking services, financing and investing activities through various Islamic instruments such as Murabaha, Istisna’a, Mudaraba, Musharaka, Ijara, Wakalah, Sukuk etc. The activities of the Bank are conducted in accordance with Islamic Shari’a, which prohibits usury as determined by the Internal Shari’a Supervisory Committee of the Bank, and within the provisions of the Articles and Memorandum of Association of the respective entities within the Group.

In addition to its main office in Abu Dhabi, the Bank operates through its 59 branches in UAE (2020: 69 branches) and 3 overseas branches in Iraq, Qatar and Sudan and subsidiaries in the UAE and the United Kingdom. The consolidated financial statements combine the activities of the Bank’s head office, its branches and subsidiaries.

The registered office of the Bank is at P O Box 313, Abu Dhabi, UAE. The consolidated financial statements of the Group were authorised for issue by the Board of Directors on 07 February 2022.

2 DEFINITIONS The following terms are used in the consolidated financial statements with the meanings specified: Murabaha A sale contract, in which the Group sells to a customer a physical asset, goods, or shares already owned and possessed (either physically or constructively) at a selling price that consists of the purchase cost plus a mark-up profit.

Istisna’a A sale contract, in which the Group (Al Saanee) sells an asset to be developed using its own materials to a customer (Al Mustasnee) according to pre-agreed upon precise specification, at a specific price, installments dates and to be delivered on a specific date. This developed asset can be either developed directly by the Group or through a subcontractor and then it is handed over to the customer on the pre-agreed upon date.

Ijara A lease contract whereby the Group (the Lessor) leases to a customer (the Lessee) a service or the usufruct of an owned or rented physical asset that either exists currently or to be constructed in future (forward lease) for a specific period of time at specific rental installments. The lease contract could be ended by transferring the ownership of a leased physical asset through an independent mode to the lessee.

Qard Hasan A non-profit bearing loan that enables the borrower to use the borrowed amount for a specific period of time, at the end of which the same borrowed amounts would be repaid free of any charges or profits.

Musharaka A contract between the Group and a customer to entering into a partnership in an existing project (or to be established), or in the ownership of a specific asset, either on ongoing basis or for a limited time, during which the Group enters in particular arrangements with the customer to sell to him/her its share in this partnership until he/she becomes the sole owner of it (diminishing musharaka). Profits are distributed according to the mutual agreement of the parties as stipulated in the contract; however, losses are borne according to the exact shares in the Musharaka capital on a pro-rata basis.

Mudaraba A contract between the Group and a customer, whereby one party provides the funds (Rab Al Mal) and the other party (the Mudarib) invests the funds in a project or a particular activity and any generated profits are distributed between the parties according to the profit shares that were pre-agreed upon in the contract. The Mudarib is responsible of all losses caused by his misconduct, negligence or violation of the terms and conditions of the Mudaraba; otherwise, losses are borne by Rab Al Mal. Wakalah A contract between the Group and a customer whereby one party (the principal: the Muwakkil) appoints the other party (the agent: Wakil) to invest certain funds according to the terms and conditions of the Wakala for a fixed fee in addition to any profit exceeding the expected profit as an incentive for the Wakil for the good performance. Any losses as a result of the misconduct or negligence or violation of the terms and conditions of the Wakala are borne by the Wakil; otherwise, they are borne by the principal.

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ADIB Annual Report 2021

2 DEFINITIONS continued Sukuk Certificates which are equal in value and represent common shares in the ownership of a specific physical asset (leased or to be leased either existing or to be constructed in future), or in the ownership of cash receivables of selling an existing-owned asset, or in the ownership of goods receivables, or in the ownership of the assets of Mudaraba or Partnership companies. In all these cases, the Sukuk holders shall be the owners of their common shares in the leased assets, or in the cash receivables, or the goods receivable, or in the assets of the Partnership or the Mudaraba.

3 BASIS OF PREPARATION 3.1 (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), general principles of the Shari’a as determined by the Group’s Internal Shari’a Supervisory Committee and applicable requirements of the laws of the UAE. 3.1 (b) Accounting convention The consolidated financial statements have been prepared under the historical cost convention except for investments carried at fair value through profit or loss, investments carried at fair value through other comprehensive income, Shari’a compliant alternatives of derivative financial instruments which have been measured at fair value and land, held as property and equipment, which has been carried at revalued amount.

The consolidated financial statements have been presented in UAE Dirhams (AED), which is the functional currency of the Bank and all values are rounded to the nearest thousand AED except where otherwise indicated.

3.1 (c) Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and those of its following subsidiaries: Percentage of holding Activity

Abu Dhabi Islamic Securities Company LLC Burooj Properties LLC MPM Properties LLC ADIB Invest 1 Kawader Services LLC ADIB (UK) Limited ADIB Holdings (Jersey) Ltd* (under liquidation) ADIB Sukuk Company Ltd* ADIB Sukuk Company II Ltd* ADIB Capital Invest 1 Ltd* ADIB Capital Invest 2 Ltd* ADIB Alternatives Ltd*

Equity brokerage services Real estate investments Real estate services Equity brokerage services Manpower supply Other services Special purpose vehicle Special purpose vehicle Special purpose vehicle Special purpose vehicle Special purpose vehicle Special purpose vehicle

Country of incorporation

2021

2020

United Arab Emirates United Arab Emirates United Arab Emirates BVI United Arab Emirates United Kingdom British Channel Islands Cayman Island Cayman Island Cayman Island Cayman Island Cayman Island

95% 100% 100% 100% 100% 100% -

95% 100% 100% 100% 100% 100% -

*The Bank does not have any direct holding in these entities and they are considered to be a subsidiary by virtue of control.

These consolidated financial statements include the operations of the subsidiaries over which the Bank has control. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting year as the Bank, using consistent accounting policies. All intragroup balances, transactions, income and expenses and gains and losses resulting from intra-group transactions are eliminated in full.

Non-controlling interest represent the portion of the net income or loss and net assets of the subsidiaries not held by the Group and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from shareholders’ equity of the Bank.

3.2 Changes in accounting policies In the current year, the Group has applied the following amendments to IFRSs issued by the International Accounting Standards Board (“IASB”) that are mandatorily effective for an accounting period that begins on or after 1 January 2021. The application of these amendments to IFRSs has not had any material impact on the amounts reported for the current year but may affect the accounting for the Group’s future transactions or arrangements.

ADIB Annual Report 2021

89

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

3 BASIS OF PREPARATION continued 3.2 Changes in accounting policies continued Amendments to References to the Conceptual Framework in IFRS Standards Amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32 to update those pronouncements with regard to references to and quotes from the framework or to indicate where they refer to a different version of the Conceptual Framework.

Amendment to IFRS 3 Business Combinations relating to definition of a business The amendments in Definition of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative examples of IFRS 3 only.

Amendments to IAS 1 and IAS 8 relating to Definition of Material The amendments in Definition of Material (Amendments to IAS 1 and IAS 8) clarify the definition of ‘material’ and align the definition used in the Conceptual Framework and the standards.

Covid-19-related Rent Concessions (Amendment to IFRS 16) The amendment was published by International Accounting Standard Board in May 2020 to provide practical relief to lessees in accounting for rent concessions arising as a result of Covid-19.

Profit Rate Benchmark Reform – Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (IBOR reform Phase 2) Effective from 1 January 2021, the Phase 2 of the IBOR benchmark reform - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 is applicable. The areas impacted by the amendments include application of practical expedient for accounting for modifications of financial assets and financial liabilities when transactions are updated for the new IBOR benchmark rates (will not result in derecognition), relief on changes to hedge designations and hedge documentation (a change to hedge designations and hedge documentation required by IBOR reform would not result in discontinuation of hedge accounting) and providing disclosures that enable users to understand nature and extent of risks arising from profit rate benchmark reform to which the Group is exposed and how it manages those risks. The amendments are applied retrospectively with no restatement required for prior periods.

Based on the decision by global regulators to phase out IBORs and replace them with alternative reference rates (RFRs), the Bank has established a project in 2020, in coordination with an external consultant to manage the transition for any of its contracts that could be affected. The Group has exposure to contracts referencing benchmark rates, such as LIBOR, that mature after 2021. The project is significant in terms of scale and complexity and has a cross-functional impact on the Bank from customer contracts and dealings to the Bank’s risk management processes and earnings. The project is being led by senior representatives from functions across the Bank including the client facing teams, Treasury, Finance, Shari’a, Legal, Operations and Technology. The Bank is in the process of setting up detailed plans, processes and procedures to support the transition of its IBOR exposure to RFRs. Moreover, the Bank will look to determine the extent of changes required in its risk management approach and strategy as a result of the IBOR reform. In 2021, the Bank a established the Governance Framework for this project which includes an internal reporting framework to provide regular updates to an IBOR Reform Steering Committee. The Bank has also set up a monthly review of its exposure and contracts to monitor the scale of transition required from IBOR to RFRs. The Group’s exposure to cash flow hedges and fair value hedges linked to benchmark rates maturing beyond the year 2021 is not considered material.

IBOR reform exposes the Group to various risks, which the project is managing and monitoring closely. These risks include but are not limited to the following: •

Conduct risk arising from discussions with clients and market counterparties due to the amendments required to existing contracts necessary to effect IBOR reform.

•

Financial risk to the Bank and its clients that markets are disrupted due to IBOR reform giving rise to financial losses.

•

Pricing risk from the potential lack of market information if liquidity in IBORs reduces and RFRs are illiquid and unobservable.

•

Operational risk arising from changes to the Bank’s IT systems and processes, also the risk of payments being disrupted if an IBOR ceases to be available .

•

Accounting risk if the Bank’s hedging relationships fail and from unrepresentative income statement volatility as financial instruments transition to RFRs.

The Group continues to engage with internal and external stakeholders to support an orderly transition and to mitigate the risks resulting from the transition.

Management 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 and amendments may have no material impact on the consolidated financial statements of the Group in the period of initial application.

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ADIB Annual Report 2021

3 BASIS OF PREPARATION continued 3.3 Standards issued but not yet effective The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

New and revised IFRSs

Effective for annual periods beginning on or after

Amendments to IAS 16 Property, Plant and Equipment, Proceeds before intended use Annual Improvements 2018-2020 cycle Amendments to IFRS 3 Business Combination Amendments to IAS 37 Onerous Contracts, Cost of fulfilling a contract Amendments to IAS 1 Classification of Liabilities as Current or Non-Current IFRS 17 Insurance Contracts Amendments to IFRS 10 Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) relating to the treatment of the sale or contribution of assets from and investor to its associate or joint venture.

1 January 2022 1 January 2022 1 January 2022 1 January 2022 1 January 2023 1 January 2023 Effective date deferred indefinitely. Adoption is still permitted.

Management 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 and amendments may have no material impact on the consolidated financial statements of the Group in the period of initial application.

3.4 Significant Judgements And Estimates The preparation of the consolidated financial statements in conformity with the International Financial Reporting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of financial assets and liabilities and the disclosure of contingent liabilities. These judgments, estimates and assumptions also affect the revenue, expenses and provisions as well as fair value changes.

These judgments, estimates and assumptions may affect the reported amounts in subsequent financial years. Estimates and judgments are currently evaluated and are based on historical experience and other factors. In order to reduce the element of subjectivity, the Group has laid down clear criteria to enable estimation of future cash flows. As estimates are based on judgments, actual results may differ, resulting in future changes in such provisions.

Following estimates and judgements which are applicable from 1 January 2021.

IFRS 9: Financial instruments: •

Classification of financial assets: assessment of business model within which the assets are held and assessment of whether the contractual terms of the financial assets are solely payment of principal and profit of the principal amount outstanding.

•

Calculation of expected credit loss: changes to the assumptions and estimation uncertainties that have a significant impact on expected credit losses for the year ended 31 December 2021 pertain to the changes introduced as a result of adoption of IFRS 9 (ECL): Financial instruments. The impact is mainly driven by inputs, assumptions and techniques used for ECL calculation under IFRS 9 methodology.

Key Considerations: Some of the key concepts in IFRS 9 that have the most significant impact and require a high level of judgment, as considered by the Group while determining the impact assessment, are: 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.

The assessment of significant increases in credit risk will be performed at least quarterly for each individual exposure based on three factors. If any of the following factors indicates that a significant increase in credit risk has occurred, the instrument will be moved from Stage 1 to Stage 2: i) The Group has established thresholds for significant increases in credit risk based on movement in Probability of Default (PD) as determined by the Obligator Risk Rating (ORR) relative to initial recognition as well as PD thresholds. ii) Additional qualitative reviews will be performed to assess the staging results and make adjustments, as necessary, to better reflect the positions which have significantly increased in risk. iii) IFRS 9 contains a rebuttable presumption that instruments which are 30 days past due have experienced a significant increase in credit risk.

Movements between Stage 2 and Stage 3 are based on whether financial assets are credit impaired as at the reporting date. The determination of credit impairment under IFRS 9 will be similar to the individual assessment of financial assets for objective evidence of impairment under IAS 39.

ADIB Annual Report 2021

91

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

3 BASIS OF PREPARATION continued 3.4 Significant Judgements and Estimates continued Macroeconomic Factors, Forward Looking Information (FLI) and Multiple Scenarios: The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk must consider 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 will require significant judgment.

PD and Loss Given Default (LGD) inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled based on the macroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in the relevant portfolio. Each macroeconomic scenario used in the Group’s expected credit loss calculation will have forecasts of the relevant macroeconomic variables.

Estimation of expected credit losses in Stage 1 and Stage 2 will be a discounted probability weighted estimate that considers a minimum of three future macroeconomic scenarios.

Base-case, Upside and Downside scenarios, will be based on macroeconomic forecasts received from an external reputable source. These scenarios will be updated on a quarterly basis and more frequently if conditions warrant.

All scenarios considered will be applied to all portfolios subject to expected credit losses with the same probabilities.

Definition of default: The definition of default used in the measurement of expected credit losses and the assessment to determine movement between stages will be consistent with the definition of default used for internal credit risk management purposes. IFRS 9 does not define default, but contains a rebuttable presumption that default has occurred when an exposure is greater than 90 days past due.

Expected Life: When measuring ECL, the Group considers the maximum contractual period over which the Bank is exposed to credit risk. All contractual terms should be considered when determining the expected life, including prepayment options and extension and rollover options. For certain revolving credit facilities that do not have a fixed maturity, the expected life is estimated based on the period over which the Group is exposed to credit risk and where the credit losses would not be mitigated by management actions.

Governance: The Group has established an internal Committee to provide oversight to the IFRS 9 impairment process. The Committee is comprised of senior representatives from Finance and Risk Management and will be responsible for reviewing and approving key inputs and assumptions used in the Group’s expected credit loss estimates. It also assesses the appropriateness of the overall allowance results to be included in the Group’s financial statements.

Going concern The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied the Group has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the going concern basis.

Contingencies By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of probability of occurrence of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.

Operating lease commitments - Group as lessor The Group has entered into commercial property lease arrangements on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties therefore, accounts for the contracts as operating leases.

Classification and measurement of financial assets The classification and measurement of the financial assets depend on the management’s business model for managing its financial assets and on the contractual cash flow characteristics of the financial asset assessed. The Group’s investments in securities are appropriately classified and measured.

Investment and development properties The Group hired services of professional real estate valuer to provide reliable estimates of the market value of investment properties for determining the fair values as of the reporting date, for disclosure purposes and assessing the impairment, if any. The basis of estimate and method used by the valuer has been disclosed in the note 22.

Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial position that cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of the financial instruments.

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ADIB Annual Report 2021

3 BASIS OF PREPARATION continued 3.4 Significant Judgements and Estimates continued Classification of properties In the process of classifying properties, management has made various judgments. Judgment is needed to determine whether a property qualifies as an investment property, development property or property and equipment. The Group develops criteria so that it can exercise that judgment consistently in accordance with the definitions of investment property, development property and property and equipment. In making its judgment, management considers the detailed criteria and related guidance for the classification of properties as set out in IAS 2, IAS 16 and IAS 40, in particular, the intended usage of property as determined by the management.

Impairment of investments in associates and joint ventures Management regularly reviews its investment in associates and joint venture for indicators of impairment. This determination of whether investments in associates is impaired, entails management’s evaluation of the specific investee’s profitability, liquidity, solvency and ability to generate operating cash flows from the date of acquisition and until the foreseeable future. If managements’ review results in impairment, the difference between the estimated recoverable amount and the carrying value of investment in associates and joint venture is recognised as an expense in the consolidated income statement.

Impairment review of investment properties, development properties and advances paid against purchase of properties Investment properties, development properties and advances paid against purchase of properties are assessed for impairment based on assessment of cash flows on individual cash-generating units when there is indication that those assets have suffered an impairment loss.

Cash flows are determined with reference to recent market conditions, prices existing at the end of the reporting period, contractual agreements and estimations over the useful lives of the assets and discounted using a range of discount rates that reflects current market assessments of the time value of money and the risks specific to the asset. The net present values are compared to the carrying amounts to assess any impairment.

The assessment of current market conditions, including cost of project completion, future rental and occupancy rates and assessment of the projects capital structure and discount rates requires management to exercise its judgment. Management uses internal and external experts to exercise this judgment.

Impairment of goodwill On an annual basis, the Group determines whether goodwill is impaired. This requires an estimation of the recoverable amount using value in use of the cash generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

Useful life of property and equipment and investment properties The cost of property and equipment and investment properties are depreciated over its estimated useful life, which is based on expected usage of the asset and expected physical wear and tear, which depends on operational factors.

Business combinations Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets and liabilities of the acquired business. For most assets and liabilities, the purchase price allocation is accomplished by recording the asset or liability at its estimated fair value. Determining the fair value of assets acquired and liabilities assumed requires estimation by management and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, the useful lives of intangibles other assets and market multiples. The Group’s management uses all available information to make these fair value determinations. The Group has, if necessary, up to one year after acquisition closing date to complete these fair value determinations and finalise the purchase price allocation.

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

Lease accounting under IFRS 16 The following are the critical judgments and estimates in the application of IFRS 16, that the management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements: • • • • •

identifying whether a contract (or part of a contract) includes a lease; determining whether it is reasonably certain that an extension or termination option will be exercised; classification of lease arrangements (when the entity is a lessor); determination of the appropriate rate to discount the lease payments; and assessment of whether a right-of-use asset is impaired.

ADIB Annual Report 2021

93

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

4 SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of the consolidated financial statements are set out below: Revenue recognition Murabaha Murabaha income is recognised on a time apportioned basis over the period of the contract based on the principal amounts outstanding.

Istisna’a Istisna’a revenue and the associated profit margin (difference between the cash price of al-masnoo to the customer and the Bank’s total Istisna’a cost) is accounted for on a time apportioned basis.

Ijara Ijara income is recognised on a time apportioned basis over the lease term.

Musharaka Income is accounted for on the basis of the reducing balance of Musharaka on a time apportioned basis that reflects the effective yield on the asset.

Mudaraba Income or losses on Mudaraba financing are recognised on an accrual basis if they can be reliably estimated. Otherwise, income is recognised on distribution by the Mudarib, whereas the losses are charged to the Bank’s consolidated income statement on their declaration by the Mudarib.

Sukuk Income is accounted for on a time apportioned basis over the terms of the Sukuk.

Revenue from sale of properties, net Revenue is recognized when (or as) the Group satisfies the performance obligation at an amount that reflects the consideration to which the Group is entitled in exchange for transferring goods or services to a customer. A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer).

Cost of sale of properties includes the cost of development. Development costs include the cost of infrastructure and construction.

Cost of sale of land represents the carrying amount at which it is recorded in the consolidated financial statements of the Group.

Fee and commission income Fee income is earned from a diverse range of services provided by the Bank to its customers and are accounted for in accordance with IFRS 15 ‘Revenue from Contracts with Customers’. The Bank recognises revenue when it transfers control over a product or service to a customer.

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, Brokerage fees and commission); • income earned from the provision of services is recognised as revenue as the services are provided (for example, Projects and property management fees, arrangement fees and Accounts services fees; and • Other fees and commission income and expense are recognised as the related services are performed or received.

Operating lease income Operating lease income arising on investment properties is accounted for on a straight-line basis over the lease terms on ongoing leases.

Gain on sale of investments Gain or loss on disposal of fair value through profit or loss investments represents the difference between the sale proceeds and the carrying value of such investments on the date of sale less any associated selling costs and is recognised through consolidated income statement.

Gain or loss on disposal of fair value through other comprehensive income investments represents the difference between sale proceeds and their original cost less associated selling costs and is recognised through consolidated statement of comprehensive income and are included within cumulative changes in fair value reserve within equity and not recognised in the consolidated income statement.

Dividends Dividends from investments in equities are recognised when the right to receive the dividend is established.

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4 SIGNIFICANT ACCOUNTING POLICIES continued Financial Instruments Recognition and Measurement Financial instruments comprise financial assets and financial liabilities. Financial assets of the Group are further analysed as: • • • • • • •

Customer financing; Balances and wakala deposits with Islamic banks and other financial institutions; Murabaha and mudaraba with financial institutions; Investment in sukuk; Investment in equity instruments; Trade and other receivables; and Sharia compliant alternatives of derivatives.

The Group’s customer financing comprise the following: • Murabaha and other Islamic financing; and • Ijara financing.

Financial assets are classified in their entirety on the basis of the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are measured either at amortised cost or fair value.

Classification Financial assets at amortised cost Balances and wakala deposits with Islamic banks and other financial institutions, Murabaha and mudaraba with financial institutions, Acceptances, Murahaba and other Islamic financing (excluding Istisna’a) and investment in sukuk, are measured at amortised cost, if both the following conditions are met: • the asset is held within a business model whose objective is to hold assets in order 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 profit on the principal amount outstanding.

All other financial assets are subsequently measured at fair value.

Financial assets at fair value through profit or loss (“FVTPL”) Investments in equity instruments are classified as FVTPL, unless the Group designates an investment that is not held for trading as at fair value through other comprehensive income (“FVTOCI”) on initial recognition.

Other financial assets that do not meet the amortised cost criteria are classified as FVTPL. In addition, certain financial assets that meet the amortised cost criteria but at initial recognition are designated as FVTPL in line with the business model of the Group. As a fair value option, a financial asset may be designated as 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 that are designated as FVTPL on initial recognition as fair value option is not allowed.

Financial assets at fair value through other comprehensive income (“FVTOCI”) At initial recognition, the Group can make an irrevocable election (on instrument-by-instrument basis) to designate investments in equity instruments as FVTOCI. A financial asset is FVTPL if: • it has been acquired principally for the purpose of selling in the near term; • on initial recognition it is part of identified financial instrument that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or • it is a Shari’a compliant alternatives of derivative financial instruments and not designated and effective as a hedging instrument or a financial guarantee.

Measurement Financial assets or financial liabilities carried at amortised cost Financial assets are recorded at amortised cost, which includes Balances and wakala deposits with Islamic banks and other financial institutions, Murabaha and mudaraba with financial institutions, Acceptances, Murahaba and other Islamic financing (excluding Istisna’a) and investment in sukuk, less any reduction for impairment. Amortised cost is calculated using the effective profit rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective profit rate of the instrument.

ADIB Annual Report 2021

95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Financial Instruments continued Measurement continued Balances and deposits with banks and other financial institutions, Murabaha and Mudaraba with financial institutions, Murabaha, Ijara, Mudaraba and certain other Islamic financing are financial assets with fixed or expected profit payments. These assets are not quoted in an active market.

They arise when the Group provides funds directly to a customer with no intention of trading the receivable. Financial liabilities are liabilities where the Group has a contractual obligation to deliver cash or another financial asset or exchange financial instruments under conditions that are potentially unfavourable to the Group.

Balances and wakala deposits with Islamic banks and other financial institutions are stated at amortised cost less amounts written off and provision for impairment, if any.

Murabaha and mudaraba with financial institutions are stated at amortised cost (which excludes deferred income or expected profits) less provisions for impairment.

Islamic financing consist of murabaha receivables, mudaraba, Istisna’a, Islamic covered cards (murabaha based) and other Islamic financing.

Istisna’a cost is measured and reported in the consolidated financial statements at a value not exceeding the cash equivalent value.

Other Islamic financing are stated at amortised cost (which excludes deferred income) less any provisions for impairment.

The Ijara is classified as a finance lease, when the Bank undertakes to sell the leased assets to the lessee using an independent agreement upon the maturity of the lease and the sale results in transferring all the risks and rewards incident to an ownership of the leased assets to the lessee.

Leased assets represents finance lease of assets for periods, which either approximate or cover a major part of the estimated useful lives of such assets. Leased assets are stated at amounts equal to the net investment outstanding in the leases including the income earned thereon less impairment provisions.

Financial assets at fair value through profit or loss (“FVTPL”) Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any gains or losses arising on remeasurement recognised in the consolidated income statement. The net gain or loss recognised in the consolidated income statement is included within ‘investment income’ in the consolidated income statement.

Financial assets at fair value through other comprehensive income (“FVTOCI”) Investments in equity instruments 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 the consolidated statement of other comprehensive income and accumulated in the cumulative changes in fair values within equity.

Where the assets are disposed off, except for sukuk measured at FVTOCI, the cumulative gain or loss previously accumulated in the cumulative changes in fair values is not transferred to the consolidated income statement, but is reclassified to retained earnings. Financial assets (equity instruments) measured at FVTOCI are not required to be tested for impairment.

For sukuk measured at FVTOCI which are disposed off, the cumulative gain or loss previously recognised in the consolidated statement of other comprehensive income is reclassified from equity to consolidated income statement.

Financial assets (Sukuk instruments) measured at FVTOCI are tested for impairment.

For investments quoted in active market, fair value is determined by reference to quoted market prices.

For other investments, where there is no active market, fair value is normally based on one of the following: • the expected cash flows discounted at current profit rates applicable for items with similar terms and risk characteristics • brokers’ quotes • recent market transactions Dividends on investment in equity instruments are recognised in the consolidated income statement when the Group’s right to receive the dividend is established, unless the dividends clearly represent a recovery of part of the cost of investment. (i) Recognition / De-recognition The Group initially recognises financial assets at fair value through profit or loss, financial assets at amortised cost and financial assets at fair value through other comprehensive income on the settlement date at which the Group becomes a party to the contractual provisions of the instrument.

Financing to customers are recognised on the day they are disbursed. A financial liability is recognised on the date the Group becomes a party to contractual provisions of the instrument.

A financial asset is de-recognised when the contractual rights to the cash flows from the financial asset expires or when it transfers the financial asset.

A financial liability is de-recognised when it is extinguished i.e. when the obligation specified in the contract is discharged or cancelled or expires.

Financial assets designated at fair value through profit or loss, and financial assets at fair value through other comprehensive income that are sold are de-recognised and corresponding receivables from the buyer for the payment are recognised as at the date the Group commits to sell the assets. The Group uses the specific identification method to determine the gain or loss on de-recognition.

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4 SIGNIFICANT ACCOUNTING POLICIES continued Financial Instruments continued Measurement continued (ii) Offsetting of financial instruments Financial assets and financial liabilities are only offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right and under Sharia’a framework to set off the recognized amounts and the Group intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously.

Impairment assessment: The Group assesses whether financial assets carried at amortised cost and carried at FVTOCI are credit-impaired. A financial asset is ‘credit impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data: • • • • •

significant financial difficulty of the finance customer or issuer; a breach of contract such as a default or past due event; the restructuring of a financing by the Group on terms that the Group would not consider otherwise; it is becoming probable that the finance customer will enter bankruptcy or other financial reorganization; or the disappearance of an active market for a security because of financial difficulties.

Measurement of Expected Credit Losses (ECL): The impairment of financial assets are calculated in accordance with IFRS 9 expected credit loss (ECL) model. The standard introduces a new single model for the measurement of impairment losses on all financial assets including financing and sukuk measured at amortized cost or at fair value through OCI. The ECL model contains a three stage approach which is based on the change in credit quality of financial assets since initial recognition. The ECL model is forward looking and requires the use of reasonable and supportable forecasts of future economic conditions in the determination of significant increases in credit risk and measurement of ECL. Stage 1: 12-month ECL applies to all financial assets that have not experienced a significant increase in credit risk (SICR) since origination and are not credit impaired. The ECL will be computed using a factor that represents the Probability of Default (PD) occurring over the next 12 months and Loss Given Default (LGD).

Stage 2: Under Stage 2, where there has been a SICR since initial recognition but the financial instruments are not considered credit impaired, an amount equal to the lifetime ECL will be recorded which is computed using lifetime PD, LGD and Exposure at Default (EAD) measures.

Provisions are expected to be higher in this stage because of an increase in risk and the impact of a longer time horizon being considered compared to 12 months in Stage 1.

Stage 3: Under the Stage 3, where there is objective evidence of impairment at the reporting date these financial instruments will be classified as credit impaired and an amount equal to the lifetime ECL will be recorded for the financial assets.

The Group measures loss allowances at an amount equal to lifetime ECL, except for financial instruments on which credit risk has not increased significantly since their initial recognition. 12-month ECL are the portion of life time ECL that result from default events on a financial instrument that are possible within the 12 months after reporting date.

ECL is calculated by multiplying three main components, being the probability of default (PD), loss given default (LGD) and the exposure at default (EAD), and discounting at the initial effective profit rate. The Group has developed a range of models to estimate these parameters.

For the portfolios where sufficient historical data was available, the Group developed a statistical model and for other portfolios judgmental models were developed.

Renegotiated financing facilities Where possible, the Bank seeks to restructure financing facilities rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new conditions. Management continually reviews renegotiated facilities to ensure that all future payments are highly expected to occur.

When 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 finance customer, then an assessment is made of whether the financial asset should be derecognized and ECL are measured as follows: • If the expected restructuring will not result in derecognition of the exiting asset, then the expected cash flows arising from the modified financial asset are included in calculating the gross carrying amount of the financial asset as the present value of the renegotiated or modified cash flows, that are discounted at the financial asset at the original effective profit rate and shall recognize the modification gain or loss in the profit or loss.

• 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. The cash shortfalls are discounted from the expected date of derecognition to the reporting date using the original effective profit rate of the existing financial asset.

ADIB Annual Report 2021

97

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Purchased or originated credit impaired assets (POCI) POCI assets are financial assets that are credit impaired on initial recognition. POCI assets are recorded at fair value at original recognition and profit income is subsequently recognized based on a credit-adjusted expected profit rate. Life time ECLs are only recognised or released to the extent that there is a subsequent change in the ECL. Covered card facilities The Group’s product offering includes a variety of covered cards facilities, in which the Group has the right to cancel and/or reduce the facilities at a short notice. The Group does not limit its exposure to credit losses to the contractual notice period, but, instead calculates ECL over a period that reflects the Group’s expectations of the customer behavior, its likelihood of default and the Group’s future risk mitigation procedures, which could include reducing or cancelling the facilities.

Based on past experience and the Group’s expectations, the period over which the Group calculates ECLs for these products, is estimated based on the period over which the Group is exposed to credit risk and where the credit losses would not be mitigated by management actions.

Write-off Financial assets are written off (either partially or in full) when there is no realistic prospect of recovery. This is generally the case when the Group has exhausted all legal and remedial efforts to recover from the customers. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

Collateral valuation The Bank seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the Bank’s reporting schedule, to the extent it is possible, the Bank uses active market data for valuing financial assets, held as collateral. Other financial assets which do not have a readily determinable market value are valued using models. Non-financial collateral, such as real estate, is valued based on data such as market transactions, rental yields and audited financial statements.

Impairment of non-financial assets The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment.

If such indication exists, the assets’ recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Nonfinancial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Fair value measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability, or • In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic benefit.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs (note 43).

Business combinations Acquisitions of businesses are accounted for using the purchase method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Bank, liabilities incurred by the Bank to the former owners of the acquiree and the cash and equity interests issued by the Bank in exchange for control of the acquiree.

Acquisition related costs are recognised in consolidated income statement as incurred.

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ADIB Annual Report 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Business combinations continued At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share based payment arrangements of the Bank entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and • assets that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date fair value of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in consolidated income statements as gain on acquiring controlling interest.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis.

When the consideration transferred by the Bank in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates, with the corresponding gain or loss being recognised in consolidated income statement.

When a business combination is achieved in stages, the Bank’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e., the date when the Bank obtains control) and the resulting gain or loss, if any, is recognised in consolidated income statement. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to consolidated income statement where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Bank reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date which is regarded as their cost. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses.

Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The rates of amortisation are based upon the following estimated useful lives: • •

Customer relationship Core deposit intangible

ADIB Annual Report 2021

8 years 8 years

99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Goodwill Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Bank’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Bank’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in consolidated income statement.

For the purpose of impairment testing, goodwill is allocated to each of the cash-generating units which are expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Investment in associates The Group’s investment in associates is accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and that is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the consolidated statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is not amortised or separately tested for impairment. The consolidated income statement reflects the share of the results of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The financial statements of the associates are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associates. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the consolidated income statement.

Investment in joint ventures The Group has investment in joint ventures, which are jointly controlled entities, whereby venturers have a contractual arrangement that establishes joint control over the economic activities of the entities. The Group’s investment in joint ventures is accounted for using the equity method of accounting.

Under the equity method, the investment in the joint ventures is carried in the consolidated statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the joint venture. Goodwill relating to the joint venture is included in the carrying amount of the investment and is not amortised or separately tested for impairment. The consolidated income statement reflects the share of the results of the joint venture. Where there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity.

The financial statements of the ventures are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its joint venture. The Group determines at each reporting date whether there is any objective evidence that the investment in the joint venture is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognises the amount in the consolidated income statement.

Investment properties Properties held for rental or capital appreciation purposes as well as those held for undetermined future use are classified as investment properties. Investment properties are measured at cost less any accumulated depreciation and any accumulated impairment losses.

Depreciation is charged on a straight-line basis over the assets’ estimated useful lives. The useful life of buildings is estimated to be 25 - 40 years.

Investment properties are derecognized when either they have been disposed of or when the investment properties are permanently withdrawn from use and no future economic benefits are expected from their disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the consolidated income statement.

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ADIB Annual Report 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Development properties Properties in the course of construction for sale or completed properties held for sale are classified as development properties. Completed properties held for sale are stated at the lower of cost or net realizable value. Properties in the course of development for sale are stated at lower of cost or net realizable value. The cost of development properties includes the cost of land and other related expenditure which are capitalized as and when activities that are necessary to get the properties ready for sale are in progress. Net realizable value represents the estimated selling price less costs to be incurred in selling the property.

The property is considered to be complete when all related activities, including the infrastructure and facilities for the entire project, have been completed.

Property and equipment Property and equipment are recorded at cost less accumulated depreciation and any impairment in value. Land is recorded at revalued amount in the consolidated financial statements.

Depreciation is provided on a straight-line basis over the estimated useful lives of property and equipment, other than freehold land which is deemed to have an indefinite life. The rates of depreciation are based upon the following estimated useful lives: Buildings Furniture and leasehold improvements Computer and office equipment Motor vehicles

25 - 40 years 3 - 7 years 4 - 8 years 4 years

The carrying values of properties and equipment are reviewed for impairment when events of changes in circumstances indicate the carrying value may not be recoverable. If any such conditions exist and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.

Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalized and the carrying amount of the component that is replaced is written off. Any subsequent expenditure is capitalized only when it increases future economic benefits of the related item of property and equipment. All other expenditure is recognized in the consolidated income statement as the expense is incurred.

An item of property and equipment is derecognized upon disposal or when no further economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the consolidated income statement in the year the asset is derecognized.

Capital work-in-progress is initially recorded at cost, and upon completion is transferred to the appropriate category of property and equipment and thereafter depreciated.

When an asset is revalued, any increase in the carrying amount arising on revaluation is recorded through other comprehensive income and credited to the revaluation reserve in equity, except to the extent that a revaluation increase merely restores the carrying value of an asset to its original cost, whereby it is recognized as income i.e., to the extent that it reverses a revaluation decrease of the same asset previously recognized as an expense. A decrease resulting from a revaluation is initially charged directly against any related revaluation surplus held in respect of that asset and the remaining portion being charged as an expense. On disposal, the related revaluation surplus is credited directly to retained earnings.

Leases In cases where Group is a Lessee, all leases and the associated contractual rights and obligations is generally recognize in the Group’s financial position, unless the term is 12 months or less or the lease for low value asset. For each lease, the lessee recognizes a liability for the lease obligations incurred in the future. Correspondingly, a right to use the leased asset is capitalized, which is generally equivalent to the present value of the future lease payments plus directly attributable costs and which is amortized over the useful life.

Right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or lease payments relating to that lease recognised in the consolidated statement of financial position.

The recognised right-of-use assets are related to and included in property and equipment and corresponding lease liabilities under other liabilities the consolidated statement of financial position.

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The assumed finance cost is charged to consolidated income statement over the lease period so as to produce a constant periodic rate of profit on the remaining balance of the liability for each period (the “finance cost on lease liabilities”). The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

ADIB Annual Report 2021

101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Leases continued Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • • • • •

fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payment that are based on an index or a rate; amounts expected to be payable by the lessee under residual value guarantees; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the profit rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental financing rate is used, being the rate that the lessee would have to pay to obtain financing for the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. The Group has used weighted average incremental financing rate for calculating the net present value of lease liabilities.

Right-of-use assets are measured at cost comprising the following: • •

the amount of the initial measurement of lease liability; and any lease payments made at or before the commencement date.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in consolidated income statement. Short-term leases are leases with a lease term of 12 months or less.

Provisions and contingent liabilities Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated income statement net of any reimbursement.

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

Acceptances Acceptances are recognised as financial liability in the consolidated statement of financial position with a contractual right of reimbursement from the customer as a financial asset. Therefore, commitments in respect of acceptances have been accounted for as financial assets and financial liabilities.

Deposits Customer deposits and due to banks and other financial institutions are carried at amortised cost.

Sukuk financing instruments Sukuk financing instruments are initially measured at fair value and then are subsequently measured at amortised cost using the effective profit rate method, with profit distribution recognised on an effective yield basis.

The effective profit rate method is a method of calculating the amortised cost of a financial liability and of allocating profit distribution over the relevant period. The effective profit rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

Employees’ pension and end of service benefits The Group provides end of service benefits to its expatriate employees. The entitlement to these benefits is based upon the employees’ salary and length of service, subject to the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment and are included within ‘other liabilities’ in the consolidated statement of financial position.

With respect to its UAE national employees, the Group makes contributions to a pension fund established by the General Pension and Social Security Authority calculated as a percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are recognised in the consolidated income statement when due.

Shari’a compliant alternatives of derivative financial instruments The Bank enters into a Shari’a compliant alternatives of derivative financial instruments to manage the exposure to profit rate risks, including unilateral promise which represents Shari’a compliant alternatives of swap. Those financial instruments are initially measured at cost, being the fair value at contract date, and are subsequently re-measured at fair value. All these Shari’a compliant alternatives of 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 recognized pricing models as appropriate.

102

ADIB Annual Report 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Shari’a compliant alternatives of derivative financial instruments continued The Bank enters into cash flows hedges, which hedge exposure to variability in cash flows that are either attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted transaction that will affect future reported net income.

In order to qualify for hedge accounting, it is required that the hedge should be expected to be highly effective, i.e. the changes in fair value or cash flows of the hedging instrument should effectively offset corresponding changes in the hedged item and should be reliably measurable. At inception of the hedge, the risk management objectives and strategies are documented including the identification of the hedging instrument, the related hedged item, the nature of risk being hedged, and how the Bank will assess the effectiveness of the hedging relationship. Subsequently, the hedge is required to be assessed and determined to be an effective hedge on an ongoing basis.

Cash flow hedges The effective portion of changes in the fair value of Shari’a compliant alternatives of derivatives that are designated and qualify as cash flow hedges are recognised in the cash flow hedging reserve in equity. The ineffective part of any gain or loss is recognized immediately in the consolidated income statement. Amounts accumulated in equity are transferred to the consolidated income statement in the periods in which the hedged item affects profit or loss. However, when the forecast transaction that is hedged results in the recognition of a nonfinancial asset or a non-financial liability, the cumulative gains or losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the cumulative gains or losses recognised in equity remain in equity until the forecast transaction is recognised, in the case of a non-financial asset or a nonfinancial liability, or until the forecast transaction affects the consolidated income statement. If the forecast transaction is no longer expected to occur, the cumulative gains or losses recognised in equity are immediately transferred to the consolidated income statement.

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

Zakat As the Bank is not required to dispose Zakat by UAE laws or by its Articles and Memorandum of Association or by a decision of the General Assembly, each shareholder is directly responsible of the payment of the Zakat amount of the shares that he/she owns. In accordance with the Articles and Memorandum of Association of the Bank, Zakat is computed by the Bank and it is approved by the Internal Shari’a Supervisory Committee of the Bank. However, in few jurisdictions, Zakat of the Bank’s branches and subsidiaries is mandatory by laws to be paid to a governmental entity responsible of Zakat, therefore, the Bank acts accordingly to these laws and pays the Zakat to these entities on behalf of the Shareholders and deducts the amount paid as Zakat from the total zakat amount and the Zakat amount per each outstanding share.

Zakat per share is calculated in accordance with AAOIFI’s Shari’a Standard number 35 on Zakat, and the Group’s Internal Shari’a Supervisory Committee Resolutions.

In accordance with the Memorandum of Association, the Group communicates the amount of Zakat per share and it is the responsibility of each shareholder to directly dispose personally his/her own Zakat amount (note 38).

Profit distribution Profits or losses of Mudaraba based depositors’ accounts are calculated and distributed in accordance with the Banking Service Agreement between the Bank and the investment account holders. Investment in subsidiaries is funded from the shareholders’ funds, hence profit or losses from the subsidiaries are not distributed to the investment account holders. Investment in associates is funded jointly from the shareholders and investment account holders’ funds, therefore, profits and losses of the associates are distributed among the shareholders and investment account holders. A part of the deserved profits relating to the Mudaraba based investment accounts profit can be reserved as “Investment Risk Reserve” and shall be subsequently utilized in order to maintain certain level of profit distribution to the account holders.

The same allocation is applicable to Wakala deposits and any share of profit above the fixed Wakala fee and the initially expected profit agreed with the investment account holder, shall pertain to the Wakil (the Bank).

Cash and cash equivalents For the purpose of preparation of the consolidated statement of cash flow, cash and cash equivalents are considered to be cash and balances with central banks, due from banks and international murabahat. Cash equivalents are short-term liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less.

ADIB Annual Report 2021

103

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

4 SIGNIFICANT ACCOUNTING POLICIES continued Trade and settlement date accounting All “regular way” purchase and sales of financial assets are recognized on the settlement date, i.e., the date the asset is delivered to the counterparty. Regular way purchases or sales are purchases or sale of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

Prohibited income According to the Internal Shari’a Supervisory Committee “ISSC”, the Group is required to avoid any transaction or activity deemed to be not acceptable by Shari’a and to identify any income from such source and to set it aside in a separate account (charity account) to be disposed to charity by the Group under the supervision of the ISSC (as purification amount).

Fiduciary assets Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and accordingly are not included in these consolidated financial statements.

Foreign currencies The Group’s consolidated financial statements are presented in AED, which is the Bank’s functional currency. That is the currency of the primary economic environment in which the Group operates. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to the consolidated income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

The assets and liabilities of foreign operations are translated into AED at the rate of exchange prevailing at the reporting date and their income statement is translated at exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recorded in the other comprehensive income. On disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the consolidated income statement.

Financial guarantees In the ordinary course of business, the Bank gives financial guarantees consisting of letters of credit, letters of guarantees and acceptances.

Financial guarantees are initially recognized in the consolidated financial statements at fair value. Subsequent to initial recognition, the Group’s liabilities under such guarantees are each measured at the higher of the initial fair value less, when appropriate, cumulative amortization calculated to recognize the fee in the consolidated income statement in ‘net fees and commission income’ over the term of the guarantee, and the best estimate of the expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to financial guarantees is taken to the consolidated income statement in ‘credit loss expense’. Any financial guarantee liability remaining is recognized in the consolidated income statement in ‘net fees and commission income’ when the guarantee is discharged, cancelled or expires.

Segment reporting The Bank has presented the segment information in respect of its business and geographical segments in the same way as it is presented internally to the management.

Dividends on ordinary shares Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank’s shareholders.

Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.

Treasury shares and contracts on own equity instruments Own equity instruments of the Bank which are acquired by it or by any of its subsidiaries (treasury shares) are deducted from equity and accounted for at weighted average cost. Consideration paid or received on the purchase, sale, issue or cancellation of the Bank’s own equity instruments is recognised directly in equity. No gain or loss is recognised in consolidated income statement on the purchase, sale, issue or cancellation of own equity instruments.

104

ADIB Annual Report 2021

5 INCOME FROM MURABAHA, MUDARABA, IJARA AND OTHER ISLAMIC FINANCING FROM CUSTOMERS

Vehicle murabaha Goods murabaha Share murabaha Commodities murabaha – Al Khair Islamic covered cards (murabaha) Other murabaha Total murabaha Mudaraba Wakala Ijara Istisna’a

2021 AED ‘000

2020 AED ‘000

224,180 160,265 864,001 354,228 274,317 210,426

231,457 116,786 957,506 360,389 283,780 182,650

2,087,417 36 1,527,027 21,366 18

2,132,568 387 23,049 1,609,601 219

3,635,864

3,765,824

2021 AED ‘000

2020 AED ‘000

6 INCOME FROM INVESTMENTS MEASURED AT FAIR VALUE

Income from sukuk measured at fair value through profit or loss Income from sukuk measured at fair value through other comprehensive income Realised gain (loss) on investments carried at fair value through profit or loss Unealised (loss) gain on investments carried at fair value through profit or loss Realised gain on sukuk carried at fair value through other comprehensive income Gain (loss) from other investment assets Dividend income

54,714 57,880 22,610 (11,893) 28,114 21,305 4,762

52,998 55,595 (4,004) 30,207 32,092 (2,736) 495

177,492

164,647

2021 AED ‘000

2020 AED ‘000

856,238 68,949 49,485 95,297 40,876 88,151 31,975 395,047

709,865 63,420 156,209 76,300 40,926 120,688 20,866 358,997

1,626,018

1,547,271

7 FEES AND COMMISSION INCOME, NET

Fees and commission income Fees and commission income on cards Trade related fees and commission Takaful related fees Accounts services fees Projects and property management fees Risk participation and arrangement fees Brokerage fees and commission Other fees and commissions Total fees and commission income Fees and commission expenses Card related fees and commission expenses Other fees and commission expenses

(560,890) (106,918)

(498,215) (56,893)

Total fees and commission expenses

(667,808)

(555,108)

958,210

992,163

Fees and commission income, net

ADIB Annual Report 2021

105

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

8 INCOME FROM INVESTMENT PROPERTIES 2021 AED ‘000

Proceeds from sale of investment properties Less: net book value of properties sold

-

Gain on sale of investment properties Rental income (note 22)

2020 AED ‘000

25,900 (13,605)

37,031

12,295 38,030

37,031

50,325

2021 AED ‘000

2020 AED ‘000

1,276,447 67,380 94,940

1,365,404 65,485 77,323

1,438,767

1,508,212

2021 AED ‘000

2020 AED ‘000

60,666 76,584 51,355 88,347 158,264 10,511 80,373

122,134 102,813 57,789 82,558 161,549 9,629 83,374

526,100

619,846

2021 AED ‘000

2020 AED ‘000

398,707 537,154 (18,147) 20,932 15,753

417,203 696,546 8,821 59,011 625 31,148 100,758

9 EMPLOYEES’ COSTS

Salaries and wages End of service benefits Other staff expenses

10 GENERAL AND ADMINISTRATIVE EXPENSES

Legal and professional expenses Premises expenses Marketing and advertising expenses Communication expenses Technology related expenses Finance cost on lease liabilities Other operating expenses

11 PROVISION FOR IMPAIRMENT, NET Notes

Murabaha and other Islamic financing Ijara financing Direct write-off, net of recoveries Investment in sukuk measured at amortised cost Investment properties Development properties Others

22 23

954,399

1,314,112

The above provision for impairment includes nil (2020: AED 31,773 thousand) pertaining to Burooj Properties LLC, a real estate subsidiary of the Bank.

106

ADIB Annual Report 2021

12 DISTRIBUTION TO DEPOSITORS

Saving accounts Investment accounts

2021 AED ‘000

2020 AED ‘000

197,951 132,008

184,407 317,951

329,959

502,358

13 BASIC AND DILUTED EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing the profit for the year attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share are calculated by dividing the profit for the year attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the year, adjusted for the effects of any financial instruments with dilutive effects.

The following reflects the income and shares data used in the earnings per share computations: Notes

Profit for the year attributable to equity holders (AED ‘000) Less: profit attributable to Tier 1 sukuk holder - Listed (second issue) (AED ‘000) - Government of Abu Dhabi (AED ‘000)

34 34

2021

2020

2,328,731

1,602,828

(196,250) (58,221)

(196,250) (85,646)

Profit for the year attributable to equity holders after deducting profit relating to Tier 1 sukuk (AED ‘000)

2,074,260

1,320,932

Weighted average number of ordinary shares at 31 December in issue (000’s)

3,632,000

3,632,000

0.571

0.364

Basic and diluted earnings per share (AED)

The Bank does not have any instruments which would have a dilutive impact on earnings per share when converted or exercised. Profit on Tier 1 sukuk is reflected in the EPS computation on the payment of such profit.

14 CASH AND BALANCES WITH CENTRAL BANKS

Cash on hand Balances with central banks: - Current accounts - Statutory reserve - Islamic certificate of deposits

2021 AED ‘000

2020 AED ‘000

2,023,205

1,541,178

1,421,122 9,252,359 9,002,563

1,023,920 9,013,897 8,000,529

21,699,249

19,579,524

The Bank is required to maintain statutory reserves with the Central Bank of the UAE, Iraq and Sudan on demand, time and other deposits. The statutory reserves are not available for use in the Bank’s day-to-day operations and cannot be withdrawn without the approval of the Central Bank. Cash on hand and current accounts are not profit-bearing. Islamic certificate of deposits are profit bearing, which is based on entering into international commodities Murabaha transaction in which Central Bank of the UAE and Central Bank of Iraq are the buyers and the Bank is the seller.

ADIB Annual Report 2021

107

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

14 CASH AND BALANCES WITH CENTRAL BANKS continued The distribution of the cash and balances with central banks by geographic region is as follows:

UAE Rest of the Middle East Others

2021 AED ‘000

2020 AED ‘000

19,943,492 1,557,219 198,538 21,699,249

18,217,266 1,187,942 174,316 19,579,524

15 BALANCES AND WAKALA DEPOSITS WITH ISLAMIC BANKS AND OTHER FINANCIAL INSTITUTIONS 2021 AED ‘000

2020 AED ‘000

Current accounts Wakala deposits

725,390 3,028,414

430,049 1,871,662

Less: provision for impairment

3,753,804 ( 14,121)

2,301,711 (14,577)

3,739,683

2,287,134

In accordance with Shari’a principles, deposits are invested only with Islamic financial institutions. The Bank does not earn profits on current accounts with banks and financial institutions.

The distribution of the balances and wakala deposits with Islamic banks and other financial institutions by geographic region is as follows:

UAE Rest of the Middle East Europe Others

2021 AED ‘000

2020 AED ‘000

985,230 1,707,346 297,035 764,193

143,180 1,250,374 142,506 765,651

3,753,804

2,301,711

2021 AED ‘000

2020 AED ‘000

790,670 (214)

132,912 (48)

790,456

132,864

16 MURABAHA AND MUDARABA WITH FINANCIAL INSTITUTIONS

Murabaha Less: provision for impairment

In accordance with Shari’a principles, Mudaraba are with Islamic financial institutions or provided for the activities that are entirely Sharia’ compliant.

The distribution of the gross murabaha and mudaraba with financial institutions by geographic region is as follows:

UAE Rest of the Middle East

108

2021 AED ‘000

2020 AED ‘000

707,138 83,532

45,096 87,816

790,670

132,912

ADIB Annual Report 2021

17 MURABAHA AND OTHER ISLAMIC FINANCING 2021 AED‘000

2020 AED‘000

Vehicle murabaha Goods murabaha Share murabaha Commodities murabaha – Al Khair Islamic covered cards (murabaha) Other murabaha

4,984,670 11,065,853 15,377,270 7,223,919 8,160,050 7,151,124

5,041,904 5,845,608 16,027,978 7,049,669 11,444,899 5,686,406

Total murabaha Mudaraba Wakala Istisna’a Other financing receivables

53,962,886 28,818 2,361,809 92,123 51,882

51,096,464 28,379 1,096,471 93,950 60,676

56,497,518 (11,013,757)

52,375,940 (14,423,716)

45,483,761 (2,318,300)

37,952,224 (1,974,133)

43,165,461

35,978,091

Total murabaha and other Islamic financing Less: deferred income on murabaha Less: provision for impairment

The distribution of the gross murabaha and other Islamic financing by industry sector and geographic region was as follows:

Industry sector: Government Public sector Corporates Financial institutions Individuals Small and medium enterprises

Geographic region: UAE Rest of the Middle East Europe Others

ADIB Annual Report 2021

2021 AED‘000

2020 AED‘000

517,224 6,045,453 2,971,019 2,864,860 32,666,265 418,940

294,591 3,263,132 2,011,543 1,441,073 30,597,204 344,681

45,483,761

37,952,224

38,410,899 3,383,540 2,386,750 1,302,572

34,309,824 1,584,497 1,512,329 545,574

45,483,761

37,952,224

109

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

18 IJARA FINANCING This represents net investment in assets leased for periods which either approximate or cover major parts of the estimated useful lives of such assets.

The documentation includes a separate undertaking from the Bank to sell the leased assets to the lessee upon the maturity of the lease.

The aggregate future lease receivables are as follows: Due within one year Due in the second to fifth year Due after five years Total Ijara financing Less: deferred income Net present value of minimum lease payments receivable Less: provision for impairment

2021 AED‘000

2020 AED‘000

8,766,151 22,903,721 28,639,676

10,041,304 21,777,280 30,437,991

60,309,548 (12,664,162)

62,256,575 (12,802,018)

47,645,386 (2,558,504)

49,454,557 (2,023,287)

45,086,882

47,431,270

2021 AED‘000

2020 AED‘000

615,773 8,643,742 16,475,656 21,692,607 83,219 134,389

9,578,891 17,725,429 21,904,338 101,598 144,301

47,645,386

49,454,557

45,501,845 1,303,631 271,411 568,499

47,808,671 1,017,418 381,501 246,967

47,645,386

49,454,557

2021 AED ‘000

2020 AED ‘000

The distribution of the gross ijara financing by industry sector and geographic region was as follows:

Industry sector: Government Public sector Corporates Individuals Small and medium enterprises Non-profit organisations

Geographic region: UAE Rest of the Middle East Europe Others

19 INVESTMENT IN SUKUK MEASURED AT AMORTISED COST

Sukuk - Quoted Less: provision for impairment

9,744,063 (110,637)

10,440,082 (89,705)

9,633,426

10,350,377

2021 AED ‘000

2020 AED ‘000

7,034,430 2,234,448 475,185

7,930,840 2,093,403 415,839

9,744,063

10,440,082

The distribution of the gross investments by geographic region was as follows:

UAE Rest of the Middle East Others

110

ADIB Annual Report 2021

20 INVESTMENTS MEASURED AT FAIR VALUE

Investments carried at fair value through profit or loss Quoted investments Equities Sukuk

Investments carried at fair value through other comprehensive income Quoted investments Equities Sukuk Unquoted investments Sukuk Funds Private equities

Less: provision for impairment Total investments measured at fair value

2021 AED ‘000

2020 AED ‘000

21,482 2,111,997

5,983 1,646,428

2,133,479

1,652,411

40,579 1,744,142 1,784,721

25,693 1,638,636 1,664,329

72,398 23,351 58,531 154,280 1,939,001

72,437 34,365 50,426 157,228 1,821,557

4,072,480

3,473,968

(14,992)

(15,774)

4,057,488

3,458,194

2021 AED ‘000

2020 AED ‘000

1,788,037 1,279,826 15,006 989,611

2,141,586 623,276 383 708,723

4,072,480

3,473,968

2021 AED ‘000

2020 AED ‘000

The distribution of the gross investments by geographic region was as follows:

UAE Rest of the Middle East Europe Others

21 INVESTMENT IN ASSOCIATES AND JOINT VENTURES The movement in the carrying amount during the year was as follows:

At 1 January Share of results Dividends received Foreign currency translation Less: provision for impairment

1,317,769 315,898 (8,333) (4,956) 1,620,378 (16,000)

1,296,784 10,781 (10,416) 20,620 1,317,769 (16,107)

At 31 December

1,604,378

1,301,662

ADIB Annual Report 2021

111

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

21 INVESTMENT IN ASSOCIATES AND JOINT VENTURES continued The movement in the provision for impairment during the year was as follows: 2021 AED ‘000

2020 AED ‘000

At 1 January Reversals for the year (note 11)

16,107 (107)

16,535 (428)

At 31 December

16,000

16,107

Details of the Bank’s investment in associates and joint ventures at 31 December is as follows: Proportion of ownership interest 2021 %

2020 %

UAE Bosnia UAE

42 27 29

42 27 30

Islamic insurance Islamic banking Real estate fund

49

49

Islamic Banking

Saudi Finance Company CSJC Arab Link Money Transfer PSC (under liquidation)

Egypt Kingdom of Saudi Arabia UAE

51 51

51 51

Islamic Retail Finance Currency Exchange

Abu Dhabi Islamic Merchant Acquiring Company LLC

UAE

51

51

Merchant acquiring

Place of incorporation

Associates Abu Dhabi National Takaful PJSC Bosna Bank International D.D The Residential REIT (IC) Limited Joint ventures Abu Dhabi Islamic Bank – Egypt (S.A.E.)

Principal activity

As of 31 December 2021, the Bank’s share of the contingent liabilities and commitments of associates and joint ventures amounted to AED 1,066,968 thousand (2020: AED 1,324,465 thousand). The equity instruments of Abu Dhabi National Takaful PJSC are quoted in Abu Dhabi Securities Exchange, UAE and the quoted value of the Banks’ share of investment at 31 December 2021 amounted to AED 256,652 thousand (2020: AED 162,490 thousand) and its carrying value as of 31 December 2021 amounted to AED 297,978 thousand (2020: AED 266,427 thousand).

22 INVESTMENT PROPERTIES The movement in investment properties balance during the year was as follows:

2021

Land AED ‘000

Other properties AED ‘000

Total AED ‘000

Cost: Balance at 1 January

988,572

518,735

1,507,307

Disposals Gross balance at 31 December

988,572

(10,897) 507,838

(10,897) 1,496,410

Less: provision for impairment

(106,033)

(13,038)

(119,071)

Net balance at 31 December

882,539

494,800

1,377,339

Accumulated depreciation: Balance at 1 January Charge for the year

-

77,889 10,462

77,889 10,462

Balance at 31 December

-

88,351

88,351

882,539

406,449

1,288,988

Net book value at 31 December

112

ADIB Annual Report 2021

22 INVESTMENT PROPERTIES continued Other properties AED ‘000

2020

Land AED ‘000

Total AED ‘000

Cost: Balance at 1 January Disposals

988,572 -

541,159 (22,424)

1,529,731 (22,424)

Gross balance at 31 December

988,572

518,735

1,507,307

Less: provision for impairment

(106,033)

(13,038)

Net balance at 31 December

882,539

505,697

(119,071) 1,388,236

Accumulated depreciation: Balance at 1 January Charge for the year Relating to disposals

-

69,849 16,859 (8,819)

69,849 16,859 (8,819)

Balance at 31 December

-

77,889

77,889

882,539

427,808

1,310,347

Net book value at 31 December

The property rental income earned by the Group from its investment properties, that are leased out under operating leases, amounted to AED 37,031 thousand (2020: AED 38,030 thousand).

The fair values of investment properties at 31 December 2021 amounted to AED 1,608,517 thousand (2020: AED 1,517,814 thousand) are as per valuation conducted by professional valuers employed by a subsidiary of the Bank. The professional valuer is a member of various professional valuers’ associations and has appropriate qualifications and experience in the valuation of properties in the UAE. The fair value of the properties has been determined either based on transactions observable in the market or valuation models.

The valuation methodologies considered by external valuers include: a) Comparison method: This method derives the value by analyzing recent sales transactions of similar properties in a similar location. b) Investment method: This method derives the value by converting the future cash flow to a single current capital value.

The movement in provision for impairment during the year was as follows:

At 1 January 2020 Charge for the year (note 11) At 1 January 2021 Charge for the year (note 11) At 31 December 2021

Land AED ‘000

Other properties AED ‘000

Total AED ‘000

106,033

12,413

118,446

-

625

625

106,033

13,038

119,071

-

-

-

106,033

13,038

119,071

Land AED ‘000

Other properties AED ‘000

Total AED ‘000

980,358 8,214

419,487 -

1,399,845 8,214

988,572

419,487

1,408,059

980,358 8,214

440,846 -

1,421,204 8,214

988,572

440,846

1,429,418

The distribution of investment properties by geographic region was as follows:

2021: UAE Rest of the Middle East

2020: UAE Rest of the Middle East

ADIB Annual Report 2021

113

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

23 DEVELOPMENT PROPERTIES 2021 AED ‘000

2020 AED ‘000

837,381 (123,680)

837,381 (123,680)

713,701

713,701

2021 AED ‘000

2020 AED ‘000

At 1 January Charge for the year (note 11)

123,680 -

92,532 31,148

At 31 December

123,680

123,680

Development properties Less: provision for impairment

The movement in the provision for impairment during the year was as follows:

Development properties include land with a carrying value of AED 707,468 thousand (2020: AED 707,468 thousand) pertaining to a subsidiary of the Bank.

All development properties are located in the UAE.

24 OTHER ASSETS

Acceptances Assets acquired in satisfaction of claims Trade receivables Prepaid expenses Accrued profit Other receivables (note 40) Positive fair value of Shari’a compliant alternatives of derivative financial instruments (note 37) Others, net

2021 AED‘000

2020 AED‘000

136,325 78,252 242,977 823,676 114,395 1,235,806

258,622 88,737 243,212 613,289 223,727 183,625 2,796 1,206,601

2,631,431

2,820,609

Assets acquired in exchange for claims in order to achieve an orderly realization are recorded as “Assets acquired in satisfaction of claims”.

The asset acquired is recorded at the lower of its fair value less costs to sell and the carrying amount of the claim (net of provision for impairment) at the date of exchange.

114

ADIB Annual Report 2021

25 PROPERTY AND EQUIPMENT

2021 Cost or revaluation: At 1 January Exchange differences / other adjustments Revaluation during the year Additions Transfers from capital work-in-progress Disposals Less: provision for impairment At 31 December Depreciation: At 1 Ja nu a ry Exchange differences / other adjustments Charge for the year Relating to disposals At 31 December

Land AED ‘000

Buildings AED ‘000

Furniture and fixtures AED ‘000

Computer and office equipment AED ‘000

Motor vehicles AED ‘000

Capital work-in progress AED ‘000

Right -of use assets AED ‘000

Total AED ‘000

291,178

781,395

567,668

1,679,271

9,831

338,179

381,124

4,048,646

-

-

(4,894)

(1,200)

(80)

-

6,156

(18)

(55,300) -

3,046

34,455

13,715

-

262,295

(6)

(55,300) 313,505

-

-

2 (194,937)

170,882 (173,597)

(3,832)

(170,884) -

-

(372,366)

235,878

784,441

402,294

1,689,071

5,919

429,590

387,274

3,934,467

-

(1,487)

-

-

-

-

235,878

782,954

402,294

1,689,071

5,919

429,590

387,274

3,932,980

-

119,170

403,573

1,136,952

9,831

-

126,355

1,795,881

-

19,952 139,122

(2,090) 42,848 (193,021) 251,310

2,102 95,608 (172,988) 1,061,674

(732) 652 (3,832) 5,919

-

(33,165) 70,894 164,084

(33,885) 229,954 (369,841) 1,622,109

235,878

643,832

150,984

627,397

-

429,590

223,190

2,310,871

(1,487)

Net book value: At 31 December

ADIB Annual Report 2021

115

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

25 PROPERTY AND EQUIPMENT continued

2020 Cost or revaluation: At 1 January Exchange differences / other adjustments Additions Transfers from capital work-in-progress Disposals Less: provision for impairment At 31 December Depreciation: At 1 January Exchange differences / other adjustments Charge for the year Relating to disposals At 31 December

Land AED ‘000

Buildings AED ‘000

Furniture and fixtures AED ‘000

Computer and office equipment AED ‘000

Motor vehicles AED ‘000

Capital work-in progress AED ‘000

Right -of use assets AED ‘000

Total AED ‘000

291,178

768,222

538,857

1,548,252

9,378

309,135

402,026

3,867,048

-

13,173

(4,932) 58,471

(4,525) 37,625

(144) 674

2 146,736

(37,953) 17,051

(47,552) 273,730

291,178

781,395

56 (24,784) 567,668

117,638 (19,719) 1,679,271

(77) 9,831

(117,694) 338,179

381,124

(44,580) 4,048,646

-

(1,487)

-

-

-

-

-

(1,487)

291,178

779,908

567,668

1,679,271

9,831

338,179

381,124

4,047,159

-

95,693

387,054

1,045,919

7,789

-

60,473

1,596,928

-

23,477 -

(6,918) 48,221 (24,784)

(4,543) 113,332 (17,756)

1,016 1,026 -

-

1,607 64,275 -

(8,838) 250,331 (42,540)

-

119,170

403,573

1,136,952

9,831

-

126,355

1,795,881

291,178

660,738

164,095

542,319

-

338,179

254,769

2,251,278

Net book value: At 31 December

26 GOODWILL AND INTANGIBLES Other intangible assets Goodwill AED ‘000

Customer relationships AED ‘000

Core deposit AED ‘000

Total AED ‘000

At 1 January 2020 Amortisation during the year

109,888 -

121,557 (45,600)

24,394 (9,152)

255,839 (54,752)

At 1 January 2021 Amortisation during the year

109,888 -

75,957 (45,600)

15,242 (9,152)

201,087 (54,752)

At 31 December 2021

109,888

30,357

6,090

146,335

On 6 April 2014, the Bank acquired retail banking business of Barclays Bank in the U.A.E. During the second quarter 2014, the acquisition was approved by the Central Bank of the UAE. Based on the purchase price allocation, the Bank has recognized AED 438,012 thousand as intangible asset and AED 109,888 as goodwill.

Goodwill For the purpose of impairment testing, goodwill is allocated to the Bank’s operating divisions which represent the lowest level within the Bank at which the goodwill is monitored for internal management purposes.

116

ADIB Annual Report 2021

26 GOODWILL AND INTANGIBLES

continued

Other intangible assets Customer relationships

Customer relationship intangible asset represents the value attributable to the business expected to be generated from customers that existed at the acquisition date. In determining the fair value of customer relationships, covered cards customers were considered separately, given their differing risk profiles, relationships and loyalty. The relationships are expected to generate material recurring income in the form of customer revenues, fees and commissions.

Core deposit

The value of core deposit intangible asset arises from the fact that the expected profit distribution on these deposits, governed by their contractual terms, are expected to be lower than other wholesale or treasury sukuk instruments’ expected profit distributions. The spread between the expected profit distributions on these deposits and sukuk instruments represents the value of the core deposit intangible.

Impairment assessment of goodwill No impairment losses on goodwill were recognised during the year ended 31 December 2021 (2020: Nil).

The recoverable amounts have been assessed based on their value in use. Value in use was determined by discounting the future cash flows expected to be generated from the continuing use of this operating division.

The recoverable amount of goodwill of cash generating unit, determined on the basis of value in use calculation, uses cash flow projections covering a five year period, with a terminal growth rate of 2.0% (2020: 2%) applied thereafter. The forecast cash flows have been discounted at a rate of 6.3% (2020: 4.5%).

Sensitivity to a one percentage point changes in the discount rate or the terminal growth rate and based on the results; management believes that no reasonably possible change in any of the above mentioned key assumptions would cause the carrying value to exceed the recoverable amount.

27 DUE TO FINANCIAL INSTITUTIONS

Current accounts Funding under the CBUAE TESS Investment deposits Current account – Central Bank of UAE

2021 AED‘000

2020 AED‘000

1,764,574 1,752,528 3,517,102 18,850

2,795,295 665,000 280,356 3,740,651 32,594

3,535,952

3,773,245

Funding under the CBUAE Targeted Economic Support Scheme (TESS) program availed by the Group amounts to nil (2020: 665,000 thousand) which has been fully utilized to provide payment relief to the impacted customers.

The distribution of due to financial institutions by geographic region was as follows: 2021 AED‘000

UAE Rest of the Middle East Europe Others

ADIB Annual Report 2021

2020 AED‘000

1,094,471 570,659 113,015 1,757,807

714,312 1,077,991 65,136 1,915,806

3,535,952

3,773,245

117

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

28 DEPOSITORS’ ACCOUNTS 2021 AED‘000

2020 AED‘000

34,556,062 74,331,596 723,445

31,512,411 69,079,821 683,896

109,611,103

101,276,128

2021 AED‘000

2020 AED‘000

At 1 January

683,896

677,848

Share of profit for the year Paid during the year

51,858 (12,309)

41,822 (35,774)

At 31 December

723,445

683,896

Current accounts Investment accounts Investment risk reserve

The movement in the investment risk reserve during the year was as follows:

The distribution of the gross depositors’ accounts by industry sector, geographic region and currency was as follows:

Industry sector: Government Public sector Corporates Financial institutions Individuals Small and medium enterprises Non-profit organisations

Geographic region: UAE Rest of the Middle East Europe Others

Currencies: UAE Dirham US Dollar Euro Sterling Pound Others

118

2021 AED‘000

2020 AED‘000

13,870,693 6,116,992 5,378,659 2,435,535 68,010,942 11,108,555 2,689,727

9,892,653 7,639,002 6,028,698 1,393,956 64,388,678 9,265,891 2,667,250

109,611,103

101,276,128

2021 AED‘000

2020 AED‘000

104,369,133 2,814,240 413,492 2,014,238

97,979,972 1,558,781 404,750 1,332,625

109,611,103

101,276,128

2021 AED‘000

2020 AED‘000

95,372,621 11,620,920 953,836 916,017 747,709

87,279,150 12,469,964 666,191 315,916 544,907

109,611,103

101,276,128

ADIB Annual Report 2021

28 DEPOSITORS’ ACCOUNTS continued The Bank invests all of its investment accounts including saving accounts, adjusted for UAE, Iraq and Sudan Central Bank reserve requirements and the Group’s liquidity requirements.

With respect to investment deposits, the Bank is liable only in case of misconduct, negligence or breach of contract otherwise it is on the account of the fund’s provider (Rab Al Mal) or the principal (the Muwakkil).

29 OTHER LIABILITIES

Accounts payable Acceptances Lease liabilities Accrued profit for distribution to depositors and sukuk holders Bankers’ cheques Provision for staff benefits and other expenses Retentions payable Advances from customers Accrued expenses Unclaimed dividends Deferred income Charity account Donation account Zakat payable Negative fair value of Shari’a compliant alternatives of derivative financial instruments (note 37) Others

2021 AED‘000

2020 AED‘000

484,010 136,325 236,178 56,653 645,454 398,087 11,088 70,441 293,502 91,767 127,914 872 18,030 846 591,067

339,269 258,622 265,549 210,342 542,148 414,079 11,005 60,008 415,256 93,249 108,017 2,531 18,627 193,758 672,421

3,162,234

3,604,881

2021 AED‘000

2020 AED‘000

4,000,000

4,000,000

3,632,000

3,632,000

30 SHARE CAPITAL

Authorised share capital: 4,000,000 thousand (2020: 4,000,000 thousand) ordinary shares of AED 1 each (2020: AED 1 each)

Issued and fully paid share capital: 3,632,000 thousand (2020: 3,632,000 thousand) ordinary shares of AED 1 each (2020: AED 1 each)

ADIB Annual Report 2021

119

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

31 RESERVES 31.1 Legal reserve As required by the Federal Law No. 2 of 2015, concerning Commercial Companies and the Articles of Association of the Bank and its subsidiaries, 10% of the profit for the year is transferred to the legal reserve. The Bank shall resolve to discontinue such annual transfers as the reserve equals to or more than 50% of the paid up share capital of the Bank. The legal reserve is not available for distribution to the shareholders.

As per Article 203 of UAE Federal Commercial Companies Law No. 8 of 1984 (as amended), the Bank has transferred the share premium amounting to AED 1,529,412 thousand to the legal reserve. As the balance of the reserve exceeds 50% of the total paid up share capital, no transfer to the legal reserve has been made from the profit during the year for the Bank.

During 2018, the Bank has transferred the share premium amounting to AED 538,240 thousand pertaining to the right share issue of 464,000 to the legal reserve after the shareholders’ approval in the General Assembly meeting held on 19 August 2018.

During 2015, the Bank has transferred the share premium amounting to AED 336,000 thousand pertaining to the right share issue of 168,000 to the legal reserve after the shareholders’ approval in the Extra Ordinary General meeting held on 28 June 2015.

31.2 General reserve Under Article 57(2) of the Bank’s Articles of Association, the Annual General Assembly of the Bank, upon recommendation of the Board of Directors, have resolved to transfer 10% of the profit for the year to the general reserve. This reserve shall be used in the future for purposes determined by the shareholders’ General Assembly upon the recommendation of the Board of Directors.

31.3 Credit risk reserve Upon the recommendation of the Board of Directors, the Bank has established a special reserve for credit risk which is subject to the approval by the shareholders in the Annual General Assembly. Contributions to the reserve are voluntary.

32 DIVIDEND During 2021, cash dividend of 20.58% of the paid up capital relating to year ended 31 December 2020 amounting to AED 747,343 thousand, was paid after the approval by the shareholders at the Annual General Assembly held on 4th April 2021.

Cash dividend of 31.12% of the paid up capital relating to year ended 31 December 2021 amounting to AED 1,130,115 thousand was proposed by the Board of Directors for the approval by the shareholders at the forthcoming Annual General Assembly.

33 OTHER RESERVES

At 1 January 2020 Net movement in valuation of equity investment carried at FVTOCI Net movement in valuation of investment in sukuk carried at FVTOCI Net fair value changes for investment in sukuk carried at FVTOCI released to income statement (note 6) Exchange differences arising on translation of foreign operations Loss on hedge of foreign operations Fair value loss on cash flow hedges Net movement in impairment reserve – Specific Net movement in impairment reserve – General

120

Cumulative changes in fair values AED ‘000

Land revaluation reserve AED ‘000

Foreign currency translation reserve AED ‘000

Hedging reserve AED ‘000

Impairment reserve Specific AED ‘000

Impairment reserve General AED ‘000

Total AED ‘000

(169,102)

192,700

(791,145)

2,336

-

403,436

(361,775)

(12,148)

-

-

-

-

-

(12,148)

69,596

-

-

-

-

-

69,596

(32,092)

-

-

-

-

-

(32,092)

-

-

(53,232) (16,990) -

(2,336)

-

-

(53,232) (16,990) (2,336)

-

-

-

-

61,662

-

61,662

-

-

-

-

-

(7,451)

(7,451)

ADIB Annual Report 2021

33 OTHER RESERVES continued Cumulative changes in fair values AED ‘000

Land Foreign currency revaluation translation reserve reserve AED ‘000 AED ‘000

Hedging reserve AED ‘000

Impairment reserve Specific AED ‘000

Impairment reserve General AED ‘000

Total AED ‘000

At 1 January 2021 Net movement in valuation of equity investment carried at FVTOCI Net movement in valuation of investment in sukuk carried at FVTOCI Net fair value changes for investment in sukuk carried at FVTOCI released to income statement (note 6) Revaluation during the year Exchange differences arising on translation of foreign operations Gain on hedge of foreign operations Fair value loss on cash flow hedges Net movement in impairment reserve – Specific Net movement in impairment reserve – General

(143,746)

192,700

(861,367)

-

61,662

395,985

(354,766)

(153)

-

-

-

-

-

(153)

(13,012)

-

-

-

-

-

(13,012)

(28,114) -

(55,300)

-

-

-

-

(28,114) (55,300)

-

-

(4,857) 5,825 -

(846)

-

-

(4,857) 5,825 (846)

-

-

-

-

194,177

-

194,177

-

-

-

-

-

2,420

2,420

At 31 December 2021

(185,025)

137,400

(860,399)

(846)

255,839

398,405

(254,626)

34 TIER 1 SUKUK

Tier 1 sukuk – Listed (second issue) Tier 1 sukuk – Government of Abu Dhabi

2021 AED‘000

2020 AED‘000

2,754,375 2,000,000

2,754,375 2,000,000

4,754,375

4,754,375

Tier 1 sukuk – Listed (second issue) On 20 September 2018, the Bank through a Shari’a compliant sukuk arrangement has issued Tier 1 sukuk – Listed (second issue) (the “Sukuk”) amounting to AED 2,754,375 thousand (USD 750 million). This Sukuk was issued under the authorities approved by the shareholders of the Bank in the Extraordinary General Meeting held on 19 August 2018. Issuance costs amounting to AED 19,373 thousand were incurred at the time of issuance.

This Sukuk is a perpetual security in respect of which there is no fixed redemption date and constitute direct, unsecured, subordinated obligations of the Bank upon its conclusion subject to the terms and conditions of the mudaraba. The sukuk is listed on the Irish stock exchange and is callable by the Bank after period ending on 20 September 2023 (the “First Call Date”) or any achieved profit payment date thereafter subject to certain conditions. The Sukuk bear an expected mudaraba profit rate of 7.125%, such achieved profit is payable during the initial period of five years semi-annually in arrears. After the initial period, and for every 5th year thereafter, resets to a new expected mudaraba profit rate based on the then 5 year US treasury rate plus an expected margin of 4.270%. Profit distributions will be reported in the consolidated statement of changes in equity.

The Bank may, at its sole discretion, elect not to make any Mudaraba profit distributions as expected and the event is not considered an event of default. If the Bank makes a non-payment election or a non-payment event occurs, then the Bank will not (a) declare or pay any distribution or dividend or (b) redeem, purchase, cancel, reduce or otherwise acquire any of the share capital or any securities of the Bank ranking pari passu with or junior to the Sukuk except securities, the term of which stipulate a mandatory redemption or conversion into equity, in each case unless or until the occurrence of the next following payment of expected mudaraba profit distribution.

ADIB Annual Report 2021

121

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

34 TIER 1 SUKUK continued Tier 1 sukuk – Government of Abu Dhabi On 16 April 2009, under the Government of Abu Dhabi Bank capitalisation programme, the Bank has issued Tier 1 sukuk (the “SukukGov”) to the Department of Finance of the Government of Abu Dhabi, with a principal amount of AED 2,000,000 thousand. Issuance of this Sukuk-Gov was approved by the shareholders of the Bank in the Extraordinary General Meeting held on 22 March 2009.

On 15 December 2021, amended and restated Mudaraba Agreement was signed to make the Sukuk-Gov complaint with Basel 3.

This Sukuk-Gov is a perpetual security in respect of which there is no fixed redemption date and constitute direct, unsecured, subordinated obligations of the Bank subject to the terms and conditions of the Mudaraba. Based on the amended and restated Mudaraba Agreement dated 15 December 2021, the Sukuk-Gov is callable by the Bank after period ending on 16 April 2027 (the “Call Date”) or any achieved profit payment date thereafter subject to certain conditions.

The Sukuk-Gov had an expected mudaraba profit rate of 6% payable during the initial period of five years semi-annually in arrears. The initial period of five years ended on 16 April 2014. After the initial period, Sukuk-Gov bear an expected variable mudaraba profit rate payable of 6 months EIBOR plus an expected margin of 2.3%. Profit distributions will be reported in the consolidated statement of changes in equity. No changes were made to expected mudaraba profit rates under the amended and restated Mudaraba Agreement dated 15 December 2021.

The Bank may, at its sole discretion, elect not to make any Mudaraba profit distributions as expected and the event is not considered an event of default. If the Bank makes a non-payment election or a non-payment event occurs, then the Bank will not (a) declare or pay any distribution or dividend or (b) redeem, purchase, cancel, reduce or otherwise acquire any of the share capital or any securities of the Bank ranking pari passu with or junior to the Sukuk except securities, the term of which stipulate a mandatory redemption or conversion into equity, in each case unless or until the occurrence of two consecutive expected mudaraba profit distribution.

35 NON-CONTROLLING INTEREST Non-controlling interest represents the minority shareholder’s proportionate share in the aggregate value of the net assets of subsidiaries.

36 CONTINGENT LIABILITIES AND COMMITMENTS Credit related commitments include commitments to extend Islamic credit facilities, standby letters of credit, guarantees, which are designed to meet the requirements of the Bank’s customers.

Commitments to extend Islamic credit facilities represent contractual commitments under Islamic financing contracts. Commitments generally have fixed expiration dates, or other termination clauses and normally require the payment of a fee. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.

Standby letters of credit and guarantees commit the Bank to make payments on behalf of customers contingent upon the failure of the customer to perform under the terms of contracts.

The Bank has the following credit related contingencies, commitments and other capital commitments:

Contingent liabilities Letters of credit Letters of guarantee

Commitments Undrawn facilities commitments Future capital expenditure Investment and development properties

122

2021 AED‘000

2020 AED‘000

5,250,958 5,647,695

6,898,871 6,254,485

10,898,653

13,153,356

555,498 236,543 -

582,694 172,206 4,986

792,041

759,886

11,690,694

13,913,242

ADIB Annual Report 2021

37 SHARI’A COMPLIANT ALTERNATIVES OF DERIVATIVE FINANCIAL INSTRUMENTS Shari’a compliant alternatives of swaps are based on a unilateral Wa’ad (promise) structure between two parties to buy a specific Shari’a compliant commodity at an agreed price on an agreed date in future. It is a conditional promise to purchase a commodity through a unilateral purchase undertaking. For Shari’a complaint alternatives of swap, counter parties enter into two separate and independent Murabaha transactions, the results of which are exchanged between them in a manner that enables one of them to receive the equivalent of the fixed reference rate and the other counterparty to receive the equivalent of the reference floating rate, where the profit payments are based on a notional value in a single currency.

The table below shows the fair values of Shari’a compliant alternatives of derivative financial instruments, together with the notional amounts analysed by term of maturity. The notional amount is based on the amount of the underlying transaction, reference rate or index and is the basis upon which changes in the value of transactions are measured. The notional amounts indicate the volume of transactions outstanding at the reporting date and are neither indicative of the market risk nor credit risk.

Positive fair value AED ’000

Negative fair value AED ’000

Notional amount AED ‘000

Less than 3 months AED ‘000

3 months to 1 year AED ‘000

1 year to 5 years AED ‘000

Over 5 years AED ‘000

846

8,095,062

4,904,300

404,980

2,323,695

462,087

-

8,548,616

5,423,646

307,090

2,164,853

653,027

31 December 2021: Notional amount by term to maturity Shari’a compliant alternatives of swap (note 24, 29)

-

31 December 2020: Notional amount by term to maturity Shari’a compliant alternatives of swap (note 24, 29)

2,796

38 ZAKAT As the Bank is not required to pay Zakat by laws or by its Articles and Memorandum of Association or by a decision of the General Assembly, accordingly the responsibility of paying Zakat is that of the shareholders. Based on the management valuation of the Bank’s net assets, which are subject to Zakat, the total Zakat amount, for Zakat purposes based on Gregorian year, was estimated at AED 294,022 thousand (2020: AED 259,128 thousand) and accordingly, Zakat amount is estimated at AED 0.0809532 (2020: AED 0.07135) per outstanding share.

However, in few jurisdictions, Zakat of the Bank’s branches and subsidiaries is mandatory by laws to be paid to a governmental entity responsible for Zakat, therefore, the Bank acts accordingly to these laws and pays the Zakat to these entities on behalf of the Shareholders and deducts the amount paid as Zakat from the total Zakat amount above and accordingly adjusted the Zakat amount per each outstanding share.

Tier 1 Sukuk Zakat amount, based on Gregorian year, was estimated at AED 90,780 thousand (2020: AED 85,571 thousand) and accordingly, Zakat amount is estimated at AED 0.019094 (2020: AED 0.01800) per each AED dirham invested in Tier 1 Sukuk.

To assist the investors in ADIB Tier 1 Sukuk, the Bank has calculated their above Zakat amount. The payment of such Zakat amount is solely the responsibility of the investors in these Tier 1 Sukuk.

39 CASH AND CASH EQUIVALENTS 2021 AED‘000

Cash and balances with central banks, short term Balances and wakala deposits with Islamic banks and other financial institutions, short term Murabaha and mudaraba with financial institutions, short term Due to financial institutions, short term

ADIB Annual Report 2021

2020 AED‘000

15,775,808 2,579,580 (3,321,441)

8,565,502 1,452,398 (3,088,244)

15,033,947

6,929,656

123

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

40 RELATED PARTY TRANSACTIONS In the ordinary course of its activities, the Bank enters into transactions with related parties, comprising major shareholders, directors, associates and joint ventures, key management and their related concerns. The Bank obtains collateral, including charges over real estate properties and securities, the extent of which is dependent on the Bank’s assessment of the credit risk of the related party. During 2021, related party financing were renegotiated based on the terms approved by the Board of Directors and are free of any specific provision for impairment. Transactions between the Bank and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.

Profit rates earned on balances and wakala deposits with banks and financial institutions and customer financing extended to related parties during the year has ranged from 0% to 9.9% (2020: 0% to 9.9% per annum).

Profit rates paid on due to financial institution and customers’ deposits placed by related parties during the year have ranged from 0% to 2.0% per annum (2020: 0% to 2.0% per annum).

During the year, significant transactions with related parties included in the consolidated income statement were as follows: Major shareholder AED ‘000

Directors AED ‘000

-

-

40,258

Fees and commission income, net Operating expenses

Associates and Joint Ventures AED ‘000

Others AED ‘000

Total AED ‘000

17,211

-

17,211

36

2,414

83,857

126,565

-

9

178

1,143

1,330

-

468

-

-

468

33

6

1,002

5

1,046

-

-

19,877

-

19,877

52,213

2,495

-

68,846

123,554

Fees and commission income, net

1

-

1,245

2,629

3,875

Operating expenses

-

660

-

-

660

493

7

930

14

1,444

31 December 2021 Income from murabaha, mudaraba and wakala with financial institutions Income from murabaha, mudaraba, ijara and other Islamic financing from customers

Distribution to depositors and sukuk holders

31 December 2020 Income from murabaha, mudaraba and wakala with financial institutions Income from murabaha, mudaraba, ijara and other Islamic financing from customers

Distribution to depositors and sukuk holders

124

ADIB Annual Report 2021

40 RELATED PARTY TRANSACTIONS continued The related party balances included in the consolidated statement of financial position were as follows:

31 December 2021 Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha, mudaraba, ijara and other Islamic financing Other assets

Due to financial institutions Depositors’ accounts Other liabilities

Contingencies

31 December 2020 Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha, mudaraba, ijara and other Islamic financing Other assets

Due to financial institutions Depositors’ accounts Other liabilities

Contingencies

Major shareholder AED ‘000

Directors AED ‘000

2,019,643 -

1,589 -

2,019,643

Associates and Joint Ventures AED ‘000

Others AED ‘000

Total AED ‘000

319,585 83,417 4,905 551,593

4,049,767 97

319,585 83,417 6,075,904 551,690

1,589

959,500

4,049,864

7,030,596

37,633 -

7,353 57

14,206 286,779 22

41,423 101

14,206 373,188 180

37,633

7,410

301,007

41,524

387,574

-

-

11,264

103,673

114,937

2,651,377 183,625

56,147 -

319,585 88,105 517,890

3,189,047 8,271

319,585 88,105 5,896,571 709,786

2,835,002

56,147

925,580

3,197,318

7,014,047

129,170 1

7,987 -

5,128 253,856 23

34,790 8,272

5,128 425,803 8,296

129,171

7,987

259,007

43,062

439,227

-

-

19,601

91,510

111,111

The Bank and its major shareholder jointly own a controlling stake in Abu Dhabi Islamic Bank – Egypt (S.A.E.) (“ADIB-Egypt”) and have a formal joint control arrangement for their investment in ADIB-Egypt (note 21).

Compensation of key management personnel The compensation of key management personnel during the year was as follows:

Salaries and other benefits Employees’ end of service benefits

2021 AED‘000

2020 AED‘000

23,459 1,586

25,765 2,007

25,045

27,772

During 2021, AED 7,350 thousand was paid to Board of Directors pertaining to the year ended 31 December 2020 after the approval by the shareholders in the Annual General Assembly held on 04 April 2021.

ADIB Annual Report 2021

125

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

41 SEGMENT INFORMATION Operating segments are identified on the basis of internal reports about the components of the Group that are regularly reviewed by the chief operating decision makers of the Bank in order to allocate resources to the segment and to assess its performance. Information reported to the chief operating decision makers for the purpose of resource allocation and assessment of performance is based on following strategic business units offering products and services to the different markets.

Global Retail banking – Principally handling small and medium businesses and individual customers’ deposits, providing consumer and commercial murabahat, Ijara, Islamic covered card and funds transfer facilities and trade finance facilities.

Global Wholesale banking – Principally handling financing and other credit facilities and deposits and current accounts for corporate and institutional customers.

Private banking – Principally handling financing and other credit facilities, deposits and current accounts for high net worth individual customers.

Treasury – Principally handling money market, trading and treasury services, as well as the management of the Bank’s funding operations by use of investment deposits.

Real estate – Subsidiaries of the Bank handling the acquisition, selling, development and leasing including both land and buildings, management and resale of properties and all associated activities.

Other operations – Other operations comprises mainly of Head Office, subsidiaries, associates and joint ventures other than above categories including unallocated costs.

Management monitors the operating results of the operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss.

Business segments information for the year ended 31 December 2021 were as follows: Global Retail banking AED ‘000

Global Wholesale banking AED ‘000

Private banking AED ‘000

Treasury AED ‘000

Real estate AED ‘000

Other operations AED ‘000

Total AED ‘000

3,056,192

875,145

133,792

778,501

63,237

652,684

5,559,551

(1,804,811)

(279,317)

(62,377)

(41,178)

(59,809)

(12,543)

(2,260,035)

Operating profit (margin) Provision for impairment, net

1,251,381 (45,795)

595,828 (578,426)

71,415 9,752

737,323 3,012

3,428 -

640,141 (342,942)

3,299,516 (954,399)

Profit (loss) for the year before zakat and tax

1,205,586

17,402

81,167

740,335

3,428

297,199

2,345,117

(9,611)

(5,417)

-

-

-

1,205,586

7,791

75,750

740,335

3,428

297,199

-

-

-

-

-

1,205,586

7,791

75,750

740,335

3,428

295,841

2,328,731

55,760,847

40,324,755

4,773,111

27,231,109

2,069,309

6,709,218

136,868,349

76,548,716

25,707,149

5,645,725

4,600,325

247,621

3,559,753

116,309,289

Revenue and results Segment revenues, net Operating expenses excluding provision for impairment, net

Zakat and tax Profit (loss) for the year after zakat and tax Non-controlling interest Profit (loss) for the period attributable to equity holders of the Bank

-

(1,358)

(15,028) 2,330,089 (1,358)

Assets Segmental assets Liabilities Segmental liabilities

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ADIB Annual Report 2021

41 SEGMENT INFORMATION continued Business segments information for the year ended 31 December 2020 were as follows:

Global Retail banking AED ‘000

Global Wholesale banking AED ‘000

Private banking AED ‘000

Treasury AED ‘000

Real estate AED ‘000

Other operations AED ‘000

Total AED ‘000

3,238,515

938,270

134,925

599,405

71,507

375,543

5,358,165

(1,848,296)

(321,873)

(58,469)

(42,612)

(66,411)

(112,339)

(2,450,000)

Operating profit (margin) Provision for impairment, net

1,390,219 (117,247)

616,397 (981,974)

76,456 (15,381)

556,793 (9,748)

5,096 (31,773)

263,204 (157,989)

2,908,165 (1,314,112)

Profit (loss) for the year before Zakat and tax Zakat and tax

1,272,972 18,477

(365,577) (8,569)

61,075 -

547,045 -

(26,677) -

105,215 -

1,594,053 9,908

Profit (loss) for the year after Zakat and tax

1,291,449

(374,146)

61,075

547,045

(26,677)

105,215

1,603,961

-

-

61,075

547,045

Revenue and results Segment revenues, net Operating expenses excluding provision for impairment, net

Non-controlling interest Profit (loss) for the period attributable to equity holders of the Bank

-

1,291,449

-

(374,146)

-

(26,677)

(1,133)

(1,133)

104,082

1,602,828

Assets Segmental assets

53,559,868

36,017,012

4,376,098

24,884,974

2,135,387

6,842,799

127,816,138

71,403,278

22,787,507

5,405,937

4,700,564

249,473

4,107,495

108,654,254

Liabilities Segmental liabilities

The following is the analysis of the total segment revenues of each segment between revenues from external parties and inter-segment: Global Retail banking AED ‘000

Global Wholesale banking AED ‘000

Private banking AED ‘000

Treasury AED ‘000

Real estate AED ‘000

Other operations AED ‘000

Total AED ‘000

31 December 2021 Segment revenues, net Inter-segment revenues, net

2,963,726 92,466

900,972 (25,827)

128,807 4,985

904,758 (126,257)

63,237 -

598,051 54,633

5,559,551 -

Total Segment revenues, net

3,056,192

875,145

133,792

778,501

63,237

652,684

5,559,551

31 December 2020 Segment revenues, net Inter-segment revenues, net

3,070,894 167,621

1,014,926 (76,656)

110,374 24,551

971,453 (372,048)

71,507 -

119,011 256,532

5,358,165 -

Total Segment revenues, net

3,238,515

938,270

134,925

599,405

71,507

375,543

5,358,165

Geographical information The Group operates in two principal geographic areas that are domestic and international. The United Arab Emirates is designated as domestic area which represents the operations of the Group that originates from the U.A.E. branches, associates and subsidiaries; and international area represents the operations of the Bank that originates from its branches in Iraq, Qatar and Sudan and through its subsidiaries and associates outside U.A.E. Given that, UAE contributes the majority of the revenues and the Group’s total assets in UAE represent a significant portion of its total assets and liabilities, hence no further geographical analysis of segment revenues, expenses, operating profit (margin), assets and liabilities is presented.

ADIB Annual Report 2021

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT 42.1 Introduction The core business of a bank is to manage risk and provide returns to the shareholders in line with the accepted risk profile. Risk is inherent in all of the Group’s activities and is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls in accordance with regulatory and Board requirements. The Group is exposed principally to credit risk, liquidity risk, market risk and operational risk but other risks such as reputational risk, legal risk and the various risks defined by the Basel accord are also monitored and managed.

42.1.1 Risk management governance structure The Board of Directors (“Board”) continues to have overall responsibility for the establishment and oversight of the Bank’s risk management framework, as well as for approving the Bank’s overall risk appetite, and ensuring that business is conducted within this framework. The Board is the ultimate sanctioning authority. During 2015, the Board approved a corporate governance framework and refreshed the charters of the various Board committees.

Strategy Committee The Strategy Committee is appointed by the Board and is responsible to guide the Group’s Executive Management to develop the Group’s strategic objectives and business strategy, conduct periodic review of the achievement of strategic objectives and business plans and direct corrective actions wherever required. In addition, this committee also acts as a conduit between the Board and senior management on business issues.

Risk and Investment Approval Committee The Risk and Investment Approval Committee is appointed by the Board and is responsible for the approvals of the Group’s risk exposures, high value transactions and major items of capital expenditure. In addition, the Committee is also responsible for monitoring credit portfolio quality and provisions.

Governance and Risk Policy Committee The Governance and Risk Policy Committee is appointed by the Board to assist the Board in fulfilling its oversight responsibilities in respect of the following for the Bank and all of its subsidiaries and material affiliates: • Review the risk profile of the Group keeping in view the requirement pertaining to enterprise risk management and to make recommendations to calibrate the risk profile of the Group in line with the applicable regulatory requirements, rating considerations and business strategy; • Assist the Board in overseeing the Group’s response to the risks it faces through the approval of the Group’s risk policies and standards; and • Review and recommend the corporate governance and risk management frameworks and risk strategy to the Board in alignment with the business growth requirements of the Group.

Audit Committee The Audit Committee is appointed by the Board to assist the Board in fulfilling its oversight responsibilities in respect of the following for the Bank and all its subsidiaries and material affiliates: • • • • •

Ensuring the integrity of the Group’s consolidated financial statements and financial reporting process; To review the financial and internal control systems, quality assurance and risk management framework; To review the performance of the internal audit function; To review the internal controls over financial reporting and annual independent audit of the Group’s consolidated financial statements; To recommend to the Board the engagement of the external auditors and evaluation of their qualifications, independence and performance; and • To ensure compliance by the Group with legal and regulatory requirements as pertaining to its business activities.

The duties and responsibilities of the committees are governed by formally approved charters.

42.1.2 The Group Risk Management (“GRM”) The Group Risk Management Group (GRM) is an independent risk organization that works in close partnership with the business units to support their activities, whilst safeguarding the risk profile of the Group as the second line of defense. The GRM is led by the Group Chief Risk Officer (GCRO) and has six main responsibilities: • • • • • •

128

Ensure maintenance of an appropriate risk management framework and adherence to risk policies and procedures across the Group, Ensure compliance with risk-related legal and regulatory guidelines in the UAE and in our overseas markets, Maintain the primary relationship with local regulators with respect to risk-related issues, Approve commercial and consumer financing transactions within its delegated authorities, Maintain prudent risk control systems, models and processes, and Ensure a robust credit process is maintained in support of all business lines.

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.1 Introduction continued 42.1.2 The Group Risk Management (“GRM”) continued Reporting to the GCRO are senior, experienced risk specialists who manage specific areas of risk, including Wholesale Banking, Private Banking, Retail Banking, Operational Risk, Credit Control, Remedial Management, Enterprise Risk Management and Market Risk. GRM responsibilities extend across all the business units of the Bank in all of the geographies in which the Bank operates.

Credit Committee All customer related business proposals are reviewed and approved by a credit committee with delegated authority approved by the Board. The credit committee consists of designated credit officers and senior credit officers appointed following a rigorous and extended process of qualification. These appointments are made by the Chief Executive Officer upon the recommendation of the GCRO. The credit approval process and the authorities vested with the committee members are laid out in the Bank’s Credit Policy & Procedures Manual. The manual is revised periodically.

42.1.3 Risk measurement and reporting systems In order to effectively monitor and control risks, the GRM maintains a capability that allows it to: • Prepare portfolio reports across a range of indicators such as portfolio concentrations by geography, industry type, product and risk rating. which are used to analyse and monitor overall portfolio quality; • Monitor the integrity and consistency of data, including risk ratings, risk migrations, exposures and losses, including the maintenance of a central loss database for the monitoring and analysis of losses; • Set parameters to be used for the calculation of expected loss and risk capital requirements; • Consolidate portfolio management data and reports for use by Executive Management and the Board; and • Establish and maintain a set of early warning indicators to identify emerging risks.

Detailed reporting of industry, customer and geographic risks acquired takes place frequently. These reports are examined and discussed closely in a series of quarterly portfolio reviews held with senior business and risk managers. Decisions on risk appetite, adjustments to financing criteria and other initiatives are taken as a result of these meetings. Risk reports are presented to the Chief Executive Officer, the Governance & Risk Policy Committee and the Board regularly. Senior management assesses the adequacy of the provision for credit losses on a monthly basis.

The Group actively uses collateral to reduce its credit risks.

42.1.4 Risk concentration The Bank seeks to manage its credit risk exposure through diversification of financing activities to avoid undue concentrations of risks with individuals or groups of customers or in specific locations or businesses. It also obtains security when appropriate.

Details of the composition of the financing portfolio are provided in notes 17 and 18.

42.1.5 Group Internal Audit Risk management processes throughout the Bank are reviewed periodically by the internal audit function that reviews both the adequacy of the procedures and the Bank’s compliance with the procedures. Group Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Audit Committee. The Head of Group Internal Audit has a direct reporting line to the Audit Committee thus demonstrating his independence and objectivity in all audit engagements undertaken within the Bank.

42.1.6 Basel II / Internal Capital Adequacy Assessment Process (“ICAAP”) Since 2009, the UAE Central Bank, as part of the international Basel II regulatory regime, has required each UAE bank to submit a report on its internal capital adequacy assessment process – this is known as the “ICAAP”. The Bank has prepared and submitted its ICAAP report in each of the past nine years. The process aligns the Bank’s risk appetite with its risk capacity which, in turn, produces an enterprise-wide set of risk limits set within and relevant to the Bank’s overall strategy.

42.2 Credit risk 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 controls credit risk by the use of a focused target market discipline which defines who the Bank is prepared to deal with from a risk profile perspective and the use of risk acceptance criteria, which define what type and volume of risk the Bank is prepared to undertake with each counterparty. These critical tools are used in conjunction with close monitoring of credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of all counterparties. In addition to monitoring credit limits, the Bank 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 limiting the duration of exposure. In certain cases, the Bank may also close out transactions or assign them to other counter-parties to mitigate credit risk.

The Bank has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties, including regular collateral revisions. The credit quality review process allows the Bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action.

All commercial credit risk exposures are risk rated using Moody’s Risk Analyst system, recognized as an industry wide standard. This platform supports a number of different rating models for various businesses which are now well embedded. Facility Risk Ratings are also applied.

Consumer exposures are rated using application and behavioral scorecards.

ADIB Annual Report 2021

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued Model risk management For effective risk measurement, Group uses a range of risk quantification models such as customer risk rating/scoring, loss given default, market risk and stress testing models. These risk models are subject to the Group’s model governance policy, which prescribes guidelines across the model life cycle and establishes principles and instructions to enable an effective decision process across stakeholders in order to develop and maintain high quality risk models at Group. The governance policy covers the following: • • • •

The roles and responsibilities of stakeholders (Model Developer, Independent Validator, Approval Authority etc.); The minimum requirement for each of the model life cycle steps; The approval process; and The minimum documentation requirement.

Credit risk measurement Group credit risk is measured in terms of expected credit loss (ECL), which is calculated by multiplying three main components, being the probability of default (PD), loss given default (LGD) and the exposure at default EAD), and discounting at the initial effective profit rate.

The Bank has developed a range of models to estimate these parameters. For the portfolios where sufficient historical data was available, the Group has developed a statistical model and for other portfolios judgmental models were developed.

Credit risk grading The Group has designed a master rating scale, which has 22 risk grades reflecting assessment of default probability of the customer. The master rating scale comprises 19 performing grades and 3 non-performing grades.

For the Retail portfolios, the Group uses behavior scorecards, which includes recent payment behavior and other relevant relationship information available with the bank, to calculate credit score which is calibrated to PiT (Point-in-Time) PD. Non Retail customers are rated using segment specific customer risk rating models, which uses financial and non-financial information related to the customer to arrive at a risk rating. The risk ratings are calibrated to PiT (Point-in-Time) PD for IFRS 9 based calculations.

ECL measurement The assessment of credit risk and the estimation of ECL are unbiased, probability-weighted and incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL takes into account the time value of money.

As per the IFRS 9 requirements, Group calculates Expected credit loss (ECL) for a facility as a forward looking probability weighted present value of the expected losses over the next 12 months or effective remaining life of the facility. Expected Loss at any point in time of the life of the facility is calculated using the following formula:

Expected Credit Loss (ECL) = PD*EAD*LGD For each facility the Group calculates ECL over two forecast periods: • 12 Month: ECL is calculated using 12-month forward looking PD, LGD and EAD. • Lifetime: ECL is calculated using Lifetime forward looking PD, LGD and EAD. 12 Month or Lifetime ECL for each facility is used depending on the stage of the facility, as explained below: • Stage 1: where no significant increase in credit risk is observed,12 month Expected Credit Loss (ECL) is recorded as impairment provision; • Stage 2: where significant increase in credit risk has been observed, Life-time ECL is recorded as impairment provision; and • Stage 3: where the exposure is defaulted or impaired, Life-time ECL is recorded as impairment provision.

Significant increase in credit risk (SICR) The stage allocation is determined by identifying a significant increase in credit risk since initial origination. The Group assesses when significant increase in credit risk has occurred based on the quantitative and qualitative assessments. The facilities are classified as stage 2 when they meet following criteria: Quantitative criteria: Thresholds based on absolute PD or relative PD increase compared to origination have been defined for various portfolios, in order to determine the significant increase in credit risk. In addition to this the bank also uses rating migration since origination for nonretail customers.

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42 RISK MANAGEMENT continued 42.2 Credit risk continued Significant increase in credit risk (SICR) continued Qualitative criteria: Independent of PD, the Group also uses qualitative information to assess the significant increase in credit risk. This includes information such as watch list classification and indicators of historic delinquency.

Backstop criteria: For retail customers, a backstop is applied and the facility is considered to have experienced a significant increase in credit risk if the finance customer is more than 30 days past due on its contractual payments.

For the cases where Group has experienced limitation on the information available at origination, certain proxy assumptions were made to estimate the rating at origination.

Definition of default and credit-impaired assets The Group defines a financial instrument as in default, when it meets one or more of the following criteria: Retail: A customer who is delinquent over 90 days past due will be classified as default or credit impaired.

Corporate: All customers currently classified/rated as below will be considered under default: • Where classification is Substandard, Doubtful or Loss; or • Risk Rating is D/8, D/9, and D/10; or • Where a deal is delinquent over 90 days past due unless an exception is approved.

The customers are classified or downgraded in the above categories, based on a comprehensive assessment of the customer’s credit quality.

This assessment includes review of payment history, capacity to repay and financial health

Curing Assets can move back to Stage 1 from Stage 2 when they no longer meet the significant increase in credit risk criteria and have completed a probation period of 12 months, defined by the Group. Similarly for the movement from Stage 3 to Stage 2, for certain portfolios, the Group’s policy include probation periods whereby assets remain in Stage 3 for periods of between six to twelve months. The policy also ensures that none of the assets can move back directly to Stage 1 from Stage 3.

Measuring ECL - Explanations of input, assumptions and estimation techniques As per IFRS 9, the ECL calculated for a facility should incorporate both current and forward-looking economic outlook over 12 months and over the remaining life of the facility.

The Group calculates Expected credit loss (ECL) for a facility as a forward looking probability weighted present value of the expected losses over forecast period (next 12 months or effective remaining life of the facility).

At the reporting date, a monthly ECL is estimated for each individual exposure for each month until the end of the forecast period. This is calculated as a simple multiplication of PD, LGD and EAD at each month. These monthly ECLs are discounted to the reporting date using the effective profit rate and the summation of these discounted monthly ECLs gives the ECL estimate. The lifetime ECL is the sum of the monthly ECLs over the remaining life, while the 12-month ECL is limited to the first 12 months.

The estimation methodology for three main components, PD, LGD and EAD is explained below:

Probability of Default (PD): Retail: The 12 month PD for each facility is based on behaviour scores which are calibrated to recent portfolio performance in order to reflect the Point in Time PDs. In cases where sufficient performance history is not available to calculate the behaviour score, the Bank has used pool level PDs. Based on historical data, the Group has developed lifetime default rate evolution curves for various portfolios and segments. To get the macro-economic adjusted lifetime PD term structure, the lifetime curves are multiplied by the macro-economic scalars, derived using the macro-economic overlay models developed by the Group.

Non-Retail: PDs for corporate customers are driven by the risk rating generated from respective rating models. Historical default rates of different segments have been used to develop PD macroeconomic overlay models. The PDs forecasted from the models are then converted to cumulative PD using survival analysis concept and a marginal PD is derived.

ADIB Annual Report 2021

131

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued Measuring ECL - Explanations of input, assumptions and estimation techniques continued Loss Given Default (LGD): Retail: The LGD models are based on the cash recovery estimates. For secured products recoveries from collateral are also considered.

For unsecured products and segments within, the Group has developed recovery curves over the workout period based on the historical recovery experience. For each facility the LGD is calculated using those recovery curves with an adjustment for macro-economic outlook.

For secured products, the LGD is based on the current/future collateral value adjusted for depreciation or House Price Index (HPI).

Non-Retail: ADIB uses an off-the-shelf model, calibrated on the Group’s portfolio, to calculate unsecured LGD. Secured LGD is then calculated after taking the benefit of the assigned collaterals. The LGDs are adjusted for macroeconomic outlook.

Exposure at Default (EAD): The EAD is the amount which the Bank expects a customer to owe in the event of default. The EAD depends on the product type: • For amortizing products, this is based on the contractual repayments over the forecast period; and • For revolving/off-balance products, this is estimated as a combination of current exposure and credit conversion factor applied on the undrawn portion of the limit.

The Group applies a management overlay for cases where models are unable to capture customer’s idiosyncrasies. These overlays are discussed and approved by appropriate management committee of the Group.

Forward-looking information incorporated in the ECL model As per IFRS 9 requirements, forward looking economic outlook has also been incorporated in the loss calculations. The Group has developed a macro-economic overlay models by performing statistical analysis to establish a historical relationship of macro-economic variables with PD and components of LGD. These models depend on various variables such as Oil Price, GDP and Real Estate price etc. The macro-economic models are used to adjust the PD and LGD calculated from the base models. In addition to ECL calculations, the forward looking lifetime PD is used to determine the significant increase in credit risk.

The Group sources the macro-economic scenarios data from an external vendor, which uses scenarios built based on the current market conditions and outlook of their economic team. The Group uses three macro-economic scenarios and a weightage has been assigned to each scenario.

The table below summarises the principal macroeconomic indicators included in the economic scenarios used at December 31, 2021 for the years 2022 to 2026, for UAE which is the country where the Group operates and therefore is the country that has a material impact on ECLs. Macro variables used

Definition

Oil Price, Brent USD

Price per barrel

Range

Between USD 34 and USD 76

Domestic Real GDP Growth

% change

Between -11% and 9%

House Price Index

% change

Between -12% and 10%

Private Consumption

% change

Between -10% and 9%

Domestic Demand

% change

Between -10% and 9%

Credit risk monitoring For IFRS 9 ECL computation, credit exposures are monitored and reported as per IFRS 9 requirements. Stage migrations, any exceptions to SICR criteria, other credit and impairment related matters are reviewed and approved by an appropriate management committee.

Risks of the Group’s credit portfolio are continuously assessed and monitored on the basis of exceptions, management information reports and returns generated by the business and credit units. Credit risk is also monitored on an ongoing basis with formal monthly and quarterly reporting to ensure that senior management is aware of shifts in the credit quality of the portfolio along with changing external factors.

Group credit risk mitigation strategy The Group operates within prudential exposure ceilings set by the Board in line with UAE Central Bank guidelines. There are well laid out processes for exception management and escalation.

The Group has adopted measures to diversify the exposures to various sectors. Diversification is achieved by limiting concentration through setting customer, industry and geographical limits.

Collateral management Collaterals and guarantees are effectively used as mitigating tools by the Group. The quality of collateral is continuously monitored and assessed and the Bank seeks to ensure enforceability of the collateral. Major categories of collaterals include cash/ fixed deposits, inventories, shares, guarantees (corporate, bank and personal guarantees), immovable properties, receivables and vehicles.

Collaterals are revalued regularly as per the bank’s credit policy. In addition, ad hoc valuations are also carried out depending on the nature of collateral and general economic condition. This enables the Bank to assess the fair market value of the collateral and ensure that risks are appropriately covered. Security structures and legal covenants are also subject to regular review.

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42 RISK MANAGEMENT continued 42.2 Credit risk continued Credit-related commitments risks The Bank makes available to its customers guarantees which may require that the Bank makes payments on their behalf. Such payments are collected from customers based on the terms of the letters of guarantee. They expose the Bank to similar risks as financing and these are mitigated by the same control processes and policies.

42.2.1 Maximum exposure to credit risk without taking account of any collateral and other credit enhancements The table below shows the maximum exposure to credit risk for the components of the consolidated statement of financial position. The maximum exposure is shown gross, before the effect of mitigation through the use of master netting and collateral agreements.

Gross maximum exposure 2021 AED ‘000

Gross maximum exposure 2020 AED ‘000

3,753,804 790,670 45,483,761 47,645,386 9,744,063 3,928,537 1,753,659

2,301,711 132,912 37,952,224 49,454,557 10,440,082 3,357,501 1,953,911

113,099,880

105,592,898

10,898,653 555,498

13,153,356 582,694

11,454,151

13,736,050

124,554,031

119,328,948

Notes

Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investment in sukuk measured at amortised cost Investments measured at fair value Other assets

15 16 17 18 19 20

Contingent liabilities Commitments

36 36

Total Total credit risk exposure

42.2.2 Credit risk concentration Concentration of risk is managed by customer/counterparty, by geographical region and by industry sector. The credit exposure to the top 5 customers as of 31 December 2021 was AED 8,955,216 thousand (2020: AED 8,819,327 thousand) before taking account of collateral or other credit enhancements.

The concentration of the Group’s assets and liabilities by geographical segment is based primarily upon the location of the counter party.

The distribution of the Group’s financial assets which are subject to credit risk by geographic region is as follows: Balances and wakala deposits with Islamic banks and other financial institutions AED ‘000

31 December 2021 UAE Rest of Middle East Europe Others Financial assets subject to credit risk 31 December 2020 UAE Rest of Middle East Europe Others Financial assets subject to credit risk ADIB Annual Report 2021

Murabaha and mudaraba with financial institutions AED ‘000

Murabaha and other Islamic financing AED ‘000

Investment in sukuk Ijara measured at financing amortised cost AED ‘000 AED ‘000

Investments measured at fair value AED ‘000

Other assets AED ‘000

Total AED’ 000

985,230 1,707,346 297,035 764,193

707,138 38,410,899 45,501,845 83,532 3,383,540 1,303,631 2,386,750 271,411 1,302,572 568,499

7,034,430 2,234,448 475,185

1,692,908 1,256,308 979,321

1,676,547 96,008,997 77,112 10,045,917 2,955,196 4,089,770

3,753,804

790,670 45,483,761 47,645,386

9,744,063

3,928,537

1,753,659 113,099,880

143,180 1,250,374 142,506 765,651

45,096 87,816 -

34,309,824 1,584,497 1,512,329 545,574

47,808,671 1,017,418 381,501 246,967

7,930,840 2,093,403 415,839

2,076,950 588,776 691,775

1,872,344 81,567 -

94,186,905 6,703,851 2,036,336 2,665,806

2,301,711

132,912

37,952,224

49,454,557

10,440,082

3,357,501

1,953,911 105,592,898 133

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.2 Credit risk concentration continued The credit risk arising from off-balance sheet items mentioned in note 42.2.1 are mainly relating to the UAE. The distribution of the Group’s financial assets by industry sector is as follows:

Government Public sector Financial institutions Trading and manufacturing Construction and real estate Energy Personal Others Financial assets subject to credit risk

2021 AED‘000

2020 AED‘000

6,671,286 15,092,559 11,380,283 5,644,820 7,258,529 1,413,217 54,541,096 11,098,090

5,423,432 13,350,004 8,356,652 5,249,055 7,373,596 684,750 52,599,676 12,555,733

113,099,880

105,592,898

42.2.3 Impairment assessment With the adoption of IFRS 9 the incurred loss approach for impairment has been replaced by a forward looking expected credit loss (ECL) approach. The Bank recognizes an allowance for ECL for all financial instruments other than those held at fair value through profit or loss.

Financial instruments are classified into three categories as follows: Stage 1 (performing): where no Significant Increase in Credit Risk (SICR) since origination has been observed. ECL from default events that are possible within the next 12 months is booked as impairment provision.

Stage 2 (underperforming): where a SICR since origination is observed however a default has not occurred. ECL from default events that are possible over the lifetime of the financial instrument is booked as impairment provision.

Stage 3 (non-performing): where a default has occurred, ECL based on the loss expected over the remaining life of the financial instrument is recognized as an impairment provision.

The criteria for SICR have been defined for both the wholesale and retail book. The primary driver of SICR for the wholesale book is the customer risk rating migration since origination. The customer risk rating in turn is determined by the probability of default. The primary driver of the SICR for the retail book is the past due status and the lifetime probability of default.

The ECL is calculated as a product of the Probability of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD) which is present valued using the effective profit rate of each facility. The PDs and LGDs are adjusted based on weighted average of three macroeconomic scenarios sourced from an external industry expert. These scenarios are updated quarterly.

The ECL based provisions are reviewed and approved by the management on a monthly basis .

Write-off of financing assets Board approved policies are in place covering the timing and amount of provisions and write offs for all the financing portfolios of the Bank.

These reflect both the UAE Central bank guidelines and rules, accepted international accounting standards, and market and industry best practice and are stringently adhered to.

42.2.4 Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows: • For repurchase and reverse repurchase transactions, cash or securities; • For commercial financing, charges over real estate properties, inventory, trade receivables and securities; and • For retail financing, charge over assets, mortgage of properties and vehicles and assignment of salaries in favor of the Bank.

134

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.4 Collateral and other credit enhancements continued The table below shows the lower of the collateral value or the outstanding balance of customer financing as at the reporting date:

Against customer financing not impaired Property Securities Cash margin and lien over deposits Others Against individually impaired Property Securities Cash margin and lien over deposits Others

2021 AED‘000

2020 AED‘000

32,712,172 23,972 667,900 9,039,219

31,994,124 30,241 815,095 9,296,090

42,443,263

42,135,550

4,136,848 54,366 16,767 205,624

3,405,155 118,154 16,578 248,319

4,413,605

3,788,206

46,856,868

45,923,756

The Bank also obtains guarantees from parent companies for financing their subsidiaries, but their benefits are not included in the above table.

Management regularly monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and assesses the market value of collateral obtained during its review of the adequacy of the provision for impairment losses.

The Bank also makes use of master netting agreements with counterparties.

42.2.5 Credit quality per class of financial assets The credit quality of financial assets is managed by the Bank using internal credit ratings. The table below shows the credit quality for balance and wakala deposits with Islamic banks and other financial institutions, murabaha and mudaraba with financial institutions, murabaha, ijara and other Islamic financing, investments at amortised cost, investment measured at fair value (except equity instruments), certain other assets and Bank’s contingent liabilities and commitments based on the Group’s credit rating system.

Gross Exposure by rating is as follows: Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

31 December 2021 Financial instruments carried at amortised cost Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

53,162,846 38,430,520 103,990 -

304,629 5,750,078 1,826,189 -

8,412,071

53,467,475 44,180,598 1,930,179 8,412,071

Gross financial instruments carried at amortised cost

91,697,356

7,880,896

8,412,071

107,990,323

Sukuk carried at FVTOCI Grades 1 – 4 Grades 5 – 6 Grades 8 – 10

1,309,739 506,548 -

-

253

1,309,739 506,548 253

Gross Sukuk carried at FVTOCI

1,816,287

-

253

1,816,540

ADIB Annual Report 2021

135

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.5 Credit quality per class of financial assets continued Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

Contingent liabilities and commitments Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

6,929,327 1,903,826 474 -

243,148 1,624,572 580,097 -

172,707

7,172,475 3,528,398 580,571 172,707

Gross Contingent liabilities and commitments

8,833,627

2,447,817

172,707

11,454,151

102,347,270

10,328,713

8,585,031

121,261,014

31 December 2020 Financial instruments carried at amortised cost Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

48,371,621 36,285,598 236,849 -

481,443 5,657,072 2,126,774 -

7,813,877

48,853,064 41,942,670 2,363,623 7,813,877

Gross financial instruments carried at amortised cost

84,894,068

8,265,289

7,813,877

100,973,234

Sukuk carried at FVTOCI Grades 1 – 4 Grades 5 – 6 Grades 8 – 10

1,282,824 402,917 -

18,045 -

7,287

1,282,824 420,962 7,287

Gross Sukuk carried at FVTOCI

1,685,741

18,045

7,287

1,711,073

Contingent liabilities and commitments Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

10,081,869 2,254,012 1,159 -

108,934 499,236 621,919 -

168,921

10,190,803 2,753,248 623,078 168,921

Gross Contingent liabilities and commitments

12,337,040

1,230,089

168,921

13,736,050

98,916,849

9,513,423

7,990,085

116,420,357

Expected credit losses (ECL) by rating is as follows:

136

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.5 Credit quality per class of financial assets continued

31 December 2021 Financial instruments carried at amortised cost - ECL Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

Sukuk carried at FVTOCI - ECL Grades 1 – 4 Grades 5 – 6 Grades 8 – 10

Contingent liabilities and commitments - ECL Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

31 December 2020 Financial instruments carried at amortised cost - ECL Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

Sukuk carried at FVTOCI - ECL Grades 1 – 4 Grades 5 – 6 Grades 8 – 10

Contingent liabilities and commitments - ECL Grades 1 – 4 Grades 5 – 6 Grade 7 Grades 8 – 10

ADIB Annual Report 2021

Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

52,906 443,740 9,646 -

5,892 181,578 235,004 -

4,074,225

58,798 625,318 244,650 4,074,225

506,292

422,474

4,074,225

5,002,991

1,116 13,776 -

-

100

1,116 13,776 100

14,892

-

100

14,992

1,145 3,805 14 4,964

13 12,295 46,263 58,571

65,168 65,168

1,158 16,100 46,277 65,168 128,703

526,148

481,045

4,139,493

5,146,686

Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

88,698 241,940 20,603 -

54,665 136,801 308,341 -

3,252,236

143,363 378,741 328,944 3,252,236

351,241

499,807

3,252,236

4,103,284

7,021 5,165 -

695 -

2,893

7,021 5,860 2,893

12,186

695

2,893

15,774

1,531 5,534 86 7,151

2,094 47,429 49,523

64,588 64,588

1,531 7,628 47,515 64,588 121,262

370,578

550,025

3,319,717

4,240,319

137

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.5 Credit quality per class of financial assets continued It is the Group’s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates focused management of the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of financial and qualitative analysis, combined with processed market information to provide the main inputs for the measurement of counterparty risk. All internal risk ratings are tailored to the various categories and are derived in accordance with the Group’s rating policy. The risk ratings models are assessed and updated regularly. The Moody’s equivalent grades are relevant only for certain of the exposures in each risk rating class. A number of new rating models aligned to specific business segments, were introduced during the course of the year.

Renegotiated murabaha, ijara and other Islamic financings The total carrying amount of financing to non-related parties whose terms have been renegotiated during the year, excluding deferrals offered under the TESS programme, amounted to AED 599,651 thousand (2020: AED 1,637,060 thousand).

42.2.6 Credit quality per stage for financial assets The details of gross exposure of financial assets and their expected credit losses per stages was as follows: Gross Exposure

31 December 2021 Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investment in sukuk measured at amortised cost Investments measured at fair value Other assets

Stage1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

3,577,447

176,357

-

3,753,804

360

13,761

-

14,121

790,670

-

-

790,670

214

-

-

214

2,905,075 45,483,761 5,380,480 47,645,386

200,616 291,711

209,610 199,103

1,908,074 2,067,690

2,318,300 2,558,504

41,039,037 1,539,649 36,100,016 6,164,890 9,618,762

-

125,301

9,744,063

12,612

-

98,025

110,637

1,816,287 571,424

-

253 1,215

1,816,540 572,639

14,892 779

-

100 436

14,992 1,215

8,412,324 109,806,863

521,184

422,474

4,074,325

5,017,983

172,707 11,454,151

4,964

58,571

65,168

128,703

102,347,270 10,328,713 8,585,031 121,261,014

526,148

481,045

4,139,493

5,146,686

93,513,643 7,880,896 Contingent liabilities and commitments

31 December 2020 Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investment in sukuk measured at amortised cost Investments measured at fair value Other assets Contingent liabilities and commitments

138

Expected credit losses - (ECL)

8,833,627

2,447,817

1,982,126

319,585

-

2,301,711

98

14,479

-

14,577

54,753

78,159

-

132,912

24

24

-

48

33,362,644 38,983,893

1,596,250 5,775,370

2,993,330 4,695,294

37,952,224 49,454,557

192,821 139,221

225,817 256,352

1,555,495 1,627,714

1,974,133 2,023,287

10,174,709

140,120

125,253

10,440,082

18,326

2,352

69,027

89,705

1,685,741 335,943 86,579,809

18,045 355,805 8,283,334

7,287 1,711,073 691,748 7,821,164 102,684,307

12,186 751 363,427

695 783 500,502

2,893 3,255,129

15,774 1,534 4,119,058

12,337,040

1,230,089

13,736,050

7,151

49,523

64,588

121,262

98,916,849

9,513,423

7,990,085 116,420,357

370,578

550,025

3,319,717

4,240,320

168,921

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.6 Credit quality per stage for financial assets continued Movement in gross exposure by stage is as follows: Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

84,893,868 (3,514,772) (275,495) 1,123,317 7 (6,165,028) 36,740,631 (21,105,172)

8,265,289 3,514,772 (1,123,317) 816,233 137,131 (345,969) 633,451 (2,384,228)

7,813,877 275,495 (816,233) (7) (137,131) (137,052) 87,480 (306,824)

100,973,034 (6,648,049) 37,461,562 (23,796,224)

Balance at 31 December 2021 Sukuk carried at FVTOCI Balance at 1 January 2021 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized

91,697,356

7,880,896

8,412,071

107,990,323

1,685,741 (128,284) 689,658 (430,828)

18,045 (18,045)

7,287 (7,034) -

1,711,073 (135,318) 689,658 (448,873)

Balance at 31 December 2021 Contingent liabilities and commitments Balance at 1 January 2021 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 - Transfer from stage 3 to stage 1 - Transfer from stage 3 to stage 2 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized

1,816,287

-

253

1,816,540

12,337,240 (1,044,406) (9,179) 53,220 114 (2,813,725) 2,957,856 (2,647,493)

1,230,089 1,044,406 (53,220) (8,941) 1,856 (15,950) 388,826 (139,249)

168,921 9,179 8,941 (114) (1,856) (245) 227 (12,346)

13,736,250 (2,829,920) 3,346,90 (2,799,088)

8,833,627

2,447,817

172,707

11,454,151

102,347,270

10,328,713

8,585,031

121,261,014

Financial instruments carried at amortised cost Balance at 1 January 2021 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 - Transfer from stage 3 to stage 1 - Transfer from stage 3 to stage 2 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized

Balance at 31 December 2021

ADIB Annual Report 2021

139

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.6 Credit quality per stage for financial assets continued Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

87,280,171 (3,433,717) (2,273,210) 716,716 9,023 (6,196,593) 29,581,751 (20,790,073) -

6,000,390 3,433,717 (716,716) (435,204) 393,607 (178,848) 1,129,006 (1,360,663) -

5,452,960 2,273,210 435,204 (9,023) (393,607) (191,320) 612,263 (227,413) (138,397)

98,733,521 (6,566,761) 31,323,020 (22,378,149) (138,397)

84,894,068

8,265,289

7,813,877

100,973,234

1,159,851 (132,034) 657,924

18,429 (384) -

7,287 -

1,178,280 (125,131) 657,924

1,685,741

18,045

7,287

1,711,073

Balance at 1 January 2020 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 - Transfer from stage 3 to stage 1 - Transfer from stage 3 to stage 2 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized

11,316,776 (256,955) (36,533) 15,520 10 (622,913) 4,417,494 (2,496,359)

1,522,695 256,955 (15,520) (1,674) 604 (127,864) 146,892 (551,999)

154,684 36,533 1,674 (10) (604) (4,071) 67 (19,352)

12,994,155 (754,848) 4,564,453 (3,067,710)

Balance at 31 December 2020

12,337,040

1,230,089

168,921

13,736,050

98,916,849

9,513,423

7,990,085

116,420,357

Financial instruments carried at amortised cost Balance at 1 January 2020 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 - Transfer from stage 3 to stage 1 - Transfer from stage 3 to stage 2 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized Net amounts written off Balance at 31 December 2020 Sukuk carried at FVTOCI Balance at 1 January 2020 Other movements within the same stage New financial assets originated / purchased Balance at 31 December 2020 Contingent liabilities and commitments

140

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.6 Credit quality per stage for financial assets continued Movement in Expected credit losses (ECL) by stage is as follows: Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

351,241 (74,226) (63,477) 12,759 1 (52,617) 413,922 (81,311)

499,807 74,226 (12,759) (195,462) 23,920 (25,876) 77,767 (19,149)

3,252,236 63,477 195,462 (1) (23,920) 674,779 69,245 (157,053)

4,103,284 596,286 560,934 (257,513)

506,292

422,474

4,074,225

5,002,991

12,186 (831) 4,429 (892)

695 (695)

2,893 (2,793) -

15,774 (3,624) 4,429 (1,587)

Balance at 31 December 2021 Contingent liabilities and commitments - ECL

14,892

-

100

14,992

Balance at 1 January 2021 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 - Transfer from stage 3 to stage 1 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized

7,151 (7,709) (1,930) 12 5 (910) 11,202 (2,857)

49,523 7,709 (12) (1,726) 2,102 3,726 (2,751)

64,588 1,930 1,726 (5) (2,327) 16 (760)

121,262 (1,135) 14,944 (6,368)

4,964

58,571

65,168

128,703

526,148

481,045

4,139,493

5,146,686

Financial instruments carried at amortised cost - ECL Balance at 1 January 2021 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 - Transfer from stage 3 to stage 1 - Transfer from stage 3 to stage 2 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized Balance at 31 December 2021 Sukuk carried at FVTOCI - ECL Balance at 1 January 2021 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized

Balance at 31 December 2021

ADIB Annual Report 2021

141

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.6 Credit quality per stage for financial assets continued Stage 1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

404,987 (182,881) (936,703) 5,557 48 (17,127) 111,599 965,761 -

446,177 182,881 (5,557) (118,298) 52,035 12,175 50,606 (120,212) -

2,202,720 936,703 118,298 (48) (52,035) 291,517 349,208 (455,730) (138,397)

3,053,884 286,565 511,413 389,819 (138,397)

351,241

499,807

3,252,236

4,103,284

7,522 223 4,441

1,898 (1,203) -

2,893 -

9,420 1,913 4,441

Balance at 31 December 2020 Contingent liabilities and commitments - ECL

12,186

695

2,893

15,774

Balance at 1 January 2020 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized

9,619 (1,487) (7,426) 6 (42) 3,167 3,314

54,524 1,487 (6) (54) 1,250 19 (7,697)

46,149 7,426 54 17,855 24 (6,920)

110,292 19,063 3,210 (11,303)

7,151

49,523

64,588

121,262

370,578

550,025

3,319,717

4,240,320

Financial instruments carried at amortised cost - ECL Balance at 1 January 2020 - Transfer from stage 1 to stage 2 - Transfer from stage 1 to stage 3 - Transfer from stage 2 to stage 1 - Transfer from stage 2 to stage 3 - Transfer from stage 3 to stage 1 - Transfer from stage 3 to stage 2 Other movements within the same stage New financial assets originated / purchased Financial assets that have been derecognized Net amounts written off Balance at 31 December 2020 Sukuk carried at FVTOCI - ECL Balance at 1 January 2020 Other movements within the same stage New financial assets originated / purchased

Balance at 31 December 2020

42.2.7 Impairment reserve under the Central Bank of UAE (CBUAE) guidance The CB UAE issued a guidance note to banks and finance companies on the implementation of IFRS 9 on 30 April 2018 via notice no. CBUAE/ BSD/2018/458 addressing various implementation challenges and practical implications for Banks adopting IFRS 9 in the UAE (“the guidance”).

Pursuant to clause 6.4 of the guidance, a comparison between general and specific provision under Circular 28/2010 of CBUAE and IFRS 9 is as follows: 2021 AED ‘000

Impairment reserve: General General provisions under Circular 28/2010 of CBUAE Less: Stage 1 and Stage 2 provisions under IFRS 9 General provision transferred to the impairment reserve Impairment reserve: Specific Specific provisions under Circular 28/2010 of CBUAE Less: Stage 3 provisions under IFRS 9 Specific provision transferred to the impairment reserve Total provision transferred to the impairment reserve

2020 AED ‘000

1,365,541 (1,008,039) 357,502

1,296,387 (921,554) 374,833

3,225,397 (4,139,493) -

2,701,136 (3,319,717) -

357,502

374,833

As per the guidance note, where provisions under IFRS 9 exceed provisions under circular 28/10 of the CBUAE, no amount is required to be transferred to the impairment reserve.

142

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.8 Covid-19 and Expected Credit Loss (ECL) The existence of novel coronavirus (Covid-19) was confirmed in early 2020 and has spread globally, causing disruptions to businesses and economic activity. In response, governments and central banks have launched economic support and relief measures (including payment reliefs) to minimize the impact on individuals and corporates.

On 27 March 2020, IASB issued a guidance note, advising that both the assessment Significant Increase in Credit Risk (“SICR”) and the measurement of ECLs are required to be based on reasonable and supportable information that is available to an entity without undue cost or effort. In assessing forecast conditions, considerations should be given both to the effects of COVID-19 and significant government support measures being undertaken.

In line with other global regulators, the Central Bank of the UAE (“CB UAE”), under the Targeted Economic Support Scheme (‘TESS’), has facilitated the provisions of temporary relief from the payments of installments (principal and/or profit) on customer financing for all the affected private sector corporates, SMEs and individuals with specific conditions. Additionally, the program seeks to facilitate additional financing and liquidity capacity of banks, through the relief of existing capital and liquidity buffers.

In the determination of year 2021 ECL, the Group has considered the potential impact (based on the best available information) of the uncertainties caused by the Covid-19 pandemic and taken in to account the economic support and relief measures of governments and central banks. The Group has also considered the notices issued by the Central Bank of UAE with regards to the Targeted Economic Support Scheme (TESS) and ‘Treatment of IFRS9 Expected Credit Loss in the context of Covid-19 crisis’ as well as the guidance issued by the International Accounting Standards Board (IASB).

The Group has a dedicated IFRS 9 governance process established to review and approve IFRS 9 Stage migrations, management overlays to ECL estimates, and macro-economic scenarios and weightings.

42.2.8.1 Identifying whether a significant increase in credit risk (SICR) has occurred for IFRS 9 Under IFRS 9, financial instruments are required to be moved from Stage 1 to Stage 2 if and only if they have been the subject of a SICR since origination. A SICR occurs when there has been a significant increase in the risk of a default occurring over the expected life of a financial instrument.

The Group continues to assess financing customers for other indicators of unlikeliness to pay, taking into consideration the underlying cause of any financial difficulty and whether it is likely to be temporary as a result of Covid-19 or longer term.

In the absence of sufficient and timely data to update the credit ratings, which are a core element of assessing SICR, for the purpose of year 2021 reporting, the Group has applied variety of factors to quantify the potential impact.

As required by the TESS, the Group has also initiated a programme of payment relief for its impacted customers by deferring installment due for a period of one month to six months. These payment reliefs are considered as short-term liquidity to address financing customers cash flow issues. The relief offered to customers may indicate a SICR. However, the Group believes that the extension of these payment reliefs do not automatically trigger a SICR and a stage migration for the purposes of calculating ECL, where the impact on customer’s business is expected to be short term, as these are being made available to assist financing customers affected by the Covid-19 outbreak to resume regular payments. For all other customers, the Group continues to consider severity and extent of potential Covid-19 impact on economic sector and future outlook, cash flow and financial strength, agility and change in risk profile along with the past track record in determining SICR. This approach is consistent with the expectations of the Central Bank of UAE as referred to in the TESS notice.

As per the disclosure requirements of the Central Bank of UAE in the context of Covid-19, for the UAE operations, the Group has divided its customers benefitting from payment deferrals into two groups (Group 1 and Group 2). Customers not expected to face substantial changes in their creditworthiness, beyond liquidity issues caused by the Covid-19 crisis, have been retained in the same Stage as before entry into TESS scheme and categorized in Group 1.

Customers expected to be significantly impacted by Covid-19 in the long term and that are expected to face substantial deterioration in their creditworthiness have been categorized as Group 2. These customers have been assigned to Stage 2. In exceptional circumstances, Stage 3 migration may have also been triggered where a customer’s business, income streams and installment payment capacity were expected to be permanently impaired. Such customers have also been categorized in Group 2 with the respective ECL overlay.

The Group will continue to work with CB UAE and other regulatory authorities to refine and operationalize relief schemes being deployed to assist clients impacted by COVID-19.

42.2.8.2 Reasonableness of Forward Looking Information and probability weights In view of wide spread impact of COVID 19 on customer’s change in credit profile and overall impact on forward looking macroeconomic indicators, any changes in ECL models and estimate will be subject to high degree of uncertainty.

The Group has previously performed historical analysis and identified key economic variables impacting credit risk and ECL for each portfolio and expert judgement has also been applied in this process. These economic variables and their associated impact on PD, EAD and LGD vary by financial instrument. Forecast of these economic variables (the “base, upside and downside economic scenario”) are obtained externally on a monthly basis.

As per the CBUAE guidelines on the IFRS 9 under COVID 19, the Group has used the latest macroeconomic data and scenarios for year 2021 ECL estimates. The Group estimated year 2021 ECL using baseline, upside and downside scenarios with 40%, 30% and 30% weightings respectively.

ADIB Annual Report 2021

143

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.8 Covid-19 and Expected Credit Loss (ECL) continued 42.2.8.2 Reasonableness of Forward Looking Information and probability weights continued The Bank has reviewed the potential impact of COVID-19 on inputs and assumptions for IFRS 9 ECL measurement on the basis of available information. In view of very fluid and developing considerations, ascertaining reliability and reasonableness of any forward looking information is challenging. Notwithstanding this, recognizing the likely impacts of the crises on market-credit environment, the Group has assessed the impact of an increased probability for the pessimistic scenario in ECL management.

As with any economic forecasts, the projections and likelihoods of the occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected.

42.2.8.3 Analysis of customers benefiting from payment deferrals Deferral amount, Exposure at Default (EAD) and related Expected Credit Losses (ECL) for customers benefitting from payment deferrals The table below contains analysis of the deferral amount, Exposure at Default (EAD) and Expected Credit Losses (ECL) benefiting from deferrals under CBUAE TESS program as of 31 December 2021:

Number of customers

Deferral amount AED ‘000

Exposure at default (EAD) AED ‘000

Expected credit losses (ECL) AED ‘000

159,695 38

1,166,275 501

5,795,557 -

20,859 -

159,733

1,166,776

5,795,557

20,859

2,817 226

45,635 5,325

404,260 59,030

37,134 2,908

3,043

50,960

463,290

40,042

2,021 119

22,845 3,681

160,031 12,763

49,579 6,162

2,140

26,526

172,794

55,741

Total Retail banking

164,916

1,244,262

6,431,641

116,642

Wholesale banking: Stage 1 - Group 1 - Group 2

139 42

268,634 117,675

102,582 210,886

1,340 -

181

386,309

313,468

1,340

25 7

70,173 57,808

649,082 350,424

7,798 2,229

32

127,981

999,506

10,027

31 17

4,635 807

16,487 4,129

4,625 1,267

48

5,442

20,616

5,892

261

519,732

1,333,590

17,259

Retail banking: Stage 1 - Group 1 - Group 2

Stage 2 - Group 1 - Group 2 Stage 3 - Group 1 - Group 2

Stage 2 - Group 1 - Group 2 Stage 3 - Group 1 - Group 2

Total Wholesale banking

144

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.8 Covid-19 and Expected Credit Loss (ECL) continued 42.2.8.3 Analysis of customers benefiting from payment deferrals continued As per the requirements of the Central Bank of UAE, the Group has divided its customers benefitting from payment deferrals into two groups as follows: Group 1: includes those customers that are not expected to face substantial changes in their creditworthiness, beyond liquidity issues and are temporarily and mildly impacted by the Covid-19 crisis.

For these clients, the payment deferrals are believed to be effective and thus the economic value of the facilities is not expected to be materially affected. These customers will remain in their current IFRS 9 stage, at least for the duration of the crisis, or their distress, whichever is shorter.

Group 2: includes those customers that are expected to face substantial changes in their creditworthiness, in addition to liquidity issues that will be addressed by payment deferrals.

For these customers, there is sufficient deterioration in credit risk to trigger IFRS 9 stage migration. The Group continues to monitor the creditworthiness of these customers, particularly indications of potential inability to pay any of their obligations as and when they become due.

The impact of Covid-19 crisis continues to filter through into the real economy. In view of this, the Group has taken a proactive approach and on an ongoing basis for all customers, the Group continues to consider the severity and extent of potential Covid-19 impact on economic sectors and outlook, cash flow, financial strength, agility and change in risk profile along with the past track record and ongoing adaptation.

Accordingly, all staging and grouping decisions are subject to regular review to ensure these reflect an accurate view of the Group’s assessment of the customers’ creditworthiness, staging and grouping as of the reporting date.

Stage migrations of EAD and ECL since 31 December 2020 for customers benefiting from payment deferrals: 31 December 2021 - IFRS 9 (EAD)

Stage1 AED ‘000

Retail banking: At 1 January 2021 Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 Other movements

Stage 2 AED ‘000

Stage 3 AED ‘000

13,279,561 (321,834) 65,726 (7,227,896)

574,226 228,646 (117,319) 6,432 (228,695)

At 31 December 2021

5,795,557

463,290

172,794

6,431,641

Wholesale banking: At 1 January 2021 Transferred from Stage 1 Transferred from Stage 2 Other movements

1,613,031 (852,869) 210,886 (657,580)

245,888 852,869 (210,886) 111,635

1,080 19,536

1,859,999 (526,409)

313,468

999,506

20,616

1,333,590

At 31 December 2021

ADIB Annual Report 2021

42,503 93,188 51,593 (6,432) (8,058)

Total AED ‘000

13,896,290 (7,464,649)

145

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.2 Credit risk continued 42.2.8 Covid-19 and Expected Credit Loss (ECL) continued 42.2.8.3 Analysis of customers benefiting from payment deferrals continued 31 December 2021 – IFRS 9 (ECL)

Stage1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

63,573 (44,741) 569 1,458

69,562 14,309 (19,093) 1,045 (25,781)

44,863 30,432 18,524 (1,045) (37,033)

177,998 (61,356)

At 31 December 2021

20,859

40,042

55,741

116,642

Wholesale banking: At 1 January 2021 Transferred from Stage 1 Other movements

5,044 (8,565) 4,861

3,541 8,565 (2,079)

4,904 988

13,489 3,770

1,340

10,027

5,892

17,259

Retail banking: At 1 January 2021 Transferred from Stage 1 Transferred from Stage 2 Transferred from Stage 3 Other movements

At 31 December 2021

Change in ECL charge by products for Retail banking and wholesale banking customers benefiting from payment deferrals 31 December 2021 - IFRS 9 (ECL)

Stage1 AED ‘000

Stage 2 AED ‘000

Stage 3 AED ‘000

Total AED ‘000

60,449 (1,559) 1 (33,883) (4,148)

49,301 (521) 8 (14,439) 5,692

60,142 2,297 (23,391) 16,693

169,892 217 9 (71,713) 18,237

At 31 December 2021

20,860

40,041

55,741

116,642

Wholesale banking: At 1 January 2021 Corporates

4,410 (3,071)

4,176 5,851

4,904 989

13,490 3,769

1,339

10,027

5,893

17,259

Retail banking: At 1 January 2021 Vehicle murabaha Islamic covered cards (murabaha) Other murabaha Ijara

At 31 December 2021

146

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.3 Liquidity risk and funding management Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, manages assets with liquidity in mind, and monitors future cash flows and liquidity on a daily basis. This incorporates an assessment of expected cash flows, the maintenance and monitoring of the inventory of high grade collateral which could be used to secure additional funding if required.

The Group maintains a portfolio of highly quality and diverse securities that can be easily liquidated and/or used as collateral in the event of an unforeseen stress on of cash flow. The Group also has committed lines of credit that it can access to meet liquidity needs. In addition, the Bank maintains statutory deposits with the Central Bank. The liquidity position is assessed and managed under a variety of stress scenarios, given due consideration to severe yet plausible stress conditions relating to both the market in general and specifically to the Group.

The high quality of the investment portfolio ensures its liquidity and/or eligibility as acceptable collateral and coupled with the Bank’s own funds and “evergreen” customer deposits help these forms a stable funding source. Even under adverse conditions, the Bank has access to the funds necessary to cover customer needs and meet its funding requirements.

The primary tool for monitoring liquidity is the maturity mismatch analysis, which is monitored over successive time bands and across functional currencies. Guidelines are established for the cumulative negative cash flow over successive time bands. In addition, the Bank monitors various liquidity risk ratios and maintains an up-to-date contingency funding plan.

42.3.1 Treasury Treasury is responsible for managing the Bank’s assets and liabilities and the overall financial structure. It is also primarily responsible for managing the funding and liquidity risks of the Bank.

42.3.2 Asset & Liability Committee (“ALCO”) The Asset & Liability Management (“ALM”) process focusses on planning, acquiring, and directing the flow of funds through the organization.

The ultimate objective of this process is to generate adequate stable earnings and to steadily build equity over time, while taking measured business risk aligned to the overall risk appetite of the Bank. The Bank has a defined ALM policy which describes the objective, role and function of the ALCO. This process revolves around ALCO, the body within the Bank that holds the responsibility to make strategic decisions relating to the management of financial position related risks. The ALCO consists of the Bank’s senior management including the CEO and normally meets once a month.

42.3.3 Liquidity risk management process The Group’s liquidity risk management process, as carried out within the Group and monitored by a separate team in Group Treasury, includes: • Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes reenlistment of funds as they mature or when financing are provided to customers; • Maintaining a portfolio of highly marketable assets that can easily be liquated as protection against any unforeseen interruption to cash flow; •

Managing statement of financial position liquidity ratios against internal and regulatory requirements; and

•

Managing the concentration and profile of financing maturities.

ADIB Annual Report 2021

147

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.3 Liquidity risk and funding management continued 42.3.4 Analysis of financial assets and financial liabilities by remaining contractual maturities The table below summarises the maturity profile of the Group’s financial assets and liabilities at reporting date based on contractual maturities.

31 December 2021 ASSETS Cash and balances with central banks Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investments in Islamic sukuk measured at amortised cost Investments measured at fair value Investment in associates and joint ventures Other assets Financial assets

Less than 3 months AED ‘000

3 months to 1 year AED ‘000

1 year to 5 years AED ‘000

Over 5 years AED ‘000

Total AED ‘000

18,497,982

3,201,267

-

-

21,699,249

3,563,317 263,481 4,186,292 1,411,926 426,391 53,841 1,699,581

526,975 6,717,095 3,447,242 1,345,880 2,246,251 -

176,366 28,858,669 18,072,478 3,188,127 728,561 -

3,403,405 22,155,236 4,673,028 1,028,835 1,604,378 16,006

3,739,683 790,456 43,165,461 45,086,882 9,633,426 4,057,488 1,604,378 1,715,587

30,102,811

17,484,710

51,024,201

32,880,888

131,492,610

Non-financial assets

5,375,739

Total assets

136,868,349

LIABILITIES Due to financial institutions Depositors' accounts Other liabilities

3,535,952 107,396,917 2,544,373

2,209,351 61,996

4,835 533,715

22,150

3,535,952 109,611,103 3,162,234

Total liabilities

113,477,242

2,271,347

538,550

22,150

116,309,289

18,879,485

700,039

-

-

19,579,524

2,110,767 123,068 3,455,027 2,165,058 260,780 1,769,213

9,796 6,826,626 4,433,923 874,103 1,791,881 129,751

66,105 21,497,724 17,137,682 5,764,769 778,083 203,062

110,262 4,198,714 23,694,607 3,450,725 888,230 1,301,662 16,557

28,763,398

14,766,119

45,447,425

33,660,757

31 December 2020 ASSETS Cash and balances with central banks Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investments in Islamic sukuk measured at amortised cost Investments measured at fair value Investment in associates and joint ventures Other assets Financial assets Non-financial assets

Total liabilities

148

122,637,699 5,178,439

Total assets LIABILITIES Due to financial institutions Depositors' accounts Other liabilities

2,287,134 132,864 35,978,091 47,431,270 10,350,377 3,458,194 1,301,662 2,118,583

127,816,138

3,108,245 96,361,752 2,809,800

665,000 4,836,300 189,875

78,076 559,175

46,031

3,773,245 101,276,128 3,604,881

102,279,797

5,691,175

637,251

46,031

108,654,254

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.3 Liquidity risk and funding management continued 42.3.4 Analysis of financial assets and financial liabilities by remaining contractual maturities continued The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual undiscounted repayment obligations, including cash flows pertaining to principal repayment and profit payable to maturity.

Less than 3 months AED ‘000

3 months to 1 year AED ‘000

1 year to 5 years AED ‘000

Over 5 years AED ‘000

Total AED ‘000

31 December 2021 LIABILITIES Due to financial institutions Depositors' accounts Other liabilities

3,536,076 107,400,106 2,544,373

2,215,957 61,996

4,866 533,715

22,150

3,536,076 109,620,929 3,162,234

Total liabilities

113,480,555

2,277,953

538,581

22,150

116,319,239

3,108,264 96,367,328 2,809,800

665,000 4,854,458 189,875

79,899 559,175

46,031

3,773,264 101,301,685 3,604,881

102,285,392

5,709,333

639,074

46,031

108,679,830

31 December 2020 LIABILITIES Due to financial institutions Depositors' accounts Other liabilities Total liabilities

The disclosed financial instruments in the above table are the gross undiscounted cash flows.

The table below shows the contractual expiry of the Bank’s contingent liabilities and commitments. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

Less than 3 months AED ‘000

3 months to 1 year AED ‘000

1 year to 5 years AED ‘000

Over 5 years AED ‘000

Total AED ‘000

31 December 2021 Contingent liabilities Commitments

5,440,058 -

3,378,590 236,543

2,077,322 -

2,683 -

10,898,653 236,543

Total

5,440,058

3,615,133

2,077,322

2,683

11,135,196

31 December 2020 Contingent liabilities Commitments

6,725,835 4,986

1,426,851 172,206

5,000,198 -

472 -

13,153,356 177,192

Total

6,730,821

1,599,057

5,000,198

472

13,330,548

The Bank does not expect that all of the contingent liabilities or commitments will be drawn before expiry.

ADIB Annual Report 2021

149

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.4 Market risk Market risk arises from changes in market rates such as profit rates, foreign exchange rates and equity prices, as well as in their correlation and implied volatilities. Market risk management is designed to limit the amount of potential losses on open positions which may arise due to unforeseen changes in profit rates, foreign exchange rates or equity prices. The Group is exposed to diverse the financial instruments including securities, foreign currencies, equities, structured products and commodities.

The Group pays considerable attention to market risk. The Group uses appropriate models, as per standard market practice, for the valuation of its positions and receives regular market information in order to regulate market risk.

The trading market risk framework comprises of the following elements: • •

Limits to ensure that risk-takers do not exceed aggregate risk and concentration parameters set by the senior management; and Independent mark-to-market valuation, reconciliation of positions and tracking of stop-losses for trading positions on timely basis.

The policies and procedures and the trading limits are set to ensure the implementation of the Group’s market risk policy in day-to-day operations. These are viewed periodically to ensure they remain in line with the Group’s general market risk policy. The ALCO and ERC ensure that the market risk management process is always adequately and appropriately staffed. In addition to its internal procedures and systems, the Group is required to comply with the guidelines and regulations of the Central Bank.

42.4.1 Profit rate risk Profit rate risk arises from the possibility that changes in profit rates will affect future profitability or the fair values of financial instruments.

The Group is exposed to profit rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off-statement of financial position instruments that mature or re-price in a given period. The Group manages this risk through appropriate limits in place and frequent review of the bank’s structural position with regard to profit rate risk and its impact on earnings as well as the economic value of its shareholders’ equity.

The following table estimates the sensitivity to a reasonable possible change in profit rates, with all other variables held constant, of the Group’s consolidated income statement. The sensitivity of the consolidated income statement is the effect of the assumed changes in profit rates (whether increase or decrease) on the net profit for one year, based on the variable profit rate non-trading financial assets and financial liabilities held at 31 December.

2020

2021

Currency

AED USD Euro Other currencies

Increase in basis points

Sensitivity of profit on financial assets and liabilities AED ‘000

Increase in basis points

25 25 25 25

46,141 69,139 1,548 1,951

25 25 25 25

Sensitivity of profit on financial assets and liabilities AED ‘000

21,068 46,362 (378) 4,914

42.4.2 Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The table below indicates the extent to which the Group was exposed to currency risk at 31 December on its non-trading monetary assets and liabilities and forecast cash flows. The analysis is performed for a reasonable possible movement of the currency rate against AED with all other variable held constant on the consolidated income statement (due to the changes in fair value of currency sensitive non-trading monetary assets and liabilities) and equity (due to the change in fair value of foreign currency denominated in consolidated income statement on investments carried at fair value through other comprehensive income - equity instruments and investment in associates and joint ventures). % Increase currency rates

31 December 2021 Currency USD Euro GBP Other currencies

150

5 5 5 5

Effect on net profit AED ‘000

1,197,904 (3,828) (7,825) 24,902

Effect on equity AED ‘000

1,608 4,844 53,970

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.4 Market risk continued 42.4.2 Currency risk continued % Increase currency rates

31 December 2020 Currency USD Euro GBP Other currencies

5 5 5 5

Effect on net profit AED ‘000

Effect on equity AED ‘000

938,514 (4,994) (16,975) 33,940

2,419 4,806 38,724

The table below shows the Group’s exposure to foreign currencies.

31 December 2021 Financial assets Cash and balances with central banks Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investments in Islamic sukuk measured at amortised cost Investments measured at fair value Investment in associates and joint ventures Other assets

Financial liabilities Due to financial institutions Depositors’ accounts Other liabilities

31 December 2020 Financial assets Cash and balances with central banks Balances and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institutions Murabaha and other Islamic financing Ijara financing Investments in sukuk measured at amortised cost Investments measured at fair value Investment in associates and joint ventures Other assets

ADIB Annual Report 2021

AED AED ‘000

USD AED ‘000

Euro AED ‘000

GBP AED ‘000

Others AED ‘000

Total AED ‘000

19,976,643

711,779

1,141

7

1,009,679

21,699,249

1,136,333

2,192,412

50,903

484,658

3,739,683

28,579,355 37,634,131

12,237,261 7,370,943

706,924 21,670 1,019

83,532 196,812 38,674

790,456 43,165,461 45,086,882

87,925 429,141 1,328,794

9,633,426 3,830,565 350,611

138,607 96,096 108,152

391 1,079,141 67,357

9,633,426 4,057,488 1,604,378 1,715,587

89,172,322

36,326,997

1,124,512

1,908,535

2,960,244

131,492,610

1,756,451 95,372,621 2,291,423

137,946 11,620,920 577,879

106,908 953,836 43,462

1,043,815 916,017 105,207

490,832 747,709 144,263

3,535,952 109,611,103 3,162,234

99,420,495

12,336,745

1,104,206

2,065,039

1,382,804

116,309,289

18,249,198

600,248

1,102

-

728,976

19,579,524

13,358

1,908,192

6,634

35,046

323,904

2,287,134

27,326,905 39,696,922

7,083,764 7,196,021

44,951 96,943 1,291

1,310,463 385,187

87,913 160,016 151,849

132,864 35,978,091 47,431,270

60,437 433,690 1,434,002

10,350,377 3,255,821 1,858,778

135,761 95,816 313,940

(1,541,983)

6,175 772,156 34,408

10,350,377 3,458,194 1,301,662 2,099,145

87,214,512

32,253,201

696,438

2,265,397

122,618,261

(124,623) 2,130,363 42,115 (139,327)

188,713

151

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.4 Market risk continued 42.4.2 Currency risk continued

Financial liabilities Due to financial institutions Depositors’ accounts Other liabilities

AED AED ‘000

USD AED ‘000

Euro AED ‘000

GBP AED ‘000

Others AED ‘000

Total AED ‘000

2,899,742 87,279,150 3,000,295

576,775 12,469,964 387,803

24,447 666,191 9,554

134,107 315,916 78,191

138,174 544,907 129,038

3,773,245 101,276,128 3,604,881

93,179,187

13,434,542

700,192

528,214

812,119

108,654,254

42.4.3 Equity price risk Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices and the value of individual stocks. The equity price risk exposure arises from the Group’s quoted investments in the investment portfolio.

The following table estimates the sensitivity to a possible change in equity markets on the Bank’s consolidated other comprehensive income statement The effect on equity (as a result of a change in the fair value of equity instruments held as investments carried at fair value through other comprehensive income at 31 December) due to a reasonably possible change in equity indices, with all other variables held constant, is as follows:

Investments carried at fair value through profit or loss Other Markets

Investments carried at fair value through other comprehensive income Abu Dhabi Stock Market Dubai Financial Market

% Increase in market indices 2021

Effect on profit or loss 2021 AED ‘000

% Increase in market indices 2020

Effect on profit or loss 2020 AED ‘000

10

1,100

10

598

% Increase in market indices 2021

Effect on equity 2021 AED ‘000

% Increase in market indices 2020

Effect on equity 2020 AED ‘000

10 10

4,015 43

10 10

2,554 15

42.4.4 Operational risk Operational risk is the potential exposure to financial, reputational or other damage arising from inadequate or failed internal processes, people, systems or external events.

The Bank has implemented a detailed operational risk framework in accordance with Basel III guidelines. The framework articulates clearly defined roles and responsibilities of individuals / units and committees across the Group involved in the management of various operational risk elements. The Operational Risk Management Framework ensures that operational risks within the Group are properly identified, monitored, reported and actively managed. Key elements of the framework include Risk Reviews, “Risk & Control self-Assessment”, Loss Data Management, key risk indicators, controls testing, Issues & Actions Management and Reporting. The Framework also fully encompasses and integrates elements of Fraud Risk Prevention and Quality Assurance.

Business and support units are responsible for managing operational risks within their respective functional areas. They operate within the Bank’s operational risk management framework and ensure that risk is being pro-actively identified, monitored, reported and managed within their scope of work. The day-to-day operational risks are also managed through the adoption of a comprehensive system of internal control with multi-layers of defense and dedicated systems and procedures to monitor transactions, positions and documentation, as well as maintenance of key backup procedures and business contingency plan which are regularly assessed and tested.

152

ADIB Annual Report 2021

42 RISK MANAGEMENT continued 42.4 Market risk continued 42.4.5 Compliance risk review In 2014 ADIB became aware of certain financial transactions relating to U.S. dollar payments that potentially breached U.S. sanctions laws in effect at that time. After learning of these potential breaches, ADIB appointed external legal advisers to assist it in reviewing these transactions and reviewing its compliance with U.S. sanctions laws and its compliance processes generally. Following this review, ADIB submitted its findings to relevant regulators in the UAE and the USA in early 2017. This review also assisted ADIB in identifying additional steps to ensure compliance with applicable sanctions laws, and ADIB enhanced its processes accordingly. As at 31 December 2021, the relevant regulators have not responded following receipt of ADIB’s findings and, as such, the likely outcome of their review remains unknown.

42.5 Capital management The Central Bank of the UAE sets and monitors capital requirements for the Group as a whole. The CBUAE issued Basel III capital regulations, which came into effect from 1 February 2017 introducing minimum capital requirements at three levels, namely Common Equity Tier 1 (“CET1”), Additional Tier 1 (“AT1”) and Total Capital.

The additional capital buffers (Capital Conservation Buffer (“CCB”) and Countercyclical Capital Buffer (“CCyB”) maximum up to 2.5% for each buffer) introduced are over and above the minimum CET1 requirement of 7%.

For 2021 and onwards, CCB will be required to be maintained at 2.5% (2020: 2.5%) of the Capital base. CCyB is not yet in effect and is not required to be maintained for 2021 (2020: Nil).

As per the Central Bank regulation for Basel III, the minimum capital requirement as at 31 December 2021 is 13.0% inclusive of capital conservation buffer of 2.5%. However, effective from 15 March 2020 until 30 June 2022, banks are allowed to tap into the capital conservation buffer up to a maximum of 60% without supervisory consequences, as part of the measures adopted by the CBUAE to help banks deal with the COVID-19 crisis. Further, CBUAE has issued guidance on Accounting Provisions and Capital Requirements - Transitional Arrangement dated 22 April 2020. The Prudential Filter allows banks to add back increases in IFRS9 ECL provision, stage 1 and 2, from 31 December 2019 to the regulatory capital and transition over 5 years.

The minimum capital adequacy ratio as per Basel III capital regulation is given below:

Capital Ratio: a. Total for consolidated Group b. Tier 1 ratio for consolidated Group c. CET1 ratio for consolidated Group

Minimum capital requirement 2021

Minimum capital requirement 2020

11.50% 9.50% 8.00%

11.50% 9.50% 8.00%

The Group’s regulatory capital is analysed into three tiers: The Bank’s capital base is divided into three main categories, namely CET1, AT1 and Tier 2 (‘T2’), depending on their characteristics.

• CET1 capital is the highest quality form of capital, comprising share capital, share premium, legal, statutory and other reserves, fair value reserve, retained earnings, non-controlling interest after deductions for goodwill and intangibles and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes under ‘CBUAE’ guidelines; • AT 1 capital comprises an eligible non-common equity capital instrument; and • T2 capital comprises qualifying subordinated instrument and undisclosed reserve.

The primary objectives of the Group’s capital management are to ensure that the Group complies with externally imposed capital requirements and the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders’ value.

The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or to adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous year.

For credit and market risks, the Central Bank of the U.A.E. has issued guidelines for implementation of Standardised approach. For operational risk, the Central Bank of the U.A.E. has given Banks the option to use the Basic Indicators approach or the Standardised approach and the Bank has chosen to use the Basic Indicators approach.

The table below shows summarises the composition of Basel III regulatory capital and the ratios of the Group for the years ended 31 December 2020 and 2021. During those two years, the individual entities within the Group and the Group complied with all of the externally imposed capital requirements to which they are subject: ADIB Annual Report 2021

153

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

42 RISK MANAGEMENT continued 42.5

Capital management continued Basel III 31 December 2021 AED ‘000

31 December 2020 AED ‘000

Capital base Common Equity Tier 1 Additional Tier 1 capital Tier 1 capital Tier 2 capital

13,500,957 4,754,375 18,255,332 1,137,950

12,884,982 4,754,375 17,639,357 1,079,597

Total capital base

19,393,282

18,718,954

Risk weighted assets Credit risk Market risk Operational risk

91,036,016 2,893,484 10,513,631

86,367,747 2,546,050 10,659,881

104,443,131

99,573,678

Common Equity Tier 1 ratio

12.93%

12.94%

Total Tier 1 capital ratio

17.48%

17.71%

Total capital ratio

18.57%

18.80%

Total risk weighted assets Capital ratios

43 FAIR VALUE OF FINANCIAL INSTRUMENTS Quoted investments – at fair value Quoted investments represent marketable equities and sukuk that are measured at fair value. The fair values of these investments are based on quoted prices as of the reporting date. For investments carried at fair value through other comprehensive income, the impact of change in fair valuation from previous carrying amount has been recognized as a part of cumulative changes in fair values in consolidated statement of changes in equity through consolidated statement of comprehensive income.

Unquoted investments – at fair value The consolidated financial statements include investments in unquoted funds and private equities which are measured at fair value. Fair values are determined in accordance with generally accepted pricing models based on discounted cash flow analysis and capitalization of sustainable earnings basis. The valuation models include some assumptions that are not supported by observable market prices or rates. The impact of change in fair value from previous carrying amount has been recognized as a part of cumulative changes in fair values in consolidated statement of changes in equity through consolidated statement of comprehensive income.

In the opinion of management, the estimated carrying values and fair values of those financial assets and liabilities that are not carried at fair value in the consolidated financial statements are not materially different (except investment carried at amortised cost and investment in associates and joint ventures (note 21), since those financial assets and liabilities are either short term in nature or in the case of deposits and financing asset, are frequently repriced. The fair value of investments carried at amortised cost is disclosed below.

Fair value of investments - at amortised cost Investments carried at amortised cost - sukuk (note 19)

Carrying value 2021 AED ‘000

Fair value 2021 AED ‘000

Carrying value 2020 AED ‘000

Fair value 2020 AED ‘000

9,633,426

9,749,116

10,350,377

10,679,678

Fair value measurement recognized in the consolidated statement of financial position The Group uses the following hierarchy for determining and disclosing the fair value of financial instrument by valuation technique: Level 1: quoted (unadjusted prices in active markets for identical assets or liabilities).

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

154

ADIB Annual Report 2021

43 FAIR VALUE OF FINANCIAL INSTRUMENTS continued The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into level 1 to 3 based on the degree to which the fair value is observable.

Level 1 AED ‘000

Level 2 AED ‘000

Level 3 AED ‘000

Total AED ‘000

21,482

-

-

21,482

2,111,997

-

-

2,111,997

2,133,479

-

-

2,133,479

31 December 2021 Assets and Liabilities measured at fair value: Financial assets Investments carried at fair value through profit or loss Quoted investments Sukuk Investments carried at fair value through other comprehensive income Quoted investments Equities

40,579

-

-

40,579

1,744,142

-

-

1,744,142

1,784,721

-

-

Sukuk

-

-

72,398

72,398

Funds

-

-

23,351

23,351

Private equities

-

-

58,531

58,531

Sukuk

1,784,721

Unquoted investments

-

-

154,280

154,280

1,784,721

-

154,280

1,939,001

3,918,200

-

154,280

4,072,480

-

846

-

846

-

-

1,608,517

1,608,517

9,749,116

-

-

9,749,116

-

125,340

-

125,340

Level 1 AED ‘000

Level 2 AED ‘000

Level 3 AED ‘000

Total AED ‘000

Financial liabilities Shari’a compliant alternatives of swap (note 37) Assets for which fair values are disclosed: Investment properties (note 22) Investment carried at amortised cost - Sukuk Assets acquired in satisfaction of claims

31 December 2020 Assets and Liabilities measured at fair value: Financial assets Investments carried at fair value through profit or loss Quoted investments Sukuk

5,983

-

-

5,983

1,646,428

-

-

1,646,428

1,652,411

-

-

1,652,411

25,693

-

-

25,693

Investments carried at fair value through other comprehensive income Quoted investments Equities Sukuk

ADIB Annual Report 2021

1,638,636

-

-

1,638,636

1,664,329

-

-

1,664,329

155

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2021

43 FAIR VALUE OF FINANCIAL INSTRUMENTS continued Level 1 AED ‘000

Level 2 AED ‘000

Level 3 AED ‘000

Total AED ‘000

-

-

72,437

72,437

Funds

-

-

34,365

34,365

Private equities

-

-

50,426

50,426

Unquoted investments Sukuk

-

-

157,228

157,228

1,664,329

-

157,228

1,821,557

3,316,740

-

157,228

3,473,968

-

2,796

-

2,796

Financial liabilities Shari’a compliant alternatives of swap (note 37) Assets for which fair values are disclosed: Investment properties (note 22) Investment carried at amortised cost - Sukuk Assets acquired in satisfaction of claims

-

-

1,517,814

1,517,814

10,679,678

-

-

10,679,678

-

134,080

-

134,080

There were no transfers between level 1, 2 and 3 during the year.

A significant part of the investments classified under Level 3 are valued using inputs from investment managers and in the opinion of the management it is not practical to disclose the sensitivity of inputs to the valuation techniques used.

The following table shows a reconciliation of the opening and closing amount of level 3 of financial assets which are recorded at fair value:

At 1 January Net purchases (settlement)

2021 AED ‘000

2020 AED ‘000

157,228

171,717

13,279

(2,990)

Loss recorded in equity

(16,227)

(11,499)

At 31 December

154,280

157,228

44 SOCIAL CONTRIBTUIONS The social contributions (including donations and charity) made during the year amount to AED 20,000 thousand which were approved by the shareholders at the Annual General Assembly held on 04 April 2021.

During 2020, the social contributions (including donations and charity) were made amounting to AED 20,000 thousand after the approval by the shareholders at the Annual General Assembly held on 29 March 2020.

Dividend to charity relating to year ended 31 December 2021 amounting to AED 20,000 thousand is proposed by the Board of Directors for the approval by the shareholders at the forthcoming Annual General Assembly.

156

ADIB Annual Report 2021

ADIB Annual Report 2021

157

BASEL III PILLAR III DISCLOSURE

158

ADIB Annual Report 2021

BASEL III PILLAR III DISCLOSURE 31 DECEMBER 2021

SECTION

#

1. Overview of Risk Management and RWA

KM1 OVA OV1

LIA

TABLES AND TEMPLATES Key Metrics (at consolidated group level) Bank risk management approach Overview of RWA Differences between accounting and regulatory scopes of consolidation and mapping of financial statements with regulatory risk categories Main sources of differences between regulatory exposure amounts and carrying values in financial statements Explanations of differences between accounting and regulatory exposure amounts

3. Prudential valuation adjustments

PV1

Prudential valuation adjustments

No

4. Composition of Capital

CC1 CC2 CCA

Composition of regulatory capital Reconciliation of regulatory capital to balance sheet Main features of regulatory capital instruments

Yes Yes Yes

5. Macroprudential Supervisory measures

CCyB1

Geographical distribution of credit exposures used in the countercyclical buffer

Yes

6. Leverage Ratio

LR1 LR2

Summary comparison of accounting assets vs leverage ratio exposure Leverage ratio common disclosure template

Yes Yes

LIQA

Liquidity risk management

Yes

LIQ1 LIQ2 ELAR ASRR CRA CR1 CR2 CRB CRC CR3

Yes No No Yes

SEC4 MRA MR1 PRRBBA PRRBB1

Liquidity Coverage Ratio Net Stable Funding Ratio Eligible Liquid Assets Ratio Advances to Stable Resources Ratio General qualitative information about credit risk Credit quality of assets Changes in stock of defaulted financing and sukuk Additional disclosure related to the credit quality of assets Qualitative disclosure requirements related to credit risk mitigation techniques Credit risk mitigation techniques – overview Qualitative disclosures on Banks’ use of external credit ratings under the standardised approach for credit risk Standardised approach – credit risk exposure and Credit Risk Mitigation (CRM) effects Standardised approach – exposures by asset classes and risk weights Qualitative disclosure related to counterparty credit risk Analysis of counterparty credit risk (CCR) exposure by approach Standardised approach of CCR exposures by regulatory portfolio and risk weights Composition of collateral for CCR exposure Credit derivatives exposures Exposures to central counterparties Qualitative disclosure requirements related to securitisation exposures Securitisation exposures in the Banking book Securitisation exposures in the trading book Securitisation exposures in the Banking book and associated regulatory capital requirements – Bank acting as originator or as sponsor Securitisation exposures in the Banking book and associated capital requirements – Bank acting as investor General qualitative disclosure requirements related to market risk Market risk under standardised approach PRRBB risk management objective and policies Quantitative information on PRRBB

OR1 REMA REM1 REM2 REM3

Qualitative disclosure on operational risk Remuneration policy Remuneration awarded during the 2021 Special payments Deferred remuneration

2. Linkages Between Financial Statements and Regulatory Exposures

7. Liquidity

8. Credit Risk

LI1 LI2

CRD CR4

9. Counterparty Credit Risk

10. Securitisation

11. Market Risk 12. Profit Rate Risk in the Banking Book 13. Operational Risk Qualitative Disclosure 14. Remuneration policy

ADIB Annual Report 2021

CR5 CCRA CCR1 CCR3 CCR5 CCR6 CCR8 SECA SEC1 SEC2 SEC3

APPLICABLE Yes

Yes

Yes

Yes No

No

Yes Yes Yes Yes Yes Yes Yes Yes Yes

159

BASEL III PILLAR III DISCLOSURE 31 DECEMBER 2021

INTRODUCTION The Central Bank of the UAE sets and monitors capital requirements for the Group as a whole. The CBUAE issued Basel III capital regulations, which came into effect from 1 February 2017 introducing minimum capital requirements at three levels, namely Common Equity Tier 1 (“CET1”), Additional Tier 1 (“AT1”) and Total Capital.

The additional capital buffers (Capital Conservation Buffer (“CCB”) and Countercyclical Capital Buffer (“CCyB”) maximum up to 2.5% for each buffer) introduced are over and above the minimum CET1 requirement of 7%.

For 2021 and onwards, CCB will be required to be maintained at 2.5% (2020: 2.5%) of the Capital base. CCyB is not yet in effect and is not required to be maintained for 2021 (2020: Nil).

The Basel III framework is based on three pillars: • Pillar I – Minimum capital requirements: defines rules for the calculation of minimum capital for credit, market and operational risk. The framework allows for different approaches, which can be selected depending on size, sophistication and other considerations. These comprise for Credit Risk: Standardised, Foundation Internal Rating Based (FIRB), Advanced Internal Rating Based (AIRB); for Market Risk: Standardised and Internal Models Approach; and for Operational Risk: Basic Indicator Approach and Standardised Approach.

• Pillar II – Provides the framework for an enhanced supervisory review process with the objective of assessing the adequacy of the Bank’s capital to cover not only the three primary risks (Credit, Market and Operational), but in addition a series of other risks that the Bank may be exposed to; for example, concentration risk, residual risk, business risk, liquidity risk etc. It includes the requirement for banks to undertake an Internal Capital Adequacy Assessment Process (ICAAP) on an annual basis, which is subject to the Central Bank review and inspection.

• Pillar III – Market discipline: requires expanded disclosures, which allow regulators, investors and other market participants to more fully understand the risk profiles of individual banks. The requirements of Pillar III in the case of ADIB are fulfilled in this annual report.

The requirements of the Central Bank of the UAE act as the framework for the implementation of the Basel III Accord in the UAE. In November 2020, CBUAE issued revised standards and guidelines for Capital Adequacy in UAE via Circular 4980/2020. The revised version of the Standards also includes additional Guidance on the topics of Credit Risk, Market Risk, and Operational Risk.

Following are the changes in the revised standards which have been adopted either prior to or during 2021: •

The Tier Capital Supply Standard

•

Tier Capital Instruments Standard

•

Pillar 2 Standard: Internal Capital Adequacy Assessment Process (ICAAP)

•

Credit Risk, Market Risk and Operational Risk

•

Equity Investment in Funds, Securitisation, Counterparty Credit Risk, Leverage Ratio

In addition, Credit Value Adjustment (CVA) for Pillar 1 and 3 will be effective from 30 June 2022.

The purpose of Pillar 3 - Market Discipline is to complement the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). The CBUAE supports the enhanced market discipline by developing a set of disclosure requirements which will allow market participants to assess key information on the scope of application, capital, risk exposure, risk assessment process and hence the capital adequacy of the Group. The revised Pillar 3 disclosures, based on a common framework, are an effective means of informing the market about the risks faced by the Group, and provide a consistent and understandable disclosure framework that enhances transparency and improves comparability and consistency.

In compliance with the CBUAE Basel III standards and guidelines, these disclosures include qualitative and quantitative information on the Group’s risk management objectives and policies, risk assessment processes, capital management and capital adequacy. Many of these requirements have already been satisfied in note 42 to the 2021 ADIB Consolidated Financial Statements, which covers in detail the risk and capital management processes of the Bank and its compliance with the Basel III Accord in this regard.

The following Pillar III disclosures provide additional qualitative and quantitative information over and above that contained in note 42 to the 2021 ADIB Consolidated Financial Statements and together with the information contained in note 42, meet the full disclosure requirements of Pillar III. Verification The Pillar 3 Disclosures for the year 2021 have been reviewed by the Group’s internal auditors.

160

ADIB Annual Report 2021

ADIB Annual Report 2021

161

Egypt UAE UAE Bosnia Kingdom of Saudi Arabia UAE UAE

UAE BVI UAE UAE UAE United Kingdom British Channel Islands Cayman Islands Cayman Islands Cayman Islands Cayman Islands Cayman Islands

51 51 51

49 29 42 27

-

95 100 100 100 100 100

% Ownership

Islamic Retail Finance Currency Exchange Merchant acquiring

Islamic Banking Real Estate Fund Islamic insurance Islamic banking

Special Purpose Vehicle Special Purpose Vehicle Special Purpose Vehicle Special Purpose Vehicle Special Purpose Vehicle Special Purpose Vehicle

Equity Brokerage Services Equity Brokerage Services Real Estate Investments Real Estate Services Manpower Supply Other services

Description

Deduction treatment Deduction treatment Deduction treatment

Deduction treatment Deduction treatment Deduction treatment Deduction treatment

Fully consolidated Fully consolidated Fully consolidated Fully consolidated Fully consolidated Fully consolidated

Fully consolidated Fully consolidated Not consolidated Not consolidated Not consolidated Fully consolidated

Treatment - Regulatory

Equity Method Equity Method Equity Method

Equity Method Equity Method Equity Method Equity Method

Fully consolidated Fully consolidated Fully consolidated Fully consolidated Fully consolidated Fully consolidated

Fully consolidated Fully consolidated Fully consolidated Fully consolidated Fully consolidated Fully consolidated

Treatment - Accounting

* The Bank does not have any direct holding in these entities and they are considered to be a subsidiary by virtue of control. ** In accordance with the Circular No. 52/2017 and the Capital Supply standard, the consolidated entity includes all subsidairies except commercial entities for the purpose of Basel III calculations and is subject to treatment outlined section 5 of “Tier Capital Supply Standard” related to “Significant investment in commercial entities”.

Saudi Finance Company CSJC Arab Link Money Transfer PSC (under liquidation) Abu Dhabi Islamic Merchant Acquiring Company LLC

Abu Dhabi Islamic Bank - Egypt (S.A.E) The Residential REIT (IC) Limited Abu Dhabi National Takaful PJSC Bosnia Bank International D.D

SIGNIFICANT INVESTMENT

ADIB Holdings (Jersey) Ltd* (under liquidation) ADIB Sukuk Company Ltd.* ADIB Sukuk Company II Ltd.* ADIB Capital Invest 1 Ltd.* ADIB Capital Invest 2 Ltd.* ADIB Alternatives Ltd.*

SUBSIDIARIES Abu Dhabi Islamic Securities Company LLC ADIB Invest 1 Burooj Properties LLC ** MPM Properties LLC ** Kawader Services LLC ** ADIB (UK) Limited

Country of Incorporation

INFORMATION ON SUBSIDIARIES AND SIGNIFICANT INVESTMENT AS ON 31 DECEMBER 2021

BASEL III PILLAR III DISCLOSURE

1. OVERVIEW OF RISK MANAGEMENT AND RWA KM1: Key metrics (at consolidated group level): Overview of risk management, key prudential metrics and RWA categories a

b

31 December 2021 AED ‘000

30 September 2021 AED ‘000

13,500,957 13,414,700 18,255,332 18,169,075 19,393,282 19,306,779

14,172,625 14,092,025 18,927,000 18,846,400 20,043,767 19,962,937

104,443,131

102,951,372

12.93% 12.85% 17.48% 17.40% 18.57% 18.49%

13.77% 13.69% 18.38% 18.31% 19.47% 19.39%

2.50% 0.00% 0.00% 2.50% 5.93%

2.50% 0.00% 0.00% 2.50% 6.77%

141,905,698 12.86% 12.80% 12.86%

139,413,956 13.58% 13.52% 13.58%

Liquidity Coverage Ratio 15 Total HQLA 16 Total net cash outflow 17 LCR ratio (%)

N/A N/A N/A

N/A N/A N/A

Net Stable Funding Ratio 18 Total available stable funding 19 Total required stable funding 20 NSFR ratio (%)

N/A N/A N/A

N/A N/A N/A

Eligible Liquidity Asset Ratio (ELAR) 21 Total HQLA 22 Total liabilities 23 Eligible Liquid Assets Ratio (ELAR) (%)

22,623,159 114,755,556 19.7%

22,366,626 112,281,473 19.9%

Advances to Stable Resources Ratio (ASRR) 24 Total available stable funding 25 Total Advances 26 Advances to Stable Resources Ratio (ASRR) (%)

107,236,387 93,071,118 86.8%

107,184,325 88,792,837 82.8%

Available capital (amounts) 1 Common Equity Tier 1 (CET1) 1a Fully loaded ECL accounting model 2 Tier 1 2a Fully loaded accounting model Tier 1 3 Total capital 3a Fully loaded ECL accounting model total capital Risk-weighted assets (amounts) 4 Total risk-weighted assets (RWA) Risk-based capital ratios as a percentage of RWA 5 Common Equity Tier 1 ratio (%) 5a Fully loaded ECL accounting model CET1 (%) 6 Tier 1 ratio (%) 6a Fully loaded ECL accounting model Tier 1 ratio (%) 7 Total capital ratio (%) 7a Fully loaded ECL accounting model total capital ratio (%) Additional CET1 buffer requirements as a percentage of RWA 8 Capital conservation buffer requirement (2.5% from 2019) (%) 9 Countercyclical bugger requirement (%) 10 Bank D-SIB additional requirements (%) 11 Total of bank CET1 specific buffer requirements (%) (row 8 + row 9+ row 10) 12 CET1 available after meeting the bank's minimum capital requirements (%) Leverage Ratio 13 Total leverage ratio measure 14 Leverage ratio (%) (row 2/row 13) 14a Fully loaded ECL accounting model leverage ratio (%) (row 2A/row 13) 14b Leverage ratio (%) (excluding the impact of any applicable temporary exemption of central bank reserves)

Decrease in CET1 ratio for December 2021 due to adjustment of proposed dividend for 2021 as required by CB UAE regulation, standard and guidance for Basel III. 162

ADIB Annual Report 2021

OVA: BANK RISK MANAGEMENT APPROACH a) Business model determination and interaction with the overall Risk profile Abu Dhabi Islamic Bank (“ADIB” or “the Bank”) and its subsidiaries create a leading regional Shari’a compliant financial services group (“the Group”) to carry out full banking services, financing and investing activities through various Islamic financial instruments such as Murabaha, Istisna’a, Mudaraba, Musharaka, Ijara, Wakalah, Sukuk, etc.

The activities of the Bank are conducted in accordance with Islamic Shari’a, as determined by the Internal Shari’a Supervisory Committee, and supervised by the Board of Directors (“the Board”) in line with Central Bank of UAE (“CBUAE”) regulations.

The primary objective of Risk Management approach is to protect the Bank’s assets from the various risks the Bank is exposed to and maximize shareholders value. The Bank undertakes a wide variety of businesses with risks inherent in such activities. Accordingly, the risk is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls in accordance with regulatory and Board requirements. The important aspects of the Bank’s risk management are risk governance, risk architecture, approval mechanism, processes, guidelines, and an elaborate internal control mechanism.

The key risks that the Bank is exposed to are: credit risk, liquidity risk, market risk and operational risk. Besides these, the Bank is also exposed to other risks such as reputational risk, conduct risk, legal risk, Sharia’h non-compliance risk, and other risks. These risks are regularly monitored and actively managed.

A well-defined risk governance framework is in place with the overall responsibility of risk management vested with the Board of Directors managed through various Board-level risk committees. b) The Risk Governance Structure The summary of ADIB’s Risk Governance model is as follows: Risk Identification

Risk Measurement

Control Mitigation

Monitoring Reporting

Risk Culture: Principles and Policies Risk Appetite: Statement and Limits Risk Governance: Roles and Responsibilities Risk Management: Risk Organization, Tools, and Processes The primary goal of risk management approach is to ensure that the outcome of risk-taking activities is consistent with the Bank’s strategies and its risk appetite, and that there is an appropriate balance between risk and reward to maximize shareholder returns. The Bank’s Risk Governance Framework provides the foundation for achieving these goals and consists of four key elements: Risk Culture, Risk Appetite, Risk Governance, and Risk Management functions. It is a set of principles, processes and organization arrangement to ensure that risks are adequately managed throughout the Bank.

The risk environment in which the Bank operates changes continuously, caused by a range of factors, from the transactional level to macroeconomic events. The risk environment therefore requires continuous monitoring and assessment. The risk governance framework institutionalized across the Bank is subject to constant evaluation to ensure that it meets the challenges and requirements of the markets in which the Bank operates, including regulatory standards and industry best practices.

The Risk Governance Framework is designed to ensure that key risk types are managed in a consistent and efficient way and that decisions to accept or mitigate risks are taken expediently and transparently. This includes ensuring risk tolerance levels are set, exceptions and incidents are monitored, and that decisions and actions are taken where necessary.

The Framework is based on the ‘three lines of defence’ concept – risk taking business units, risk control units like Risk, Compliance and Internal Audit. The framework identifies the roles and responsibilities of key parties in the risk management process, the policies for how risks are managed, the tools and processes used and the reporting outputs that are generated.

Effective Risk Governance Framework demands active involvement of the Board and senior management in the formulation and oversight of risk management processes. The Board also ensures that senior management is fully capable of managing the activities that ADIB undertakes.

Executive management has the responsibility for day-to-day operations as delegated by the Board.

ADIB Annual Report 2021

163

BASEL III PILLAR III DISCLOSURE

OVA: BANK RISK MANAGEMENT APPROACH continued b) The Risk Governance Structure continued The Board has overall responsibility for the establishment and oversight of the Bank’s risk governance framework, as well as for approving the Bank’s overall risk appetite, and ensuring that business is conducted within this framework. The Board approves the Bank’s risk management policies which define the Bank’s risk strategy and is backed by appropriate qualitative and quantitative parameters, delegation of authorities to the Board committees, and Executives to approve financing exposures. The risk governance framework is in line with the international best practices, Basel Committee, and Central Bank of UAE guidelines.

The Group Risk Management (GRM) function is handled by an experienced team of risk professionals, under the leadership of Group Chief Risk Officer. Special units are also established to handle Fraud Prevention & Monitoring and Information Security.

GRM is an independent risk organization that works in close partnership with the business units to support their activities, whilst safeguarding the risk profile of the Bank as the second line of defense. The role of the GRM is to develop and implement the risk policies associated specifically with both quantifiable and non-quantifiable risks arising from the activities of the Bank and manage the day-to-day risks. GRM provides independent assurance that all types of risk are being managed in accordance with the policies set by the Board. Independent review of the Risk Governance Framework is carried out by the Internal Audit and Compliance functions.

The table below summarizes main Board and Management Committees, and key roles that have risk-related responsibilities: Board of Directors (having overall responsibility for risk oversight) Board-level committees with specific risk-related roles and responsibilities: • Strategy Committee (SC) • Risk and Investment Approval Committee (AC) • Governance and Risk Policy Committee (GRPC) • Audit Committee Management-level committees with specific risk-related roles and responsibilities: • Enterprise Risk Committee (ERC) • Asset and Liability Management Committee (ALCO) • Control and Compliance Committee (CCC) Business Units: • The risk-taking units are responsible as the first line of defence for the development and execution of business plans that are aligned with the Bank’s Risk Governance Framework and are accountable for the risks inherent in their business activities.

Group Risk Management (GRM): • Provides risk oversight and advisory to all lines of business for the key risk types.

• Responsible for setting-up the risk management frameworks and developing tools and methodologies for the identification, measurement, monitoring, control and testing of risk.

• Ensures that the core risk policies of the Bank are consistent and current and, sets the risk tolerance level through the approved Risk Appetite Statement.

• Responsible for the execution of various risk policies and related business decisions empowered by the Board.

• Responsible for generating and submitting timely and accurate risk reports to senior management for effective monitoring and business decisions.

Internal Audit: • Independently reviews control design, operations, and effectiveness of risk management process.

• Provide independent assurance to the Board and senior management on effective oversight of and adherence to the risk appetite.

In addition to a functionally and organizationally independent Risk Management at group-level, following functions also have key risk-related roles and responsibilities: • • • •

164

Global Credit Management (GCM) Finance and strategy Compliance Sharia compliance

ADIB Annual Report 2021

OVA: BANK RISK MANAGEMENT APPROACH continued c) Channels to communicate, decline, and enforce the Risk culture The Bank seeks to maintain a strong risk culture through the adoption of the following core principles: • • • • • •

The Board involvement Strong Corporate and Risk Governance Application and monitoring of a Risk Appetite Statement Independent Risk Management with adequate resources, tools and processes Risk Awareness across the Group Preservation of reputation by ensuring Shari’a and regulatory compliance

The comprehensive Governance structure is divided into following two levels, which provide adequate opportunity to communicate the risk culture: • Management-level committees • Board-level committees

d) The scope and main features of Risk measurement systems The integrity of the risk measurement systems is a key to monitor the risk profile relative to the risk appetite. The Bank has structured various Islamic financial instruments to meet the customers’ needs and demand. All these products are classified as financing assets in the Bank’s consolidated financial statements.

Credit risk measurement: The credit risk is measured in terms of expected credit loss (ECL). The Bank has developed a range of statistical and judgmental models to estimate ECL through a proprietary risk methodology.

The Bank has designed a master rating scale, which has 22 risk grades reflecting assessment of default probability of the customer. The master rating scale, based on quantitative and qualitative factors, comprises 19 performing grades and 3 non-performing grades. The risk rating process is intended to advise the various independent approval authorities of the inherent risks associated with the counterparty and assist in determining suitable pricing commensurate with the associated risk.

Market risk measurement: The Bank uses appropriate models for the valuation of its positions and receives regular market information to regulate market risk. Market risk arises from changes in market rates such as profit rates, foreign exchange rates and equity prices, as well as in their correlation and implied volatilities. The Bank is exposed to diverse financial instruments including securities, foreign currencies, equities, and commodities.

Profit Rate Risk arises from the possibility that the changes in profit rates will affect either the fair values or the future cash flows of the financial instruments. The Bank has established commission rate gap limits for stipulated periods. The Bank monitors its structural daily positions about profit rate risk and its impact on earnings as well as the economic value of its shareholders’ equity, and it also uses gap management strategies to ensure maintenance of positions within the established gap limits.

Operational risk measurement: The Bank has implemented a detailed Operational risk framework in accordance with Basel guidelines. The Operational Risk management processes are designed to function in a mutually reinforcing manner, and it encompasses Risk & Control Self-Assessment, Loss Data Management, Key Risk Indicators, control testing, Issues & Actions Management and Reporting. e) Process of Risk information reporting provided to the Board and Senior Management Detailed reporting of industry, customer and geographic risks acquired takes place frequently. These reports are examined and discussed closely in a series of quarterly portfolio reviews held with senior business and risk managers. Decisions on risk appetite, adjustments to financing criteria and other initiatives are taken as a result of these meetings. Risk reports are presented to the Chief Executive Officer, Enterprise Risk Committee, the Governance & Risk Policy Committee, and the Board regularly.

Reporting to Enterprise Risk Committee (ERC): The primary objective of the ERC is to ensure the Bank’s enterprise Risk Governance Framework, related policies, systems and practices are fully aligned with the Board approved strategy and risk appetite. The ERC also ensures risk governance of the Bank is sufficiently robust to meet the needs of the business.

ERC has membership from Group Heads of all business functions and Risk and is chaired by the Group CEO. The Committee reviews and monitors key enterprise risk profiles, trends, and exceptions on a periodic basis.

ADIB Annual Report 2021

165

BASEL III PILLAR III DISCLOSURE

OVA: BANK RISK MANAGEMENT APPROACH continued e) Process of Risk information reporting provided to the Board and Senior Management continued

Reporting to Governance and Risk Policy Committee (GRPC): GRPC is appointed by the Board to assist it in fulfilling its Risk Management oversight responsibilities across the Bank. f) Qualitative information on stress testing The Bank uses various techniques to gauge its vulnerability to exceptional but plausible stress events. The Bank adopts an Integrated Stress Testing approach to evaluate potential effects of different stressed events and/or movement in a set of economic variables on the Bank’s financial condition and their impact on the key financial and regulatory ratios. The approach determines the financial impact of both systemic risk and idiosyncratic risk scenarios on Bank’s capital adequacy simultaneously across three stress severity levels – Mild, Moderate and Severe.

Stress testing is based on the concept of ‘proportionality and complexity’ and its applicability to the activities of the Bank. Relevant factors include size, sophistication and diversification of activities, materiality of different risk types and the Bank’s vulnerability to them, etc. Stress testing is an important part of the risk management function in the Bank.

Besides, the Bank has comprehensive Liquidity Stress Testing in line with the guidelines issued by CBUAE. The Bank has comprehensive and specific Management Action Plans to ensure that capital and leverage ratios are managed well within the Risk Appetite thresholds if the key ratios come under unexpected pressure. g) The strategies and processes to manage, hedge, and mitigate Risks On an annual basis, the Risk Governance Framework is updated where key risks are identified, and actions are listed out to mitigate those risks. The identification of Key Risks and related mitigation plans are discussed in ERC and presented to GRPC, and to the Board of Directors on a regular basis. The mitigation plans are reviewed regularly, and the implementation of the required actions are monitored.

Also refer to “Risk Management-Introduction” Note 42.1 of the audited consolidated financial statements as of 31 December 2021.

OV1: OVERVIEW OF RWA a

b

c Minimum capital requirements

RWA

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

166

Credit risk (excluding counterparty credit risk) (CCR) Of which standardised approach (SA)

Counterparty credit risk (CCR) Of which standardised approach for counterparty credit risk

Equity investments in funds – look-through approach Equity investments in funds – mandate-based approach Equity investments in funds – fall-back approach Settlement risk Securitisation exposures in banking book Of which: securitistion external ratings-based approach (SEC-ERBA) Of which: securitistion standarised approach (SEC-SA) Market risk Of which standardised approach (SA) Operational risk

Total (1+6+10+11+12+13+14+15+16+20+23)

31 December 2021 AED ‘000

30 September 2021 AED ‘000

31 December 2021 AED ‘000

90,416,878 90,416,878

89,341,382 89,341,382

9,493,772 9,493,772

617,238 617,238

-

64,810 64,810

1,900 -

-

200 -

2,893,484 2,893,484

3,096,359 3,096,359

303,816 303,816

10,513,631

10,513,631

1,103,931

104,443,131

102,951,372

10,966,529

ADIB Annual Report 2021

OV1: OVERVIEW OF RWA continued •

Credit RWAs increased by 1.2% due to increase in exposure related to corporate & PSE.

•

The minimum capital requirements applied in column C is 10.5%.

•

Market risk decreased by 6.6% as compared to last period. The overall Market risk decreased due to decrease in General profit rate risk mainly because of lower USD Profit Rate Swap position compared to last period.

2. LINKAGES BETWEEN FINANCIAL STATEMENTS AND REGULATORY EXPOSURES LI1: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories 31 December 2021 a

b

c

d

e

f

g

Subject to the market risk framework AED ‘000

Not subject to capital requirements or subject to deduction from capital AED ‘000

Carrying values of items: Carrying values as reported in published financial statements AED ‘000

Carrying values under scope of regulatory consolidation AED ‘000

21,699,249

21,698,993

21,698,993

-

-

-

-

3,739,683

3,697,675

3,697,675

-

-

-

-

790,456

790,456

790,456

-

-

-

-

88,252,343

89,334,248

89,334,248

-

-

-

-

9,633,426

9,633,426

9,633,426

-

-

-

-

4,057,488

4,648,802

2,515,323

-

-

2,133,479

-

1,604,378 1,288,988 713,701 2,631,431 2,310,871 146,335

1,604,378 331,333 2,660,124 2,164,404 146,335

1,320,829 331,333 2,646,208 2,164,404 -

-

-

-

247,801 13,916 146,335

136,868,349

136,710,174

134,132,895

-

-

2,133,479

408,052

Liabilities Due to financial institutions 3,535,952 Depositors’ accounts 109,611,103 Other liabilities 3,162,234

-

-

-

-

-

-

Total liabilities

-

-

-

-

-

-

Assets Cash and balances with central banks Balance and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institution Murabaha, Ijara and other Islamic financing Investment in sukuk at amortised cost Investment measured at fair value Investment in associates and joint ventures Investment properties Development properties Other assets Property and equipment Goodwill and intangibles Total assets

116,309,289

Subject to credit risk framework AED ‘000

Subject to counterparty credit risk framework AED ‘000

Subject to the securitisation framework AED ‘000

Variance between the financial statements and the regulatory consolidation is due to non-consoldiation of commercial entities of the ADIB Group in regulatory consolidation i.e Burooj Properties LLC, MPM roperties LLC & Kawader Services LLC.

ADIB Annual Report 2021

167

BASEL III PILLAR III DISCLOSURE

2. LINKAGES BETWEEN FINANCIAL STATEMENTS AND REGULATORY EXPOSURES continued LI2: Main sources of differences between regulatory exposure amounts and carrying values in financial statements 31 December 2021 a

b

c

d

e

Items subject to:

Total

Asset carrying value amount under scope of regulatory consolidation (as per template LI1) Liabilities + Shares carrying value amount under regulatory scope of consolidation (as per template LI1) Total net amount under regulatory scope of consolidation Off-balance sheet amounts Derivatives Differences in valuations Differences due to different netting rules, other than those already included in row 2 Differences due to consideration of provisions Differences due to prudential filters Goodwill, Deferred tax and threshold deductions Exposure amounts considered for regulatory purposes

Credit risk framework AED ‘000

Securitisation framework AED ‘000

Counterparty credit risk framework AED ‘000

Market risk framework AED ‘000

136,710,174

134,132,895

-

-

2,133,479

136,710,174 11,625,526 1,260,771 -

132,132,895 11,625,526 -

-

1,260,771 -

2,133,479 -

688,663 (408,052)

-

-

-

-

149,877,082

145,758,421

-

1,260,771

2,133,479

LIA: Explanations of differences between accounting and regulatory exposure amounts a) Explanation of significant differences between the amounts in columns (a) and (b) in LI1 Variance between the financial statements and the regulatory consolidation is due to non-consoldiation of commercial entities of the ADIB Group in regulatory consolidation i.e Burooj Properties LLC, MPM roperties LLC & Kawader Services LLC. b) Explanation of the origins of differences between carrying values and amounts considered for regulatory purposes shown in LI2 In on-balance sheet and off-balance sheet amounts. there are no differences between carrying values as reported in published financial statements and carrying values under scope of regulatory consolidation. However, derivatives amounts have been reported as credit equivalent amounts under both (a) and (d). c) i. Valuation methodologies, including an explanation of how far mark-to-market and mark-to-model methodologies are used. ii. Description of the independent price verification process. iii. Procedures for valuation adjustments or reserves (including a description of the process and the methodology for valuing trading positions by type of instrument).

Please refer note 4, 22 and 43 of the audited consolidated financial statements as of 31 December 2021. d) Banks with insurance subsidiaries ADIB Group does not have any insurance subsidiary.

168

ADIB Annual Report 2021

3. PRUDENTIAL VALUATION ADJUSMENTS PV1: Prudential valuation adjustments (PVAs) Not applicable

4. COMPOSITION OF CAPITAL CC1: Composition of regulatory capital 31 December 2021 a

b

Amounts AED ‘000

Common Equity Tier 1 capital: instruments and reserves Directly issued qualifying common share (and equivalent for non-joint stock companies) capital plus related stock surplus Retained earnings Accumulated other comprehensive income (and other reserves) Directly issued capital subject to phase-out from CET1 (only applicable to non-joint stock companies) Common share capital issued by third parties (amount allowed in group CET1) Common Equity Tier 1 capital before regulatory deductions Common Equity Tier 1 capital regulatory adjustments Prudent valuation adjustments Goodwill (net of related tax liability) Other intangibles including mortgage servicing rights (net of related tax liability) Deferred tax assets that rely on future profitability, excluding those arising from temporary differences (net of related tax liability) Cash flow hedge reserve Securitisation gain on sale Gains and losses due to changes in own credit risk on fair valued liabilities Defined benefit pension fund net assets Investments in own shares (if not already subtracted from paid-in capital on reported balance sheet) Reciprocal cross-holdings in CET1, AT1, Tier 2 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation (amount above 10% threshold) Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) Amount exceeding 15% threshold Of which: significant investments in the common stock of financials Of which: deferred tax assets arising from temporary differences CBUAE specific regulatory adjustments Total regulatory adjustments to Common Equity Tier 1 Common Equity Tier 1 capital (CET1)

ADIB Annual Report 2021

3,632,000 5,645,036 4,803,175 -

Source based on reference numbers/ letters of the balance sheet under the regulatory scope of consolidation AED ‘000

Same as (b) from CC2 template

14,080,211 (146,335) -

CC2 (a)

(13,916) (135,454) -

(283,549) (579,254) 13,500,957

169

BASEL III PILLAR III DISCLOSURE

4. COMPOSITION OF CAPITAL continued CC1: Composition of regulatory capital continued 31 December 2021 a

b

Amounts AED ‘000

Additional Tier 1 capital: instruments Directly issued qualifying Additional Tier 1 instruments plus related stock surplus OF which: classified as equity under applicable accounting standards Of which: classified as liabilities under applicable accounting standards Directly issued capital instruments subject to phase-out from additional Tier 1 Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in AT1) Of which: instruments issued by subsidiaries subject to phase-out

4,754,375 4,754,375 -

4,754,375

Additional Tier 1 capital: regulatory adjustments Investments in own additional Tier 1 instruments Investments in capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation CBUAE specific regulatory adjustments Total regulatory adjustments to additional Tier 1 capital Additional Tier 1 capital (AT1)

4,754,375 18,255,332

Tier 2 capital: instruments and provisions Directly issued qualifying Tier 2 instruments plus related stock surplus Directly issued capital instruments subject to phase-out from Tier 2 Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 30) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) Of which: instruments issued by subsidiaries subject to phase-out Provisions

1,137,950

Tier 2 capital before regulatory adjustments

1,137,950

Tier 2 capital: regulatory adjustments Investments in own Tier 2 instruments Investments in capital, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) Significant investments in the capital, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) CBUAE specific regulatory adjustments Total regulatory adjustments to Tier 2 capital Tier 2 capital (T2) Total regulatory capital (TC = T1 + T2) Total risk-weighted assets

170

CC2 (c)

-

Additional Tier 1 capital before regulatory adjustments

Tier 1 capital (T1= CET1 + AT1)

Source based on reference numbers/ letters of the balance sheet under the regulatory scope of consolidation AED ‘000

-

-

1,137,950 19,393,282 104,443,131

ADIB Annual Report 2021

4. COMPOSITION OF CAPITAL continued CC1: Composition of regulatory capital continued 31 December 2021 a

b

Amounts AED ‘000

Capital ratios and buffers Common Equity Tier 1 (as a percentage of risk-weighted assets) Tier 1 (as a percentage of risk-weighted assets) Total capital (as a percentage of risk-weighted assets) Institution specific buffer requirement (capital conservation buffer plus countercyclical buffer requirements plus higher loss absorbency requirement, expressed as a percentage of risk-weighted assets) Of which: capital conservation buffer requirement Of which: bank-specific countercyclical buffer requirement Of which: higher loss absorbency requirement (e.g. DSIB) Common Equity Tier 1 (as a percentage of risk-weighted assets) available after meeting the bank's minimum capital requirement.

12.93% 17.48% 18.57%

2.50% 2.50% 0.00% 0.00% 5.93%

The CBUAE Minimum Capital Requirement Common Equity Tier 1 minimum ratio Tier 1 minimum ratio

9.50% 11.00%

Total capital minimum ratio

13.00%

Amounts below the thresholds for deduction (before risk weighting) Significant investments in common stock of financial entities

-

Deferred tax assets arising from temporary differences (net of related tax liability)

-

Applicable caps on the inclusion of provisions in Tier 2 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach (prior to application of cap)

1,137,950

Cap on inclusion of provisions in Tier 2 under standardised approach

-

Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022) Current cap on CET1 instruments subject to phase-out arrangements Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) Current cap on AT1 instruments subject to phase-out arrangements Amount excluded from AT1 due to cap (excess after redemptions and maturities) Current cap on T2 instruments subject to phase-out arrangements Amount excluded from T2 due to cap (excess after redemptions and maturities)

-

ADIB Annual Report 2021

Source based on reference numbers/ letters of the balance sheet under the regulatory scope of consolidation AED ‘000

171

BASEL III PILLAR III DISCLOSURE

4. COMPOSITION OF CAPITAL continued CC2: Reconciliation of regulatory capital to balance sheet

a

b

Balance sheet as in published financial statements Dec-21

Assets Cash and balances with central banks Balance and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institution Murabaha, Ijara and other Islamic financing Investment in sukuk at amortised cost Investment measured at fair value Investment in associates and joint ventures Investment properties Development properties Other assets Property and equipment Goodwill and intangibles

c

Under regulatory scope of consolidation Dec-21

21,699,249 3,739,683 790,456 88,252,343 9,633,426 4,057,488 1,604,378 1,288,988 713,701 2,631,431 2,310,871 146,335

21,698,993 3,697,675 790,456 89,334,248 9,633,426 4,648,802 1,604,378 331,333 2,660,124 2,164,404 146,335

Total assets

136,868,349

136,710,174

Liabilities Due to financial institutions Depositors’ accounts Other liabilities

3,535,952 109,611,103 3,162,234

-

Total liabilities

116,309,289

-

3,632,000 3,632,000 2,640,705 2,633,934 400,000 6,741,105 (254,626) 4,754,375

3,632,000 3,632,000 2,624,028 2,611,973 400,000 5,566,326 (968,280) 4,754,375

20,547,493

18,620,422

11,567

-

20,559,060

18,620,422

Equity Share capital Of which: amount eligible for CET1 Of which: amount eligible for AT1 Legal reserve General reserve Credit risk reserve Retained earnings Other reserves Tier 1 sukuk Equity attributable to the equity and Tier 1 sukuk holders of the Bank Non-controlling interest Total equity

172

Reference

(a)

(b)

(c)

ADIB Annual Report 2021

4. COMPOSITION OF CAPITAL continued CCA: Main features of regulatory capital instruments

Quantitative / Qualitative information 1 2 3

4 5 6 7

8 9 9a 9b 10 11 12 13 14

15

16

17

18 19

Issuer Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private placement) Governing law(s) of the instrument Regulatory treatment Transitional arrangement rules (i.e. grandfathering) Post-transitional arrangement rules (i.e. grandfathering) Eligible at solo/group/group and solo Instrument type (types to be specified by each jurisdiction) Amount recognised in regulatory capital (currency in millions, as of most recent reporting date) Nominal amount of instrument Issue price Redemption price Accounting classification Original date of issuance Perpetual or dated Original maturity date Issuer call subject to prior supervisory approval

Optional call date, contingent call dates and redemption amount

Subsequent call dates, if applicable Coupons / dividends

Fixed or floating dividend/coupon

Coupon rate and any related index Existence of a dividend stopper

ADIB Annual Report 2021

Abu Dhabi Islamic Bank

Abu Dhabi Islamic Bank & Subsidiaries

Abu Dhabi Islamic Bank

N/A UAE Law

XS1870373443 English Law

N/A UAE Law

N/A

N/A

Additional Tier 1 Solo and Group

Additional Tier 1 Solo and Group

Ordinary shares

Sukuk

Sukuk

AED 3,632 million N/A N/A N/A Equity Various Perpetual N/A

USD 750 million USD 750 million 100% Refer point 15 below Equity 20 September 2018 Perpetual N/A

AED 2 million AED 2 million 100% Refer to point 15 below Equity 16 April 2009 Perpetual N/A Yes

N/A

Yes On the First Call Date, 20 September 2023 (at par); following a Tax Event (at par) (at any time); and following a Capital Event (at 101%) (at any time).

Any period distribution date after the first call date.

N/A

Expected mudaraba profit rate for initial period of 5 years and for every 5th year thereafter resets to new Expected mudaraba profit rate.

N/A N/A

7.125% (expected mudaraba profit rate for initial period of 5 years) and resets the then 5 years US treasury rate plus expected margin of 4.270% Yes

Common Equity Tier 1 Common Equity Tier 1 Solo and Group

No

N/A

On the Call Date, 16 April 2027 (at par); following a Tax Event (at par) (at any time); and following a Capital Event (at par) (at any time).

Any period distribution date after the call date.

Expected mudaraba profit rate for initial period of 5 years and after the initial period bear an Expected variable mudaraba profit rate.

6.0% (expected mudaraba profit rate for initial period of 5 years) and after initial period of 5 years bear as expected variable mudaraba profit rate payable of 6month Eibor plus expected margin of 2.3% Yes

173

BASEL III PILLAR III DISCLOSURE

4. COMPOSITION OF CAPITAL continued CCA: Main features of regulatory capital instruments continued

Quantitative / Qualitative information

21

Fully discrectionary, partially discrectionary or mandatory (in terms of timing) Fully discrectionary, partially discrectionary or mandatory (in terms of amount) Existence of step-up or other incentive to redeem

22 23 24

Non-cumulative or cumulative Convertible or non-convertible Writedown feature

25 26 27

If writedown, writedown trigger(s) If writedown, full or partial If writedown, permanent or temporary If temporary write-own, description of writeup mechanism Type of subordination Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument in the insolvency creditor hierarchy of the legal entity concerned).

Non-compliant transitioned features If yes, specify non-compliant features

20a 20b

28 28a

29 30 31

Fully Discretionary Fully Discretionary

Fully Discretionary

Fully Discretionary

Fully Discretionary

Fully Discretionary

No

No

N/A N/A N/A

Non-cumulative Non-convertible Yes Contractual Non-Viability Loss Absorption as detailed in the issue prospectus.

Full or partial write down.

Permanent

Non-cumulative Non-convertible Yes Contractual Non-Viability Loss Absorption as detailed in the issue documents.

Full or partial write down.

Permanent

N/A N/A

N/A Contractual

N/A Contractual

N/A N/A N/A

Senior only to share capital No N/A

Senior only to share capital No N/A

No Noncumulative N/A N/A

5. MACROPRUDENTIAL SUPERVISORY MEASURES CCyB1: Geographical distribution of credit exposures used in the countercyclical capital buffer 31 December 2021 a

GEOGRAPHICAL BREAKDOWN

Hongkong Norway Sum Total

174

b

c

d

e

Exposure values and/or riskweighted assets used in the computation of the countercyclical Bank-specific capital buffer Countercyclical countercyclical capital buffer Risk-weighted capital buffer rate Exposure values assets rate

1% 1%

196 224 420

39 45 84

142,967,738

91,034,116

0.00%

Countercyclical buffer amount

0.84

ADIB Annual Report 2021

6. LEVERAGE RATIO LR1: Summary comparison of accounting assets vs leverage ratio exposure 31 December 2021 a

Summary comparison of accounting assets versus leverage ratio exposure measure

AED ‘000

5 6 7 8 9 10 11 12

Item Total consolidated assets as per published financial statements Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation Adjustment for securitised exposures that meet the operational requirements for the recognition of risk transference Adjustments for temporary exemption of central bank reserves (if applicable) Adjustment for fiduciary assets recognized on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure Adjustments for regular-way purchases and sales of financial assets subject to trade date accounting Adjustments for eligible cash pooling transactions Adjustments for derivative financial instruments Adjustment for securities financing transactions (i.e. repos and similar secured financing) Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) Adjustments for prudent valuation adjustments and specific and general provisions which have reduced Tier 1 capital Other adjustments

13

Leverage ratio exposure measures

1 2 3 4

136,868,349 (429,884) 1,260,771 4,860,706 (654,244) 141,905,698

LR2: Leverage ratio common disclosure template

On-balance sheet exposures On-balance sheet exposures (excluding derivatives and securities financing transactions (SFTs), but including collateral) Gross-up for derivatives collateral provided where deducted from balance sheet assets pursuant to the operative accounting framework (Deductions of receivable assets for cash variation margin provided in derivatives transactions) (Adjustment for securities received under securities financing transactions that are recognised as an asset) (Specific and general provisions associated with on-balance sheet exposures that are deducted from Tier 1 capital) (Asset amounts deducted in determining Tier 1 capital)

a

b

Dec 21 AED ‘000

Sept 21 AED ‘000

136,868,349

133,381,711

-

-

(654,244) (429,884)

(601,477) (227,887)

135,784,221

132,552,347

Derivative Exposures Replacement cost associated with all derivatives transactions (where applicable net of eligible cash variation margin and/or with bilateral netting) Add-on amounts for PFE associated with all derivatives transactions (Exempted CCP leg of client-cleared trade exposures) Adjusted effective notional amount of written credit derivatives (Adjusted effective notional offsets and add-on deductions for written credit derivatives)

94,230 1,166,542 -

88,777 1,072,777 -

Total derivative exposures (sum of rows 8 to 12)

1,260,771

1,161,553

Securities financing transaction exposures Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions (Netted amounts of cash payables and cash receivables of gross SFT assets) Credit Conversion Factor (CCR) exposure for Security Financing Transaction (SFT) assets Agent transaction exposures

-

-

Total securities financing transaction exposures (sum of lines 14 to 17)

-

-

Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows 1 to 6)

ADIB Annual Report 2021

175

BASEL III PILLAR III DISCLOSURE

6. LEVERAGE RATIO continued LR2: Leverage ratio common disclosure template continued

Other off-balance sheet exposures Off-balance sheet exposure at gross notional amount

a

b

Dec 21 AED ‘000

Sep 21 AED ‘000

11,690,694

12,844,043

(6,829,988)

(7,143,987)

-

-

4,860,706

5,700,056

Tier 1 capital

18,255,332

18,927,000

Total exposures (sum of lines 7, 13, 18 and 22)

141,905,698

139,413,956

12.86% 12.86% 3.00%

13.58% 13.58% 3.00%

0.00%

0.00%

(Adjustments for conversion to credit equivalent amounts) (Specific and general provisions associated with off-balance sheet exposures deducted in determining Tier 1 capital) Off-balance sheet items (sum of lines 19 to 21) Capital and total exposures

Leverage ratio Leverage ratio (including the impact of any applicable temporary exemption of central bank reserves) Leverage ratio (excluding the impact of any applicable temporary exemption of central bank reserves) CBUAE minimum leverage ratio requirement Applicable leverage buffers

7. LIQUIDITY LIQA: Liquidity risk management

a) Governance of liquidity risk management, including: risk tolerance; structure and responsibilities for liquidity risk management; internal liquidity risk strategy, policies and practices across business lines and with the board of directors.

Liquidity risk is the risk that the Bank will be unable to meet its payment obligations when they fall due under normal or stress circumstances. This risk arises from the inability of the Bank to anticipate and provide for unforeseen decreases or changes in funding sources which could have adverse consequences on the Bank’s ability to meet its obligations when they fall due.

Under the overall Risk Governance Framework, ALCO is a key component of risk management within ADIB. It is mandated by the Board or its delegate, the GRPC, to manage and implement the Assets & Liabilities Management (ALM) policy as approved by the Board and other applicable policies. ALCO is a management decision-making committee for all matters relating to ALM including balance sheet structure, funding, liquidity, pricing, hedging and investment and setting accrual limits.

Treasury is responsible for day-to-day management of the mismatch between the Bank’s assets and liabilities and in conjunction with the Group Finance, the overall financial structure of the balance sheet. It is also primarily responsible for managing the funding and liquidity risks of the Bank. Group Finance and Market Risk also monitor liquidity requirements and related ratios.

b) Funding strategy, including policies on diversification in the sources of funding (both products and counterparties).

The Bank, to limit the Liquidity risk, has arranged diversified funding sources in addition to its core retail deposit base, manages assets with liquidity in mind, and monitors future cash flows and liquidity on a daily basis. The Bank also maintains committed lines of credit that it can access to meet liquidity needs. The current account deposits are assessed as stable, based on various behavioral analysis conducted by both external consultants and internal teams. The top 20 deposit concentration level is significantly below the market levels.

c) Liquidity risk mitigation techniques.

An ALM framework has been put in place to monitor and mitigate the Liquidity risk. A maturity mismatch analysis, under normal and stressed conditions is, the primary tool for monitoring Liquidity risk, performed to monitor successive time bands across functional currencies. In addition, the Bank monitors various Liquidity risk ratios and maintains an up-to-date contingency funding plan.

The Board approved Risk Appetite Statement (RAS) defines Liquidity risk tolerance thresholds. The key Liquidity risk measures include gaps and ratios such as ELAR, LCR, NSFR. All these Liquidity measures are reported to ALCO on a monthly basis and to management and the Board committees (ERC/GRPC) at frequent intervals.

176

ADIB Annual Report 2021

7. LIQUIDITY continued LIQA: Liquidity risk management continued

d) An explanation of how stress testing is used.

The Bank applies various stress scenarios to assess and manage the Liquidity position, considering both the market in general and specifically to the Group. The Bank identifies historical and hypothetical events that can lead to a material impact on its liquidity positions. The impact of stress scenarios is assessed on gap positions and all regulatory ratios. Accordingly, management action plans are devised to enable the Bank plan for its liquidity actions under such stressed liquidity situations.

e) An outline of the bank’s contingency funding plans.

In order to manage its liquidity risk, the bank has in place a Contingency Funding Plan, which outlines roles and responsibilities of each concerned department, trigger points and protocols to invoke a liquidity crisis event and initiate deployment of a set of management mitigating actions to counter a potential liquidity squeeze.

The Funding Plan includes various stress scenarios, both of general and idiosyncratic natures, which are discussed and approved at management and Board levels and are meant to simulate various severe but plausible sources of a liquidity crisis.

Also refer to “Risk Management- Liquidity risk and funding management” Note 42.3 of the audited consolidated financial statements as of 31 December 2021.

f) Customized measurement tools or metrics that assess the structure of the bank’s balance sheet or that project cash flows and future liquidity positions, taking into account off-balance sheet risks which are specific to that bank.

On Balance Sheet Exposures – 31 December 2021 Less than 3 months AED ‘000

3 months to 1 year AED ‘000

1 to 5 years AED ‘000

Over 5 years AED ‘000

Total AED ‘000

Cash and balances with central banks Balance and wakala deposits with Islamic banks and other financial institutions Murabaha and mudaraba with financial institution Murabaha, Ijara and other Islamic financing Investment in sukuk at amortised cost Investment measured at fair value Investment in associates and joint ventures Other assets

18,497,982

3,201,267

-

-

21,699,249

3,563,317 263,481 5,598,218 426,391 53,841 1,699,581

526,975 10,164,337 1,345,880 2,246,251 -

176,366 46,931,147 3,188,127 728,561 -

25,558,641 4,673,028 1,028,835 1,604,378 16,006

3,739,683 790,456 88,252,343 9,633,426 4,057,488 1,604,378 1,715,587

Financial assets

30,102,811

17,484,710

51,024,201

32,880,888

131,492,610

Non-financial assets

5,375,739

Total assets

136,868,349

Liabilities Due to financial institutions Depositors’ accounts Other liabilities

3,535,952 107,396,917 2,544,373

2,209,351 61,996

4,835 533,715

22,150

3,535,952 109,611,103 3,162,234

Total Liabilities

113,477,242

2,271,347

538,550

22,150

116,309,289

Off Balance Sheet Exposures – 31 December 2021 Less than 3 months AED ‘000

3 months to 1 year AED ‘000

1 to 5 years AED ‘000

Over 5 years AED ‘000

Total AED ‘000

Contingent liabilities Commitments

5,440,058 -

3,378,590 236,543

2,077,322 -

2,683 -

10,898,653 236,543

Total

5,440,058

3,615,133

2,077,322

2,683

11,135,196

ADIB Annual Report 2021

177

BASEL III PILLAR III DISCLOSURE

7. LIQUIDITY continued LIQA: Liquidity risk management continued

g) Concentration limits on collateral pools and sources of funding (both products and counterparties.

ADIB mainatains a strong liquidity under current market conditions by having a stable source of funding through its sticky customers deposits, therefore Wholesale funding reliance remains minimal. It however, has concentration limit on overall Wholelsale funding and maintains limits at the counterparty level.

Given its strong liquidity positions and current local market practice and evolution in terms of Sharia-compliant netting structures, ADIB seldom relies on collateral to raise liquidity aside from available collateralized Murabaha facility with the Central of UAE.

h) Liquidity exposures and funding needs at the level of individual legal entities, foreign branches and subsidiaries, taking into account legal, regulatory and operational limitations on the transferability of liquidity.

There may be legal and regulatory restrictions on the bank’s ability to use liquid assets held at one legal entity to support the liquidity requirements of another legal entity.

i) Balance sheet and off-balance sheet items broken down into maturity buckets and the resultant liquidity gaps.

Please refer to point f) above for details.

LIQ1: Liquidity Coverage Ratio (LCR) – Not applicable for ADIB Group LIQ2: Net Stable Funding Ratio (NSFR) – Not applicable for ADIB Group ELAR: Eligible Liquid Assets Ratio* (UAE operation only) 31 December 2021 Nominal Amount AED ‘000

Eligible Liquid Asset AED ‘000

1 1.1 1.2

High Quality Liquid Assets Physical cash in hand at the bank + balances with the CBUAE UAE Federal Government Sukuks

19,943,223 -

Sub Total (1.1 to 1.2) UAE local governments publicly Sukuk debt securities UAE Public sector publicly traded Sukuk securities

19,943,223 2,679,936 -

19,943,223

1.3 1.4 1.5

Sub Total (1.3 to 1.4) Foreign Sovereign debt instruments or instruments issued by their respective central banks

2,679,936 -

2,679,936 -

1.6 2

Total Total liabilities

22,623,159

22,623,159 114,755,556

3

Eligible Liquid Assets Ratio (ELAR)

19.7%

*as per BRF 7.

ASRR: Advances to Stable Resources Ratio* (UAE operation only) 31 December 2021 Amount AED ‘000

1 1.1 1.2 1.3 1.4

Computation of Advances Net financing (gross financing - specific and profit in suspense) Placement with non-banking financial institutions Net Financial Guarantees & Stand-by LC (issued - received) Interbank Placements

87,782,807 2,118,840 793,286 2,376,185

1.5

Total Advances

93,503,536

178

ADIB Annual Report 2021

7. LIQUIDITY continued ASRR: Advances to Stable Resources Ratio* (UAE operation only) continued 31 December 2021 Amount AED ‘000

2 2.1 2.1.1 2.1.2 2.1.3 2.1.5 2.1.6

Computation of Net Stable Resources Total capital + general provisions Deduct: Goodwill and other intangible assets Fixed Assets Funds allocated to branches abroad Unquoted Investments Investment in subsidiaries, associates and affiliates

2.1.7

Total deduction

2.2

Net Free Capital Funds

2.3

Other Stable resources:

21,086,696 146,339 2,251,263 242,963 72,057 2,151,979 4,828,601 16,258,095

2.3.1

Funds from the head office

-

2.3.2

Interbank deposits with remaining life of more than 6 months

-

2.3.3

Refinancing of Housing financing

-

2.3.4

Financing from non-Banking Financial Institutions

-

2.3.5 2.3.6

Customer Deposits Capital market funding/ term financing customer maturing after 6 months from reporting date

90,978,292 -

2.3.7

Total other stable resources

90,978,292

2.4 3

Total Stable Resources (2.2+2.3.7) Advances TO STABLE RESOURCES RATIO (1.6/ 2.4*100)

107,236,387 86.8%

*as per BRF 8.

8. CREDIT RISK CRA: General qualitative information about Credit Risk

a) Business model translation into the components of the Bank’s credit risk profile.

Credit risk is the most significant and pervasive risk for the Bank. The Bank is exposed to different types of Credit risk. The most common Credit risk, inherent in a wide range of ADIB’s businesses, arise from adverse changes in the credit quality and recoverability of financings (credit facilities provided to customers), advances and amounts due from counterparties, and cash and deposits held with other Banks.

Further, there is credit risk in certain off-balance sheet financial instruments, including guarantees, letters of credit, contracts relating to purchase and sale of foreign currencies, acceptances, and commitments to extend credit.

In addition, the Bank also faces Concentration and Cross-Border risks. Concentration risk arises from any single exposure or a group of exposures with common risk factors with potential to produce large losses. Cross-border risk is the risk that the Bank will be unable to obtain as agreed and on time payment from its customers [or party on behalf of the customers] of their obligations or transactions with the Bank often as a result of certain actions taken by foreign governments or government-related entities. Cross-Border Risk is chiefly relating to the availability, convertibility and transferability of such foreign currency at transparent, free & acceptable FX rates. These actions taken by foreign governments may include the imposition of exchange controls and restrictions on remittance of funds or goods and services, often accompanied by debt moratoria or impediments to freely transfer currency.

GRM monitors and control Credit risk through sets of parameters and thresholds for the Bank’s financing activities.

The Bank has adopted the Standardized Approach for measuring minimum capital requirement for credit risk.

ADIB Annual Report 2021

179

BASEL III PILLAR III DISCLOSURE

8. CREDIT RISK continued CRA: General qualitative information about Credit Risk continued

b) Criteria and approach used for defining credit risk management policy and for setting credit risk limits.

The overall credit process including approval, disbursements, administration, classification, recoveries, and write-offs are governed by the Bank’s Credit Risk Policy and Procedures Manual (CRPPM). It is reviewed by the GRM and approved by the GRPC and the Board.

The CRPPM has been prepared with the broad objective of meeting the following goals: •

Adhere to CBUAE regulations and best practices; and

•

Maintain a diversified high credit quality financing portfolio through risk-based financing.

The Bank seeks to manage its credit risk exposure through diversification of financing activities, maintaining limits, to avoid undue concentrations of risks with individuals or groups of customers or in specific locations or businesses. It also obtains security when appropriate, and actively uses collateral to reduce its credit risks. The Bank also follows prudential exposure ceilings set by the Board in line with Central Bank of the UAE (CBUAE) guidelines.

c) Structure and organization of the Credit risk management and control function.

Credit risk management for the financing portfolio begins with initial underwriting and continues throughout an obligor’s credit cycle. The Bank monitors credit quality of its financing portfolio based on primary credit quality indicators.

All Corporate credit proposals are independently reviewed and approved by appropriate authority as defined in the CRPPM, which includes Management-level Credit Committee and Board-level Committee. For Retail, the Bank has in place comprehensive product program manuals highlighting requirements of every aspect of retail financing.

Credit Approval process is independent from GRM and reporting directly to CEO of the Bank.

d) The Credit Operations and disbursements functions.

Credit Control function is responsible for controlling, managing the portfolio, and reporting exceptions post the approval process. The function role is to ensure full adherence to the CRPPM, Banks’ and Sharia policies and pro-cedure. Any exceptions are timely reported to the approving authorities as stipulated in the CRPPM. The Credit Control function is independent from the approval process and directly reporting to the Group Chief Risk Officer.

e) Relationships between the Credit risk management, risk control, compliance, and internal audit functions.

An independent global credit management (GCM) function reviews all Corporate credit proposals before they are approved by the appropriate authority as defined in the CRPPM. Compliance group ensures that the Bank complies all regulations and guidelines issued by CBUAE. As part of Internal Audit plan, Internal Audit team re-views the Credit Approval Process and submits its findings to Board Audit Committee for its review.

f) Scope and main content of the reporting on Credit risk exposure and management function to the executive management and to the board of directors.

Comprehensive Portfolio reports covering both Wholesale and Retail portfolios are presented to Business units, manage-ment and the Board committees (ERC and GRPC) on a regular basis. The report highlights the status of the exposure, re-coveries, early-warning signals, collaterals details, provisions movements, and the action plan to address issues, if any.

CR1: Credit quality of assets 31 December 2021 a

b

c

d

e

f

Of which ECL accounting provisions for credit losses

Gross carrying values of

Defaulted exposures

Non-defaulted exposures

Allowances/ impairments

Allocated in regulatory category of Specific

8,591,860

84,537,287

4,876,804

3,975,764

901,040

88,252,343

Sukuk

124,547

11,436,056

125,529

98,025

27,504

11,435,074

Off-balance sheet ex-posures

159,554

12,791,911

128,703

65,168

63,535

12,822,762

8,875,961

108,765,254

5,131,036

4,138,957

992,079

112,510,179

AED ‘000s

Customer Financing

Total 180

Allocated in regulatory category of General

Net values (a+b-c)

ADIB Annual Report 2021

8. CREDIT RISK continued CR1: Credit quality of assets continued Definition of defaulted exposures Accounts are considered in default for regulatory purposes after failure to meet the obligations by 90 days.

CR2: Changes in stock of defaulted customer financing and sukuk a AED ‘000

1 2 3 4 5

Defaulted customer financing and sukuk at the end of 31 December 2020 Customer financing and sukuk that have defaulted since the last reporting period Returned to non-defaulted status Amounts written off Other changes

9,094,599 937,656 (953,438) (58,334) (304,076)

6

Defaulted customer financing and sukuk at the end of 31 December 2021 (1+2-3-4±5)

8,716,407

CRB: Additional disclosure related to the credit quality of assets

Qualitative disclosures a) The scope and definitions of past due and impaired exposures used for accounting purposes and the differences, if any, between the definition of past due and default for accounting and regulatory purposes.

Common definitions are used for both accounting and regulatory purposes. Financing past due for over 90 days is treated as impaired unless an exception is approved by an appropriate authority. The Bank considers that the obligor is unlikely to pay its credit obligations in full, without recourse by the Bank to actions such as releasing collateral (if held).

b) The extent of past-due exposures (>90 days) that are not considered to be impaired and the reasons for this.

Bank considers the past due exposures for more than 90 days as impaired unless approved by the appropriate authority. There should be no such exposures greater than 90 days which are not considered impaired and not approved by the appropriate authority.

c) Description of methods used for determining accounting provisions for credit losses.

ADIB’s Expected Credit Loss (ECL) calculation, methodology, and IFRS9 ECL disclosures are available in “Risk Management- Credit risk” Note 42.2 of the audited consolidated financial statements as of 31 December 2021.

d) The Bank’s own definition of a restructured approach.

The Bank follows regulatory definition for restructured exposures. A restructured account is one where the Bank, for economic or legal reasons relating to the obligor’s financial difficulty, grants to the obligor concessions that the bank would not otherwise consider.

Qualitative disclosures e) Breakdown of exposures by geographic distribution, industry segment and residual contractual maturity.

31 December 2021

Customer Financings AED ‘000

Balances & placements with Banks & FI AED ‘000

Sukuk AED ‘000

United Arab Emirates 80,763,048 Rest of Middle east 4,687,171 Europe 2,658,161 Others 1,871,071

1,777,481 1,703,673 297,035 724,277

Total

4,502,466

GEOGRAPHIC DISTRIBUTION OF GROSS CREDIT EXPOSURE

ADIB Annual Report 2021

89,979,451

Total Funded AED ‘000

Commitments AED ‘000

Other OffBalance Sheet exposures AED ‘000

8,629,313 3,490,756 1,454,506

26,154,143 117,323,985 1,723,918 11,605,518 129,371 3,084,567 926,861 4,976,715

792,041 -

11,698,770 395,486 -

12,490,811 129,814,796 395,486 12,001,004 3,084,567 4,976,715

13,574,575

28,934,293 136,990,785

792,041

12,094,256

12,886,297 149,877,082

Others AED ‘000

Total NonFunded AED ‘000

Total AED ‘000

181

BASEL III PILLAR III DISCLOSURE

8. CREDIT RISK continued CR1: Credit quality of assets continued

Qualitative disclosures continued e) Breakdown of exposures by geographic distribution, industry segment and residual contractual maturity. continued

31 December 2021

INDUSTRY SEGMENT OF GROSS CREDIT EXPOSURE

Sukuk AED ‘000

Others AED ‘000

Total Funded AED ‘000

-

-

-

-

1,262,759 1,137,605 933,717

4,502,466 -

Commitments AED ‘000

Other OffBalance Sheet exposures AED ‘000

Total NonFunded AED ‘000

Total AED ‘000

239,083

-

513

513

239,596

40,576 -

38,150 2,515,698 1,262,862 8,340,434 2,511,450

19,676 215,042 42,335

223,716 125,543 2,613,761 209,822

223,716 145,219 2,828,803 252,157

261,866 2,660,917 1,262,862 11,169,237 2,763,607

3,510,470 -

1,817,058 -

2,036,653 12,624,575 4,355,114

4,111

26,332 2,989,558 437,762

30,443 2,989,558 457,760

2,067,096 15,614,133 4,812,874

-

5,872,146

19,745,311

41,439,276

4,352,086

4,352,086

45,791,362

-

857,878

182,224 7,149,124

53,600,192 8,027,298

110,007 380,872

545,335 569,828

655,342 950,700

54,255,534 8,977,998

89,979,451

4,502,466

13,574,575

28,934,293 136,990,785

792,041

12,094,256

Customer Financings AED ‘000

Balances & placements with Banks & FI AED ‘000

Sukuk AED ‘000

Others AED ‘000

Total Funded AED ‘000

Commitments AED ‘000

Other OffBalance Sheet exposures AED ‘000

Total NonFunded AED ‘000

Total AED ‘000

Customer Financings AED ‘000

Agriculture, Fishing & related activities 239,083 Crude Oil, Gas, Mining & Quarrying 38,150 Manufacturing 2,515,698 Electricity & Water 103 Construction 7,162,253 Trade 1,577,733 Transport, Storage & Communication 2,036,653 Financial Institutions 2,794,581 Services 4,355,114 Government /Public Sector 15,821,819 Retail/Consumer banking 53,417,968 All Others 20,296 Total

Balances & placements with Banks & FI AED ‘000

19,998

12,886,297 149,877,082

31 December 2021 RESIDUAL CONTRACTUAL MATURITY OF GROSS CREDIT EXPOSURE

Less than 3 months 3 months to one year One to five years Over five years

7,325,326

3,799,125

383,210

19,484,231

30,991,892

555,498

6,083,460

6,638,958

37,630,850

10,164,337 46,931,147 25,558,641

526,975 176,366 -

3,472,447 4,002,416 5,716,502

6,265,333 797,225 2,387,504

20,429,092 51,907,154 33,662,647

236,543 -

3,448,677 2,479,466 82,653

3,685,220 2,479,466 82,653

24,114,312 54,386,620 33,745,300

Total

89,979,451

4,502,466

13,574,575

28,934,293 136,990,785

792,041

12,094,256

12,886,297 149,877,082

182

ADIB Annual Report 2021

8. CREDIT RISK continued CR1: Credit quality of assets continued

Qualitative disclosures continued f) Breakdown of impaired exposures, provisions and write-offs by geographic distribution, industry segment and ageing analysis.

31 December 2021 Impaired Financing expsoures*

ECL

Write-offs & write-backs

Less than 90 Days AED ‘000

90 Days and above AED ‘000

Total AED ‘000

Stage 3 AED ‘000

Stage 1 & 2 AED ‘000

Write-offs AED ‘000

Write-backs AED ‘000

Net Impaired Financing Assets AED ‘000

United Arab Emirates Rest of Middle east Europe Others

767,561 220 -

6,703,256 613,531 200,984 3

7,470,817 613,751 200,984 3

3,408,166 366,611 200,984 3

-

-

-

4,062,651 247,140 -

Total

767,781

7,517,774

8,285,555

3,975,764

901,040

-

-

4,309,791

GEOGRAPHIC DISTRIBUTION OF IMPAIRED FINANCING ASSETS

*”Impaired financing exposure” as disclosed in the audited consolidated financial statements as of 31 December 2021.

31 December 2021 Impaired Financing expsoures* INDUSTRY SEGMENT OF IMPAIRED FINANCING ASSETS

Agriculture, Fishing & re-lated activities Crude Oil, Gas, Mining & Quarrying Manufacturing Electricity & Water Construction Trade Transport, Storage & Communication Financial Institutions Services Government /Public Sector Retail/Consumer banking All Others Total

ECL

Write-offs & write-backs

Less than 90 Days AED ‘000

90 Days and aboveI AED ‘000

Total AED ‘000

Stage 3 AED ‘000

Stage 1 & 2 AED ‘000

Write-offs AED ‘000

Write-backs AED ‘000

Net Impaired Financing Assets AED ‘000

-

-

-

-

-

-

-

-

222 407 252,262 304

87,832 365,163 102 1,435,140 831,318

88,054 365,570 102 1,687,402 831,622

87,272 236,505 102 762,032 617,672

-

-

-

782 129,065 925,370 213,950

1,967 143,435 30,906

87,237 5,464 1,874,567

89,204 148,899 1,905,473

67,183 70,279 1,193,442

-

-

-

22,021 78,620 712,031

-

373

373

373

-

-

-

338,278 -

2,830,578 -

3,168,856 -

940,904 -

-

-

-

2,227,952 -

767,781

7,517,774

8,285,555

3,975,764

901,040

-

-

4,309,791

*”Impaired financing exposure” as disclosed in the audited consolidated financial statements as of 31 December 2021.

CRC: Qualitative disclosure requirements related to credit risk mitigation techniques

a) Core features of policies and processes for, and an indication of the extent to which the Bank makes use of, on- and off-balance sheet netting.

Not Applicable. b) Core features of policies and processes for collateral evaluation and management.

The Bank obtains security when appropriate, and actively uses collateral to reduce its Credit risk in financing. This collateral mostly includes customer deposits and other cash deposits, inventories, corporate and bank financial guarantees, local and international equities, real estate and other property and equipment.

ADIB Annual Report 2021

183

BASEL III PILLAR III DISCLOSURE

8. CREDIT RISK continued CRC: Qualitative disclosure requirements related to credit risk mitigation techniques continued

b) Core features of policies and processes for collateral evaluation and management. continued The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters.

Management regularly monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and assesses the market value of collateral obtained during its review of the adequacy of the provision for impairment losses. The fair value of collateral is based on valuation performed by the independent experts, quoted prices (wherever available) and the valuation techniques.

c) Information about market or credit risk concentrations under the credit risk mitigation instruments used (i.e. by guarantor type, collateral and credit derivative providers).

Concentration of Credit risk arises from any single exposure or a group of exposures with common risk factors and potential to produce large losses. This risk commonly arises when a number of customers are engaged in similar business activities, 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.

The Bank seeks to manage its credit risk exposure through diversification of financing activities, maintaining limits, to avoid undue concentrations of risks with individuals or groups of customers or in specific locations or businesses, which is achieved through Risk Appetite thresholds, Target Market Criteria and Risk Acceptance Criteria.

The Bank manages credit risk by placing limits on the amount of risk accepted in relation to individual customers and groups, and to geographic and economic segments. Such risks are monitored on a regular basis and are subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product, economic sector and by country are reviewed at least annually by the Board GRPC. CR3: Credit risk mitigation techniques - overview 31 December 2021 a

b

c

d

e

f

g

Exposures secured by collateral AED ‘000

Exposures secured by collateral, of which: secured amount AED ‘000

Exposures secured by financial guarantees AED ‘000

Exposures secured by financial guarantees of which: secured amount AED ‘000

64,847,538

28,281,609

493,680

-

-

-

-

Sukuk

11,560,603

-

-

-

-

-

-

Total

76,408,141

28,281,609

493,680

-

-

-

-

8,716,407

-

-

-

-

-

Exposures unsecured: carrying amount AED ‘000

Customer Financing

Of which defaulted

Exposures secured by credit derivatives AED ‘000

Exposures secured by credit derivatives, of which: secured amount AED ‘000

-

CRD: Qualitative disclosures on Bank’s use of external credit ratings under the standardized approach for Credit Risk

a) Names of the external credit assessment institutions (ECAIs) and export credit agencies (ECAs) used by the Bank, and the reasons for any changes over the reporting period.

The Bank use Central Bank approved ECAIs and ECAs without any changes over the reporting period.

b) The asset classes for which each ECAI or ECA is used.

Externally rated Corporate, Banks and Securities Firms.

c) A description of the process used to transfer the issuer to issue credit ratings onto comparable assets in the Banking book (see paragraphs 99–101 of the Basel framework).

Not Applicable.

d) The alignment of the alphanumerical scale of each agency used with risk buckets (except where the relevant supervisor publishes a standard mapping with which the Bank has to comply).

The Bank master rating scale is mapped to external rating agency alphanumerical scale such as Investment grades (1-4) are mapped to (AAA to BBB-), Sub-investment grades (5-7) mapped to (BB+ to CCC-) and default grades (8-10).

Also refer to “Risk Management- Credit risk” Note 42.2 of the audited consolidated financial statements as of 31 December 2021.

184

ADIB Annual Report 2021

8. CREDIT RISK continued CR4: Standardised approach – credit risk exposure and Credit Risk Mitigation (CRM) effects 31 December 2021 a

b

c

Exposures before CCF and CRM

d

e

Exposures post-CCF and CRM

f

RWA and RWA density

On-balance sheet amount AED ‘000

Off- balance sheet amount AED ‘000

On-balance sheet amount AED ‘000

Off-balance sheet amount AED ‘000

RWA AED ‘000

RWA density AED ‘000

Sovereigns and their central banks

25,565,533

4,284,492

25,565,533

1,344,938

3,671,397

14%

Public Sector Entities

15,624,396

17,343

15,624,396

17,343

12,336,091

79%

124,293

-

124,293

-

24,859

20%

9,102,890

1,787,667

9,102,890

1,456,810

4,824,797

46%

-

-

-

-

-

-

Corporates

17,090,357

6,240,800

17,397,020

2,492,062

18,380,219

92%

Regulatory retail portfolios

28,818,695

461,609

28,925,731

157,867

21,949,335

75%

Secured by residential property

16,306,732

-

16,306,732

-

6,567,927

40%

8,948,679

-

8,948,679

-

8,910,671

100%

152

-

152

-

1,900

1250%

4,386,781

94,386

4,330,180

150,987

4,890,253

109%

102,213

-

102,213

-

153,320

150%

10,920,064

-

10,920,064

-

9,325,250

85%

136,990,785

12,886,297

137,347,883

5,620,007

91,036,016

64%

ASSET CLASSES

Multilateral development banks Banks Securities firms

Secured by commercial real estate Equity Investment in Funds (EIF) Past-due financing Higher-risk categories Other assets Total

ADIB Annual Report 2021

185

186

124,293 2,586,239 522,617

-

-

-

-

359,282

430,533

25,400

38,008

30,932 4,019,493

27,437,491

Total

4,959,639

1,454,891 271,599

20% AED ‘000

22,502,052 31,791

0% AED ‘000

b

Sovereigns and their central banks Public Sector Entities Multilateral development banks Banks Securities firms Corporates Regulatory retail portfolios Secured by residential property Secured by commercial real estate Equity Investment in Funds (EIF) Past-due financing Higher-risk categories Other assets

ASSET CLASSES/ RISK WEIGHT

a

14,700,568

-

-

14,700,568

-

-

-

35% AED ‘000

c

15,438,604

-

-

-

-

7,332,118 1,424,082

569,248 6,113,156

50% AED ‘000

d

27,447,062

-

-

632,144

26,814,918

-

-

75% AED ‘000

e

129,646

-

-

-

-

129,646

-

85% AED ‘000

f

31 December 2021

48,428,195

3,570,200 4,879,610

8,910,671

948,620

1,838,147

641,048 17,453,455

961,251 9,225,193

100% AED ‘000

g

3,012,335

880,035 102,213 606,763

-

-

-

295 -

1,423,029 -

150% AED ‘000

h

1,414,198

1,414,198

-

-

-

-

-

250% AED ‘000

i

152

152 -

-

-

-

-

-

1250% AED ‘000

j

142,967,890

152 4,481,167 102,213 10,920,064

8,948,679

16,306,732

29,083,598

124,293 10,559,700 19,889,082

26,910,471 15,641,739

Total credit exposures amount (post CCF and postCRM AED ‘000

k

CR5: Standardised approach – exposures by asset classes and risk weights

8. CREDIT RISK continued

BASEL III PILLAR III DISCLOSURE

ADIB Annual Report 2021

9. COUNTERPARTY CREDIT RISK CCRA: Qualitative disclosure related to counterparty credit risk

Risk management objectives and policies related to counterparty credit risk, including: Counterparty credit risk (CCR) represents the risk that a counterparty may default before settlement of the transaction. This may result in a loss because the Bank would have to replace the position in the market or revalue the position at the prevailing unfavorable market rates.

As it applies to the bank, Counterparty credit risk (CCR) arises from over-the-counter (OTC) and exchange-traded derivatives (ETDs), and long-settlement transactions including collateralized Murabaha facilities and other similar products and activities. The related credit risk exposures depend on the value of underlying market factors (e.g. profit rates, commodities price and foreign exchange rates), which can be volatile and uncertain in nature. The Bank enters into derivative contracts in the normal course of business principally for positioning purposes, as well as for risk management needs and/or on clients’ behalf, including mitigation of profit rate, commodity, foreign currency, credit and other risks. The Bank may use several ways to mitigate, reduce or eliminate CCR such as netting agreements, margining agreements, early terminations agreements.

a) The method used to assign operating limits defined in terms of internal capital for counterparty credit expo-sures and for CCP exposures; Counterparty Credit exposures are subject to the credit oversight, limit framework and approval process as outlined above. The Bank establish CCR limits as per the norms on exposure for both funded and non-funded products including derivatives. The limits are set as a percentage of the capital funds and are monitored. The utilization against specified limits is reported to the management and board risk committees (ERC & GRPC) on a periodic basis.

For calculating the required capital for counterparty credit risk, the Bank uses the Standardised Approach.

b) Policies relating to guarantees and other risk mitigants and assessments concerning counterparty credit risk, including exposures towards CCPs’ Not Applicable.

c) Policies with respect to wrong-way risk exposures Not Applicable.

d) The impact in terms of the amount of collateral that the bank would be required to provide given a credit rating downgrade.

Not Applicable.

CCR1: Analysis of counterparty credit risk (CCR) exposure by approach.

31 December 2021 a

SA-CCR (for derivatives)

b

c

Replacement cost AED ‘000

Potential future exposure AED ‘000

67,307

833,244

d

EEPE AED ‘000

-

e

EAD post-CRM AED ‘000

RWA AED ‘000

1.4

1,260,771

617,238

-

-

-

-

-

-

-

-

617,238

Simple Approach for credit risk mitigation (for SFTs) Comprehensive Approach for credit risk miti-gation (for SFTs)

Total

ADIB Annual Report 2021

-

-

-

f

Alpha used for computing regulatory EAD AED ‘000

-

187

BASEL III PILLAR III DISCLOSURE

9. COUNTERPARTY CREDIT RISK continued CCR3: Standardised approach - CCR exposures by regulatory portfolio and risk weights 31 December 2021 a REGULATORY PORTFOLIO / RISK WEIGHT

Sovereigns and their central banks Public Sector Entities Multilateral development banks Banks Securities firms Corporates Regulatory retail portfolios Secured by residential property Secured by commercial real estate Equity Investment in Funds (EIF) Past-due financing Higher-risk categories Other assets Total

b

c

d

e

f

g

h Total credit exposures AED ‘000

0% AED ‘000

20% AED ‘000

50% AED ‘000

75% AED ‘000

100% AED ‘000

150% AED ‘000

Others AED ‘000

-

-

-

-

17,343

-

-

17,343

-

293,906 -

816,816 -

-

132,706

-

-

1,110,722 132,706

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

293,906

816,816

-

150,049

-

-

1,260,771

CCR5: Composition of collateral for CCR exposure 31 December 2021 a

b

c

d

e

Collateral used in derivative transactions Fair value of collateral received

Cash - domestic currency Cash - other currencies Domestic sovereign debt Government agency debt Corporate sukuk Equity securities Other collateral Total

f Collateral used in SFTs

Fair value of posted collateral

Segregated AED ‘000

Unsegregated AED ‘000

Segregated AED ‘000

Unsegregated AED ‘000

Fair value of collateral received AED ‘000

-

10,000 10,000

-

-

-

Fair value of posted collateral AED ‘000

-

CCR6: Credit derivative exposures - Not applicable CCR8: Exposures to central counterparties - Not applicable

10.

SECURITISATION

SECA: Qualitative disclosure requirements related to securitisation exposures - Not applicable SEC1: Securitisation exposures in the banking book - Not applicable SEC2: Securitisation exposures in the trading book - Not applicable SEC3: Securitisation exposures in the banking book and associated regulatory capital requirements - bank acting as originator or as sponsor - Not applicable SEC4: Securitisation exposures in the banking book and associated capital requirements - bank acting as investor - Not applicable

188

ADIB Annual Report 2021

11.

MARKET RISK

MRA: General qualitative disclosure requirements related to market risk

Banks must describe their risk management objectives and policies for market risk according to the framework below (the granularity of the information should support the provision of meaningful information to users): a) Strategies and processes of the Bank: this must include an explanation of management’s strategic objectives in undertaking trading activities, as well as the processes implemented to identify, measure, monitor and control the Bank’s market risks, including policies for hedging risk and strategies/processes for monitoring the continuing effectiveness of hedges.

Market risk arises from changes in market rates such as profit rates, foreign exchange rates and equity prices, as well as in their correlation and implied volatilities. Market risk is inherent in the diverse financial instruments the Bank is exposed to including securities, foreign currencies, equities, and commodities. The Bank is exposed to various types of Market risks such as profit rate risk, currency risk, and equity price risk. Profit rate risk arises from the possibility that changes in profit rates will affect future profitability or the fair values of financial instruments. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices and the value of individual stocks. The Bank is also exposed to these risks in its Asset & Liability Management (ALM) activities.

The Bank uses the Standardized Approach to calculate the regulatory capital requirements relating to Market risks. The scope and charges are applied to Trading book only which includes Sukuk positions, foreign currency positions, equity positions and structured products positions.

ADIB, being an Islamic bank, as part of its regular activities faces Market risks in its investment/trading portfolios, which arises from changes in its underlying risk factors, as well as Profit Rate Risk in Banking Book (PRRBB), which arises on account of mismatches in maturity / re-pricing profile of assets and liabilities. It refers to the risk of changes in market value of assets and liabilities in the Banking book due to changes in the profit rate term structure.

The Bank’s overall Market Risk strategy is to adopt a prudent and progressive risk-taking approach, which is expected to supplement its core banking activities profitability within a conservative risk appetite, while maintaining a reasonable liquidity buffer.

Although, as per the scope of Market risk as defined by BCBS, the Bank is also exposed to Foreign Exchange risk, but this is only in a limited way.

All Foreign exchange exposures are taken by the Bank for client purposes and/or to facilitate Treasury management of its liquidity position with limited trading/proprietary positions. Besides, for these client-oriented foreign exchange positions limited overnight position limits are given which results in limited foreign exchange risk for the Bank. The major foreign exchange position for the Bank originates from USD which again is a pegged currency, therefore, the risk is minimal.

Additionally, the Bank holds minor proprietary positions in equity and principal-protected structured products.

Market risk is managed through a comprehensive governance framework approved by the Board and mandated to relevant management committees and assigned departments through clear roles and responsibilities. The framework relies on ensuring adequate systems are in place, maintaining appropriate limits, independent mark-to-market valuation, and frequent review of both; (1) the bank’s investment portfolios with regard to its risk drivers, and (2) the bank’s structural position with regard to profit rate risk and its impact on earnings as well as the economic value of its shareholders’ equity. The policies and procedures and the trading limits are set to ensure the implementation of the Bank’s market risk policy in day-to-day operations. These are reviewed periodically to ensure they remain in line with the Bank’s general market risk policy and in line with the Bank’s overall business strategy.

b) Structure and organization of the market risk management function: description of the market risk governance structure established to implement the strategies and processes of the Bank discussed in row (a) above.

Market Risk function is part of the Global Risk Management (GRM). It is independently accountable for providing risk oversight to ensure that the market risk profiles of trading and banking portfolios are maintained within the Bank’s risk appetite.

The Market Risk function is responsible for provision of various risk-related analytics to the relevant management committees and thereafter the relevant Board committees.

It is also accountable for continuous monitoring of compliance to the approved Treasury Limits and communicates to Senior Management in case of any comments/exceptions.

c) Scope and nature of risk reporting and/or measurement systems.

The Market Risk function assess and monitor a set of approved risk metrics and limits on the Banks’s investment portfolios and report to the Enterprise Risk Committee (ERC) on a regular basis. Similarly, it assess/monitor various risk limits on the Bank’s structural balance sheet focused on liquidity risk and profit rate risk in the banking book and report to the Asset & Liability Committee (ALCO) on a regular basis.

Additionally, a regular update on status of compliance to approved framework and on current and upcoming trends is provided to the Board designated committees; Governance Risk Policy Committee (GRPC) & Approval Committee (AC).

The Bank uses appropriate models for the valuation and risk measurement of its positions and receives regular market information to regulate market risk.

ADIB Annual Report 2021

189

BASEL III PILLAR III DISCLOSURE

11.

MARKET RISK continued

MR1: Market risk under the standardised approach (SA) 31 December 2021 a RWA AED ‘000

General profit rate risk (General and Specific) Equity risk (General and Specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method

1,603,864 42,964 1,246,656 -

Securitisation

-

Total

2,893,484

•

As compared to last period, the overall Market risk decreased due to decrease in General profit rate risk mainly because of lower USD Profit Rate Swap position compared to last period.

•

The Bank continues to follow the Standardized approach to compute Market Risk capital charge.

12.

PROFIT RATE RISK IN THE BANKING BOOK (PRRBB)

PRRBBA: PRRBB risk management objectives and policies

Qualitative disclosures a) A description of how the bank defines PRRBB for purposes of risk control and measurement.

Profit Rate Risk in the Banking Book arises when changes in Profit rates affect the market value, the cashflows and earnings of assets and liabilities of ADIB. The Group is exposed to profit rate risk as a result of mismatches or gaps in the scheduled maturities, repricing dates or reference rates of assets, liabilities and derivatives.

b) A description of the bank’s overall PRRBB management and mitigation strategies.

The Group manages this risk through appropriate limits in place and frequent review of the bank’s structural position with regard to profit rate risk and its impact on earnings as well as the economic value of its shareholders’ equity.

The sensitivity of the bank’s earnings and shareholders’ equity is approved at the Board’s level or its designate and mandated to relevant management bodies, including ALCO, Group Treasury and Group Risk Management.

c) The periodicity of the calculation of the bank’s PRRBB measures, and a description of the specific measures that the bank uses to gauge its sensitivity to PRRBB. Profit rate risk is measured using simulations, earnings sensitivity and economic value sensitivity analysis, stress testing and gap analysis, in addition to other treasury risk metrics.

Primarily, the level of profit rate risk within ADIB is measured from both an earnings sensitivity and an economic value sensitivity: •

Earning sensitivity involves analyzing the impact of changes in profit rates on net revenue for funds in the following 12 months period.

•

Economic Value sensitivity involves analyzing the impact of changes in profit rates on expected cash flows on assets minus the expected cash flows on liabilities plus the net cash flows of off-balance items.

d) A description of the profit rate shock and stress scenarios that the bank uses to estimate changes in the economic value of earnings.

The bank uses various simulations in line with industry/regulatory common practices, and review the shocks and its impact on both earnings and shareholders’ equity on a regular basis, in addition to custom built simulations reflecting management expectations with regard to the rate environment.

The risk measures are based however, on a parallel shift in profit rates, in line with industry best practices.

190

ADIB Annual Report 2021

12.

PROFIT RATE RISK IN THE BANKING BOOK (PRRBB) continued

PRRBBA: PRRBB risk management objectives and policies continued

Qualitative disclosures continued e) Where significant modelling assumptions used in the bank’s internal measurement systems (IMS) (ie the EVE metric generated by the bank for purposes other than disclosure, eg for internal assessment of capital adequacy) are different from the modelling assumptions prescribed for the disclosure Template IRRBB1, the bank should provide a description of those assumptions and their directional implications and explain its rationale for making those assumptions (eg historical data, published research, management judgment and analysis).

The bank uses a conservative approach while conducting its ICAAP exercise, whereby the assumptions used may differ from those parallel shocks assumptions used for the risk measure (earnings at risk or economic value of equity). Generally, the ICAAP used assumptions are more detrimental to the bank’s overall earnings and shareholders’ equity.

f) A high-level description of how the bank hedges its PRRBB, as well as the associated accounting treatment.

The bank where appropriate and needed may enter into profit rate swaps to manage its earnings and/or shareholders’ equity sensitivity to profit rate risk. Under such circumstances, it will be using the appropriate hedge accounting treatment.

g) The methodology used to estimate the prepayment rates of customer financing, and/or the early withdrawal rates for time deposits, and other significant assumptions.

The bank uses historical behavioral analysis to estimate withdrawal rates on customers deposits.

Quantitative disclosures 31 December 2021 AED ‘000

Average repricing maturity assigned to NMDs

3.83

Longest repricing maturity assigned to NMDs

6 years

PRRBB1: Quantitative information on PRRBB 31 December 2021 EVE PERIOD

Parallel up Parallel down Steepener Flattener Short rate up Short rate down Maximum Period Tier 1 Capital

ADIB Annual Report 2021

Dec-21 AED ‘000

878,273 193,027 936,232 (442,422) (46,042) 679,497 936,232 Dec-21 18,255,332

NII Sept-21 AED ‘000

506,351 817,487 900,946 (507,529) (226,720) 1,015,659 1,015,659

Dec-21 AED ‘000

561,112 (62,253) Sept-21 18,927,000

Sept-21 AED ‘000

523,509 (32,685) -

191

BASEL III PILLAR III DISCLOSURE

13.

OPERATIONAL RISK

ORA: General qualitative information on a bank’s operational risk framework

a) Their policies, frameworks and guidelines for the management of operational risk.

Operational risk is the potential exposure of assets to financial, reputational or impacts resulting from inadequate or failed internal processes, people, systems, or external events. The Bank has developed and implemented an operational risk framework supported by a set of standards and operating procedures in accordance with Basel III guidelines. The Operational Risk Management Framework aims to actively manage Operational risk and set the standards of identification, assessment, monitoring, and response. The framework is built around and accounts for the risk impact on a spectrum of assets. Defined risk thresholds and authority matrices are set in line with the Operational risk appetite and lay at the base of decision making and management of the operational risk inherent to ADIB’s existing and new offering and their supporting business processes.

The Operational risk management framework requires the use of specific tools including the proactive Risk Assessment of new initiatives, Risk reviews and Advisory, Risk & Control self-Assessment (RCSA), Control testing (CT), Key Risk Indicators (KRIs), Loss data management (LDM), Training & development, Monitoring & Reporting, Comparative Analysis as well as the management of Issues & Actions (I&A) identified from various sources and lines of defense. The framework also encompasses all the necessary elements of Quality assurance, Fraud Risk management and Investigations.

b) The structure and organisation of their operational risk management and control function.

The Operational Risk Management Function is structured in a way to ensure independency and availability of the necessary expertise. A central Group Operational Risk Management function (GORM) reporting to the Group Chief Risk Officer is responsible for setting the standards and providing all risk owners with the tools, systems, training and support which are necessary to manage the operational risk within their functional areas. Dedicated Operational Risk managers are also assigned within each Group and responsible to ensure that the Operational risk management tools and standards are well rooted within their areas of responsibilities. The Operational Risk Governance is ensured via a defined hierarchy of committees represented by the Board Committee “Governance & Risk Policy Committee” (GRPC), a Senior Management Committee “Control & Compliance Committee” (CCC). In addition to CCC sub-Committees created for dedicated purposes such as the “Business Risk & Control Committees” (BRCC) created within every Business & Functional Group, the Fraud Risk Management Committee (FRMC) and the Operational Risk Provisioning Committees (ORPC).

The definition of Operational risk is overarching several types of risk categories such Fraud Risk, Regulatory & Compliance risk, Conduct Risk, Sharia’a non-compliance Risk, Information Security Risk, Technology Risk, Legal Risk and Business Continuity Risk. To that extent several stakeholders work in constant collaboration to ensure that various operational risk aspects are maintained within the appetite and managed as per the highest standards. The Framework and supporting documents articulate the roles and responsibilities of all stakeholders (Individuals, departments & Committees) involved in the management of operational risk across the Group.

c) Their operational risk measurement system.

ADIB uses a centralized platform used by all lines of defense for the management and measurement of operational risk. The platform encompasses all the Operational risk categories, taxonomies and tools and allows for a Comparative analysis across the results and outcome of various tools. The measurement systems show positive trends year on year and adequate risk coverage ratios at individual and aggregate levels. This is emphasized by constant process enhancements, proactive risk assessments, control testing, issues identification and actions completion.

As for the Capital Adequacy Ratio, ADIB uses the Basic Indicator Approach (BIA) for the purpose of calculation of the Operation risk weighted assets.

d) The scope and main context of their reporting framework on operational risk to executive management and to the board of directors.

Operational Risk management reporting structure is governed by and follows a well-defined hierarchy involving the senior management and the Board represented by the BRCC, the CCC and the GRPC where the Operational Risk framework implementation, tools performance and results are monitored and reported. Results are escalated on a consolidated basis with the necessary breakdowns provided based on specific appetite thresholds set within the Operational Risk Management Framework

e) The risk mitigation and risk transfer used in the management of operational risk.

The Operational Risk Mitigation requirements is dictated by the level of Inherent risk exposure where all exposure deemed to be exceeding the approved risk are covered by the means of the relevant preventive , detective, corrective, directive or limiting controls which are manually and automatically operated such as dual controls, multi factors of authentications, data and system protection, encryption, segregation of duties, reconciliations, reviews, transactions limits, policies and procedures, busines continuity plans which are regularly assessed and tested in addition to a comprehensive insurance coverage and selected outsourcing used as risk transfer/sharing techniques. All residual exposure deemed to be exceeding the approved risk appetite are escalated and closely monitored based on predefined matrices. The day-to-day operational risk management is also characterized by a comprehensive system of internal control with multi-layers of defense bringing together a team of subject matter experts.

192

ADIB Annual Report 2021

13.

OPERATIONAL RISK continued

ORA: General qualitative information on a bank’s operational risk framework continued

f) ADIB Fraud Risk Management function ADIB Group Fraud Risk Management Program objective is to develop and establish the basis of fraud risk management and anti-fraud controls required for the deterrence, prevention, and detection of fraud against ADIB and its subsidiaries.

The Fraud Risk Management program applies to all ADIB Group departments, subsidiaries, international locations, and business units including all ADIB employees, shareholders, consultants, vendors, contractors, and/or any other parties maintaining a business relationship with ADIB. The Program prescribes the standards to be adhered to by each Business Unit. It also forms the base policy that must be referred to while drafting all policies and operating procedures within ADIB.

g) Fraud Investigation Function The objective of the function is to provide ADIB Group with the capacity to investigate fraud incidents and provide the relevant facts findings and recommendations to form the basis of appropriate follow-up actions professionally and objectively. The Objective of FID is also to conduct proactive integrity reviews in areas of increased risk and provide lessons learned from reviews and investigations in order to improve the effectiveness and efficiency of ADIB Group’s operations and activities.

Also refer to “Risk Management-Operational risk” Note 42.4.4 of the audited consolidated financial statements as of 31 December 2021.

14.

REMUNERATION POLICY

REMA: Remuneration Policy

Remuneration and Reward Guiding Principles and Structures ADIB aims to attract and retain the best talent particularly during the challenging recent times of the pandemic. To achieve this, we have designed a remuneration framework that is within the risk appetite set by the Board to promote the right behaviours and responsible business conduct. Our remuneration schemes are designed to be fair, equitable and linked to mutual employee and Group performance.

Our rewards are based on the result of an annual performance appraisal system with input from line management and employees. The rewards structure also embeds effective risk management by balancing the interests of our customers, shareholders and other stakeholders including the Consumer Protection Standards of the CBUAE.

Total Reward – Key Components Fixed Pay comprise of basic salary allowances based on market rates which are benchmarked for each role and are subject to review based on the achievement of SMART objectives and market movement. Fixed pay also includes other allowances in line with best practice and this is also benchmarked against ADIB peers.

A Variable Pay component is a discretionary pay which is performance-based dependent on individual, functional and overall ADIB performance. For Senior Management the variable pay, is paid out on a deferred basis with various claw-back clauses.

Retention Scheme and High Potential Emolument scheme is deployed in selected cases to retain key employees and also maintain a cadre of professional UAE Nationals with high potential and in line with CBUAE Emiratisation objectives.

The Nomination and Remuneration Committee (NRC) comprises of Chairman and 2 Directors which assists the Board in fulfilling its oversight responsibilities in respect of the following for the Group: •

Review the selection criteria and number of executive and employee positions required by ADIB; approve the overall manpower of ADIB based on reports submitted by the Group Chief Executive Officer, taking into consideration the advice of an independent and recognized consulting firm

•

Review on an annual basis the policy for the remuneration, benefits, incentives and salaries of all ADIB employees, including Bank and non-Bank subsidiaries and affiliates, as submitted by the Group Chief Executive Officer, taking into consideration the advice of an independent and recognized consulting firm

•

Identify and nominate, for approval of the Board, candidates for appointment to the Board

•

Recommend on succession plans for Directors

•

Input on renewal of the terms of office of non-executive Directors

•

Assist with membership of Board committees, in consultation with the Board’s Chairman and the Chairmen of such committees

•

Guide on matters relating to the continuation in office of any Director at any time

•

Recommend on appointments and re-appointments to the Boards of major subsidiaries and controlled affiliated companies

•

Ensure the independence of the independent directors and any qualified subject matter expert appointed to a Board committee; and

•

Regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board and make recommendations to the Board regarding any changes.

ADIB Annual Report 2021

193

BASEL III PILLAR III DISCLOSURE

14.

REMUNERATION POLICY continued

REMA: Remuneration Policy continued

Senior Management & Material Risk Takers (MRTs) Senior Management is the executive management of the bank, who is responsible and accountable to the Board for the sound and prudent day-to-day management of the Bank.

ADIB have considered the Group CEO and the heads of the revenue generator units / business lines as the Primary MRTs, on the basis that their compensation is risk-aligned given that they have the ability to control and influence certain risks that are materially significant to ADIB. The Bank aims to continually assess, in a systematic manner, key positions and associated delegation of authorities for classification as MRTs and shall confirm the outcome of this exercise in an annual assessment at the end of 2022.

REM1: Remuneration awarded during 2021 a

Remuneration Amount Number of employees

Fixed Remuneration

Material Risk-takers (MRTs) only AED ‘000

14

6

Total fixed remuneration (3 + 5 + 7)

25,044

11,372

Of which: cash-based

25,044

11,372

Of which: deferred

-

-

Of which: shares or other share-linked instruments

-

-

Of which: deferred

-

-

Of which: other forms

-

-

Of which: deferred

-

-

14

6

Total variable remuneration (11 + 13 + 15)

19,634

13,274

Of which: cash-based

19,634

13,274

Number of employees

Variable Remuneration

b

Senior Management (including MRTs) AED ‘000

Of which: deferred

5,308

3,938

Of which: shares or other share-linked instruments

-

-

Of which: deferred

-

-

Of which: other forms

-

-

Of which: deferred

-

-

44,678

24,646

Total Remuneration (2+10)

REM2: Special Payments Guranteed Bonuses Special Payments

Senior Management (including MRTs) Material Risk-takers (MRTs) only

194

Sign on Awards

Number of employees

Total amount AED ‘000

Number of employees

2 -

855 -

3 2

Severence Payments

Total amount

Number of employees

Total amount AED ‘000

2,600 2,100

-

-

ADIB Annual Report 2021

14.

REMUNERATION POLICY continued

REMA: Remuneration Policy continued

REM3: Deferred remuneration a

Deferred and retained remuneration

Senior Management (including MRTs) Cash Shares Cash-linked instruments Other Material Risk-takers (MRTs) only Cash Shares Cash-linked instruments Other

ADIB Annual Report 2021

b

Total amount of outstanding deferred remuneration AED ‘000

c

Of which: Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/ or implicit adjustment AED ‘000

Total amount of amendment during the year due to ex post explicit adjustments AED ‘000

d

e

Total amount of amendment during the year due to ex post implicit adjustments AED ‘000

Total amount of deferred remuneration paid out in the financial year AED ‘000

14,809 -

-

-

-

5,308 -

8,384 -

-

-

-

3,938 -

195