Transcription

Arab African International BankUAE BranchesFinancial statementsFor the year ended 31 December 2020

INDEPENDENT AUDITORS' REPORT TO THE HEAD OFFICE OFARAB AFRICAN INTERNATIONAL BANK – UNITED ARAB EMIRATES BRANCHESOpinionWe have audited the financial statements of Arab African International Bank – United ArabEmirates Branches (the “Branches”), which comprise the statement of financial position as at31 December 2020, and the statement of profit or loss, statement of profit or loss and othercomprehensive income, statement of changes in equity and statement of cash flows for theyear then ended, and notes to the financial statements, including a summary of significantaccounting policies.In our opinion, the accompanying financial statements present fairly, in all material respects,the financial position of the Branches as at 31 December 2020 and its financial performanceand its cash flow for the year then ended in accordance with International Financial ReportingStandards (“IFRSs”).Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (“ISAs”). Ourresponsibilities under those standards are further described in the Auditor’s responsibilities forthe audit of the financial statements section of our report. We are independent of the Branchesin accordance with the International Code of Ethics for Professional Accountants (includingInternational Independence Standards) (the “IESBA Code”) together with the ethicalrequirements that are relevant to our audit of the financial statements in the United ArabEmirates, and we have fulfilled our other ethical responsibilities in accordance with theserequirements and the IESBA Code. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.Responsibilities of management for the financial statementsManagement is responsible for the preparation and fair presentation of the financialstatements in accordance with IFRSs and in compliance with the applicable provisions of theUAE Federal Law No (2) of 2015, and for such internal control as management determines isnecessary to enable the preparation of financial statements that are free from materialmisstatement, whether due to fraud or error.In preparing the financial statements, management is responsible for assessing the Branches’ability to continue as a going concern, disclosing, as applicable, matters related to goingconcern and using the going concern basis of accounting unless management either intends toliquidate the Branches or to cease operations, or has no realistic alternative but to do so.Those charged with governance are responsible for overseeing the Branches’ financialreporting process.A member firm of Ernst & Young Global Limited

INDEPENDENT AUDITORS' REPORT TO THE HEAD OFFICE OFARAB AFRICAN INTERNATIONAL BANK – UNITED ARAB EMIRATES BRANCHES (continued)Auditor’s responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements asa whole are free from material misstatement, whether due to fraud or error, and to issue anauditor’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 amaterial misstatement when it exists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these financial statements.As part of an audit in accordance with ISAs, we exercise professional judgment and maintainprofessional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whetherdue to fraud or error, design and perform audit procedures responsive to those risks, andobtain 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 forone 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 auditprocedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the Branches’ internal control. Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Branches’ability to continue as a going concern. If we conclude that a material uncertainty exists, weare required to draw attention in our auditor’s report to the related disclosures in thefinancial statements or, if such disclosures are inadequate, to modify our opinion. Ourconclusions are based on the audit evidence obtained up to the date of our auditor’s report.However, future events or conditions may cause the Branches to cease to continue as agoing concern. Evaluate the overall presentation, structure and content of the financial statements,including the disclosures, and whether the financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.We communicate with the management regarding, among other matters, the planned scopeand timing of the audit and significant audit findings, including any significant deficiencies ininternal control that we identify during our audit.

INDEPENDENT AUDITORS' REPORT TO THE HEAD OFFICE OFARAB AFRICAN INTERNATIONAL BANK – UNITED ARAB EMIRATES BRANCHES (continued)Report on other legal and regulatory requirementsFurther, as required by the Decretal Federal Law No. (14) of 2018, we report that we haveobtained all the information and explanations we considered necessary for the purposes of ouraudit.For Ernst & YoungSigned by:Ashraf Abu-SharkhPartnerRegistration No: 69019 April 2021Dubai, United Arab Emirates

Arab African International BankUnited Arab Emirates BranchesStatement of profit or lossFor the year ended 31 December 2020NotesInterest incomeInterest expense1617Net Interest IncomeFee and commission incomeFee and commission expense1818Net gains on foreign exchangeLoss on financial assets at FVTPLOther income2119Operating incomePersonnel expensesDepreciationOther operating expenses1020Profit before net impairment charge andtaxationNet impairment allowance on financial assets(Loss) / profit before taxTaxation22(Loss) / profit for the 49(34,996) 101,153 24,475(475) 24,000 39,233(16,126)341 23,448 148,601215,370(54,085) 161,285 25,587(558) 25,029 42,256201 42,457 228,771(18,740)(1,644)(9,629) (15,893)(1,151)(12,496) 118,588199,231(193,196) (74,608)(5,142) 194,08914,933 (59,675) (38,822) 155,267 The notes on pages 9 to 79 are an integral part of these financial statements.The independent auditors’ report is set out on pages 1 to 3.5

Arab African International BankUnited Arab Emirates BranchesStatement of profit or loss and other comprehensive incomeFor the year ended 31 December 2020(Loss) / profit for the 75)155,267(483) (483) (60,158) 606 606 155,873 Other comprehensive income:Items that may or will not be reclassifiedsubsequently to statement of profit or lossNet change in fair value reserve during the yearOther comprehensive (loss)/ income for the yearTotal comprehensive (loss) / income for the yearThe notes on pages 9 to 79 are an integral part of these financial statements.The independent auditors’ report is set out on pages 1 to 3.6

Arab African International BankUnited Arab Emirates BranchesStatement of changes in equityFor the year ended 31 December 2020AllocatedCapitalAED’000As at 1 January 2019Prior period adjustment for deferredtax assets on Stage 3 ECLTransfer to legal reserve (restated)As at 1 January 2019 (restated)Total comprehensive incomefor the yearTransfer to legal reserveAs at 31 December 2019 (restated)102,05496 686,4371,526 103,580 96 686,437 15,527 119,107 606 702 686,437119,107702--(483)Total comprehensive lossfor the yearAs at 31 December 2020Fair ValueReserveAED’000686,437As at 1 January 2020Transfer to impairment reserveLegalReserveAED’000 686,437 119,107 219 00TotalAED’000571,2461,359,833 -15,262(1,526) 584,98215,262 1,375,095 155,267(15,527) 724,722 155,873 1,530,968 -724,7221,530,968-(59,675)(60,158)(4,995) 660,052 1,470,810 4,995 4,995 The notes on pages 9 to 79 are an integral part of these financial statements.The independent auditors’ report is set out on pages 1 to 3.7

Arab African International BankUnited Arab Emirates BranchesStatement of cash flowsFor the year ended 31 December 2020NoteCash flows from operating activities(Loss) / profit before taxAdjustment for:Depreciation on premises and equipmentDepreciation on right of use assetsNet impairment allowance on financial assetsFinance cost on lease liabilityChanges in operating assets and liabilitiesReserve with Central Bank of UAELoans and advancesDue from banksOther assetsCustomers’ depositsOther liabilitiesDue to the Central Bank of the UAETax paidNet cash generated from operating activitiesCash flows from investing activitiesPurchase of premises and equipmentNet purchase of financial investmentsNet cash used in investing activitiesCash flows from financing activitiesLease paymentsNet cash used in financing activityNet increase in cash and cash equivalentsCash and cash equivalents at 1 JanuaryCash and cash equivalents at 31 )(74,608)194,0891,303341193,196122 120,354 41,820) 1,971,731 1,1515,142 200,382 ) 116,683 (1,236)(48,795) (50,031) (180)(9,911) (10,091) (1,597) (1,597) 1,920,103106,5923,207,965 5,128,068 3,101,373 3,207,965 The notes on pages 9 to 79 are an integral part of these financial statements.The independent auditors’ report is set out on pages 1 to 3.8

Arab African International BankUnited Arab Emirates BranchesNotes to the financial statementsFor the year ended 31 December 20201. Legal status and principal activitiesArab African International Bank – United Arab Emirates Branches (the “Branches” of the “Bank”)operates in the United Arab Emirates (“UAE”) through its two branches located in the Emirates ofDubai and Abu Dhabi which are registered under a banking license issued by the Central Bank ofUnited Arab Emirates (“CBUAE”). Arab African International Bank (the “Head Office”) is anEgyptian Joint Stock company incorporated in Cairo, Egypt. The Branches are a segment of the HeadOffice. The accompanying financial statements have been prepared from the records of the Branches,which contain evidence of transactions recorded locally.The principal activities of the Branches primarily comprise corporate and retail banking activities. Thefinancial statements of the Branches include only activities relating to the Branches and do not includeany other activities or transactions outside of the Branches and within the Head Office operations.UAE Federal Law No. 2 of 2015 (“Companies Law”) which is applicable to the Branches came intoeffect from 1 July 2015. In addition, the Federal Law No. (14) of 2018 – Regarding the Central Bank& Organization of Financial Institutions and Activities (“Banking Law”) which is applicable to theBranches came into effect on 23 September 2018. The Branches have assessed, evaluated provisionsof the Companies Law and the Banking Law and ensured compliance with the relevant law.Federal Decree-Law No. 26 of 2020 which amends certain provisions of Federal Law No. 2 of 2015on Commercial Companies was issued on 27 September 2020 and the amendments came into effecton 2 January 2021. The Branches are in the process of reviewing the new provisions and will ensurecompliance with the applicable amendments.These financial statements represent the combined financial position and results of the two branchesin the United Arab Emirates. The Branches are not separate legal entities but meet the definition of areporting entity under IFRS under the Conceptual Framework for IFRS. IFRS defines a reporting entityas an entity that is required, or chooses, to prepare financial statements.All the operating activities of the Branches are clearly defined and separately managed from the otherbusinesses of the Head Office and accounting records are maintained on this basis. The assets of theBranches are used solely by the Branches and are registered in the name of the Branches. The liabilitiesrelate to the activities of the Branches.It is important to note whilst the reporting boundary is defined above, the assets and liabilities presentedwithin the reporting boundary remain the assets and liabilities of the Head Office and are not legallyseparable from the Head Offices’ other assets and liabilities. As such legally, the assets of the reportingentity may be available to the other claims of the Head Office.2. Summary of significant accounting policiesThe principal accounting policies applied in the preparation of these financial statements are set outbelow. These policies have been consistently applied to the periods presented, unless otherwise stated.A. Changes in accounting policies and disclosuresThe accounting policies used in the preparation of these financial statements are consistent with thoseused in the previous financial year, except for the adoption of new standards and the amendments tothe existing standards relevant to the Branches, effective as of 1 January 2020. The nature and theimpact of each is described below:9

Arab African International BankUnited Arab Emirates BranchesNotes to the financial statementsFor the year ended 31 December 20202. Summary of significant accounting policies (continued)A. Changes in accounting policies and disclosures (continued)Amendments to IAS 1 and IAS 8: Definition of Material (effective date: 1 January 2020)In October 2019, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS8 Accounting Polices, Changes in Accounting Estimates and Errors to align the definition of ‘material’across the standards and to clarify certain aspects of the definition. The new definition states that,‘Information is material if omitting, misstating or obscuring it could reasonably be expected toinfluence decisions that the primary users of general purpose financial statements make on the basis ofthose financial statements, which provide financial information about a specific reporting entity.’The amendments to the definition of material is not expected to have a significant impact on theBranches’ financial statements.IBOR reform Phase 1 reform disclosure: (effective date: 1 January 2020)Interest Rate Benchmark Reform Amendments to IFRS 9 and IFRS 7 include a number of reliefs,which apply to all hedging relationships that are directly affected by the interest rate benchmark reform.A hedging relationship is affected if the reform gives rise to uncertainties about the timing and oramount of benchmark-based cash flows of the hedged item or the hedging instrument. As a result ofinterest rate benchmark reform, there may be uncertainties about the timing and or amount ofbenchmark-based cash flows of the hedged item or the hedging instrument during the period beforethe replacement of an existing interest rate benchmark with an alternative risk-free interest rate (an“RFR”). This may lead to uncertainty whether a forecast transaction is highly probable and whetherprospectively the hedging relationship is expected to be highly effective.IBOR reform Phase 1 provides reliefs which require the Branches to assume that hedging relationshipsare unaffected by the uncertainties caused by IBOR reform. This includes assuming that hedged cashflows are not altered as a result of IBOR reform. Also, the reliefs allow the Branches to not discontinuehedging relationships as a result of retrospective or prospective ineffectiveness. IBOR Reform Phase 1also requires additional disclosures in relation to those hedging relationships to which the reliefs areapplied.The Branches have concluded that the uncertainty arising from IBOR reform did not have a significantimpact on an overall basis for the year ended 31 December 2020.B. New standards, interpretations and amendments to existing standards issued but not yetEffectiveThe new and amended standards and interpretations that are issued, but not yet effective, up to the dateof issuance of the Branches’ financial statements are disclosed below. The Branches intend to adoptthese standards, if applicable, when they become effective.10

Arab African International BankUnited Arab Emirates BranchesNotes to the financial statementsFor the year ended 31 December 20202. Summary of significant accounting policies (continued)B. New standards, interpretations and amendments to existing standards issued but not yetEffective (continued)IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financialliabilities (effective date: 1 January 2022)As part of its 2018-2020 Annual Improvements to IFRS standards process, the IASB issued anamendment to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whetherthe terms of a new or modified financial liability are substantially different from the terms of theoriginal financial liability. These fees include only those paid or received between the borrower andthe lender, including fees paid or received by either the borrower or lender on the other’s behalf. Anentity applies the amendment to financial liabilities that are modified or exchanged on or after thebeginning of the annual reporting period in which the entity first applies the amendment.The amendment is effective for annual reporting periods beginning on or after 1 January 2022 withearlier adoption permitted. The Branches will apply the amendments to financial liabilities that aremodified or exchanged on or after the beginning of the annual period in which it will first apply theamendment and does not expect this will result in a material impact on its financial statements.IBOR reform Phase 2 (effective date: 1 January 2021)In August 2020 the IASB issued Interest Rate Benchmark Reform - Phase 2 Amendments to IFRS 9,IAS 39, IFRS 7, IFRS 4 and IFRS 16, (IBOR reform Phase 2) to address the accounting issues whicharise upon the replacement of an IBOR with a RFR.IBOR reform Phase 2 includes a number of reliefs and additional disclosures. Some of these reliefsallow the Branches to amend hedge designations and hedge documentation (if applicable). The reliefsapply upon the transition of a financial instrument from an IBOR to a risk-free-rate (RFR).Changes to the basis for determining contractual cash flows as a result of interest rate benchmarkreform are required as a practical expedient to be treated as changes to a floating interest rate, providedthat, for the financial instrument, the transition from the IBOR benchmark rate to RFR takes place onan economically equivalent basis.The Branches will apply IBOR reform Phase 2 from 1 January 2021.C. Basis of preparationa. Statement of complianceThe financial statements have been prepared in accordance with the International Financial ReportingStandards (IFRSs) as issued by International Accounting Standard Board (IASB) and the requirementof the UAE Federal Law No. 2 of 2015 ("Companies Law") which is applicable to the Branches whichhas come into effect on 1 July 2015. The Branches have assessed, evaluated and ensured compliancewith the relevant provisions of the Company Law.The COVID-19 pandemic has resulted in significant volatility in the financial markets worldwide.Numerous governments including UAE have announced measures to provide both financial andnonfinancial assistance to the affected entities. The pandemic affects the assumptions and estimationuncertainty associated with the measurement of assets and liabilities with details covered in note 3 (a)of these financial statements.11

Arab African International BankUnited Arab Emirates BranchesNotes to the financial statementsFor the year ended 31 December 20202. Summary of significant accounting policies (continued)C. Basis of preparation (continued)b. Basis of measurementThese financial statements are prepared under the historical cost convention except for investmentsclassified as fair value through other comprehensive income (FVOCI).c. Functional and presentation currencyThe financial statements are presented in United Arab Emirates Dirham ("AED"), which is thefunctional currency of Branches. Except as indicated, amounts presented are rounded to the nearestthousand.d. Use of estimates and judgmentsThe preparation of these financial statements in conformity with IFRS requires management to makejudgements, estimates and assumptions that affect the application of accounting policies and reportedamounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognised in the period in which the estimate is revised and in any future periodsaffected.Information about significant areas of estimation uncertainty and critical judgments in applyingaccounting policies that have the most significant effect on the amounts recognised in the financialstatements are described in note 4.D. Foreign currency translationThe Branches maintain its accounts in AED currency. Foreign currency transactions are translatedusing the exchange rates prevailing at the date of the transactions. All monetary assets and liabilitiesbalances in foreign currencies at the balance sheet date are translated at the exchange rates prevailingat that date. Foreign exchange gains and losses resulting from the settlement of such transactions arerecognized in the following items in the income statement: Net trading income for trading assets and liabilities or net income from financial instrumentsdesignated at fair value through profit or loss for instruments designated at fair value throughprofit or loss according to its type.Other operating income (expense) for the rest of items.Foreign currency differences arising on translation are generally recognised in profit or loss. However,foreign currency differences arising from the translation of equity investments in respect of which anelection has been made to present subsequent changes in fair value in OCI are recognised in OCI.Translation differences on non-monetary items, such as equities held at fair value through profit orloss, are reported as part of the fair value gain or loss.12

Arab African International BankUnited Arab Emirates BranchesNotes to the financial statementsFor the year ended 31 December 20202. Summary of significant accounting policies (continued)E. Financial assets and liabilitiesi.Recognition and initial measurementThe Branches initially recognize loans and advances, and deposits on the date on which they areoriginated. All other financial instruments (including regular-way purchases and sales of financialassets) are recognized on the trade date, which is the date on which the Branches become a party to thecontractual provisions of the instrument.A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL,transaction costs that are directly attributable to its acquisition or issue.Day 1 profit or lossWhen the transaction price of the instrument differs from the fair value at origination and the fair valueis based on a valuation technique using only inputs observable in market transactions, the Branchesrecognise the difference between the transaction price and fair value in net trading income. In thosecases where fair value is based on models for which some of the inputs are not observable, thedifference between the transaction price and the fair value is deferred and is only recognised in profitor loss when the inputs become observable, or when the instrument is derecognised.ii. ClassificationOn initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL.A financial asset is measured at amortised cost if it meets both of the following conditions and is notdesignated as at FVTPL: The asset is held within a business model whose objective is to hold assets to collect contractualcash flows; andThe contractual terms of the financial asset give rise on specified dates to cash flows that aresolely payments of principal and interest on the principal amount outstanding.Financial investment is measured at FVOCI only if it meets both of the following conditions and is notdesignated as at FVTPL: The asset is held within a business model whose objective is achieved by both collectingcontractual cash flows and selling financial assets; andThe contractual terms of the financial asset give rise on specified dates to cash flows that aresolely payments of principal and interest on the principal amount outstanding.On initial recognition of an equity investment that is not held for trading, the Branches may irrevocablyelect to present subsequent changes in fair value in OCI. This election is made on an investment-byinvestment basis.All other financial assets are classified as measured at FVTPL.In addition, on initial recognition, the Branches may irrevocably designate a financial asset thatotherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doingso eliminates or significantly reduces an accounting mismatch that would otherwise arise.13

Arab African International BankUnited Arab Emirates BranchesNotes to the financial statementsFor the year ended 31 December 20202. Summary of significant accounting policies (continued)E. Financial assets and liabilities (continued)ii. Classification (continued)Business model assessmentThe Branches make an assessment of the objective of a business model in which an asset is held at aportfolio level because this best reflects the way the business is managed and information is providedto management. The information considered includes: The stated policies and objectives for the portfolio and the operation of those policies in practice.In particular, whether management’s strategy focuses on earning contractual interest revenue,realising cash flows through the sale of the assets and holding it for liquidity purposes;The risks that affect the performance of the business model (and the financial assets held withinthat business model) and how those risks are managed; andhow the performance of the portfolio is evaluated and reported to the Branches’ managementhow managers of the business are compensated – e.g. whether compensation is based on the fairvalue of the assets managed or the contractual cash flows collected; andThe frequency, volume and timing of sales in prior periods, the reasons for such sales and itsexpectations about future sales activity. However, information about sales activity is notconsidered in isolation, but as part of an overall assessment of how the Branches’ stated objectivefor managing the financial assets is achieved and how cash flows are realisedFinancial assets that are held for trading or managed and whose performance is evaluated on a fairvalue basis are measured at FVTPL because they are neither held to collect contractual cash flows norheld both to collect contractual cash flows and to sell financial assets.The business model assessment is based on reasonably expected scenarios without taking 'worst case'or 'stress case’ scenarios into account. If cash flows after initial recognition are realised in a way thatis different from the Branches’ original expectations, the Branches do not change the classification ofthe remaining financial assets held in that business model but incorporates such information whenassessing newly originated or newly purchased financial assets going forward.Assessment of whether contractual cash flows are solely payments of principal and interestFor the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset oninitial recognition. ‘Interest’ is defined as consideration for the time value of money and for the creditrisk associated with the principal amount outstanding during a particular period of time and for otherbasic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.In assessing whether the contractual cash flows are solely payments of principal and interest, theBranches considers the contractual terms of the instrument. This includes assessing whether thefinancial asset contains a contractual term that could change the timing or amount of contractual cashflows such that it would not meet this condition. In making the assessment, the Branches consider: Contingent events that would change the amount and timing of cash flows;Leverage features;Prepayment and extension terms;Term

Arab African International Bank United Arab Emirates Branches 5 Statement of profit or loss For the year ended 31 December 2020 2020 2019 AED'000 AED'000 Notes (Audited) (Restated) Interest income 16 136,149 215,370 Interest expense 17 (34,996) (54,085) Net Interest Income 101,153 161,285 Fee and commission income 18 24,475 25,587 Fee and commission expense 18 (475) (558) .